<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
<TABLE>
<C> <S>
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED: NOVEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER: 0-21689
ALTIVA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 88-0286042
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
</TABLE>
1000 PARKWOOD CIRCLE, SUITE 600, ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
(770) 952-6700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of January 13, 1999, there were 4,054,513 shares of Common Stock, $.01
par value per share, of the Registrant outstanding.
- --------------------------------------------------------------------------------
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<PAGE> 2
ALTIVA FINANCIAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
1
Condensed Consolidated Statements of Financial Condition at
August 31, 1999 and November 30, 1999.....................
2
Condensed Consolidated Statements of Operations for the
Three Months Ended November 30, 1998 and 1999.............
3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended November 30, 1998 and 1999.............
4
Condensed Consolidated Statements of Stockholders' Equity
for the Three Months Ended November 30, 1999..............
5
Notes to Condensed Consolidated Financial Statements........
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 6
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 15
Item 4. Matters Submitted to a Vote of Security Holders............. 15
Item 5. Other Information........................................... 15
Item 6. Exhibits and Reports on Form 8-K............................ 16
SIGNATURE............................................................ 17
</TABLE>
<PAGE> 3
ALTIVA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
NOVEMBER 30,
AUGUST 31, 1999
1999 (UNAUDITED)
---------- ------------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 10,475 $ 11,341
Cash deposits, restricted................................... 3,004 3,309
Loans held for sale, net of valuation allowance of $3,462
and $1,841................................................ 54,844 53,166
Mortgage related securities, at fair value.................. 31,757 31,827
Other receivables........................................... 5,260 1,711
Property and equipment, net of accumulated depreciation of
$1,793 and $2,021......................................... 3,068 2,865
Prepaid debt expenses....................................... 2,207 1,979
Deferred federal income tax asset........................... 11,229 12,549
Deferred state income tax asset............................. 1,053 1,250
Goodwill.................................................... 11,463 11,256
Other assets................................................ 1,026 1,355
--------- ---------
Total assets...................................... $ 135,386 $ 132,608
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse line............................................ $ 61,513 $ 61,533
Secured revolving credit lines............................ 1,685 --
Notes and contracts payable............................... 12,292 12,120
Accounts payable and accrued liabilities.................. 8,054 9,630
Subordinated debt......................................... 30,724 30,698
--------- ---------
Total liabilities................................. 114,268 113,981
--------- ---------
Stockholders' equity:
Convertible Preferred Stock, $.01 par value per share
(Authorized -- 5,000,000 shares; issued and
outstanding -- 62,500 at August 31, 1999 and 57,825
November 30, 1999)..................................... 1 1
Common Stock, $.01 par value per share
(Authorized -- 400,000,000 shares; issued and
outstanding -- 3,656,426 at August 31, 1999 and
3,968,108 at November 30, 1999)........................ 37 40
Additional paid-in capital................................ 125,412 125,409
Accumulated deficit....................................... (104,332) (106,823)
--------- ---------
Total stockholders' equity........................ 21,118 18,627
--------- ---------
Total liabilities and stockholders' equity........ $ 135,386 $ 132,608
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
ALTIVA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NOVEMBER 30,
-------------------------
1998 1999
----------- -----------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
REVENUE:
Gain on sale of loans..................................... $ 172 $ 4,241
Net unrealized gain (loss) on mortgage related
securities............................................. 270 (624)
Loan servicing income, net................................ 240 96
Interest income........................................... 1,602 3,176
Less: interest expense.................................... (1,764) (3,227)
---------- ----------
Net interest (expense)................................. (162) (51)
---------- ----------
Total revenues.................................... 520 3,662
---------- ----------
COST AND EXPENSES:
Net provision for credit losses........................... 43 --
Depreciation and amortization............................. 215 434
Other interest............................................ 42 27
General and administrative:
Payroll and benefits................................... 1,979 4,399
Supplies and postage................................... 71 256
Rent and lease expenses................................ 359 539
Professional services.................................. 964 522
Insurance.............................................. 185 191
Sub-servicing fees..................................... 22 38
Taxes and licensing fees............................... 62 61
Communications......................................... 119 209
Bank and wire fees..................................... 137 68
Travel and entertainment............................... 109 273
Other.................................................. 175 624
---------- ----------
Total costs and expenses.......................... 4,482 7,641
---------- ----------
(LOSS) BEFORE INCOME TAXES.................................. (3,962) (3,979)
INCOME TAX (BENEFIT)........................................ (1,468) (1,488)
---------- ----------
NET (LOSS).................................................. $ (2,494) $ (2,491)
========== ==========
EARNINGS PER COMMON SHARE:
Basic:
Net (loss)................................................ $ (0.82) $ (0.66)
========== ==========
Weighted-average number of common shares.................. 3,056,667 3,801,824
========== ==========
Diluted:
Net (loss)................................................ $ (0.82) $ (0.66)
========== ==========
Weighted-average number of common shares and
assumed conversions....................................... 3,056,667 3,801,824
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
ALTIVA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
----------------------
1998 1999
--------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)................................................ $ (2,494) $ (2,491)
-------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Loans originated for sale, net of loan fees............ (15,434) (97,150)
Proceeds from sale of loans............................ 12,977 96,873
Payments on loans held for sale........................ 816 3,577
Lower of cost or market adjustment..................... (6,315) (1,622)
Net provisions (benefit) for estimated credit losses... 43 --
Market valuation of mortgage related securities........ -- 434
Accretion of residual interest on mortgage related
securities............................................ (244) (744)
Payments on mortgage related securities................ 147 240
Amortization of mortgage servicing rights.............. 7 --
Proceeds from sale of mortgage servicing rights........ 76 --
Depreciation and amortization expense.................. 215 434
Additions to prepaid debt expense...................... (64) --
Amortization of prepaid debt expense................... 229 228
Changes in operating assets and liabilities:
Cash deposits, restricted............................ 702 (305)
Deferred income taxes (benefit)...................... (1,468) (1,517)
Other assets, net.................................... (1,342) 3,220
Accounts payable and accrued liabilities............. (8,012) 1,576
-------- ---------
Total adjustments................................. (17,667) 5,244
-------- ---------
Net cash used in operating activities............. (20,161) 2,753
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (44) (24)
-------- ---------
Net cash used in investing activities..................... (44) (24)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on notes and contracts payable..... 14,873 122,622
Payments on notes and contracts payable..................... (170) (124,459)
Payments on subordinated debt............................... (867) --
Amortization of premium on subordinated debt................ (25) (26)
-------- ---------
Net cash provided by financing activities................. 13,811 (1,863)
-------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (6,394) 866
-------- ---------
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............ 36,404 10,475
-------- ---------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. $ 30,010 $ 11,341
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................... $ 290 $ 1,701
======== =========
State income taxes..................................... $ 55 $ --
======== =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
ALTIVA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
$.01 PAR VALUE $.01 PAR VALUE ADDITIONAL EARNINGS
------------------ --------------------- PAID-IN ---------
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ -------- --------- -------- ---------- --------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1999....... 62,500 $ 1 3,656,426 $ 37 $125,412 $(104,332) $21,118
Conversion of Preferred to Common
Stock.......................... (4,675) 311,682 3 (3)
Net loss for the three months
ended November 30, 1999........ -- (2,491) (2,491)
------ -------- --------- -------- -------- --------- -------
Balance at November 30, 1999..... 57,825 $ 1 3,968,108 $ 40 $125,409 $(106,823) $18,627
====== ======== ========= ======== ======== ========= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
ALTIVA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1998 AND 1999
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, when read in conjunction with the audited
Financial Statements for the years ended August 31, 1998 and 1999 contained in
Form 10-K of Altiva Financial Corporation (the "Company") filed with the
Securities and Exchange Commission for the fiscal year ended August 31, 1999,
the accompanying unaudited Condensed Consolidated Financial Statements contains
all of the information necessary to present fairly the financial condition of
the Company at November 30, 1999, the results of its operations for the three
months ended November 30, 1998 and 1999, the change in stockholders' equity for
the three months ended November 30, 1999 and the cash flows for the three months
ended November 30, 1998 and 1999. Certain reclassifications have been made to
conform prior periods with the current period presentation.
The preparation of financial statements, in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of management, all material adjustments, which are normal and recurring
in nature, necessary for the fair presentation of these statements have been
included herein. The results of operations for the three months ended November
30, 1999 are not necessarily indicative of the results to be expected for the
full year.
The Company records gain on sale of loans as required by Statement of
Financial Accounting Standards No. 125 ("SFAS 125") which, among other things,
requires management to estimate the fair value of certain mortgage related
securities and servicing assets utilizing future prepayment and loss
assumptions. Such assumptions will differ from actual results and the
differences could be material. Management utilizes assumptions based on a
variety of factors including historical trends, consultation with its financial
advisors and assumptions utilized by its peers. Historical trends may not be an
indication of future results, which may be affected by changes in interest
rates, credit quality, availability of alternative financing options and general
economic conditions. The application of SFAS 125 is required for all entities
with certain mortgage banking activities including originators and sellers of
mortgage loans. Management believes that its assumptions are similar to those
utilized by other subprime mortgage loan originators.
Capitalized terms not defined herein are defined in the Company's audited
Financial Statements that are contained in the Form 10-K/A of Mego Mortgage
Corporation, the Company's former name, filed with the Securities and Exchange
Commission for the fiscal year ended August 31, 1998 and the Form 10-K of Altiva
Financial Corporation for the fiscal year ended August 31, 1999.
2. RECENT EVENTS
On December 16, 1999, the Company announced the signing of a commitment
letter regarding the issuance of an additional $7.0 million of 12% Secured
Convertible Notes due 2006 (the "Secured Notes") and the restructuring of the
majority of the Company's $30.5 million subordinated notes due December 2001
(the "Subordinated Debentures"). The proposed restructuring includes the
issuance of new convertible notes due 2006 in the principal amount of
approximately $13 million in the aggregate, together with the issuance of Common
Stock equivalent to 22 1/2% of the fully diluted shares outstanding. As of
January 7, 2000, the Company has already sold $2.0 million principal amount of
additional Secured Notes which the Company believes provide sufficient liquidity
to pay its operating and capital expenditures through January 21, 2000.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations section contains certain forward-looking statements
and information relating to the Company that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. Such forward-looking statements include, without limitation, the
Company's expectation and estimates as to the Company's business operations,
including the introduction of new loan programs and products and future
financial performance, including growth in revenues and net income and cash
flows. In addition, included herein the words "anticipates," "believes,"
"estimates," "expects," "plans," "intends" and similar expressions, as they
relate to the Company or its management, are intended to identify forward-
looking statements. Such statements reflect the current views of the Company's
management with respect to future events and are subject to certain risks,
uncertainties and assumptions. Also, the Company specifically advises readers
that the factors listed under the caption "Liquidity and Capital Resources"
could cause actual results to differ materially from those expressed in any
forward-looking statement. Important factors currently known to management that
could cause actual results to differ materially from those in forward-looking
statements are set forth in "-- Recent Developments," below and in the safe
harbor compliance statement for forward looking statements included as Exhibit
99.1 to this Form 10-Q and hereby incorporated by reference. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated or expected.
The following discussion and analysis should be read in conjunction with
the Condensed Financial Statements, including the notes thereto, contained
elsewhere herein and in the Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1999.
GENERAL
Altiva Financial Corporation, (the "Company") is a specialized consumer
finance company that makes sub-prime residential mortgage loans for the purpose
of debt consolidation or creating liquidity from the borrower's home equity
secured by deeds of trust. The Company sells these consumer loans to other
financial institutions. The Company's borrowers generally do not qualify for
traditional "A" credit mortgage loans. Typically, their credit histories, income
or other factors do not conform to the lending criteria of government-chartered
agencies (including GNMA, FHMA, FHLMC) that traditional lenders rely on in
evaluating whether to make loans to potential borrowers.
The Company's current loan products are first mortgage loans and home
equity loans ("Home Equity loans") typically secured by first liens, and in some
cases by second liens, on the borrower's residence. In making Home Equity loans,
the Company relies primarily on the appraised values of the borrower's
residences. The Company determines the loan amount based on the appraised values
and the creditworthiness of the borrowers.
In prior years, the Company also made high loan-to-value loans ("Equity +
loans") based on the borrowers' credit. These loans typically were secured by
second liens on the borrowers' primary residences. The Company exited the home
improvement and Equity + loan markets because these loans failed to meet
targeted returns and after-market liquidity.
The Company's loans are produced by its wholesale and retail origination
platforms. The wholesale platform represents the Company's largest source of
loan production. Through its wholesale platform, the Company funds loans
originated through a nationwide network of licensed mortgage brokers. The
wholesale platform conducts operations from Atlanta, Georgia and Charlotte,
North Carolina. The Company has one wholly-owned operating subsidiary, The Money
Centre, Inc. headquartered in Charlotte, North Carolina.
The Company's marketing strategies are typical of those used in retail
production including: telemarketing, direct mail, television and radio
advertising, third-party loan programs and consumer trade shows. A Company
website is currently under construction and may be used to provide consumer loan
applications and
6
<PAGE> 9
information to the public about the Company's products and services. The retail
production platforms are located in Las Vegas, Nevada and Charlotte, North
Carolina.
LOAN PRODUCTION
The following table sets forth certain data regarding loans produced by the
Company during the three months ended November 30, 1998 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
----------------------------------
1998 1999
--------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Principal balance of loans produced:
Wholesale:
Title I........................................ $ 4 0.0% $ -- 0.0%
Equity + loans................................. 2,942 17.8 -- 0.0
Home equity.................................... 11,584 70.2 79,903 79.5
------- ----- -------- -----
Total wholesale........................... 14,530 88.0 79,903 79.5
------- ----- -------- -----
Retail:
Equity + loans................................. 1,965 11.9 -- 0.0
Home equity.................................... 23 0.1 20,582 20.5
------- ----- -------- -----
Total retail.............................. 1,988 12.0 20,582 20.5
------- ----- -------- -----
Total principal amount of loans
produced................................ $16,518 100.0% $100,485 100.0%
======= ===== ======== =====
</TABLE>
LOAN SALES
Sales of loans in securitization transactions had historically been the
main source of the Company's revenue and income. In a securitization
transaction, a specific group of the Company's mortgage loans having similar
characteristics, (loan type and loan amounts) were pooled for sale.
The gain on sale of loans can vary for several reasons, including the
relative amounts of Equity +, Home Equity and Title I Loans, each of which type
of loan has different (i) estimated prepayment rates, (ii) weighted-average
interest rates, (iii) weighted-average maturities and (iv) estimated future
default rates. Typically, the gain on sale of loans through securitizations is
higher than on whole loan sales; however, engaging in securitizations requires
an up-front cash expenditure and can have an adverse effect on a company's
financial condition due to unanticipated write downs in the value of the
residual securities retained by the company which may be caused by, among other
things, unanticipated changes in prepayment and default rates assumed by the
company. The Company entered into no securitizations during the three months
ended November 30, 1998 and 1999.
As the holder of residual securities issued in securitizations, the Company
is entitled to receive certain excess cash flows. These excess cash flows are
calculated as the difference between (a) principal and interest paid by
borrowers and (b) the sum of (i) pass-through interest and principal to be paid
to the holders of the regular securities and interest only securities, (ii)
trustee fees, (iii) third-party credit enhancement fees, (iv) servicing fees and
(v) estimated loan pool losses. The Company's right to receive the excess cash
flows is subject to the satisfaction of certain reserve or
over-collateralization requirements that are specific to each securitization and
are used as a means of credit enhancement.
7
<PAGE> 10
The following table sets forth the principal amount of loans sold and
related gain (loss) on sale for the three months ended November 30, 1998 and
1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
----------------------
1998 1999
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Principal Amount of Loans Sold(1):
Title I................................................... $ 810 $ --
Equity +.................................................. 12,143 2,382
Home Equity............................................... 24 94,491
------- -------
Total............................................. $12,977 $96,873
======= =======
Gain on sale of loans....................................... $ 172 $ 4,241
======= =======
Net unrealized gain (loss) on mortgage related securities... $ 270 $ (624)
======= =======
Gain on sale of loans as a percentage of principal balance
of loans sold............................................. 2.0% 4.4%
======= =======
Gain on sale of loans plus net unrealized loss on mortgage
related securities as a percentage of principal balance
of loans sold............................................. 5.2% 3.7%
======= =======
</TABLE>
- ---------------
(1) Includes approximately $4.5 million principal amount of repurchased loans
sold in the three months ended November 30, 1998.
As part of its current business strategy, the Company is no longer pursuing
securitization transactions but is instead, selling its whole loans produced.
LOAN DELINQUENCIES
The following table sets forth the Equity + and Home Equity loan
delinquencies as of the dates indicated.
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1999 1999
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Home Equity and Equity + data(1):
31-60 days past due....................................... 7.23% 4.24%
61-90 days past due....................................... 2.24 7.21
91 days and over past due................................. 13.50 11.88
Total past due.................................... 22.97 23.33
</TABLE>
- ---------------
(1) Represents the dollar amount of delinquent loans as a percentage of the
total dollar amount of loan.
RESULTS OF OPERATIONS
Three Months Ended November 30, 1999 Compared to Three Months Ended November
30, 1998
In the last eight months of fiscal 1998 and the first months of fiscal
1999, the Company focused on (1) liquidating its loan portfolio for cash to
reduce its indebtedness while it explored alternatives to raise new capital and
(2) initiating new strategic initiatives to return the Company to profitability.
The Company did not begin to produce significant loan volume until July 1999.
Such volume was attributable to production by The Money Centre, Inc. which was
acquired by the Company in July 1999. As a result, the Company does not believe
that its results for the three months ended November 1999, are comparable to the
Company's results for the three months ended November 1998.
Total Revenues. Total revenues increased $3.1 million to $3.7 million
during the three months ended November 30, 1999 from $520,000 during the three
months ended November 30, 1998. The increase was attributable to loan production
by The Money Centre, Inc.
8
<PAGE> 11
Gain on sale of loans increased $4.1 million to $4.2 million during the
three months ended November 30, 1999 from $172,000 during the three months ended
November 30, 1998. The increase was primarily the result of an increase in the
volume of loans sold in the three months ended November 30, 1999 compared to the
three months ended November 30, 1998.
Net unrealized gain (loss) on mortgage related securities decreased to a
loss of $624,000 during the three months ended November 30, 1999 from a gain of
$270,000 during the three months ended November 30, 1998, a change of $894,000.
This decrease is due to a mark to market adjustment made by the Company in
November 1999.
Loan servicing income, net, decreased $144,000 to $96,000 during the three
months ended November 30, 1999 from $240,000 during the three months ended
November 30, 1998. This decrease was a result of the reduction in loan
prepayment penalties earned during the three months ended November 30, 1999.
Interest expense, net of interest income, decreased $111,000, from a net
expense of $162,000 to a net expense of $51,000 during the three months ended
November 30, 1999. The decrease was primarily the result of increased interest
income on loans produced by The Money Centre, Inc., partially offset by
increased interest expense on the warehouse lines due to increased loan
origination volume.
Total General and Administrative Expenses. General and administrative
expenses increased $3.0 million to $7.2 million for the three months ended
November 30, 1999 from $4.2 million for the three months ended November 30,
1998. The increase is a result of the inclusion of the expenses incurred at the
Las Vegas platform and The Money Centre, Inc. platform, acquired by the Company
during second and fourth quarters of fiscal 1999, respectively. The general and
administrative expenses decreased $1.9 million for the Atlanta platform to $2.3
million for the three months ended November 30, 1999, due to the cost reduction
implemented by management. The total consolidated general and administrative
expenses include $579,000 for the Las Vegas platform and $4.2 million for The
Money Centre, Inc. during the same period.
Payroll and benefits expense increased $2.4 million to $4.4 million for the
three months ended November 30, 1999 from $2.0 million for the three months
ended November 30, 1998. This increase can be attributed to an increase in staff
due to the acquisition of The Money Centre, Inc.
Supplies and postage expense increased $185,000 to $256,000 during the
three months ending November 30, 1999 from $71,000 during the three months ended
November 30, 1998. This increase can be attributed to the increase in business
between the two periods due to the acquisition of The Money Centre, Inc.
Professional services expense decreased $442,000 to $522,000 during the
three months ended November 30, 1999 from $964,000 during the three months ended
November 30, 1998. This decrease is attributed to reduced expenditures of
contractual services and a decrease in legal and audit fees.
During the three months ending November 30, 1999, travel and entertainment
expenses increased $164,000, from $109,000 during the three months ending
November 30, 1998, to $273,000 during the three months ended November 30, 1999.
This increase can be attributed to the travel necessary for operational
management of the Las Vegas and The Money Centre, Inc. platforms.
Net Loss. As a result of the foregoing, the Company did not have a
significant change in the loss reported during the three months ended November
30, 1999 as compared with the three months ended November 30, 1998. This can be
attributed to the increase in the net revenues offset by the increase in the
total general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $11.3 million at November 30, 1999 compared
to $10.5 million at August 31, 1999. The Company's principal cash requirements
arise from loan production and payments of operating and interest expenses.
As of December 31, 1999, the Company's cash and cash equivalents were
$336,000. During the period from November 30, 1999 to December 31, 1999, the
Company's cash and cash equivalents decreased from
9
<PAGE> 12
$11.3 million to $336,000. This decrease was attributable to $9.1 million in
transit on payment of the warehouse lines at November 30, 1999 and to operating
performance being less than forecast during the period.
In order to improve its liquidity situation, the Company has obtained
commitments from the holders of $28 million principal amount of its outstanding
Subordinated Debentures to exchange such outstanding Subordinated Debentures for
$12.0 million principal amount of new 12% Secured Notes due August 2006 (the
"Exchange Notes") and for the equivalent of 22 1/2% of the Company's outstanding
Common Stock based on the number of fully-diluted shares of Common Stock
(excluding out-of-the money options). In addition, the holders of such
Subordinated Debentures have agreed to waive the payment of approximately $2.0
million of accrued interest payable to them in December 1999 under the terms of
the Indenture governing the Subordinated Debentures. Under the terms of the
Exchange Notes, no interest will be payable to the noteholders by Altiva until
June 15, 2001, although interest will accrue from the date of issuance.
Completion of the exchange is contingent on the finalization of documentation
related to the exchange, and the issuance of Common Stock to the current holder
of Subordinated Debentures may require the approval of the Company's
stockholders under the rules of the Nasdaq Stock Market. Altiva expects that the
discount in the principal amount of notes outstanding and the waiver of the
interest payment will result in the reduction of the Company's projected cash
expenditure by $3.4 million over the next twelve months. In addition, the
Company has received a commitment from Value Partners, Ltd. ("Value Partners")
to purchase an additional $7.0 million principal amount of Secured Notes. As of
January 7, 2000, Value Partners had purchased $2.0 million principal amount of
these Secured Notes. Consummation of this sale of the remaining Secured Notes is
subject to the execution of additional mutually agreed upon amendments to the
Secured Note Purchase Agreement between the parties and other related
agreements.
Assuming completion of both the exchange and the issuance of the additional
Secured Notes, the Company expects to have sufficient cash and cash equivalents
to fully fund its operations and meet its obligations until August 2000. On an
ongoing basis, the Company expects to generate additional liquidity through
increased production and controlling expenses.
There can be no assurances that the exchange of the Subordinated Debentures
and the issuance of the additional Secured Notes will be consummated. A failure
to consummate these transactions may cause defaults with respect to the
Company's outstanding indebtedness or lead the Company to become insolvent. In
addition, there is no guarantee that the Company will not suffer additional
unforeseen events that will cause further liquidity shortages.
The Company currently has three significant sources of financing and
liquidity: (1) a warehouse line of $25.0 million with Sovereign Bancorp (the
"Sovereign Warehouse Line"); (2) a warehouse line of $25 million with First
Collateral; and (3) sales of loans in the institutional whole loan market. A
fourth source of financing and liquidity during the three months period ended
November 30, 1999 was the warehouse line of $30 million with Centura Bank. This
warehouse line expired November 30, 1999 and was not renewed. The Company has
sufficient remaining facilities to fund its production through the current
period.
The Company's liquidity and capital resources are impacted by certain
material covenant restrictions existing in the Indenture governing the Company's
outstanding 12 1/2% senior subordinated notes due 2001(the "New Notes"). These
covenants include limitations on the Company's ability to incur certain types of
additional indebtedness, grant liens on its assets and to enter into
extraordinary corporate transactions. The Company may not incur certain
additional indebtedness if, on the date of such incurrence and after giving
effect thereto, the Consolidated Leverage Ratio (as defined therein) would
exceed 1.5:1, subject to certain exceptions. At November 30, 1999, the
Consolidated Leverage Ratio was 1.84:1.
The Sovereign Warehouse Line had an original termination date of December
29, 1998 and was renewable, at Sovereign's option, in six-month intervals for up
to five years. During December 1998, the Sovereign Warehouse Line was renewed at
$50.0 million and was reduced to $25.0 million on March 31, 1999 through
December 31,1999. The Sovereign Warehouse Line may be increased with certain
consents and contains pricing/fees which vary by product and the dollar amount
outstanding. The Sovereign Warehouse Line is secured by specific loans held for
sale and includes certain material covenants including maintaining
10
<PAGE> 13
books and records, providing financial statements and reports, maintaining its
properties, maintaining adequate insurance and fidelity bond coverage and
providing timely notice of material proceedings. As of November 30, 1999, the
Company had approximately $22.4 million outstanding under the Sovereign
Warehouse Line.
The Money Centre, Inc. utilizes three warehouse lines with Centura, First
Collateral Bank and the Sovereign Warehouse Line. The Centura Bank facility
provided for a warehouse line of up to $30 million, accrues interest at prime
rate + .5% to 1.75%, depending on the age of the loan, and expired on November
30, 1999 and was not renewed. The First Collateral facility provides for a
warehouse line of credit of up to $25.0 million, accrues interest at LIBOR +
2.25% and Prime + 3.75% for loans aged greater than 60 days. The Company is
currently negotiating an extension on the First Collateral warehouse line. There
have been no restrictions on the use of this facility during these negotiations.
The facilities are secured by specific loans held for sale and includes certain
material covenants including maintaining books and records, providing financial
statements and reports, maintaining its properties, maintaining adequate
insurance and fidelity bond coverage and providing timely notice of material
proceedings. The outstanding balance for First Collateral Bank facilities as of
November 30, 1999 totaled $23.4 million.
In April 1997, the Company entered into a pledge and security agreement
with Greenwich Capital Financial Products for a $25.0 million revolving credit
facility. This facility is secured by a pledge of certain of the Company's
interest only and residual class certificates relating to securitizations
carried as mortgage related securities on the Company's Statements of Financial
Condition, payable to the Company pursuant to its securitization agreements. The
agreement, which was originally scheduled to mature in December 1998, was
extended until December 1999. On December 2, 1998, the Company obtained an
amendment to the agreement whereby the financial institution waived its right to
declare an event of default of borrower due to the Company's failure to comply
with the minimum required net worth and the debt to net worth ratio as of August
31, 1998. Additionally, the minimum net worth test was amended such that the
Company is required to maintain a net worth equal to or greater than 75% of the
Company's net worth as of the end of the preceding fiscal quarter. In addition,
the Company agreed to pay down the outstanding borrowings from $10.0 million at
August 31, 1998 to $6.0 million at December 31, 1998 and subsequently agreed to
pay the remaining $6.0 million in equal monthly payments during calendar 1999.
All remaining amounts outstanding under the agreement were paid off in November
1999.
In October 1997, the Company entered into a credit agreement with Textron
Financial which converted into a term loan in May 1998 with monthly amortization
derived from the cash flow generated from the respective mortgage related
securities pledged as collateral. This term loan bears interest at the prime
rate plus 2.5%, and matures in October 2002. The credit agreement includes
certain material covenants, which includes restrictions relating to
extraordinary corporate transactions, maintenance of adequate insurance and
complying with certain financial tests. These tests include complying with a
minimal consolidated adjusted tangible net worth and that the consolidated
adjusted leverage ratio shall not exceed 3:1. As of August 31, 1998, the
Company's consolidated adjusted tangible net worth was $54.1 million below the
minimum required and the consolidated adjusted leverage ratio was 0.53:1. On
December 9, 1998, the parties agreed to temporarily amend the borrowing base
definition for the period from September 30, 1998 through April 30, 1999 by
increasing the borrowing base from 50% to 55%. On May 1, 1999, the borrowing
base returned to 50%. The minimum consolidated tangible net worth covenant was
also adjusted, commencing retroactively, as of September 30, 1998 and the
Company agreed to paydown the line by approximately $405,000 (the amount
exceeding the applicable maximum amount of tranche credit) and pay an
accommodation fee of $10,000. As of November 30, 1999, the Company's
consolidated adjusted tangible net worth was $17.3 million above the minimum
required and the consolidated adjusted leverage ratio was 2.308:1.
In August 1999, the Company sold $7.0 million of principal amount of
Convertible Secured Notes. The proceeds were used to acquire The Money Centre,
Inc. The facility is secured by a pledge of certain of the Company's mortgage
related securities. The loan balance under this agreement bears interest at 12%
and matures in August 2006. Interest for this loan is to be paid semi-annually.
The credit agreement includes certain material covenants. These covenants
include restrictions relating to the security, maintenance and existing credit
and servicing agreements. The holders of the notes may, per the provisions
therein, convert to
11
<PAGE> 14
Common Stock at a specified conversion price if such right is granted at the
next annual shareholder meeting. The Company may also, per the provisions of the
agreement, redeem the notes prior to maturity.
Net cash used in the Company's operating activities for the three months
ended November 30, 1998 and 1999 was $20.2 million and $2.8 million,
respectively. During the three months ended November 30, 1998 and 1999, net cash
provided (used) by financing activities amounted to $13.8 million and $(1.9)
million, respectively.
SEASONALITY
The Company's production of residential mortgages is seasonal to the extent
that borrowers use the proceeds for home improvement contract work. The
Company's production of loans for this purpose tends to build during the spring
and early summer months, particularly where the proceeds are used for pool
installations. This change in seasons also precipitates the need for new siding,
window and insulation contracts. Production declines dramatically from the
holiday season (November and December) through the winter months. While the
Company does not have substantial experience making loans to borrowers who
intend to use the proceeds to purchase a residence, management believes that the
market for such loans will follow the home sale cycle, higher in the spring
through early fall than during the remainder of the year.
YEAR 2000 ISSUE
The Company previously recognized the material nature of the business
issues surrounding computer processing of dates into and beyond the Year 2000
and began taking corrective action. Management believes the Company has
completed all of the activities within its control to ensure that the Company's
systems are Year 2000 compliant and the Company has experienced no interruptions
to normal operations due to the start of the Year 2000.
The Company's Year 2000 readiness costs were approximately $99,000 to
purchase or upgrade its own hardware/software. The Company does not currently
expect to apply any further funds to address Year 2000 issues.
As of January 13, 2000, the Company has not experienced any material
disruptions of its internal computer systems or software applications and has
not experienced any problems with the computer systems or software applications
of its third party vendors, suppliers or service providers. The Company will
continue to monitor these third parties to determine the impact, if any, on the
business of the Company and the actions the Company must take, if any, in the
event of non-compliance by any of these third parties. Based upon the Company's
assessment of compliance by third parties, there appears to be no material
business risk posed by any such non-compliance.
Although the Company's Year 2000 rollover did not present any material
business disruption, there are some remaining Year 2000 related risks, including
risks due to the fact that the Year 2000 is a leap year. Management believes
that appropriate actions has been taken to address these remaining Year 2000
issues and contingency plans are in place to minimize the financial impact to
the Company. Management, however, cannot be certain that Year 2000 issues will
not have a material adverse impact on the Company, since it is early in the Year
2000.
RECENT DEVELOPMENTS
The Company is currently experiencing a liquidity shortage
During the period from August 31, 1999 to December 31, 1999, our cash and
cash equivalents decreased from $10.5 million to $336,000. This decrease was
attributable to operating performance being less than forecast during the
period. As a result of the decrease, the Company sold $2.0 million principal
amount of Secured Notes in December 1999 and January 2000 to Value Partners. The
proceeds of such notes will be sufficient to fund the Company's operational and
capital expenditures until January 21, 2000.
12
<PAGE> 15
In order to improve its liquidity situation, the Company has obtained
commitments from the holders of $28 million principal amount of its outstanding
Subordinated Debentures to exchange such outstanding Subordinated Debentures for
$12.0 million principal amount of new Exchange Notes and for the equivalent of
22 1/2% of the Company's outstanding Common Stock based on the number of
fully-diluted shares of Common Stock (excluding out-of-the money options). In
addition, the holders of such Subordinated Debentures have agreed to waive the
payment of approximately $2.0 million of accrued interest payable to them in
December 1999 under the terms of the Indenture governing the Subordinated
Debentures. Under the terms of the Exchange Notes, no interest will be payable
to the noteholders by the Company until June 15, 2001, although interest will
accrue from the date of issuance. Completion of the exchange is contingent on
the finalization of documentation related to the exchange, and the issuance of
Common Stock to the current holder of Subordinated Debentures may require the
approval of the Company's stockholders under the rules of the Nasdaq Stock
Market. The Company expects that the discount in the principal amount of notes
outstanding and the waiver of the interest payment will result in the reduction
of the Company's projected cash expenditure by $3.4 million over the next twelve
months.
Assuming completion of both the exchange and the issuance of the additional
Secured Notes, the Company expects to have sufficient cash and cash equivalents
to fully fund its operations and meet its obligations until August 2000. On an
ongoing basis, the Company expects to generate additional liquidity through
increased production and controlling expenses.
There can be no assurances that the exchange of the Subordinated Debentures
and the issuance of the additional Secured Notes will be consummated. A failure
to consummate these transactions may cause defaults with respect to the
Company's outstanding indebtedness or lead the Company to become insolvent. In
addition, there is no guarantee that the Company will not suffer additional
unforeseen events that will cause further liquidity shortages.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's various business activities generate liquidity, market and
credit risk:
- Liquidity risk is the possibility of being unable to meet all present and
future financial obligations in a timely manner.
- Market risk is the possibility that changes in future market rates or
prices will make the Company's positions less valuable.
- Credit risk is the possibility of loss from a customer's failure to
perform according to the terms of the transaction.
Compensation for assuming these risks is reflected in interest income and
fee income. Although the Company is exposed to credit loss in the event of
non-performance by the borrowers, this exposure is managed through credit
approvals, review and monitoring procedures and to the extent possible,
restricting the period during which unpaid balances are allowed to accumulate.
As of November 30, 1999 the net fair value of all financial instruments
held by the Company with exposure to interest rate risk was approximately $31.8
million. The potential decrease in fair value resulting from a hypothetical 5%
increase in interest rates would be approximately $23.8 million.
13
<PAGE> 16
There are certain shortcomings inherent to the Company's sensitivity
analysis. The model assumes interest rate changes are instantaneous parallel
shifts in the yield curve. In reality, changes are rarely instantaneous.
Although certain assets and liabilities may have similar maturities or periods
to repricing, they may not react in line with changes in market interest rates.
Also, the interest rates on certain types of assets and liabilities may
fluctuate with changes in market interest rates while interest rates on other
types of assets may lag behind changes in market rates. Prepayments on the
Company's mortgage related instruments are directly affected by a change in
interest rates. However, in the event of a change in interest rates, actual loan
prepayments may deviate significantly from the Company's assumptions. Further,
certain assets, such as adjustable rate loans, have features, such as annual and
lifetime caps that restrict changing the interest rates both on a short-term
basis and over the life of the asset. Finally, the ability of certain borrowers
to make scheduled payments on their adjustable rate loans may decrease in the
event of an interest rate increase.
14
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 23, 1998, an action was filed in the United States District
Court for the Northern District of Georgia by Robert J. Feeney, as a purported
class action against the Company and Jeffrey S. Moore, the Company's former
President and Chief Executive Officer. The complaint alleges, among other
things, that the defendants violated the federal securities laws in connection
with the preparation and issuance of certain of the Company's financial
statements. The named plaintiff seeks to represent a class consisting of
purchasers of the Common Stock between April 11, 1997 and December 18, 1997, and
seeks damages in an unspecified amount, costs, attorney's fees and such other
relief as the court may deem proper. On June 30, 1998, the plaintiff amended the
complaint to add additional plaintiffs, to add as a defendant Mego Financial,
the Company's former parent, and to extend the class period through and
including May 20, 1998. On September 18, 1998, the Company, Jeffrey S. Moore and
Mego Financial filed motions to dismiss the complaint. On April 8, 1999, the
court granted each of these motions. In the court's order dismissing the
complaint, the plaintiffs were permitted, upon proper motions, to serve and file
a second amended and redrafted complaint within 30 days. On May 10, 1999, the
Plaintiffs moved for leave to file and serve the second amended and redrafted
complaint contemplated in the earlier order. The court granted Plaintiffs'
motion and accepted the second amended complaint on June 8, 1999. On July 19,
1999, the Company, Jeffrey S. Moore and Mego Financial filed motions to dismiss
the second amended and redrafted complaint. Those motions are still pending.
Discovery is stayed until the court rules on the motions to dismiss. The Company
believes it has meritorious defenses to this lawsuit and that resolution of this
matter will not result in a material adverse effect on the business or financial
condition of the Company.
On October 2, 1998, an action was filed in the United States District Court
for the Western Division of Tennessee by Traci Parris, as a purported class
action suit against Mortgage Lenders Association Inc., the Company and City
Mortgage Services, Inc., one of the Company's strategic partners. The complaint
alleges, among other things, that the defendants charged interest rates,
origination fees and loan brokerage commissions in excess of those allowed by
law. The named plaintiff seeks to represent a class of borrowers and seeks
damages in an unspecified amount, reform or nullification of loan agreements,
injunction, costs, attorney's fees and such other relief as the court may deem
just and proper. On October 27, 1998, the Company filed a motion to dismiss the
complaint for lack of jurisdiction, which the court denied on May 18, 1999. On
July 6, 1999, the court denied the Company's subsequent motion for
reconsideration, and on the same date granted the Company's request for
interlocutory appeal to the United States Court of Appeals for the Sixth Circuit
on the question of jurisdiction. On July 15, 1999, the Company filed an
interlocutory appeal to the Court of Appeals. On September 28, 1999, the Court
of Appeals agreed to accept the Company's interlocutory appeal on the
jurisdictional question, and docketed the appeal. That interlocutory appeal is
still pending. The Company believes it has meritorious defenses to this lawsuit
and that resolution of this matter will not result in a material adverse effect
on the business of financial condition of the Company.
In the ordinary course of its business, the Company is, from time to time,
named in lawsuits. The Company believes that resolution of these matters will
not have a material adverse effect on the business or financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
quarter ended November 30, 1999.
ITEM 5. OTHER INFORMATION
In order to improve its liquidity situation, the Company has obtained
commitments from the holders of $28.0 million principal amount of its
outstanding Subordinated Debentures to exchange such outstanding Subordinated
Debentures for $12.0 million principal amount of new Exchange Notes and for the
equivalent of 22 1/2% of the Company's outstanding Common Stock based on the
number of fully-diluted shares of Common
15
<PAGE> 18
Stock (excluding out-of-the money options). In addition, the holders of such
Subordinated Debentures have agreed to waive the payment of approximately $2.0
million of accrued interest payable to them in December 1999 under the terms of
the Indenture governing the Subordinated Debentures. Under the terms of the
Exchange Notes, no interest will be payable to the noteholders by the Company
until June 15, 2001, although interest will accrue from the date of issuance.
Completion of the exchange is contingent on the finalization of documentation
related to the exchange, and the issuance of Common Stock to the current holder
of Subordinated Debentures may require the approval of the Company's
stockholders under the rules of the Nasdaq Stock Market. The Company expects
that the discount in the principal amount of notes outstanding and the waiver of
the interest payment will result in the reduction of the Company's projected
cash expenditure by $3.4 million over the next twelve months.
In addition, the Company received a commitment from Value Partners to
purchase $7.0 million principal amount of Secured Notes in addition to the $7.0
million principal Amount of Secured Notes purchased by Value Partners in August
1999. To date, $2.0 million principal amount of these Secured Notes have already
been sold. Consummation of the sale the additional $5.0 million of Secured Notes
is subject to the execution of mutually agreed upon amendments to the Secured
Note Purchase Agreement between the parties and other related agreements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company hereby agrees to furnish to the Commission upon request any
instrument defining the rights of the holders of long-term debt of the Company.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.1 -- Secured Convertible Note Purchase Agreement by and between
the Company and Value Partners, Ltd. dated August 31, 1999
10.2 -- Amendment Number 1 to Secured Convertible Note Purchase
Agreement by and between the Company and Value Partners,
Ltd. dated December 13, 1999
10.3 -- Amendment Number 2 to Secured Convertible Note Purchase
Agreement by and between the Company and Value Partners,
Ltd. dated December 31, 1999
10.4 -- Amended and Restated Pledge and Security Agreement by and
between the Company and Value Partners, Ltd. dated December
31, 1999
10.5 -- Registration Rights Agreement by and between the Company,
Value Partners, Ltd. and T. Rowe Price Recovery Fund II,
L.P. dated August 31, 1999
10.6 -- Amendment Number 1 to Registration Rights Agreement by and
between the Company, Value Partners, Ltd. and T. Rowe Price
Recovery Fund II, L.P. dated December 13, 1999
10.7 -- Amendment Number 2 to Registration Rights Agreement by and
between the Company, Value Partners, Ltd. and T. Rowe Price
Recovery Fund II, L.P. dated December 31, 1999
27.1 -- Financial Data Schedule (for SEC use only).
99.1 -- Altiva Financial Corporation Private Securities Litigation
Reform Act of 1995 Safe Harbor Compliance Statement for
Forward-Looking Statements
</TABLE>
- ---------------
No current reports on Form 8-K were filed during the period covered by this
report.
16
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALTIVA FINANCIAL CORPORATION
By: /s/ J. RICHARD WALKER
------------------------------------
J. Richard Walker
Executive Vice President
Chief Financial Officer
Date: January 14, 2000
17
<PAGE> 1
EXHIBIT 10.1
SECURED CONVERTIBLE NOTE
PURCHASE AGREEMENT
BY AND AMONG
ALTIVA FINANCIAL CORPORATION
AND
VALUE PARTNERS, LTD
DATED AS OF AUGUST 31, 1999
THIS AGREEMENT IS SUBJECT TO THE TERMS AND CONDITIONS OF THE
INTERCREDITOR AND COLLATERAL SUBORDINATION AGREEMENT, DATED AUGUST 31, 1999
(THE "SUBORDINATION AGREEMENT"), AS THE SAME MAY BE AMENDED, MODIFIED OR
OTHERWISE SUPPLEMENTED FROM TIME TO TIME, BY AND AMONG ALTIVA FINANCIAL
CORPORATION, AS BORROWER, GREENWICH CAPITAL MARKETS, INC. AND GREENWICH CAPITAL
FINANCIAL PRODUCTS, INC., PARTIES TO THE SENIOR AGREEMENTS REFERRED TO IN THE
SUBORDINATION AGREEMENT, AND THE HOLDERS FROM TIME TO TIME OF THE OBLIGATIONS
ARISING UNDER THE SUBORDINATION LOAN AGREEMENT REFERRED TO IN THE SUBORDINATION
AGREEMENT.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C>
Article I. Definitions................................................................................ 1
Section 1.1 Definitions....................................................................... 1
Article II. Purchase and Sale of Notes................................................................. 5
Section 2.1 Purchase and Sale of Notes........................................................ 5
Section 2.2 Closing........................................................................... 5
Article III. Representations and Warranties............................................................. 6
Section 3.1 Representations and Warranties of the Company..................................... 6
Section 3.2 Representations and Warranties of the Purchaser................................... 14
Article IV. Conditions Precedent to Closing............................................................ 17
Section 4.1 Conditions to Obligations of the Parties.......................................... 17
Section 4.2 Conditions to Obligations of the Purchaser........................................ 17
Section 4.3 Conditions to Obligations of the Company.......................................... 18
Article V. Covenants.................................................................................. 19
Section 5.1 Shareholder Meeting............................................................... 19
Section 5.2 Applications...................................................................... 20
Section 5.3 Investigation and Confidentiality................................................. 21
Section 5.4 Press Releases.................................................................... 22
Section 5.5 No Solicitation................................................................... 22
Section 5.6 Use of Proceeds................................................................... 22
Section 5.7 Current Information............................................................... 22
Section 5.8 Rule 144 and Rule 144A Reporting.................................................. 23
Section 5.9 Stay, Extension and Usury Laws.................................................... 23
Article VI. Miscellaneous.............................................................................. 23
Section 6.1 Survival of Provisions............................................................ 23
Section 6.2 Termination....................................................................... 23
Section 6.3 Waiver; Amendments................................................................ 24
Section 6.4 Communications.................................................................... 24
Section 6.5 Costs, Expenses and Taxes......................................................... 25
Section 6.6 Execution in Counterparts......................................................... 25
Section 6.7 Binding Effect; Assignment........................................................ 27
Section 6.8 Governing Law..................................................................... 26
Section 6.9 Usury............................................................................. 26
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 6.10 Severability of Provisions........................................................ 26
Section 6.11 Headings and Gender............................................................... 26
Section 6.12 Integration....................................................................... 27
Section 6.13 Participation Interests........................................................... 27
Section 6.14 Knowledge Limitation.............................................................. 27
Exhibit A Name and Address of the Purchaser
Exhibit B Form of Note
Exhibit C Form of Pledge and Security Agreement
Exhibit D Form of Intercreditor and Collateral Subordination Agreement
Exhibit E Form of Registration Rights Agreement
Exhibit F Matters to be covered by Opinion of Counsel to the Company
</TABLE>
ii
<PAGE> 4
SECURED CONVERTIBLE NOTE
PURCHASE AGREEMENT
Secured Convertible Note Purchase Agreement, dated as of August 31,
1999 (the "Agreement"), by and among Altiva Financial Corporation, a Delaware
corporation, and the other party named on the signature page hereof.
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Acquisition" means the Company's acquisition of all of the
outstanding capital stock of MCI pursuant to the Stock Purchase Agreement.
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Secured Convertible Note Purchase Agreement, as
amended, supplemented or modified from time to time.
"Business Day" means any day except a Saturday, Sunday or other day on
which banking institutions in the city of Atlanta, Georgia are authorized by
law to close.
"Capital Securities" of any Person means Capital Stock of the Person
and Stock Equivalents of the Person.
"Capital Stock" of any Person means any and all shares or other equity
interest of such Person.
"Closing" has the meaning set forth in Section 2.2.
<PAGE> 5
"Closing Date" has the meaning set forth in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended (or any
successor statute in effect from time to time), and the rules and regulations
promulgated thereunder.
"Commission" means the Securities and Exchange Commission and any
successor thereto.
"Common Stock" means the Common Stock, par value $.01 per share, of
the Company.
"Company" means Altiva Financial Corporation, a Delaware corporation,
together with its successors.
"Company Financial Statements" has the meaning set forth in Section
3.1(i)(i) hereof.
"Environmental Claim" means any written notice from any governmental
authority or third party alleging potential liability (including without
limitation potential liability for investigating costs, cleanup costs,
governmental response costs, natural resource damages, property damages,
personal injuries or penalties) arising out of, based on, or resulting from the
presence, or release into the environment of any Materials of Environmental
Concern.
"Environmental Laws" means any law, statute, rule or regulation of any
governmental, judicial, legislative, executive, administrative or regulatory
authority of the United States, or of any state, local or foreign government or
any subdivision thereof or of any governmental body or other regulatory or
administrative agency or commission, domestic or foreign (a "Law"), relating to
pollution or protection of the environment (including ambient air, surface
water, groundwater, land surface or subsurface strata), including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, the Resource Conservation and Recovery Act of 1976, as
amended, and other Laws relating to (i) emissions, discharges or releases of
pollutants, contaminants, chemicals, or industrial toxic or hazardous
substances or wastes (collectively known as "Polluting Substances") or (ii) the
handling, storage, disposal, reclamation, recycling or transportation of
Polluting Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended (or any successor statute in effect from time to time).
"Escrow Agreement" has the meaning set forth in Article I of the
Security Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
and in effect from time to time (or any successor statute in effect from time
to time), and the rules and regulations of the Commission promulgated
thereunder.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public
2
<PAGE> 6
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which are in
effect on the date of this Agreement.
"Governmental Entity" means any federal or state court, administrative
agency or commission or other governmental authority or instrumentality.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (or any successor statute in effect from time to time), and
the rules and regulations of the Federal Trade Commission promulgated
thereunder.
"Intercreditor Agreement" means the Intercreditor and Collateral
Subordination Agreement among the Company, the Purchaser, Greenwich Capital
Markets, Inc. and Greenwich Capital Financial Products, Inc., substantially in
the form of Exhibit D hereto.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in respect of such asset.
"Material Adverse Effect" means any effect that (i) is material and
adverse to the financial condition, results of operations, business or
prospects of the Company and its Subsidiaries taken as a whole or (ii)
materially impairs the ability of the Company to consummate the transactions
contemplated by any of this Agreement or any Related Agreement.
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products and any other
materials regulated under Environmental Laws.
"MCI" means The Money Centre, Inc., a North Carolina corporation,
together with its successors.
"NASD" means National Association of Securities Dealers, Inc.
"Notes" means $7,000,000 principal amount of 12% Secured Convertible
Notes due 2006 to be issued and sold by the Company and purchased by the
Purchaser pursuant to this Agreement, substantially in the form of Exhibit B
hereto, as amended, supplemented or otherwise modified from time to time.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or a political subdivision or an agency or instrumentality thereof.
"Preferred Stock" means the Preferred Stock, par value $.01 per share,
of the Company.
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"Previously Disclosed" means disclosed in a letter dated the date
hereof delivered from the Company to the Purchaser or from the Purchaser to the
Company, as applicable, specifically referring to the appropriate section of
this Agreement and describing in reasonable detail the matters contained
therein.
"Purchaser" means the Person (other than the Company) listed on the
signature pages of this Agreement, and its permitted successors and assigns as
provided herein.
"Real Estate Owned" means the consolidated properties of the Company
acquired by foreclosure on a loan or deed-in-lieu thereof or otherwise included
in the Company's real estate owned for purposes of reporting asset quality of
the Company in its reports filed with the Commission under the Exchange Act.
"Registration Rights Agreement" means the Registration Rights
Agreement by and among the Company and the Purchaser, substantially in the form
of Exhibit E hereto, as amended, supplemented or otherwise modified from time
to time.
"Related Agreements" means the Notes, the Security Agreement, the
Escrow Agreement, the Intercreditor Agreement and the Registration Rights
Agreement.
"Securities" means (i) the Notes and (ii) the Common Stock issuable
upon conversion of the Notes.
"Securities Act" means the Securities Act of 1933, as amended (or any
successor statute thereto as in effect from time to time), and the rules and
regulations of the Commission promulgated thereunder.
"Securities Documents" shall mean all reports, offering circulars,
proxy statements, registration statements and all similar documents filed, or
required to be filed, pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of
1940, as amended; the Trust Indenture Act of 1939, as amended; and the rules
and regulations of the Commission promulgated thereunder.
"Security Agreement" means the Pledge and Security Agreement by and
among the Company and the Purchaser, in its own right and as agent for the
holders of the Notes, substantially in the form of Exhibit C hereto, as
amended, supplemented or otherwise modified from time to time.
"State" means each of the states of the United States, the District of
Columbia and the Commonwealth of Puerto Rico.
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"Stock Equivalents" means, with respect to any Person, options,
warrants, calls, contracts or other rights entered into or issued by such
Person which confer upon the holder thereof the right (whether or not
contingent) to acquire any Capital Stock, voting securities or securities
convertible into or exchangeable for Capital Stock or voting securities of such
Person.
"Stock Option Plan" means the 1999 Stock Incentive Plan of the Company.
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated
as of July 7, 1999, by and among the Company and each of the stockholders of
MCI, as in effect as of the date hereof.
"Subsidiary" means with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of capital stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more Subsidiaries of such Person (or a combination thereof)
and (ii) any partnership (a) the sole general partner or managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more Subsidiaries of such
Person (or any combination thereof).
"Taxes" means all taxes, charges, fees, levies or other governmental
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated, severance, stamp,
occupation, property or other taxes, customs, dues, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority
(domestic or foreign).
"Tax Returns" means all foreign, federal, State and local returns
relating to Taxes.
"T. Rowe Price" means T. Rowe Price Recovery Fund, II, L.P.
ARTICLE II
PURCHASE AND SALE OF NOTES
SECTION 2.1 PURCHASE AND SALE OF NOTES. Subject to the terms and
conditions herein set forth, the Company agrees that it will issue and sell to
the Purchaser and the Purchaser agrees that it will purchase from the Company
the principal amount of Notes set forth opposite such Purchaser's name on
Exhibit A hereto at a price equal to such principal amount.
SECTION 2.2 CLOSING. Subject to the satisfaction or waiver of all of
the conditions to the parties' obligations hereunder specified in Article IV of
this Agreement, the purchase and sale of the Notes will take place at a closing
(the "Closing") to be held at the offices of Venable, Baetjer and
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Howard, LLP, in Baltimore, Maryland, at such time and on such day as the
parties hereto mutually agree upon. The date on which the Closing is to occur
is referred to herein as the "Closing Date."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
Previously Disclosed, the Company represents and warrants to each of the
Purchasers as follows:
(a) Capital Structure. The authorized capital stock of the Company
consists of 400,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock. As of the date hereof, there are (i) 3,656,666 shares of
Common Stock issued and outstanding and no shares of Common Stock are held as
treasury shares and (ii) 62,500 shares of Series A Convertible Preferred Stock
are issued and outstanding and no shares of Preferred Stock are held as
treasury shares. All outstanding shares of Capital Stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable
and none of the outstanding shares of Capital Stock of the Company has been
issued in violation of the preemptive rights of any Person. Except as
contemplated by this Agreement or as Previously Disclosed, there are no Stock
Equivalents authorized, issued or outstanding with respect to the Capital Stock
of the Company as of the date hereof.
(b) Organization, Standing and Authority of the Company. The
Company is a corporation duly organized and validly existing under the laws of
Delaware with full corporate power and authority to own or lease all of its
properties and assets and to carry on its business as now conducted and is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which its ownership or leasing of property or the conduct of
its business requires such licensing or qualification and where the failure to
be so licensed, qualified or in good standing would have a Material Adverse
Effect. The Company has heretofore delivered true and complete copies of the
Certificate of Incorporation and Bylaws of the Company as in effect as of the
date hereof to each Purchaser which has requested the same.
(c) Ownership of Subsidiaries. The Company does not own or have the
right to acquire, directly or indirectly, any outstanding Capital Stock or
other voting securities or ownership interests of any corporation, bank,
savings association, partnership, joint venture or other organization. The
outstanding shares of Capital Stock of each Subsidiary of the Company have been
duly authorized and validly issued, are fully paid and nonassessable, and are
directly owned by the Company free and clear of all Liens. No Stock Equivalents
are authorized, issued or outstanding with respect to the Capital Stock of any
Subsidiary of the Company and there are no agreements, understandings or
commitments relating to the right of the Company to vote or to dispose of such
Capital Stock.
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(d) Organization, Standing and Authority of Subsidiaries. Each
Subsidiary of the Company (i) is duly organized and validly existing under the
laws of the jurisdiction in which it is organized, (ii) has full corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as now conducted and (iii) is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed, qualified or in good
standing would not have a Material Adverse Effect. The Company has heretofore
delivered true and complete copies of the articles of incorporation and bylaws
or equivalent documents of each Subsidiary of the Company as in effect as of
the date hereof to each Purchaser which has requested the same.
(e) Authority; Due Execution. The Company has full corporate power
and authority to perform its respective obligations under this Agreement and
each of the Related Agreements, and the execution, delivery and performance by
the Company of this Agreement and each Related Agreement have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and constitutes,
and each of the Related Agreements, when duly executed and delivered by the
Company, will constitute, a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except (i) rights
to indemnity and contribution under the Registration Rights Agreement may be
limited by applicable law, (ii) enforceability may be limited by bankruptcy,
insolvency, moratorium and similar laws affecting creditors' rights generally
and (iii) rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability.
(f) No Conflict. Neither the execution and delivery of this
Agreement and each of the Related Agreements, nor consummation of the
transactions contemplated hereby and thereby, nor compliance by the Company
with any of the provisions hereof or thereof, (i) does or will conflict with or
result in a breach of any provisions of the Certificate of Incorporation or
Bylaws of the Company or the equivalent documents of any Company Subsidiary,
(ii) violate, conflict with or result in a breach of any term, condition or
provision of, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or give rise to any right
of termination, cancellation or acceleration with respect to, or result in the
creation of any Lien upon any property or asset of the Company or a Company
Subsidiary pursuant to, any material note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which the
Company or a Company Subsidiary is a party, or by which any of their respective
properties or assets may be bound or affected, or (iii) subject to the
compliance referred to in clauses (i) and (ii) of the succeeding sentence,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or a Company Subsidiary. Except for (i) compliance
with applicable federal and State securities laws in connection with this
Agreement and the performance by the Company of its obligations under the
Registration Rights Agreement and (ii) any required compliance by the Company
with applicable federal and State securities laws and/or the HSR Act in
connection with the issuance of shares of Common Stock upon conversion of the
Notes in accordance with their terms, no consent, approval, order or other
authorization of any Governmental Entity or of any third party is required by
or on behalf of the Company or a Subsidiary of the
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Company in connection with the execution, delivery and performance of this
Agreement and each of the Related Agreements. The representations and
warranties contained in this Section 3.1(g), insofar as they relate to federal
and State securities laws requirements, are made in reliance on the
representations and warranties of the Purchaser contained in Section 3.2 of
this Agreement.
(g) Status of Securities. The Securities have been authorized by
all necessary corporate action on the part of the Company. When delivered to
the Purchasers at the Closing against payment therefor as provided herein, the
Notes will be duly authorized and validly issued and will not be issued in
violation of the preemptive rights of any Person. Subject to the approvals and
compliance referred to in the second sentence of Section 3.1(f) hereof, shares
of Common Stock issued by the Company upon conversion of the Notes in
accordance with their terms will be duly authorized, validly issued and
non-assessable at the time of issuance and will not be issued in violation of
the preemptive rights of any Person. The representations and warranties
contained in this Section 3.1(g), insofar as they relate to federal and State
securities laws requirements, are made in reliance on the representations and
warranties of the Purchaser contained in Section 3.2 of this Agreement.
(h) Securities Reports. The Company has filed all Securities
Documents required to be filed by it under the Securities Laws on a timely
basis or has received a valid extension of such time of filing, and all such
Securities Documents complied in all material respects with the requirements of
the Securities Laws and did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, at the time and in light of the
circumstances under which they were made, not misleading.
(i) Financial Statements.
(i) The Company has previously delivered to each Purchaser
(x) statements of financial condition of the Company as of August 31, 1998 and
1997 and statements of operations, changes in stockholders' equity and cash
flows of the Company for each of the years ended August 31, 1998, 1997 and
1996, accompanied by the related audit report of Deloitte & Touche LLP, and (y)
an unaudited balance sheet of the Company as of May 31, 1999 and unaudited
statements of operations, changes in shareholders' equity and cash flows of the
Company for the three and nine months ended May 31, 1999 and 1998. The
foregoing financial statements, as well as the financial statements of the
Company included in the Securities Documents to be delivered to the Purchaser
pursuant to Section 5.7 hereof or otherwise required to be delivered to the
Purchaser pursuant to such section (collectively the "Company Financial
Statements"), fairly present or will fairly present, as the case may be, in all
material respects the consolidated financial condition of the Company as of the
respective dates set forth therein, and the consolidated results of operations,
changes in shareholders' equity and cash flows of the Company for the
respective periods or as of the respective dates set forth therein in
accordance with GAAP.
(ii) Each of the Company Financial Statements has been or
will be, as the case may be, prepared in accordance with GAAP consistently
applied during the periods involved, except as stated therein. The books and
records of the Company and its Subsidiaries are being maintained
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in material compliance with applicable legal and accounting requirements, and
such books and records accurately reflect in all material respects all dealings
and transactions in respect of the business, assets, liabilities and affairs of
the Company and its Subsidiaries.
(iii) Except to the extent (x) reflected, disclosed or
provided for in the Securities Documents filed by the Company prior to the date
hereof and (y) of liabilities incurred since May 31, 1999 in the ordinary
course of business, neither the Company nor any Subsidiary of the Company has
any liabilities, whether absolute, accrued, contingent or otherwise, which has
had or could reasonably be expected to have a Material Adverse Effect.
(j) Material Adverse Change. Since May 31, 1999, (i) the Company
and the Subsidiaries of the Company have conducted their respective businesses
in the ordinary and usual course (excluding the incurrence of expenses in
connection with this Agreement and the Stock Purchase Agreement and the
transactions contemplated hereby and thereby) and (ii) no event has occurred or
circumstance arisen that, individually or in the aggregate, has had or could
reasonably be expected to have a Material Adverse Effect.
(k) Environmental Matters.
(i) The Company is in compliance with all Environmental Laws,
except for any violations of any Environmental Law which, individually or in
the aggregate, has not had and could not reasonably be expected to have a
Material Adverse Effect. The Company has not received any communication
alleging that the Company or any Company Subsidiary is not in such compliance
and, to the knowledge of the Company, there are no present circumstances that
would prevent or interfere with the continuation of such compliance.
(ii) None of the properties owned, leased or operated by the
Company or the any Company Subsidiary has been or is in violation of or liable
under any Environmental Law, except for any such violations or liabilities
which, individually or in the aggregate, has not had and could not reasonably
be expected to have a Material Adverse Effect.
(iii) To the knowledge of the Company, there are no past or
present actions, activities, circumstances, conditions, events or incidents
that could reasonably form the basis of any Environmental Claim or other claim
or action or governmental investigation that could result in the imposition of
any liability arising under any Environmental Law against the Company or any
Company Subsidiaries or against any Person whose liability for any
Environmental Claim the Company or any Company Subsidiary has or may have
retained or assumed either contractually or by operation of law, except such
as, individually or in the aggregate, have not had and could not reasonably be
expected to have a Material Adverse Effect.
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(l) Tax Matters.
(i) The Company and the Company Subsidiaries have timely
filed all Tax Returns required by applicable law to be filed by them
(including, without limitation, estimated tax returns, income tax returns,
information returns and withholding and employment tax returns) and have paid,
or where payment is not required to have been made, have set up an adequate
reserve or accrual for the payment of, all Taxes required to be paid in respect
of the periods covered by such Tax Returns, except in all cases where the
failure to do so, individually or in the aggregate, has not had and could not
reasonably be expected to have a Material Adverse Effect. As of the date
hereof, there is no audit examination, assessed deficiency, deficiency
litigation or refund litigation with respect to any Taxes of the Company or any
Company Subsidiary. All Taxes due with respect to completed and settled
examinations or concluded litigation relating to the Company have been paid in
full or adequate provision has been made for any such Taxes on the Company's
consolidated statement of financial condition in accordance with GAAP. The
Company has not executed an extension or waiver of any statute of limitations
on the assessment or collection of any Tax that is currently in effect.
(ii) Neither the Company nor any Company Subsidiary (i) is
a party to any agreement providing for the allocation or sharing of taxes, (ii)
is required to include in income any adjustment pursuant to Section 481(a) of
the Code by reason of a voluntary change in accounting method initiated by the
Company or a Company Subsidiary (nor does the Company have any knowledge that
the Internal Revenue Service has proposed any such adjustment or change of
accounting method) or (iii) has filed a consent pursuant to Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply.
(iii) There has been no "ownership change," as defined under
Section 382 of the Code and regulations thereunder, of the Company since August
31, 1998, and consummation of the transactions contemplated by the Stock
Purchase Agreement, the issuance of the Notes pursuant to this Agreement and,
to the knowledge of the Company, any subsequent conversion of the Notes, will
not result in such an ownership change of the Company.
(m) ERISA. The Company is in compliance in all material respects
with all presently applicable provisions of ERISA; to the knowledge of the
Company, no "reportable event" (as defined in ERISA) has occurred with respect
to any "pension plan" (as defined in ERISA) for which the Company would have
any material liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 (whether or not
waived) or 4971 of the Code; and each "pension plan" for which the Company
would have any liability that is intended to be qualified under Section 401(a)
of the Code is so qualified in all material respects and to the knowledge of
the Company nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
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(n) Litigation. There are no actions, suits, investigations or
legal proceedings instituted, pending or, to the knowledge of the Company,
threatened against the Company or any Company Subsidiary or against any asset,
interest or right of the Company or any Company Subsidiary, or against any
director, officer or employee of any of them that in any such case, if decided
adversely, could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. Neither the Company nor any Company
Subsidiary is a party to any order, judgment or decree which has had or could
reasonably be expected to have a Material Adverse Effect.
(o) Compliance with Laws. The Company and each Company Subsidiary
has all permits, licenses, certificates of authority, orders and approvals of,
and has made all filings, applications and registrations with, federal, State,
local and foreign governmental or regulatory bodies that are necessary in order
to permit it to carry on its business as it is presently being conducted and
the absence of which could reasonably be expected to have a Material Adverse
Effect; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect; and to the best knowledge of the
Company, no suspension or cancellation of any of the same is threatened.
(p) No Default or Violation. Neither the Company nor any Company
Subsidiary currently is in violation of its Certificate of Incorporation or
Bylaws or equivalent documents, or of any applicable federal, State or local
law or ordinance or any order, rule or regulation of any Governmental Entity
(including, without limitation, all securities, safety, health, environmental,
zoning, anti-discrimination, antitrust, and wage and hour laws, ordinances,
orders, rules and regulations), or in default with respect to any order, writ,
injunction or decree of any court, or in default under any order, license,
regulation or demand of any Governmental Entity, any of which violations or
defaults could, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, and neither the Company nor any Company
Subsidiary has received any notice or communication from any Governmental
Entity asserting that the Company or any Company Subsidiary is in violation of
any of the foregoing which could reasonably be expected to have a Material
Adverse Effect. Neither the Company nor any Company Subsidiary is subject to
any regulatory or supervisory cease and desist order, agreement, written
directive, memorandum of understanding or written commitment, and none of them
has received any written communication requesting that they enter into any of
the foregoing.
(q) Certain Fees. No fees or commissions will be payable by the
Company to brokers, finders, investment bankers or banks pursuant to any
agreement entered into by the Company with respect to the offer and sale of the
Notes or any of the other transactions contemplated hereby, by any Related
Agreement or by the Stock Purchase Agreement.
(r) Patents, Trademarks, Etc. The Company and each of its
Subsidiaries owns or possesses all legal rights to use all proprietary rights,
including without limitation all trademarks, trade names, service marks and
copyrights, that are material to the conduct of their existing businesses.
Neither the Company nor any of its Subsidiaries is bound by or a party to any
options, licenses or agreements of any kind with respect to any trademarks,
service marks or trade names which it claims to own. Neither the Company nor
any of its Subsidiaries has received any
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communications alleging that any of them has violated or would violate any of
the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other Person.
(s) Loan Matters
(i) Each loan agreement, note or borrowing arrangement,
including without limitation portions of outstanding lines of credit and loan
commitments on the books and records of the Company and its Subsidiaries
(collectively, "Loans") that was made by the Company and to the knowledge of
the Company that was made by any third party was made, and has been serviced in
all material respects in accordance with, the Company's underwriting standards
and the relevant Loan documentation in the ordinary course of business, is
evidenced in all material respects by appropriate and sufficient documentation
and, to the best knowledge of the Company, constitutes the legal, valid and
binding obligation of the obligor named therein, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditor's rights and to general equity principles.
(ii) None of the agreements pursuant to which the Company or
any Subsidiary has sold Loans or pools of Loans or participations in Loans or
pools of Loans contain any obligation to repurchase such Loans or interests
therein on account of a payment default by the obligor on any such Loans.
Neither the Company nor any of its Subsidiaries is in default under any such
agreement or has received any notice alleging default.
(iii) To the knowledge of the Company, all brokers and other
third parties who originate or have originated Loans have all required licenses
and approvals from all jurisdictions requiring licenses and approvals and have
complied with and are not in violation of any applicable law, regulation,
order, rule, policy or guidelines of any Governmental Entity.
(iv) The practices of the Company and its Subsidiaries with
respect to compensation paid to mortgage brokers comply with the policy
statement issued by the Department of Housing and Urban Development in March
1999.
(t) Certain Assets. The Company has Previously Disclosed a true and
correct listing of the following assets of the Company and its Subsidiaries as
of May 31, 1999: (i) all non-performing Loans, securities or other assets
(i.e., all assets on which the Company has ceased recognizing interest under
GAAP or as to which any payments of principal or interest are past due 90 or
more days as of such date), (ii) all Loans, securities or other assets as to
which any payments of principal or interest are past due 60 or more days, (iii)
all Loans, securities or other assets not included in the foregoing which have
been classified special mention, substandard, doubtful or loss, or otherwise
classified adversely, by management of the Company or regulatory examiners, and
(iv) each parcel of Real Estate Owned (excepting such parcels as may have been
disposed of in the ordinary course of business subsequent to such date),
including an identification of the amount of reserves which have been
established with respect to each such parcel and its net carrying value.
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(u) Year 2000 Compliance. All computer hardware and software owned,
used or licensed by the Company or any of its Subsidiaries, including but not
limited to system and application programs, files, databases and computer
services, the failure or disfunctionality of which would individually or in the
aggregate have a Material Adverse Effect is Year 2000 Compliant. "Year 2000
Compliant" means that such hardware and software will (i) correctly process
date data from at least January 1, 1900 through December 31, 2000 without error
or interruption due to date, (ii) maintain functionality with respect to the
input, storing, processing or output of records or data containing dates
falling on or after January 1, 2000, and (iii) be interoperable with other Year
2000 compliant hardware or software owned, used or licensed by the Company or
any of its Subsidiaries which may deliver records to, receive records from or
otherwise interact with such hardware or software in the course of processing
records or data.
(v) Labor Matters. Neither the Company nor any of its Subsidiaries
is a party to or is bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor
is the Company or any of its Subsidiaries the subject of a proceeding naming
the Company or any Subsidiary as a defendant asserting that the Company or any
such Subsidiary has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel the Company or any such
Subsidiary to bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other material labor dispute or disputes
involving it or any of its Subsidiaries pending, or to the Company's knowledge,
threatened, nor the Company aware of any activity involving its or any of its
Subsidiaries' employees seeking to certify a collective bargaining unit or
engaging in other organizational activity.
(w) Insurance. The Company believes that it and each Company
Subsidiary is insured, and during each of the past three calendar years has
been insured, for reasonable amounts with financially sound and reputable
insurance companies against such risks as companies engaged in a similar
business would, in accordance with good business practice, customarily be
insured and has maintained all insurance required by applicable laws and
regulations. All of the policies and bonds maintained by the Company and its
Subsidiaries are in full force and effect and all claims thereunder have been
filed in a due and timely manner and, to the Company's knowledge, no such claim
has been denied.
(x) Properties. All real and personal property owned by the Company
or a Company Subsidiary or presently used by any of them in its respective
business is in an adequate condition (ordinary wear and tear excepted) and is
sufficient to carry on its business in the ordinary course of business
consistent with its past practices. The Company has good and marketable title
free and clear of all Liens (other than equities of redemption under applicable
foreclosure laws) to all of the material properties and assets, real and
personal, reflected on the consolidated statement of financial condition of the
Company as of May 31, 1999 included in the Company Financial Statements or
acquired after such date, other than properties sold by the Company in the
ordinary course of business, except (i) Liens for current taxes not yet due or
payable, (ii) pledges to secure deposits and other liens incurred in the
ordinary course of its banking business, (iii) such imperfections of title,
easements and encumbrances, if any, as are not material in character, amount or
extent and (iv) as
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reflected on the consolidated statement of financial condition of the Company
as of May 31, 1999 included in the Company Financial Statements. All real and
personal property which is material to the Company's business and leased or
licensed by the Company or a Company Subsidiary is held pursuant to leases or
licenses which are valid and enforceable in accordance with their respective
terms.
(y) Investment Company Act of 1940. The Company is not, and will not
become upon consummation of the transactions contemplated hereby and by the
Stock Purchase Agreement, an "investment company" or an entity "controlled" by
an "investment company," as such terms are defined in the Investment Company
Act of 1940, as amended.
(z) Private Offering. Neither the Company nor any Person acting on
its behalf has taken or will take any action which might subject the offering,
issuance or sale of the Notes to the registration requirements of the
Securities Act or comparable provisions of any applicable State securities
laws.
(aa) Exercise of Warrants; Stockholder Approval. After taking into
account the 600,000 shares of Common Stock to be issued in connection with the
Acquisition but without regard to the shares of Common Stock issuable upon
conversion of the Notes, an aggregate of 11,027 shares of Common Stock may be
issued by the Company in connection with the Acquisition and the transactions
contemplated hereby without compliance with the stockholder approval
requirements of the NASD. The affirmative vote of the holders of a majority of
the shares of Company Common Stock present in person or by proxy at a duly
called meeting of the stockholders of the Company at which a quorum, consisting
of the holders of a majority of the outstanding shares of Company Common Stock
present in person or by proxy, is present is the only vote of the stockholders
of the Company necessary to approve the conversion features of the Notes in
their entirety.
(bb) Stock Purchase Agreement. The Company has heretofore delivered a
true and complete copy of the Stock Purchase Agreement, including the related
disclosure schedules, to the Purchaser.
(cc) Disclosure. None of the representations and warranties of the
Company or any of the information or documents which have been Previously
Disclosed to the Purchaser pursuant hereto are false or misleading in any
material respect or contain any untrue statement of a material fact, or omit to
state any material fact required to be stated or necessary to make any such
information or document, at the time and in light of the circumstances, not
misleading. Copies of all documents referred to in this Section 3.1 are true,
correct and complete copies thereof and include all amendments, supplements and
modifications thereto and all waivers thereunder.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
(a) Investment Intent. The Purchaser represents and warrants to the
Company that the Securities to be acquired by it hereunder are being acquired
for its own account for investment and
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with no intention of distributing or reselling such Securities or any part
thereof or interest therein in any transaction which would be in violation of
federal or State securities laws, without prejudice, however, to the
Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell participation interests in
the Notes in accordance with Section 6.13 hereof and/or to sell or otherwise
dispose of all or any part of such Securities under an effective registration
statement under the Securities Act and other applicable State securities laws
or under an exemption from such registration, and subject, nevertheless, to the
disposition of the Purchaser's property being at all times within its control.
(b) Transfer Restrictions. If the Purchaser should decide to dispose
of any of the Securities, such Purchaser understands and agrees that it may do
so only as set forth below: (i) to the Company or (ii) to any Person reasonably
believed by such Purchaser to be a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act) in compliance with Rule 144A under the
Securities Act. In connection with any transfer of any Securities. In
connection with any transfer pursuant to clause (ii) above, the Company may
request reasonable certification as to the status of the transferor's
transferee as a qualified institutional buyer. The Purchaser agrees to the
imprinting, so long as appropriate, (i) on the Notes of the legend set forth on
the form of Note included as Exhibit B hereto and (ii) on certificates
representing the Common Stock issuable upon conversion of the Notes of a legend
substantially similar to such legend. The Notes and certificates evidencing the
Common Stock issuable upon conversion of the Notes also shall bear any other
legends required by applicable federal or State securities laws, which legends
may be removed when, in the opinion of counsel to the Company experienced in
the applicable securities laws, the same are no longer required under the
applicable requirements of such securities laws. The Company agrees that it
will provide the Purchaser, upon request, with a substitute document evidencing
the Securities not bearing such legend at such time as such legend is no longer
applicable.
(c) Stop Transfer Instructions. The Purchaser agrees that the
Company shall be entitled to make a notation on its records and give
instructions to any transfer agent of the Securities in order to implement the
restrictions on transfer set forth in Section 3.2(b) of this Agreement.
(d) Accredited Investor, etc. The Purchaser represents and warrants
to, and covenants and agrees with, the Company that (i) at the time it was
offered the Notes, it was, (ii) at the date hereof, it is, and (iii) at the
Closing, it will be, a "qualified institutional buyer" as defined in Rule 144A
under the Securities Act, and has such knowledge, sophistication and experience
in business and financial matters so as to be capable of evaluating the merits
and risks of the prospective investment in the Notes, and has so evaluated the
merits and risks of such investment, is able to bear the economic risk of such
investment and, at the present time, is able to afford a complete loss of such
investment.
(e) Due Execution. The Purchaser represents and warrants to the
Company that this Agreement has been, and each Related Agreement to which it
will become a party will be, duly executed and delivered by it or on its behalf
and constitutes, or will constitute, as applicable, a valid and binding
obligation of such Purchaser, enforceable against the Purchaser in accordance
with its
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terms, except that (i) rights to indemnity and contribution under the
Registration Rights Agreement may be limited by applicable law, (ii)
enforceability may be limited by bankruptcy, insolvency, moratorium and similar
laws affecting creditors' rights generally and (iii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles
of general applicability.
(f) No Conflict. The Purchaser represents and warrants to the
Company that neither the execution and delivery of this Agreement and each of
the Related Agreements to which the Purchaser is or will become a party, nor
consummation of the transactions contemplated hereby and thereby, nor
compliance by the Purchaser with any of the provisions hereof or thereof, (i)
does or will conflict with or result in a breach of any provisions of the
articles of incorporation or bylaws or equivalent documents of the Purchaser,
(ii) violate, conflict with or result in a breach of any term, condition or
provision of, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or give rise to any right
of termination, cancellation or acceleration with respect to, or result in the
creation of any Lien upon my property or asset of the Purchaser pursuant to any
material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Purchaser is a party,
or by which any of its properties or assets may be bound or affected, or (iii),
subject to the compliance referred to in clause (i) and (ii) of the succeeding
sentence, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Purchaser. Except for (i) compliance with
applicable federal and State securities laws in connection with the performance
by the Purchaser of its obligations under the Registration Rights Agreement and
(ii) any required compliance by the Purchaser with applicable federal and State
securities laws and the HSR Act in connection with the issuance of shares of
Common Stock upon conversion of the Notes in accordance with their terms, the
Purchaser represents and warrants to the Company that no consent, approval,
order or other authorization of any Governmental Entity or of any third party
is legally required by or on behalf of the Purchaser in connection with the
execution, delivery and performance of this Agreement and each Related
Agreement to which it will become a party.
(g) Access to Information. The Purchaser acknowledges that prior to
the date hereof it has been afforded (i) the opportunity to ask such questions
as it has deemed necessary of, and to receive answers from, representatives of
the Company concerning the terms and conditions of the offering of the Notes
and the merits and risks of investing in the Notes and (ii) access to
information about the Company and the Company's financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment in the Notes.
(h) Reliance. The Purchaser understands and acknowledges that (i)
the Notes are being offered and sold without registration under the Securities
Act in a transaction that is exempt from the registration provisions of the
Securities Act and (ii) such exemption depends in part on, and that the Company
will rely upon, the accuracy and truthfulness of the foregoing representations
and warranties of such Purchaser, and such Purchaser hereby consents to such
reliance.
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ARTICLE IV
CONDITIONS PRECEDENT TO THE CLOSING
SECTION 4.1 CONDITIONS TO OBLIGATIONS OF THE PARTIES. The respective
obligations of each of the parties hereto to fulfill their obligations under
Section 2.1 hereof at the Closing shall be subject to the satisfaction or
waiver prior to the Closing of the following conditions:
(a) All requirements prescribed by law which are necessary to the
consummation of the transactions contemplated by this Agreement shall have been
satisfied.
(b) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(c) No statute, rule or regulation shall have been enacted,
entered, promulgated, interpreted, applied or enforced by any Governmental
Entity which prohibits, restricts or makes illegal consummation of any of the
transactions contemplated by this Agreement.
(d) Each of the parties hereto shall have received (i) a
counterpart to this Agreement, duly executed and delivered by the parties
hereto, and (ii) a counterpart of each Related Agreement (other than the
Notes), substantially in the form attached hereto as an exhibit, which shall
have been duly executed and delivered by the Company, the Purchaser and in the
case of the Intercreditor Agreement the other party or parties thereto.
SECTION 4.2 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. The
obligations of the Purchaser to fulfill its obligations under Section 2.1
hereof shall be subject to the satisfaction or waiver prior to the Closing of
the following conditions:
(a) Each of the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date as if made on the
Closing Date (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date); the Company shall have
performed, in all material respects, each of its covenants and agreements
contained in this Agreement to be performed prior to the Closing; and the
Purchaser shall have received a certificate signed by the Chief Executive
Officer and the Chief Financial Officer of the Company, dated the Closing Date,
to the foregoing effect.
(b) The Company shall have delivered to the Purchaser a duly
executed Note, registered in the name of the Purchaser, sufficient to evidence
the Note to be issued and sold by the Company and purchased by the Purchaser,
as set forth on Exhibit A hereto, against payment therefor to the Company in an
amount equal to the principal amount thereof.
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(c) The Purchaser shall have received, in form and substance
reasonably satisfactory to it, (i) opinions, addressed to the Purchaser and
dated the Closing Date, of King & Spalding and Venable, Baetjer and Howard, LLP
special counsel to the Company, with respect to the indicated matters set forth
in Exhibit F hereto and (ii) the opinions delivered pursuant to Sections 8.11
and 9.05 of the Stock Purchase Agreement, addressed to the Purchaser or
otherwise indicated therein or in an accompanying document that they may be
relied upon by the Purchasers as if addressed directly to them.
(d) No party to this Agreement (other than the Purchaser) shall be
in material breach of this Agreement unless such breach shall have been waived
in writing by each of the other parties to this Agreement.
(e) The Company shall have obtained in writing all consents of
third parties necessary to permit the consummation of the transactions
contemplated by this Agreement and the Related Agreements, as Previously
Disclosed pursuant to Section 3.1(f) hereof, and no such consent shall contain
any term or condition that the Purchaser reasonably deems to be materially
disadvantageous to the Company or the Purchaser.
(f) Each of City National Bank of West Virginia and Sovereign
Bancorp, Inc. shall have waived any adjustments to the terms of the stock
options issued to them pursuant to the Stock Option Agreement, dated May 29,
1998, between the Company and each such entity, that may be required pursuant
to Section 7 of such Stock Option Agreements as a result of the issuance of the
Notes or the conversion thereof to shares of Common Stock, in each case in form
and substance reasonably satisfactory to the Purchaser.
(g) The Purchaser and T. Rowe Price shall have entered into a
Participation Agreement, substantially in the form previously provided by the
Purchaser to the Company, pursuant to which T. Rowe Price shall purchase a
$2,000,000 participation interest in the Notes issued to the Purchaser pursuant
to this Agreement.
(h) The Purchaser shall have received such other certificates,
opinions, documents and instruments related to the transactions contemplated
hereby (including without limitation the Acquisition) as may have been
reasonably required by it and are customary for transactions of this type, and
all corporate and other proceedings, and all documents, instruments and other
legal matters in connection with the transactions contemplated by this
Agreement, shall be reasonably satisfactory in form and substance to it and its
counsel.
SECTION 4.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to fulfill its obligations under Section 2.1 hereof
shall be subject to the satisfaction or waiver prior to the Closing of the
following conditions:
(a) Each of the representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as
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of the Closing Date as if made on the Closing Date (or on the date when made in
the case of any representation and warranty which specifically relates to an
earlier date), and the Company shall have received a certificate signed by a
duly authorized representative of each Purchaser to the foregoing effect.
(b) The Purchaser shall have delivered to the Company a dollar
amount equal to the principal amount of the Notes to be issued and sold by the
Company and purchased by the Purchaser pursuant to this Agreement, as set forth
on Exhibit A hereto, such amount to be payable (i) by wire transfer of
immediately available funds to an account with a bank designated by the
Company, by notice to the Purchaser to be provided no later than two Business
Days prior to the Closing Date, or (ii) a federal (same day) funds check
payable to the order of the Company.
(c) No party to this Agreement (other than the Company) shall be in
material breach of this Agreement unless such breach shall have been waived in
writing by each of the other parties to this Agreement.
(d) The Company shall have obtained in writing all consents of
third parties necessary to permit the consummation of the transactions
contemplated by this Agreement and the Related Agreements (other than the
consents referred to in Section 4.2(f) hereof) and no such consent shall
contain any term or condition that the Company reasonably deems to be
materially disadvantageous to the Company.
(e) The Company shall have received such other certificates,
opinions, documents and instruments related to the transactions contemplated
hereby as may have been reasonably required by the Company and are customary
for transactions of this type, and all corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, shall be reasonably satisfactory
in form and substance to the Company and its counsel.
ARTICLE V
COVENANTS
SECTION 5.1 SHAREHOLDER MEETING. The Company shall (i) take all
action necessary (including without limitation the preparation, filing and
dissemination of requisite proxy materials) to have its shareholders approve in
accordance with the requirements of the NASD the issuance of the number of
shares of Common Stock issuable upon conversion of the Notes to be sold
pursuant to this Agreement which may not be issued without such approval (the
"Stockholder Approval") at the first annual meeting of the shareholders of the
Company held after the date hereof or at a special meeting of shareholders
which is called for the purpose prior to the holding of such annual meeting of
shareholders, (ii) recommend that its shareholders approve the issuance of such
Common Stock
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and use its reasonable best efforts to obtain, as promptly as practicable, such
approval and (iii) reasonably cooperate and consult with the Purchasers with
respect to the foregoing matters.
SECTION 5.2 APPLICATIONS.
(a) Notwithstanding any other provision hereof to the contrary, the
right of a holder, whether on its own behalf or on behalf of a holder of a
participation interest in the Notes, to convert the principal amount of any
Note, or any portion thereof, and the obligation of the Company to issue any
shares of Common Stock upon the exercise of such conversion right, are subject
to the condition that, if upon receipt by the Company of written notice of
conversion from any holder, whether on its behalf or on behalf of a holder of
participation interest in the Notes, outside counsel advises the Company in
writing (a copy of which shall be provided to the converting holder) that in
its opinion the Company, such holder and/or any participant on behalf of whom
such holder is attempting to exercise conversion rights are required under
applicable law to make a filing under the HSR Act in connection with such
conversion and issuance of shares of Common Stock, no shares of Common Stock
shall be issued to such holder until all applicable filings under the HSR Act
are made by the Company and, if required under the HSR Act, by such holder and
any other person or persons and all applicable waiting periods under the HSR
Act have expired or been terminated. As soon as practicable after the receipt
from any holder of the Notes, whether on its behalf or on behalf of a holder of
a participation interest in the Notes (collectively the "Notice Giver"), of
notice of an intent to convert an amount of Notes sufficient to require a
filing under the HSR Act, but in any event no later than the tenth Business Day
after receipt of such notice, the Company will (i) prepare and file with the
Antitrust Division of the U.S. Department of Justice (the "DOJ") and the
Federal Trade Commission (the "FTC") the Notification and Report Form
(accompanied by all documentary attachments contemplated thereby) required by
the HSR Act, (ii) upon the request of any Notice Giver, request early
termination of the waiting period imposed by the HSR Act, (iii) coordinate and
cooperate with the Notice Giver in responding to formal and informal requests
for additional information and documentary material from the DOJ and the FTC in
connection with such filing, (iv) use its reasonable best efforts to take, or
cause to be taken, all reasonable action and to do, or cause to be done, all
things reasonably necessary and appropriate to permit the issuance to the
Notice Giver of the shares of Common Stock issuable upon the conversion of the
Notes with respect to which any filing is required under the HSR Act and (v)
reimburse the holders of the Notes for the entire amount of any filing fee or
any other costs and expenses incurred by holders of the Notes in connection
therewith (including legal fees) or as required to be paid under the HSR Act.
The Notice Giver agrees to provide to the Company all reasonable cooperation in
connection with the making of such filings under the HSR Act; provided,
however, that neither the Company nor any such Notice Giver shall be required
in connection with any such filing to enter into any agreement, or take or
refrain from taking any action, as a condition to obtaining any approval
required under the HSR Act if, in the judgment of such party, such condition
could have a material adverse effect on such party or its business. In the
event that despite their reasonable efforts, the Company and such Notice Giver
do not receive all approvals required under the HSR Act in connection with such
conversion, such holder's notice of conversion shall be deemed to be rescinded
and the Company shall not be
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obligated to take any further action with respect to the conversion of such
Note pursuant to such notice of exercise.
(b) In the event that any other approval, consent or non-objection
need be obtained by the Company from, or a notice or other filing need be filed
by the Company with, any Governmental Entity in connection with (i) the
execution, delivery and performance of this Agreement or any Related Agreement
by the Company or (ii) the Company's issuance of Common Stock upon conversion
of the Notes, the Company shall take all actions reasonably necessary to obtain
any such approval, consent or non-objection or file such notice or other filing
as promptly as practicable, and the Purchaser agrees to cooperate with the
Company in obtaining or filing the same. The Company shall provide copies of
any notice, application or other document required to be filed pursuant to this
Section 5.2 (excluding any confidential information) to the holder(s) seeking
to convert a Note or Notes into Common Stock for review not less than three
Business Days prior to the making of such filing and shall keep such holder
apprised of the status of such filing and the consideration thereof by the
relevant Governmental Entity.
SECTION 5.3 INVESTIGATION AND CONFIDENTIALITY.
(a) The Company shall permit the Purchaser and its representatives
reasonable access during normal business hours to its properties and personnel,
and shall disclose and make available to the Purchaser all books, papers and
records relating to the assets, stock ownership, properties, operations,
obligations and liabilities of the Company and its Subsidiaries, including, but
not limited to, all books of account (including the general ledger), tax
records, minute books of meetings of boards of directors (and any committees
thereof) and shareholders, organizational documents, bylaws, material contracts
and agreements, filings with any regulatory authority, accountants' work
papers, litigation files, loan files, plans affecting employees, and any other
business activities or prospects in which the Purchaser may have a reasonable
interest in connection with an investment in the Securities, provided that such
access shall be reasonably related to the transactions contemplated hereby and
not unduly interfere with normal operations, and provided further that in the
event that any of the foregoing are in the control of any third party, the
Company shall use its reasonable best efforts to cause such third party to
provide access to such materials to the Purchaser who shall request the same.
In the event that the Company is prohibited by law from providing any of the
access referred to in the preceding sentence to the Purchaser, it shall use its
reasonable best efforts to obtain promptly waivers thereof so as to permit such
access. The Company shall make the directors, officers, employees and agents
and authorized representatives (including counsel and independent public
accountants) of the Company and its Subsidiaries available to confer with the
Purchaser and its representatives, provided that such access shall be
reasonably related to the transactions contemplated hereby and not unduly
interfere with normal operations.
(b) All information furnished to the Purchaser by the Company
previously in connection with the transactions contemplated by this Agreement
or pursuant hereto shall be treated as the sole property of the Company and the
Purchaser covenants, severally and not jointly and as to itself only, that it
shall use its best efforts to keep confidential all such information and shall
not directly or
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indirectly use such information for any purpose other than in connection with
the transactions contemplated hereby. The obligation to keep such information
confidential shall continue for five years from the date hereof but shall not
apply to (i) any information which the Purchaser can establish by convincing
evidence (x) was already in its possession prior to the disclosure thereof by
the Company; (y) was then generally known to the public; or (z) became known to
the public through no fault of the Purchaser; or (ii) disclosures pursuant to a
legal requirement or in accordance with an order of a court of competent
jurisdiction, provided that the Purchaser shall use its reasonable best efforts
to give the Company prior notice thereof as promptly as practicable but in any
event not less than five Business Days prior to such disclosure and shall limit
such disclosure to the minimum amount required by such legal requirement or
court order.
SECTION 5.4 PRESS RELEASES. The Company and the Purchaser shall agree
with each other as to the form and substance of any press release related to
this Agreement or the transactions contemplated hereby, and consult with each
other as to the form and substance of other public disclosures which may relate
to the transactions contemplated by this Agreement, provided, however, that
nothing contained herein shall prohibit any party, following prior notification
to such other parties, from making any disclosure which it determines in good
faith is required by law or regulation. For purposes of the foregoing, the
Company may treat a law firm designated from time to time by the Purchaser as
the authorized representative of the Purchaser.
SECTION 5.5 NO SOLICITATION. Prior to the Closing, neither the
Company nor any of the directors, officers, employees, representatives or
agents of the Company shall solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, lease or purchase of
all or a substantial portion of the assets of, or any equity interest in, the
Company, or any business combination with the Company, other than as
contemplated by this Agreement. The Company will immediately notify the
Purchaser orally and in writing if any such inquiries or proposals are received
by, or such information is requested from, or any such negotiations or
discussions are sought to be initiated with, the Company.
SECTION 5.6 USE OF PROCEEDS. On the Closing Date the Company shall
use the net proceeds from the sale of the Notes pursuant to this Agreement to
repay the Amended and Restated Promissory Notes, dated July 30, 1999, by and
between the Company and each of the Purchaser and T. Rowe Price Recovery Fund
II, L.P., plus interest thereon to the date of repayment, which repayment shall
occur concurrently with the issuance of the Notes upon transfer of the Amended
and Restated Promissory Notes to the Company. Any remainder of such net
proceeds shall be available to the Company for general corporate purposes.
SECTION 5.7 CURRENT INFORMATION. Between the date hereof and the
Closing, the Company shall provide to the Purchaser (i) promptly following the
filing thereof, copies of each Securities Document filed by the Company under
the Securities Laws and (ii) concurrently with the mailing thereof, copies of
each communication sent by the Company to its shareholders generally.
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SECTION 5.8 RULE 144 AND RULE 144A REPORTING. With a view to making
available to holders of Securities the benefits of certain rules and
regulations of the Commission which may permit the sale of the Securities to
the public without registration, the Company agrees at all times to:
(a) make and keep public information available, as those terms are
understood and defined in Rules 144 and 144A under the Securities Act (or any
successors thereto); and
(b) use its reasonable best efforts to file with the Commission in
a timely manner all Securities Documents required to be filed by the Company
under the Securities Laws.
SECTION 5.9 STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law or other
law which would prohibit or forgive the Company from paying all or any portion
of the principal of, premium, if any, or interest on the Notes, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of its obligations under the Notes, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantages of any such law.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 SURVIVAL OF PROVISIONS. The representations, warranties,
covenants and agreements of the Company and the Purchaser made herein shall
remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of the Purchaser or the Company, as the case
may be, (ii) acceptance of any of the Securities and payment by the Purchaser
therefor and retirement thereof, (iii) the transfer of any Securities or
interest therein by the Purchaser or (iv) any termination of this Agreement.
SECTION 6.2 TERMINATION. This Agreement may be terminated:
(a) by mutual agreement of the Company and the Purchaser;
(b) by the Company by written notice to the Purchaser if any of the
conditions specified in Sections 4.1 and 4.3 of this Agreement has not been met
or waived by it pursuant to the terms of this Agreement by 5:00 p.m., Eastern
Time, on August 31, 1999, provided, however, that the right to terminate this
Agreement pursuant to this Section 6.2(b) shall not be available to the Company
to the extent that any action by the Company or failure by the Company to
fulfill any obligation
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under this Agreement has been a cause of, or resulted in, the failure of any
one or more of the conditions specified in Sections 4.1 and 4.3 of this
Agreement not being fulfilled by such date; or
(c) by the Purchaser by written notice to the Company if any of the
conditions specified in Sections 4.1 and 4.2 of this Agreement has not been met
or waived by such Purchaser pursuant to the terms of this Agreement by 5:00
p.m., Eastern Time, on August 31, 1999, provided, however, that the right to
terminate this Agreement pursuant to this Section 6.2(c) shall not be available
to the Purchaser to the extent that any action by such Purchaser or failure by
such Purchaser to fulfill any obligation under this Agreement has been a cause
of, or resulted in, the failure of any one or more of the conditions specified
in Sections 4.1 and 4.2 of this Agreement not being fulfilled by such date.
SECTION 6.3 WAIVER; AMENDMENTS.
No failure or delay on the part of the Company or the Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchaser at law or in equity. No waiver of or consent to any departure by
the Company or the Purchaser from any provision of this Agreement shall be
effective unless signed in writing by the party entitled to the benefit
thereof. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless signed
in writing by or on behalf of the Company and the Purchaser. Any amendment,
supplement or modification of or to any of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand on
any party hereto in any case shall entitle another party hereto to any other or
further notice or demand in similar or other circumstances.
SECTION 6.4 COMMUNICATIONS. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, telex, telecopier, or air courier
guaranteeing overnight delivery:
(i) if to the Purchaser, initially at the address set forth
below its name on Exhibit A hereto, and thereafter at such other
address, notice of which is given in accordance with this Section 6.4,
with a copy to T. Rowe Price at T. Rowe Price Recovery Fund, II, L.P.,
100 E. Pratt Street, Baltimore, Maryland 21202; and
(ii) if to the Company, initially at 1000 Parkwood Circle,
Suite 600, Atlanta, Georgia 30339, Attention: Chief Financial Officer;
and thereafter at such other address notice of which is given in
accordance with this Section 6.4.
24
<PAGE> 28
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being sent by certified mail, return receipt requested, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
and on the next Business Day if timely delivered to an air courier guaranteeing
overnight delivery.
SECTION 6.5 COSTS, EXPENSES AND TAXES. The Company agrees to pay (i)
all costs and expenses incurred by it in connection with the negotiation,
preparation, typing, reproduction, execution, delivery and performance of this
Agreement and the Related Agreements and any amendment or supplement or
modification hereof or thereof (except to the extent otherwise provided in the
Registration Rights Agreement), including without limitation, attorneys fees
and expenses and all reasonable costs and expenses incurred by it in connection
with the Company's administration of this Agreement and any Related Agreement,
and (ii) the expenses of the Purchaser and T. Rowe Price incurred in connection
with the transactions provided for herein, including reasonable fees and
expenses payable to counsel to the Purchaser and T. Rowe Price in connection
with the negotiation, preparation, typing, reproduction, execution and delivery
of this Agreement and the Related Agreements, provided that such fees and
expenses of counsel in this clause (ii) shall not exceed $200,000. The Company
shall pay all reasonable costs and expenses (including, without limitation,
attorneys' fees and expenses), if any, incurred by the Purchaser in connection
with any waiver, amendment or modification of any provision of this Agreement
or any Related Agreement with respect to an obligation of, or requested by, the
Company. In addition, the Company shall pay any and all stamp, transfer and
other similar taxes payable in connection with the execution and delivery of
this Agreement or the original issuance of any of the Securities, and shall
save and hold the Purchaser harmless from and against any and all liabilities
with respect to or resulting from any delay in paying, or omission to pay, such
taxes.
SECTION 6.6 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto on
separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.
SECTION 6.7 BINDING EFFECT; ASSIGNMENT. Prior to the Closing, the
rights and obligations of any Purchaser under this Agreement may not be
assigned to any other Person except with the prior written consent of the
Company, and after the Closing the rights and obligations of the Purchaser may
be assigned by such Purchaser to any Person purchasing Securities from the
Purchaser contemporaneously with such assignment (provided the rights so
assigned shall apply to the Securities so purchased), subject to the provisions
of Section 3.2(b). The rights and obligations of the Company under this
Agreement may not be assigned by the Company without the consent of the
Purchaser. Except as expressly provided in this Agreement, this Agreement shall
not be construed so as to confer any right or benefit upon any Person other
than the parties to this Agreement, and their respective successors and
permitted assigns. This Agreement shall be binding upon the Company and the
Purchaser and their respective permitted successors and assigns.
25
<PAGE> 29
SECTION 6.8 GOVERNING LAW. THE PARTIES HERETO ACKNOWLEDGE THAT THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE NOTES BEAR A REASONABLE
RELATION TO THE STATE OF MARYLAND IN THAT, INTERALIA, T. ROWE PRICE HAS ITS
PRINCIPAL PLACE OF BUSINESS IN THE STATE OF MARYLAND, PART OF THE NEGOTIATIONS
RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY HAS OCCURRED IN THE STATE OF
MARYLAND AND THE CLOSING WILL OCCUR IN SUCH STATE. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
MARYLAND, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
SECTION 6.9. USURY.
All agreements between the Company and the holders of the Notes,
whether now existing or hereafter arising and whether written or oral, are
hereby limited so that in no contingency, whether by reason of acceleration of
the maturity of the Notes or otherwise, shall the interest contracted for,
charged, received, paid or agreed to be paid to the Noteholders exceed the
maximum amount permissible under the laws of the State of Maryland (hereinafter
the "Applicable Law"). If, from any circumstance whatsoever, interest would
otherwise be payable to the holders of the Notes in excess of the maximum
amount permissible under the Applicable Law, the interest payable to the
holders of the Notes shall be reduced to the maximum amount permissible under
the Applicable Law, and if from any circumstance the holders of the Notes shall
ever receive anything of value deemed interest by the Applicable Law in excess
of the maximum amount permissible under the Applicable Law, an amount equal to
the excessive interest shall be applied to the reduction of the principal of
the Notes and not to the payment of interest, or if such excessive amount of
interest exceeds the unpaid principal amount of the Notes, such excess shall be
refunded to the Company. All interest paid or agreed to be paid to the holders
of the Notes shall, to the extent permitted by the Applicable Law, be
amortized, prorated, allocated and spread throughout the full term of the Notes
(including any renewal or extension) until payment in full of the principal so
that the interest on the Notes for such full term shall not exceed the maximum
amount permissible under the Applicable Law. The Purchaser expressly disavows
any intent to contract for, charge or receive interest in an amount which
exceeds the maximum amount permissible under the Applicable Law. This paragraph
as well as similar paragraphs set forth in the Notes and the Collateral
Documents shall control all agreements between the Company and the holders of
the Notes.
SECTION 6.10 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability only without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 6.11 HEADINGS AND GENDER. The Article and Section headings
and Table of Contents used or contained in this Agreement are for convenience
of reference only and shall not affect the construction of this Agreement. Use
of a particular gender herein shall be considered to represent the masculine,
feminine or neuter gender whenever appropriate.
26
<PAGE> 30
SECTION 6.12 INTEGRATION. This Agreement (including documents
delivered pursuant hereto), the Related Agreements and the Agreement among the
Company, the Purchaser and T. Rowe Price, dated the date hereof, constitute the
entire agreement among the parties with respect to the subject matter thereof
and there are no promises or undertakings with respect thereto not expressly
set forth or referred to herein or therein.
SECTION 6.13 PARTICIPATION INTERESTS. The Company acknowledges and
agrees that immediately following the consummation of the transactions
contemplated hereby the Purchaser will sell an undivided participation interest
in the Note or Notes acquired by it in the principal amount of $2,000,000 to T.
Rowe Price Recovery Fund II, L.P. ("T. Rowe Price") pursuant to a Participation
Agreement of even date herewith, and that the Purchaser or any other registered
holder of a Note shall have the right to sell additional participation
interests to T. Rowe Price and/or any other third party (individually a
"Participant" and collectively the "Participants") on such terms as it may
determine in its sole discretion. The Company acknowledges that the original
intent of the parties hereto and T. Rowe Price was for T. Rowe Price to be a
party to this Agreement and an acquirer of a Note or Notes with an aggregate
principal amount of $2,000,000, that the Purchaser entered into this Agreement
on the condition that T. Rowe Price be permitted to purchase a participation
interest in such amount and that the transaction was restructured to provide
for T. Rowe Price's acquisition of a participation interest in the Notes in
such amount solely because the Company is not eligible under the terms of
certain of the mortgage-related securities included in the collateral subject
to the Security Agreement to pledge an interest in such collateral directly to
T. Rowe Price. Accordingly, the Company covenants and agrees that (i) the
Purchaser or any other registered holder of a Note shall be entitled to obtain
on behalf of an applicable Participant the benefits of this Agreement and each
Related Agreement and (ii) the Company shall take such action as may be
necessary or advisable in order to enable the Purchaser or any other registered
holder of a Note to do the same and shall not at any time insist upon, plead or
in any manner whatsoever claim that a Participant is not indirectly entitled to
a right or benefit available to a registered holder of a Note under this
Agreement or any Related Agreement because it is a Participant and not such a
registered holder. Without in any way limiting the foregoing, the Company
acknowledges and agrees that its obligations under the Registration Rights
Agreement are for the benefit of both the holders of the Notes and Participants
and that any shares of Common Stock acquired by a Participant upon conversion
of a Note or Notes in which such Participant holds a participation interest
shall be subject to the terms of the Registration Rights Agreement until such
shares are no longer "Transfer Restricted Securities," as such term is defined
therein.
SECTION 6.14 KNOWLEDGE LIMITATION. All representations and warranties
of the Company that directly or indirectly relate to MCI contained in Article
III of this Agreement are based on the actual knowledge of the Company. For
this purpose, "actual knowledge of the Company" shall be deemed to mean the
actual knowledge of the Company's Chief Executive Officer and its Executive
Vice President and Chief Financial Officer after the conduct of such inquiry,
including without limitation a review of this Agreement and related schedules
and the Stock Purchase Agreement and related schedules, as they deem necessary
or appropriate in order to ensure the accuracy of such representations and
warranties in all material respects.
27
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
ALTIVA FINANCIAL CORPORATION
By: /s/ Edward B. Meyercord
---------------------------------------
Name: Edward B. Meyercord
Title: Chairman and Chief Executive Officer
VALUE PARTNERS, LTD
By: EWING & PARTNERS,
General Partner
By: /s/ Timothy G. Ewing
---------------------------------
Name: Timothy G. Ewing
Title: Managing Partner
28
<PAGE> 32
EXHIBIT A
<TABLE>
<CAPTION>
Name and Address of Purchaser Principal Amount of Notes
- ------------------------------------- -------------------------------------
<S> <C>
Value Partners, LTD $7,000,000
4514 Cole Avenue - Suite 808
Dallas, Texas 75205
Attn: Mr. Timothy Ewing
W (214) 522-2100
FAX (214) 522-2176
</TABLE>
<PAGE> 1
EXHIBIT 10.2
AMENDMENT #1 TO SECURED CONVERTIBLE NOTE PURCHASE
AGREEMENT
This Amendment #1 (the "Amendment") to the Secured Convertible Note
Purchase Agreement (the "Purchase Agreement") between Altiva Financial
Corporation ("Altiva") and Value Partners, Ltd. ("Value Partners") dated as of
August 31, 1999 is entered into as of December 13, 1999.
RECITALS
WHEREAS, Altiva and Value Partners are parties to the Purchase Agreement;
and
WHEREAS, the parties wish to increase the principal amount of 12% Secured
Convertible Notes that may be issued pursuant to the Purchase Agreement by
$250,000;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged Altiva and Value Partners agree as follows,
1. Section 1.1 of the Purchase Agreement is amended as follows:
a. A definition of the term "Additional Notes" shall be added
and shall read as follows: "'Additional Notes' means up to $250,000 principal
amount of 12% Secured Convertible Notes due 2006 which may be issued and sold
by the Company and purchased by the Purchaser pursuant to this Agreement
substantially in the form of Exhibit B hereto, as amended, supplemented or
otherwise modified from time to time."
b. A definition of the term "Initial Notes" shall be added and
shall read as follows: "'Initial Notes' means $7,000,000 principal amount of
12% Secured Convertible Notes due 2006 which may be issued and sold by the
Company and purchased by the Purchaser pursuant to this Agreement substantially
in the form of Exhibit B hereto, as amended, supplemented or otherwise modified
from time to time."
c. The definition of the term "Notes" shall be amended to read
as follows: "'Notes' shall mean the Initial Notes and the Additional Notes."
d. A definition of the term "Participation Agreement" shall be
added and shall read as follows: "'Participation Agreement' means the
participation agreement referred to in Section 6.13 hereof, as amended,
supplemented or otherwise modified from time to time."
e. The definition of the term Previously Disclosed shall be
amended to read as follows: "'Previously Disclosed' means, with respect to the
Initial Closing, disclosed
<PAGE> 2
in a letter dated the date hereof delivered from the Company to the Purchaser
or from the Purchaser to the Company, as applicable, specifically referring to
the appropriate section of this Agreement and describing in reasonable detail
the matters contained therein. With respect to any Additional Closing,
'Previously Disclosed' shall mean a letter dated as of a date on or prior to
the date of such Additional Closing, delivered from the Company to the
Purchaser or from the Purchaser to the Company, as applicable, specifically
referring to the appropriate section of this Agreement and describing in
reasonable detail the matters contained therein."
2. Article II of the Purchase Agreement is hereby amended to read as
follows:
"SECTION 2.1 PURCHASE AND SALE OF NOTES. Subject to the terms and
conditions herein set forth: (i) the Company agrees that it will issue and sell
to the Purchaser and the Purchaser agrees that it will purchase from the
Company the principal amount of Initial Notes set forth opposite such
Purchaser's name on Exhibit A hereto at a price equal to such principal amount;
and (ii) the Company agrees that it will issue and sell to the Purchaser and
the Purchaser agrees that it will purchase from the Company the principal
amount of Additional Notes set forth opposite such Purchaser's name on Exhibit
A hereto, as such exhibit may be amended, modified or supplemented by the
parties from time to time.
SECTION 2.2 CLOSING. Subject to the satisfaction or waiver of all of the
conditions to the parties' obligations hereunder specified in Article IV of
this Agreement: (i) the purchase and sale of the Initial Notes will take place
at a closing (the "Initial Closing") to be held at the offices of Venable,
Baetjer and Howard, LLP, in Baltimore, Maryland, at such time and on such day
as the parties hereto mutually agree upon; and (ii) the purchase and sale of
the Additional Notes will take place at a closing to be held at the offices of
Venable, Baetjer and Howard, LLP, in Baltimore, Maryland (or at such other
place as may be mutually designated by the parties), at such time and on such
day as the parties hereto mutually agree upon (the "Additional Closing," and
together with the Initial Closing the "Closing"). The date on which a Closing is
to occur is referred to herein as a 'Closing Date.'"
3. The introduction to Section 4.2 of the Purchase Agreement and
paragraphs (b), (c) and (g) of such section are hereby amended to read as
follows:
"SECTION 4.2 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. Except as
otherwise specified in this Section 4.2, the obligations of the Purchaser to
fulfill its obligations under Section 2.1 hereof shall be subject to the
satisfaction or waiver prior to the Closing relating to the Initial Notes and
the Additional Notes, as applicable, of the following conditions:"
"(b) The Company shall have delivered to the Purchaser a duly executed
Note, registered in the name of the Purchaser, sufficient to evidence the Note
to be issued and sold by the Company and purchased by the Purchaser, as set
forth on Exhibit A hereto, as amended, modified or supplemented by the parties
from time to time, against payment
2
<PAGE> 3
therefor to the Company in an amount equal to the principal amount thereof."
"(c) The Purchaser shall have received, in form and substance reasonably
satisfactory to it, (i) opinions, addressed to the Purchaser and dated the
Closing Date, of King & Spalding and Venable, Baetjer and Howard, LLP special
counsel to the Company, with respect to the indicated matters set forth in
Exhibit F hereto and (ii) with respect to the Initial Closing, the opinions
delivered pursuant to Sections 8.11 and 9.05 of the Stock Purchase Agreement,
addressed to the Purchaser or otherwise indicated therein or in an accompanying
document that they may be relied upon by the Purchasers as if addressed
directly to them."
"(g) The Purchaser and T. Rowe Price shall have entered into a
Participation Agreement, substantially in the form previously provided by the
Purchaser to the Company, pursuant to which T. Rowe Price shall purchase a
participation interest in the Notes issued to the Purchaser pursuant to this
Agreement as set forth therein."
4. The introduction to Section 4.3 of the Purchase Agreement and
paragraph (b) of such section are hereby amended to read as follows:
"SECTION 4.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to fulfill its obligations under Section 2.1 hereof
shall be subject to the satisfaction or waiver prior to the Closing relating to
the Initial Notes and the Additional Notes, as applicable, of the following
conditions:"
"(b) The Purchaser shall have delivered to the Company a dollar amount
equal to the principal amount of the Notes to be issued and sold by the Company
and purchased by the Purchaser pursuant to this Agreement, as set forth on
Exhibit A hereto, as amended, modified or supplemented by the parties from time
to time, such amount to be payable (i) by wire transfer of immediately
available funds to an account with a bank designated by the Company, by notice
to the Purchaser to be provided no later than two Business Days prior to the
Closing Date, or (ii) a federal (same day) funds check payable to the order of
the Company."
3
<PAGE> 4
4. Section 6.13 of the Purchase Agreement is hereby amended as follows:
"SECTION 6.13 PARTICIPATION INTERESTS. The Company acknowledges and
agrees that (i) immediately following the Closing relating to the Initial Notes
the Purchaser will sell an undivided participation interest in the Initial Note
acquired by it in the amount of $2,000,000 to T. Rowe Price Recovery Fund II,
L.P. ("T. Rowe Price") pursuant to a Participation Agreement of even date
herewith, (ii) immediately following the Closing relating to the Additional
Notes the Purchaser will sell an undivided participation interest in the
Additional Note acquired by it in the amount of $250,000 to T. Rowe Price
pursuant to an amended Participation Agreement and (iii) the Purchaser or any
other registered holder of a Note shall have the right to sell additional
participation interests in the Notes to T. Rowe Price and/or any other third
party (individually a 'Participant' and collectively the 'Participants') on
such terms as it may determine in its sole discretion. The Company acknowledges
that the original intent of the parties hereto and T. Rowe Price was for T.
Rowe Price to be a party to this Agreement and an acquirer of a Note or Notes
with an aggregate principal amount of $2,000,000, that the Purchaser entered
into this Agreement on the condition that T. Rowe Price be permitted to
purchase a participation interest in the Notes and that the transaction was
restructured to provide for T. Rowe Price's acquisition of a participation
interest in the Notes in such amount solely because the Company is not eligible
under the terms of certain of the mortgage-related securities included in the
collateral subject to the Security Agreement to pledge an interest in such
collateral directly to T. Rowe Price. Accordingly, the Company covenants and
agrees that (i) the Purchaser or any other registered holder of a Note shall be
entitled to obtain on behalf of an applicable Participant the benefits of this
Agreement and each Related Agreement and (ii) the Company shall take such
action as may be necessary or advisable in order to enable the Purchaser or any
other registered holder of a Note to do the same and shall not at any time
insist upon, plead or in any manner whatsoever claim that a Participant is not
indirectly entitled to a right or benefit available to a registered holder of a
Note under this Agreement or any Related Agreement because it is a Participant
and not such a registered holder. Without in any way limiting the foregoing,
the Company acknowledges and agrees that its obligations under the Registration
Rights Agreement are for the benefit of both the holders of the Notes and
Participants and that any shares of Common Stock acquired by a Participant upon
conversion of a Note or Notes in which such Participant holds a participation
interest shall be subject to the terms of the Registration Rights Agreement
until such shares are no longer 'Transfer Restricted Securities,' as such term
is defined therein."
5. Section 6.14 of the Purchase Agreement is hereby deleted in its
entirety.
6. Exhibit A to the Purchase Agreement is hereby amended to read as set
forth in Exhibit A hereto.
4
<PAGE> 5
7. It is understood that the parties are entering into this Amendment
to facilitate the issuance of an additional $250,000 principal amount of Notes.
In connection with the Closing related to such issuance, the parties agree to
waive the following provisions:
(a) Value Partners hereby waives the conditions to Closing
contained in Sections 4.2(c) and 4.2(f) of the Purchase Agreement, provided
that the consents referred to in the latter section are obtained within two
Business Days after such Closing; and
(b) The Company hereby waives the requirement to deliver a
certificate specified in the condition to closing contained in Section 4.3(a)
of the Agreement.
8. RECITALS; INCORPORATION.
(a) The Company represents and warrants to the Purchaser that the
Recitals to this Amendment are (i) true and accurate and (ii) an integral part
of this Amendment.
(b) Terms not otherwise defined herein shall have the meaning set
forth in the Purchase Agreement.
9. AMENDMENT EFFECT.
This Amendment is supplementary to the Purchase Agreement and the Related
Agreements. All of the provisions of the Purchase Agreement and the Related
Agreements, including, without limitation, the right to declare principal and
accrued interest on the Notes due for any cause specified therein and the
validity of all Liens created thereby, shall remain in full force and effect,
except as herein expressly modified. The Purchase Agreement and the Related
Agreements and all rights and powers created thereby and thereunder are in all
respects ratified and confirmed. From and after the date hereof, the Purchase
Agreement shall be deemed to be amended and modified as herein provided, but,
except as so amended and modified, the Purchase Agreement shall continue in
full force and effect and the Purchase Agreement and this Amendment shall be
read, taken and construed as one and the same instrument. On and after the date
hereof, the term "the Agreement" as used in all of the Related Agreements and
"this Agreement" as used in the Purchase Agreement shall mean the Purchase
Agreement as amended hereby.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. This Amendment
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. To induce the Purchaser to enter into this
Amendment, the Company hereby represents and warrants to the Purchaser that:
(i) The execution and delivery of this Amendment, and the performance
by the Company of its obligations under this Amendment, the
Purchase Agreement and the Related Agreements, as amended, are
5
<PAGE> 6
within the Company's corporate powers, have been duly authorized by
all necessary corporate action, have received all necessary
approvals of Governmental Entities and do not and will not
contravene or conflict with any provisions of law or the Articles
of Incorporation or Bylaws of the Company or any Subsidiary of the
Company or of any agreement binding upon the Company or any
Subsidiary of the Company;
(ii) This Amendment, and each other instrument executed by the Company
concurrently herewith, is the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with
its terms, except as enforcement thereof may be subject to the
effect of applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally,
and to general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law);
(iii) Except as Previously Disclosed, all of the representations and
warranties of the Company made in the Purchase Agreement and the
Related Agreements are true and correct as of the date hereof,
except where such representation or warranty specifically relates
to an earlier date. The Company hereby expressly remakes and
reaffirms each and every representation, warranty and covenant set
forth in the Purchase Agreement and the Related Agreements and for
the benefit of the Purchaser, as if made on the date herein and
fully set forth herein.
(iv) Except as otherwise provided herein, no Event of Default or Default
under the Notes exists and the Company is in full compliance with
all the terms, conditions and provisions of the Purchase Agreement
and the Related Agreements.
11. REIMBURSEMENT OF EXPENSES. The Company agrees to pay all reasonable
costs and expenses (including, without limitation, attorneys' fees and
expenses) incurred by the Purchaser and T. Rowe Price in connection with the
negotiation, preparation and execution of this Amendment and acknowledges that
such costs and expenses may be deducted from any amount payable by the
Purchaser to the Company in connection with the issuance of Additional Notes.
12. SEVERABILITY. If any provision (in whole or in part) of this
Amendment, the Purchase Agreement or the Related Agreements or the application
thereof to any Person or circumstances is held invalid or unenforceable, then
such provision shall be deemed modified, restricted or reformulated to the
extent and in the manner necessary to render the same valid and enforceable, or
shall be deemed excised from this Amendment, the Purchase Agreement or the
Related Agreement, as applicable, and this Amendment and such
6
<PAGE> 7
other agreements shall be construed and enforced to the maximum extent
permitted by law, as if such provision had been originally incorporated herein
or therein, as applicable. The parties further agree to seek a lawful
substitute for any provision found to be lawful. If such modification,
restriction or reformulation is not reasonably possible, the remainder of this
Amendment, the Purchase Agreement or the Related Agreements, as applicable, and
the application of such provision to other Persons or circumstances will not be
affected thereby and the provisions of this Amendment, the Purchase Agreement
or the Related Agreements shall be severable in any such instance.
13. WAIVER OF CLAIMS. The Company hereby acknowledges, agrees and
affirms that it possesses no claims, defenses, offsets, recoupment or
counterclaims of any kind or nature against or with respect to the enforcement
of the Purchase Agreement or any Related Agreement or any amendments thereto
(collectively, the "Claims"), nor does the Company now have knowledge of any
facts that would or might give rise to any Claims. If facts now exist which
would or could give rise to any Claim against or with respect to the
enforcement of the Purchase Agreement or any Related Agreement, as amended by
the amendments thereto, the Company hereby unconditionally, irrevocably and
unequivocally waives and fully releases any and all such Claims as if such
Claims were the subject of a lawsuit, adjudicated to final judgment from which
no appeal could be taken and therein dismissed with prejudice.
14. GOVERNING LAW. THE PARTIES HERETO ACKNOWLEDGE THAT THE TRANSACTIONS
CONTEMPLATED BY THE PURCHASE AGREEMENT AND THE NOTES BEAR A REASONABLE RELATION
TO THE STATE OF MARYLAND IN THAT, INTERALIA, T. ROWE PRICE HAS ITS PRINCIPAL
PLACE OF BUSINESS IN THE STATE OF MARYLAND, PART OF THE NEGOTIATIONS RELATING
TO THE TRANSACTIONS CONTEMPLATED HEREBY HAS OCCURRED IN THE STATE OF MARYLAND
AND THE CLOSING WILL OCCUR IN SUCH STATE. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
15. REPRESENTATION BY COUNSEL. The Company hereby represents that it has
been represented by competent counsel of its choice in the negotiation and
execution of this Amendment, the Purchase Agreement and the Related Agreements;
that it has read and fully understands the terms hereof; that the Company and
its counsel have been afforded an opportunity to review, negotiate and modify
the terms of this Amendment; and that it intends to be bound hereby.
16. HEADINGS. The descriptive headings of the various provisions of this
Amendment, the Purchase Agreement and the Related Agreements are inserted for
convenience of reference only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof. Section references in the
Purchase Agreement shall be deemed to refer to the applicable Section set forth
in this Amendment.
7
<PAGE> 8
17. COUNTERPARTS. This Amendment, the Purchase Agreement and the Related
Agreements may be executed in any number of counterparts, and by the different
parties hereto and thereto on the same or separate counterparts, each of which,
when so executed and delivered shall be deemed to be an original; all the
counterparts for each such agreement shall together constitute one and the same
agreement.
18. FAX EXECUTION. For purposes of negotiating and finalizing this
Amendment (including any subsequent amendments thereto), any signed document
transmitted by facsimile machine ("FAX") shall be treated in all manner and
respects as an original document. The signature of any party by FAX shall be
considered for these purposes as an original signature. Any such FAX document
shall be considered to have the same binding legal effect as an original
document. The undersigned parties hereby agree that neither shall raise the use
of the FAX or the fact that any signature or document was transmitted or
communicated through the use of a FAX as a defense to the formation of this
Amendment.
19. NO THIRD PARTY BENEFICIARIES. This Amendment is solely for the
benefit of the Purchaser and its successors and assigns (except as otherwise
expressly provided herein) and nothing contained herein shall be deemed to
confer upon any other Person any right to insist on or to enforce the
performance or observance of any of the obligations contained herein. All
conditions to the obligations of the Purchaser to purchase Additional Notes
hereunder are imposed solely and exclusively for the benefit of the Purchaser
and its successors and assigns and no other Person shall have standing to
require satisfaction of such conditions in accordance with their terms and no
other Persons shall under any circumstances be deemed to be a beneficiary of
such conditions.
20. TEXAS LANGUAGE.
(a) THE PURCHASE AGREEMENT, TOGETHER WITH THE RELATED AGREEMENTS,
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES THERETO WITH RESPECT TO THE
MATTERS COVERED THEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
(b) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES HERETO.
8
<PAGE> 9
EXECUTED as of the date first above written.
VALUE PARTNERS, LTD.
By: /s/ Timothy G. Ewing
------------------------------------------
Timothy G. Ewing
Managing Partner of Ewing & Partners,
general partner of Value Partners, Ltd.
Its: General Partner
ALTIVA FINANCIAL CORPORATION.
/s/ Edward. B. Meyercord
---------------------------------------------
By: Edward B. Meyercord
Its: Chief Executive Officer
9
<PAGE> 10
EXHIBIT A
TO SECURED CONVERTIBLE NOTE
PURCHASE AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C>
Purchaser of Initial Notes: Principal Amount of Initial Notes: $7,000,000
- --------------------------- ----------------------------------
Value Partners, LTD
4514 Cole Avenue - Suite 808
Dallas, Texas 75205
Attn: Mr. Timothy Ewing
(214) 522-2100 (TEL)
(214) 522-2176 (FAX)
Purchaser of Additional Notes: Principal Amount of Additional Notes: $ 250,000
- ------------------------------ --------------------------------------
Value Partners, LTD
4514 Cole Avenue - Suite 808
Dallas, Texas 75205
Attn: Mr. Timothy Ewing
(214) 522-2100 (W)
(214) 522-2176 (FAX)
</TABLE>
10
<PAGE> 1
EXHIBIT 10.3
AMENDMENT #2 TO SECURED CONVERTIBLE NOTE PURCHASE
AGREEMENT
This Amendment #2 (the "Amendment") to the Secured Convertible Note
Purchase Agreement, as amended (the "Purchase Agreement") between Altiva
Financial Corporation ("Altiva") and Value Partners, Ltd. ("Value Partners")
dated as of August 31, 1999 is entered into as of December 30, 1999.
RECITALS
WHEREAS, Altiva and Value Partners are parties to the Purchase
Agreement; and
WHEREAS, the parties wish to increase the principal amount of 12%
Secured Convertible Notes that may be issued pursuant to the Purchase Agreement
by $1,750,000;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged Altiva and Value Partners agree as follows,
1. The definition of the term "Additional Notes" contained in Section
1.1 of the Purchase Agreement is amended and shall read as follows:
"'Additional Notes' means up to $9,000,000 principal amount of 12% Secured
Convertible Notes due 2006 which may be issued and sold by the Company and
purchased by the Purchaser from time to time pursuant to this Agreement
substantially in the form of Exhibit B hereto, as amended, supplemented or
otherwise modified from time to time."
2. Section 6.13 of the Purchase Agreement is hereby amended as
follows:
"SECTION 6.13 PARTICIPATION INTERESTS. The Company acknowledges and
agrees that (i) immediately following the Closing relating to the Initial Notes
the Purchaser will sell an undivided participation interest in the Initial Note
acquired by it in the amount of $2,000,000 to T. Rowe Price Recovery Fund II,
L.P. ("T. Rowe Price") pursuant to a Participation Agreement of even date
herewith, (ii) immediately following the Closing held on December 13, 1999
relating to $250,000 principal amount of Additional Notes the Purchaser will
sell an undivided participation interest in the Additional Note acquired by it
in the amount of $250,000 to T. Rowe Price pursuant to the first amendment to
the Participation Agreement, (iii) immediately following the Closing held on
December 30, 1999 relating to $1,750,000 principal amount of Additional Notes
the Purchaser will sell an undivided participation interest in the Additional
Note acquired by it in the amount of $750,000 to T. Rowe Price pursuant to a
second amended Participation Agreement and (iv) the Purchaser or any other
registered holder of a Note shall have the right to sell additional
participation interests in the Notes to T. Rowe Price and/or any other third
party (individually a 'Participant' and collectively the 'Participants') on
such terms as it
<PAGE> 2
may determine in its sole discretion. The Company acknowledges that the
original intent of the parties hereto and T. Rowe Price was for T. Rowe Price
to be a party to this Agreement and an acquirer of a Note or Notes with an
aggregate principal amount of $2,000,000, that the Purchaser entered into this
Agreement on the condition that T. Rowe Price be permitted to purchase a
participation interest in the Notes and that the transaction was restructured
to provide for T. Rowe Price's acquisition of a participation interest in the
Notes in such amount solely because the Company is not eligible under the terms
of certain of the mortgage-related securities included in the collateral
subject to the Security Agreement to pledge an interest in such collateral
directly to T. Rowe Price. Accordingly, the Company covenants and agrees that
(i) the Purchaser or any other registered holder of a Note shall be entitled to
obtain on behalf of an applicable Participant the benefits of this Agreement
and each Related Agreement and (ii) the Company shall take such action as may
be necessary or advisable in order to enable the Purchaser or any other
registered holder of a Note to do the same and shall not at any time insist
upon, plead or in any manner whatsoever claim that a Participant is not
indirectly entitled to a right or benefit available to a registered holder of a
Note under this Agreement or any Related Agreement because it is a Participant
and not such a registered holder. Without in any way limiting the foregoing,
the Company acknowledges and agrees that its obligations under the Registration
Rights Agreement are for the benefit of both the holders of the Notes and
Participants and that any shares of Common Stock acquired by a Participant upon
conversion of a Note or Notes in which such Participant holds a participation
interest shall be subject to the terms of the Registration Rights Agreement
until such shares are no longer 'Transfer Restricted Securities,' as such term
is defined therein."
3. Exhibit A to the Purchase Agreement is hereby amended to read as
set forth in Exhibit A hereto.
2
<PAGE> 3
4. It is understood that the parties are entering into this
Amendment to facilitate the issuance of an additional $1,750,000, principal
amount of Additional Notes. In connection with the Closing related to such
issuance, the parties agree to waive the following provisions:
(a) Value Partners hereby waives the conditions to Closing
contained in Section 4.2(c) (as it relates to the opinion of Venable, Baetjer
and Howard, LLP ("Venable") only) and Section 4.2(f) of the Purchase Agreement,
provided that (i) the opinion of Venable and (ii) the consents referred to in
the Section 4.2(f) are obtained within three Business Days after such Closing;
(b) The Company hereby waives the requirement to deliver a
certificate specified in the condition to Closing contained in Section 4.3(a)
of the Agreement; and
(c) The Company hereby waives the condition to Closing
contained in Section 4.2(b) of the Agreement that Value Partners shall deliver
a dollar amount equal to the principal amount of the Notes to be issued, but
only to the extent that Value Partners, subject to any terms and conditions
contained in this Amendment, (i) shall have delivered $850,000 to the Company
at the Closing related to the December 30, 1999 issuance of Notes and (ii)
shall deliver an additional $850,000 to the Company within three Business Days
after such Closing.
5. Recitals; Incorporation.
(a) The Company represents and warrants to the Purchaser that
the Recitals to this Amendment are (i) true and accurate and (b) an integral
part of this Amendment.
(b) Terms not otherwise defined herein shall have the meaning
set forth in the Purchase Agreement.
6. Amendment Effect.
This Amendment is supplementary to the Purchase Agreement and the
Related Agreements. All of the provisions of the Purchase Agreement and the
Related Agreements, including, without limitation, the right to declare
principal and accrued interest on the Notes due for any cause specified therein
and the validity of all Liens created thereby, shall remain in full force and
effect, except as herein expressly modified. The Purchase Agreement and the
Related Agreements and all rights and powers created thereby and thereunder are
in all respects ratified and confirmed. From and after the date hereof, the
Purchase Agreement shall be deemed to be amended and modified as herein
provided, but, except as so amended and modified, the Purchase Agreement shall
continue in full force and effect and the Purchase Agreement and this Amendment
shall be read, taken and construed as one and the same instrument. On and after
the date
3
<PAGE> 4
hereof, the term "the Agreement" as used in all of the Related Agreements and
"this Agreement" as used in the Purchase Agreement shall mean the Purchase
Agreement as amended hereby.
7. Representations and Warranties of the Company. This
Amendment shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. To induce the Purchaser to enter
into this Amendment, the Company hereby represents and warrants to the
Purchaser that:
(i) The execution and delivery of this Amendment, and the
performance by the Company of its obligations under this
Amendment, the Purchase Agreement and the Related
Agreements, as amended, are within the Company's corporate
powers, have been duly authorized by all necessary
corporate action, have received all necessary approvals of
Governmental Entities and do not and will not contravene
or conflict with any provisions of law or the Articles of
Incorporation or Bylaws of the Company or any Subsidiary
of the Company or of any agreement binding upon the
Company or any Subsidiary of the Company;
(ii) This Amendment, and each other instrument executed by the
Company concurrently herewith, is the legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as
enforcement thereof may be subject to the effect of
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights
generally, and to general principles of equity (regardless
of whether such enforcement is sought in a proceeding in
equity or at law);
(iii) Except as Previously Disclosed, all of the
representations and warranties of the Company made in the
Purchase Agreement and the Related Agreements are true and
correct as of the date hereof, except where such
representation or warranty specifically relates to an
earlier date. The Company hereby expressly remakes and
reaffirms each and every representation, warranty and
covenant set forth in the Purchase Agreement and the
Related Agreements and for the benefit of the Purchaser,
as if made on the date herein and fully set forth herein.
(iv) Except as otherwise provided herein, no Event of Default
or Default under the Notes exists and the Company is in
full compliance with all the terms, conditions and
provisions of the Purchase Agreement and the Related
Agreements.
4
<PAGE> 5
8. Reimbursement of Expenses. The Company agrees to pay all
reasonable costs and expenses (including, without limitation, attorneys' fees
and expenses) incurred by the Purchaser and T. Rowe Price in connection with
the negotiation, preparation and execution of this Amendment and acknowledges
that such costs and expenses may be deducted from any amount payable by the
Purchaser to the Company in connection with the issuance of Additional Notes.
9. Severability. If any provision (in whole or in part) of
this Amendment, the Purchase Agreement or the Related Agreements or the
application thereof to any Person or circumstances is held invalid or
unenforceable, then such provision shall be deemed modified, restricted or
reformulated to the extent and in the manner necessary to render the same valid
and enforceable, or shall be deemed excised from this Amendment, the Purchase
Agreement or the Related Agreement, as applicable, and this Amendment and such
other agreements shall be construed and enforced to the maximum extent
permitted by law, as if such provision had been originally incorporated herein
or therein, as applicable. The parties further agree to seek a lawful
substitute for any provision found to be lawful. If such modification,
restriction or reformulation is not reasonably possible, the remainder of this
Amendment, the Purchase Agreement or the Related Agreements, as applicable, and
the application of such provision to other Persons or circumstances will not be
affected thereby and the provisions of this Amendment, the Purchase Agreement
or the Related Agreements shall be severable in any such instance.
10. Waiver of Claims. The Company hereby acknowledges, agrees
and affirms that it possesses no claims, defenses, offsets, recoupment or
counterclaims of any kind or nature against or with respect to the enforcement
of the Purchase Agreement or any Related Agreement or any amendments thereto
(collectively, the "Claims"), nor does the Company now have knowledge of any
facts that would or might give rise to any Claims. If facts now exist which
would or could give rise to any Claim against or with respect to the
enforcement of the Purchase Agreement or any Related Agreement, as amended by
the amendments thereto, the Company hereby unconditionally, irrevocably and
unequivocally waives and fully releases any and all such Claims as if such
Claims were the subject of a lawsuit, adjudicated to final judgment from which
no appeal could be taken and therein dismissed with prejudice.
11. Governing Law. THE PARTIES HERETO ACKNOWLEDGE THAT THE
TRANSACTIONS CONTEMPLATED BY THE PURCHASE AGREEMENT AND THE NOTES BEAR A
REASONABLE RELATION TO THE STATE OF MARYLAND IN THAT, INTERALIA, T. ROWE PRICE
HAS ITS PRINCIPAL PLACE OF BUSINESS IN THE STATE OF MARYLAND, PART OF THE
NEGOTIATIONS RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY HAS OCCURRED IN
THE STATE OF MARYLAND AND THE CLOSING WILL OCCUR IN SUCH STATE. THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF MARYLAND, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5
<PAGE> 6
12. Representation by Counsel. The Company hereby represents
that it has been represented by competent counsel of its choice in the
negotiation and execution of this Amendment, the Purchase Agreement and the
Related Agreements; that it has read and fully understands the terms hereof;
that the Company and its counsel have been afforded an opportunity to review,
negotiate and modify the terms of this Amendment; and that it intends to be
bound hereby.
13. Headings. The descriptive headings of the various
provisions of this Amendment, the Purchase Agreement and the Related Agreements
are inserted for convenience of reference only and shall not be deemed to
affect the meaning or construction of any of the provisions hereof. Section
references in the Purchase Agreement shall be deemed to refer to the applicable
Section set forth in this Amendment.
14. Counterparts. This Amendment, the Purchase Agreement and
the Related Agreements may be executed in any number of counterparts, and by
the different parties hereto and thereto on the same or separate counterparts,
each of which, when so executed and delivered shall be deemed to be an
original; all the counterparts for each such agreement shall together
constitute one and the same agreement.
15. Fax Execution. For purposes of negotiating and finalizing
this Amendment (including any subsequent amendments thereto), any signed
document transmitted by facsimile machine ("FAX") shall be treated in all
manner and respects as an original document. The signature of any party by FAX
shall be considered for these purposes as an original signature. Any such FAX
document shall be considered to have the same binding legal effect as an
original document. The undersigned parties hereby agree that neither shall
raise the use of the FAX or the fact that any signature or document was
transmitted or communicated through the use of a FAX as a defense to the
formation of this Amendment.
16. No Third Party Beneficiaries. This Amendment is solely
for the benefit of the Purchaser and its successors and assigns (except as
otherwise expressly provided herein) and nothing contained herein shall be
deemed to confer upon any other Person any right to insist on or to enforce the
performance or observance of any of the obligations contained herein. All
conditions to the obligations of the Purchaser to purchase Additional Notes
hereunder are imposed solely and exclusively for the benefit of the Purchaser
and its successors and assigns and no other Person shall have standing to
require satisfaction of such conditions in accordance with their terms and no
other Persons shall under any circumstances be deemed to be a beneficiary of
such conditions.
17. Texas Language.
(a) THE PURCHASE AGREEMENT, TOGETHER WITH THE RELATED
AGREEMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN
6
<PAGE> 7
THE PARTIES THERETO WITH RESPECT TO THE MATTERS COVERED THEREBY AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
(b) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES
HERETO.
7
<PAGE> 8
EXECUTED as of the date first above written.
VALUE PARTNERS, LTD.
By: /s/ Timothy G. Ewing
-----------------------------------------
Timothy G. Ewing
Managing Partner of Ewing & Partners,
general partner of Value Partners, Ltd.
Its: General Partner
ALTIVA FINANCIAL CORPORATION
By: /s/ Edward B. Meyercord
------------------------------------
Edward B. Meyercord
Chief Executive Officer
8
<PAGE> 9
EXHIBIT A
TO SECURED CONVERTIBLE NOTE
PURCHASE AGREEMENT
<TABLE>
<S> <C>
Purchaser of Initial Notes: Principal Amount of Initial Notes:
Value Partners, LTD
4514 Cole Avenue - Suite 808 $7,000,000
Dallas, Texas 75205
Attn: Mr. Timothy Ewing
(214) 522-2100 (TEL)
(214) 522-2176 (FAX)
Purchaser of Additional Notes: Principal Amount of Additional Notes and Date of Purchase:
Value Partners, LTD
4514 Cole Avenue - Suite 808 $250,000 (December 13, 1999)
Dallas, Texas 75205
Attn: Mr. Timothy Ewing $1,750,000 (December 31, 1999)
(214) 522-2100 (W)
(214) 522-2176 (FAX)
</TABLE>
9
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
This AMENDED AND RESTATED PLEDGE and SECURITY AGREEMENT, dated as of
December 31, 1999 for reference purposes only (as amended, supplemented or
otherwise modified from time to time, this "Pledge Agreement"), between ALTIVA
FINANCIAL CORPORATION, a Delaware corporation (the "Borrower"), having its
principal place of business at 1000 Parkwood Circle, Suite 600, Atlanta, Georgia
30339 and VALUE PARTNERS, LTD., a Texas limited partnership, having its
principal place of business at 4514 Cole Avenue, Suite 808, Dallas, Texas 75205,
on its own behalf and as agent (in such agency capacity and together with any
successor agent, the "Agent") for Value Partners, Ltd. as the initial purchaser
(the "Initial Purchaser") of the Notes, as defined herein, issued pursuant to
the Purchase Agreement, as defined herein, and any subsequent Registered Owners
of the Notes sold, assigned or otherwise transferred in accordance with the
Purchase Agreement (who together with any successor agent acting as such under
the Purchase Agreement, are referred to collectively as the "Lenders").
W I T N E S S E T H
WHEREAS, on August 31, 1999, the Borrower and the Initial Purchaser
entered into that certain Secured Convertible Note Purchase Agreement (the
"First Purchase Agreement"), which First Purchase Agreement is incorporated
herein by reference, which provided for the loan by the Lenders of $7,000,000.00
in the aggregate to be evidenced by the issuance by the Borrower of 12% Secured
Convertible Notes due 2006 (the "First Notes") to the Initial Purchaser in the
aggregate principal amount of $7,000,000.00; and
WHEREAS, concurrently with the execution and delivery of the First
Purchase Agreement, the Borrower issued the First Notes to the Initial
Purchaser; and
WHEREAS, in order to induce the Initial Purchaser to purchase the First
Notes, on August 31, 1999 the Borrower entered into that certain Pledge and
Security Agreement (the "First Pledge Agreement") pursuant to which the Borrower
granted to the Agent for the account of the Lenders (a) a first priority lien
and security interest in certain Collateral, as defined therein, and (b) a
subordinated lien and security interest in the Subordinated Collateral, as
defined therein, which Subordinal Collateral was at that time pledged to and
subject to the security interest of Greenwich Capital Financial Products, Inc.,
a Delaware corporation ("Greenwich") pursuant to that certain Pledge and
Security Agreement, dated April 17, 1997, which subordinated lien became a first
priority lien and security interest on such date or dates of the Borrower's
satisfaction of its indebtedness and obligations to Greenwich secured by the
Subordinated Collateral; and
WHEREAS, in order to induce the Initial Purchaser to purchase the
Notes, the Borrower has agreed to grant to the Lenders a first priority lien and
security interest in the Textron Collateral, as defined herein, pledged by the
Borrower to Textron Financial Corporation ("Textron") pursuant to the Textron
Documents, as defined herein, and to deliver to the Agent for the account of the
Lenders the Textron Collateral, together with appropriate endorsements in
- -------------------------------------------------------------------------------
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 1
<PAGE> 2
blank, within ten (10) Business Days of the date the security interest of
Textron in the Textron Collateral is extinguished; and
WHEREAS, on December 13, 1999 the Borrower and the Initial Purchaser
entered into that certain Amendment #1 to the Secured Convertible Senior Note
Purchase Agreement (the "Second Purchase Agreement") pursuant to which the
parties agreed to increase the principal amount of 12% Secured Convertible Notes
issued pursuant to the First Purchase Agreement by $250,000.00; and
WHEREAS, in order to induce the Initial Purchaser to purchase the note
in the principal sum of $250,000.00 issued pursuant to the Second Purchase
Agreement (the "Second Note") the Borrower and the Initial Purchaser entered
into that certain Amendment #1 to Pledge and Security Agreement dated December
13, 1999 (the "Second Pledge Agreement"), pursuant to which the First Pledge
Agreement was amended, modified, extended, renewed and increased to provide that
the Second Note was subject to the pledge of Collateral granted to secure
repayment of the First Note pursuant to the terms of the First Pledge Agreement;
and
WHEREAS, concurrently with the execution and delivery of the Second
Purchase Agreement, the Borrower issued the Second Note to the Initial
Purchaser; and
WHEREAS, on or about December 30, 1999, the Borrower and the Initial
Purchaser entered into that certain Amendment #2 to Secured Convertible Note
Purchase Agreement (the "Third Purchase Agreement"), which Third Purchase
Agreement is incorporated herein by reference, which provides for the loan by
the Lenders of $9,000,000.00 in the Aggregate, to be evidenced by the issuance
of the First Note, the Second Note and additional notes (the "Third Notes") in
the principal sum of $1,750,000.00 (the obligations of the Borrower under the
First Notes, the Second Notes and the Third Notes shall be referred to herein
collectively as the "Notes"); and
WHEREAS, concurrently with the execution and delivery hereof, the
Borrower has issued the Third Notes to the Initial Purchaser; and
WHEREAS, to induce the Initial Purchaser to purchase the Third Notes,
the Borrower has agreed to enter into this Amended and Restated Pledge and
Security Agreement, pursuant to which the liens and rights granted in the First
Pledge Agreement and Second Pledge Agreement are affirmed, amended, modified,
confirmed, extended and renewed; and
WHEREAS, in addition to the Collateral pledged to secure repayment in
the First Pledge Agreement and the Second Pledge Agreement, the Borrower is also
granting herein a first lien and security interest in the Pledged Shares as to
up to $2,000,000.00 aggregate principal amount of Notes purchased by the Lenders
on or after December 30, 1999, consisting of the Third Notes and additional
notes in the principal amount of $250,000.00 if issued;
- -------------------------------------------------------------------------------
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 2
<PAGE> 3
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Borrower, the Agent and the Lenders hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used herein, the following terms shall have the
following meanings:
"Accounts" shall have such meaning as such term is defined in Article 9
of the UCC, and shall include, without limitation, each of the following,
whether now owned or hereafter acquired by the Borrower: (a) all accounts
receivable, contract rights, book debts, notes, drafts and other obligations or
indebtedness owing the Borrower (including, without limitation, any such
obligation that might be characterized as an account, contract right, or general
intangible under the UCC in effect in any jurisdiction) and all monies due to or
to become due to the Borrower under all contracts for the sale, lease, or
exchange of goods or other property (whether or not earned by performance on the
part of the Borrower), in each case whether now in existence or hereafter
arising or acquired, including, without limitation, the right to receive the
proceeds thereof; (b) all rights of the Borrower to receive any payment of money
or other form of consideration; (c) all security pledged, assigned or granted to
or held by the Borrower to secure any of the foregoing; and (d) all guaranties
of, or indemnifications with respect to, any of the foregoing.
"Additional Collateral" means property acceptable to the holders of not
less than a majority in aggregate principal amount of the Notes then outstanding
in writing, in their sole and absolute discretion.
"Agent" shall have the meaning specified in the introductory paragraph
hereof.
"Borrower" shall have the meaning specified in the introductory
paragraph hereof.
"Borrower's Residual Percentage" means the percentage of residual
interest in a Securitization which a particular Residual Interest Instrument
owned by the Borrower (and not by a subsidiary or affiliate) and pledged as
Collateral represents.
"Business Day" means any day other than Saturday, Sunday or other day
on which banking institutions in Atlanta, Georgia are authorized or required by
law or executive order to be closed.
"Certificates" means any security, chattel paper, certificated security
or instrument, as from time to time amended, modified or supplemented, including
the following: any Residual Interest Instrument, any Interest Only Instrument,
the Senior Trust Certificate, the Pledged Shares and a Certificated Security as
defined in Section 8-102 of the UCC.
- -------------------------------------------------------------------------------
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 3
<PAGE> 4
"Clearing Corporation" shall have the meaning given such term in
Section 8-102(a)(5) of the UCC.
"Collateral" shall have the meaning specified in Section 2.1.
`
"Collateral Requirement" means an aggregate dollar amount equal to one
hundred seventy-five percent (175%) of the aggregate outstanding principal
amount unpaid under the then outstanding First Notes and Second Notes, plus
accrued and unpaid interest thereon and any other sums then due the Lenders
under the Loan Documents.
"Current Market Value" means the lesser of (a) the fair market value of
the Qualified Collateral on such day as determined in good faith by the Agent,
applying standards of commercial reasonableness that are customary in the
mortgage-related securities industry, minus all sums due any Person who holds a
security interest senior to that of the Agent for the account of the Lenders in
such Qualified Collateral, or (b) the sum of the Overcollateralization Amount
for each Qualified Securitization as reported by the most recent trustee
certificate to which the Borrower is entitled, plus the fair market value of any
Additional Collateral (the value of which shall be determined by the Agent in
its sole and absolute discretion), plus the Restricted Proceeds, minus all sums
due any Person who holds a security interest senior to that of the Lenders in
Collateral issued pursuant to such Qualified Securitization, in the Restricted
Proceeds or in any Additional Collateral. The Pledged Shares shall not be
included to determine Fair Market Value.
"Default" has the meaning set forth in Article I of the Notes.
"Delivery" means a delivery of Collateral to the Agent (or Escrow
Agent, in the case of proceeds) in accordance with this Pledge Agreement,
including Section 2.2 hereof.
"Escrow Agent" means U.S. Trust Company of Texas, N.A., or such
successor thereto, who acts as escrow agent pursuant to the Escrow Agreement.
"Escrow Agreement" means that certain Escrow and Security Agreement,
dated August 31, 1999 as amended by Amendment #1 to Escrow and Security
Agreement, dated December 13, 1999, both in the form attached hereto as Exhibit
"B" and by this reference incorporated herein.
"Event of Default" has the meaning set forth in Section 5.1 of the
Notes.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time.
"Governmental Authority" means any nation, government, state, or any
political subdivision thereof, or any court, stock exchange, entity or agency
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
- -------------------------------------------------------------------------------
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 4
<PAGE> 5
"Grantor Trust Right" means all rights of the Borrower, including the
right to payments to the Borrower, in the Sale Agreement executed in relation to
Mego Mortgage Home Loan Trust 1996-3, including, without limitation, the rights
set forth in Section 4.05(b)(xvii) of such Sale Agreement.
"Greenwich" has the meaning specified in the third recital paragraph
hereof.
"Greenwich Documents" means that certain Amended and Restated Master
Loan Purchase and Servicing Agreement dated as of October 1, 1996 between
Greenwich as lender and the Borrower, that certain Promissory Note in the
original maximum aggregate principal amount not to exceed $11,000,000.00 and all
related documents, including that certain Pledge and Security Agreement dated as
of April 17, 1997, financing statements and transfer powers, all as amended,
supplemented or otherwise modified.
"Indebtedness" has the meaning set forth in Section 2 of the Notes.
"Intercreditor Agreement" means that certain Intercreditor and
Collateral Subordination Agreement, dated August 31, 1999, entered into by
Greenwich, the Agent and the Borrower, pursuant to which, inter alia Greenwich
agreed to hold the Subordinated Collateral to perfect the pledge of such
Subordinated Collateral to the Agent for the account of Lenders, subject to the
security interest of Greenwich.
"Interest Only Instrument(s)" shall, as to that particular Certificate,
have the meaning ascribed to the term "Class S Certificate", "Class IS
Certificate, "Class IIS Certificate" or a similar phrase describing an interest
only security in the respective Sale Agreement arising from the Securitization
pursuant to which such security is issued, which security represents the
undivided interest of the Borrower in all or a portion of the interest payments
due on certain loans securitized in that Securitization.
"Lenders" shall have the meaning specified in the introductory
paragraph hereof.
"Loan Documents" means, collectively, the First, Second and Third
Purchase Agreements, the Notes, the Escrow Agreement and amendment thereto, this
Pledge Agreement, the Registration Rights Agreements and any other documents
evidencing or relating to the Notes or the Collateral, the Additional Collateral
or any such security which may now or hereafter be given as further security for
or in connection with the Notes.
"Notes" shall have the meaning specified in the eighth recital
paragraph hereof.
"Overcollateralization Amount" has, as to a particular Securitization,
the meaning ascribed it in the respective Sale Agreement related to a Qualified
Securitization, multiplied by the Borrower's Residual Percentage of that
Securitization.
- -------------------------------------------------------------------------------
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 5
<PAGE> 6
"Person" means any individual, partnership, corporation, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, or governmental entity (or any department, agency
or political subdivision thereof), or any other entity.
"Pledge Agreement" shall have the meaning specified in the first
paragraph hereof, and shall include the First Pledge Agreement, the Second
Pledge Agreement and this Amended and Restated Pledge Agreement, each as
amended, modified, extended, renewed and increased.
"Pledged Shares" shall mean any and all shares of stock or other
evidence of equity or ownership interest of the Borrower in The Money Centre,
Inc. (either as record owner or beneficially), including but not limited to
those shares set forth on Exhibit "D" attached hereto and by this reference
incorporated herein, including any such interests which may be acquired after
the date hereof and the certificates or stock representing all such items. This
shall include all of the issued and outstanding shares of capital stock of The
Money Centre, Inc. in existence until expiration of the Pledge Agreement.
"Proceeds Accounts" shall mean any and all accounts established and
maintained by the Escrow Agent in the name of the Borrower, established pursuant
to the Escrow Agreement, for the deposit of proceeds of the Collateral.
"Purchase Agreement" shall mean the First Purchase Agreement, as
amended, modified or otherwise supplemented from time to time.
"Qualified Collateral" means: all Collateral other than the Pledged
Shares, including the Restricted Proceeds and any Additional Collateral, to the
extent each is Collateral at such time. The Textron Collateral shall become
Qualified Collateral only when it becomes Collateral pursuant to the terms
hereof.
"Qualified Securitization" means a Securitization as to which a
Residual Interest Instrument (which represents not less that ninety-nine percent
(99%) of the residual interest in such Securitization) is pledged as Qualified
Collateral pursuant to the terms of this Pledge Agreement.
"Quarter" means any final quarter ended on the last day of the months
of February, May, August and November.
"Registration Rights Agreement" shall have the meaning set forth in the
Purchase Agreement.
"Residual Interest Instrument(s)" shall, as to that particular
Certificate, have the meaning ascribed to the term "Class R Certificate",
"Residual Interest Instrument", "Residual Certificate", "Residual Instrument" or
a similar phrase describing a certificated residual interest in the Sale
Agreement arising from the Securitization pursuant to which such security is
issued, which security represents the undivided residual interest of the holder,
including in all or a portion of the interest and principal payments due on
certain loans securitized in that Securitization.
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 6
<PAGE> 7
Neither the Grantor Trust Right nor the Senior Trust Certificate are Residual
Interest Instruments.
"Restricted Proceeds" shall mean those sums deposited in the Proceeds
Accounts, which constitute proceeds of the Collateral, which the Borrower is
prohibited from withdrawing from the Proceeds Accounts pursuant to the terms of
this Pledge Agreement, including Section 2.7.
"Sale Agreement" means the respective Pooling and Servicing Agreement,
Sale and Servicing Agreement or similar agreement, together with related
agreements, including trust agreements and indentures, which create and grant
rights in Certificates and the Grantor Trust Right, entered into or otherwise
issued in relation to a particular Securitization.
"Securitization" means the respective securitization as set forth on
Exhibit "E" hereto and by this reference incorporated herein.
"Senior Trust Certificate" means that certain 125 Home Loan Owner Trust
1998-1, Senior Trust Certificate.
"Subordinated Collateral" means the Certificates and all other rights
pledged to the Agent on behalf of the Lenders in the First Pledge Agreement,
subject to the security interest of Greenwich. The Subordinated Collateral
constituted those items now set forth as items G through L on Exhibit "C"
hereto. These Certificates and other rights are also set forth on Exhibit "C" as
Collateral pledged herein subject to a first lien of the Agent on behalf of the
Lenders for the reason that the Greenwich lien has been satisfied.
"Textron" shall have the meaning specified in the fourth recital
paragraph hereof.
"Textron Collateral" means those Certificates and all other rights
presently pledged to Textron as described in Exhibit "F" attached hereto and by
this reference incorporated herein.
"Textron Documents" means that certain Credit Agreement dated as of
October 27, 1997 by and between Textron as agent and the Borrower, that certain
note as of the same date issued to the lenders under such Credit Agreement and
all related documents, including that certain Security Agreement dated as of
October 27, 1997, financing statements and transfer powers, all as amended,
supplemented or otherwise modified.
"UCC" means the Uniform Commercial Code as in effect in the State of
Maryland; provided, that if by mandatory provisions of law, the perfection or
effect of perfection or non-perfection of the security interest in any
Collateral to which this Pledge Agreement relates is governed by the Uniform
Commercial Code as in effect on or after the date hereof in any other
jurisdiction, UCC means the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such perfection
or the effect of perfection or non-perfection.
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 7
<PAGE> 8
"Uncertificated Security" shall have the meaning given such term in
Section 8-102(a)(18) of the UCC.
ARTICLE II
PLEDGE AND DELIVERY OF COLLATERAL
MANAGEMENT OF COLLATERAL
2.1 Security. Except as otherwise provided in Section 2.9, as security
for the payment (whether at the stated maturity, by acceleration or otherwise)
of all obligations, liabilities and indebtedness of the Borrower to the Lenders,
whether now or hereafter owing or existing, arising under or relating to this
Pledge Agreement, the Notes and the other Loan Documents, and for the payment,
performance and discharge of all other obligations or undertakings now or
hereafter made for the benefit of the Lenders under this Pledge Agreement, the
Notes, the other Loan Documents or under any other agreement, promissory note or
undertaking now existing or hereafter entered into by the Borrower with or to
the Lenders pursuant to the terms hereof, including any guaranty or surety
obligations of the Borrower owed to the Lenders arising under or relating to the
Pledge Agreement, the Notes and the other Loan Documents (the "Secured
Obligations"), the Borrower hereby pledges, assigns, transfers and delivers to
Agent for the account of the Lenders, and grants to the Agent for the account of
the Lenders (and which as to Collateral pledged pursuant to the First Pledge
Agreement and the Second Pledge Agreement, shall also constitute a confirmation,
extension, renewal and affirmation of such liens), a continuing first priority
lien and security interest (except as noted below or, in the case of Additional
Collateral, as otherwise agreed by the Lenders in accepting the same) in all of
the Borrower's rights, title and interest in, to and under: (a) the Certificates
representing the Collateral; (b) the Grantor Trust Right, subject to the
Securitizations; (c) the Pledged Shares and Certificates (d) any other property
of the Borrower held by the Agent on behalf of the Lenders arising under or
relating to the Loan Documents, from time to time, or securing any other
obligation of the Borrower to the Lenders or any of their respective affiliates;
(e) Additional Collateral, and (f) all proceeds, payments, income, products and
profits derived from or related to the above-described property, including
without limitation, the Restricted Proceeds (all of the foregoing are
collectively referred to herein as the "Collateral"). The agreements and related
documents evidencing the Grantor Trust Right and the Certificates, as well as
related documents comprising such Collateral are set forth on Exhibit "C". The
Pledged Shares described in Exhibit "D" and the Residual Interest Instruments,
Senior Trust Certificate and Interest Only Instruments described on Exhibit "C",
and "F" are Certificates, all of which are Collateral.
The Collateral shall include all rights of the Borrower related to the
Collateral, the Additional Collateral and any other Collateral pledged pursuant
to the terms hereof, including the following:
(a) Cash Proceeds. All rights to receive the payment of money in
respect of the Collateral, including the Certificates and Grantor Trust Right.
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 8
<PAGE> 9
(b) Chattel Paper, Instruments, etc. All chattel paper, securities,
uncertificated securities, instruments, non-negotiable instruments, negotiable
instruments, investment property, general intangibles, documents (as those terms
are defined in the UCC), Accounts and Certificates evidencing or with respect to
any of the Collateral.
(c) Deposit Accounts. All rights to payments under the Collateral,
including payments due to the holders of Certificates and the Grantor Trust
Right from the accounts of the trustee (or other Person) into which funds to be
payable under Certificates and the Grantor Trust Right are deposited or held
under a Securitization, and all money, cash and cash equivalents of the
Borrower, in each case arising from payments with respect to any of the
Collateral, including the Certificates and the Grantor Trust Right or other
Collateral.
(d) Collateral. All collateral granted by third party obligors to, or
held by, the Borrower with respect to the Collateral, including the Certificates
and the Grantor Trust Right.
(e) Books and Records. All books and records, including books of
account and ledgers of every kind and nature, all electronically recorded data
(including all computer programs, disks, tapes, electronic data processing media
and software used in connection with maintaining the Borrower's books and
records), all files and correspondence and all receptacles and containers for
the foregoing, all with respect to the Collateral, including Certificates and
the Grantor Trust Right.
(f) Cash. All cash and other property (including the Proceeds Account)
held by the Escrow Agent under this Pledge Agreement and the Escrow Agreement.
(g) Proceeds Accounts. Each of the Proceeds Accounts (to the extent a
security interest therein is not otherwise created pursuant to this Pledge
Agreement), including any and all assets of whatever type or kind deposited by
on behalf of the Borrower in such Proceeds Accounts, whether now owned or
hereafter acquired, existing or arising, including, without limitation, all
moneys, checks, drafts, instruments, securities or interests therein of any type
or nature deposited in such Proceeds Accounts, and all investments and all
certificates and other instruments (including depository receipts, if any) from
time to time representing or evidencing the same, and all dividends, interest,
distributions, cash and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
foregoing.
(h) Miscellaneous. All right, title, interest in, to and under the
clean-up call provisions, including as contained in Section 9.01 of each of the
Sale Agreement with respect to the subject Securitization, and all proceeds,
payments and income derived from or relating thereto.
(i) Proceeds and Products. All proceeds and products of the Collateral,
to the extent not included in the foregoing, including;
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 9
<PAGE> 10
(i) all distributions arising from and pursuant to
the designated trust agreements or other Securitization
agreements (including Sales Agreements) with respect to the
Collateral,
(ii) all other proceeds of insurance and
guarantees, if any, with respect to the Collateral provided by
MBIA Insurance Corporation, the Federal Housing Administration
or any other Person providing coverage for loss or diminution
in value of the Collateral;
(iii) all other proceeds from the liquidation or
other recovery (if any) of loans relating to the Collateral;
(iv) all "proceeds", as that term is defined in
Section 9-306 of the UCC;
(v) all cash, securities, dividends, increases,
distributions and profits received therefrom or in connection
therewith, including distributions or payments in partial or
complete liquidation or redemption, or as a result of
reclassifications, readjustments, reorganizations or changes
in the capital structure of the issuer thereof and any other
property at any time and from time to time received,
receivable or otherwise distributed or delivered to the Agent
on behalf of the Lenders or the Escrow Agent, and all rights
and privileges pertaining thereto;
(vi) all additional shares of stock of any issuer
of any Certificate from time to time acquired by the Borrower
in any manner, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of
such shares;
(vii) all securities hereafter delivered to Agent in
substitution for, or in addition to, any of the foregoing, all
certificates representing or evidencing such securities, and
all cash, securities, instruments, documents, dividends,
increases, distributions and profits received therefrom, and
any other property at any time and from time to time received
by, receivable by or otherwise distributed or delivered to the
Agent in respect of or in exchange for any or all of the
property described;
(viii) all subscriptions, warrants, options and any
other rights issued now or hereafter by the issuer of the
Certificates or any other person whatsoever upon or in
connection with the Certificates and any part of the
Collateral; and
(ix) all products and proceeds of the foregoing and
all general intangibles and contract rights related thereto,
including without limitation, all revenues, distributions,
dividends, property, registration rights, contract rights and
other rights and interests that Borrower is, or may hereafter
become, entitled to receive on account of any collateral
described above.
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 10
<PAGE> 11
Borrower shall forthwith deliver to the Agent on behalf of the Lender all
subscriptions, warrants, options and all such other rights, and upon delivery to
the Agent, the Agent shall hold such subscriptions, warrants, options and other
rights as Collateral pledged to secure the obligations of Borrower, provided,
however, that if the Agent determines, in its sole discretion, that the value of
any such subscriptions, warrants, options or other rights shall terminate,
expire or be materially reduced in value by holding the same as Collateral, the
Agent shall have the right (but not the obligation), in its sole discretion, to
sell or exercise the same; and if exercised, then the monies disbursed by the
Agent in connection therewith shall become part of the Collateral and all of the
stock, securities, evidences of indebtedness and other items so acquired shall
become part of the Collateral;
The Borrower will pay all filing, recording, search and other expenses
reasonably incurred by the Lenders with respect to perfection of the Lenders'
security interest under this Pledge Agreement and the confirmation of the
priority of the Lenders' security interest in the Collateral.
2.2 Delivery of Collateral.
(a) Delivery of Collateral to the Agent under this Pledge Agreement
shall be made in the following manner: (i) in the case of cash, including
proceeds on the Collateral and cash which constitutes Additional Collateral, by
wire transfer or other method acceptable to the Agent of immediately available
funds to the applicable Proceeds Account; (ii) in the case of a Certificate (or
similar property perfected by possession), by the physical delivery thereof
evidencing such Collateral to the Agent or its designee, whenever possible (in
the sole discretion of the Agent), registered in the name of the Agent, and in
all other instances, in suitable form for delivery and transfer, accompanied by
duly executed instruments of transfer or assignment in blank or such other
documentation as may be necessary to effect transfer to the Agent, whereupon the
Agent may take such steps as it deems necessary to effect the recordation or
re-registration of such Collateral in its name; (iii) with respect to an
Uncertificated Security by registration in the name of the Agent, whenever
possible, and in all other instances (other than an Uncertificated Security
credited on the books of a Clearing Corporation), the Borrower shall cause the
issuer of such Uncertificated Security to duly authorize and execute, and
deliver to the Agent, an agreement for the benefit of the Lenders substantially
in the form of Exhibit "G" hereto (appropriately completed to the satisfaction
of the Agent and with such modifications, if any, as shall be satisfactory to
the Agent) pursuant to which such issuer agrees to comply with any and all
instructions originated by the Agent for the account of the Lenders without
further consent by the registered owner and not to comply with instructions
regarding such Uncertificated Security originated by any other Person other than
a court of competent jurisdiction (Exhibit "G" shall be executed as to the
Grantor Trust Right, even if not an Uncertificated Security): (iv) with respect
to a certificated security (as defined in the UCC) or Uncertificated Security
credited on the books of a Clearing Corporation (including a Federal Reserve
Bank, Participants Trust Company or The Depository Trust Company), the Borrower
shall promptly notify the Agent thereof and shall promptly take all actions (x)
required (i) to comply with the applicable rules of such Clearing Corporation
and (ii) to perfect the security interest of the Lenders under applicable law
(including, in any event, under Sections 9-115 (4)(a) and (b), 9-115 (1)(e) and
8-106(d) of the UCC) and (y) as the Agent deems necessary or desirable to effect
the foregoing; and (v) in the
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 11
<PAGE> 12
case of any other Collateral (such Collateral to be subject to the written
approval of the Agent, which approval may be withheld in the sole discretion of
the Agent), in such manner as the Agent shall agree to in writing. Except as
otherwise provided herein or, in the case of Additional Collateral, as otherwise
agreed by the Agent in accepting the same, all Collateral shall be delivered
free and clear of all liens and security interests other than the lien and
security interest created in favor of the Agent for the account of the Lenders
under this Pledge Agreement.
(b) In addition to the actions required to be taken pursuant to
preceding Section 2.2(a), the Borrower shall take the following additional
actions with respect to the Collateral:
(i) with respect to all Collateral of such Borrower whereby or
with respect to which the Agent for the account of the Lenders may obtain
"control" thereof within the meaning of Section 8-106 of the UCC (or under any
other provision of the UCC as the same may be amended or supplemented from time
to time, or under the laws of any relevant State other than the State of
Maryland), the Borrower shall take all actions as may be requested from time to
time by the Agent so that "control" of such Collateral is obtained and at all
times held by the Agent; and
(ii) Borrower shall from time to time cause appropriate
financing statements (on Form UCC-1 or other appropriate form) under the Uniform
Commercial Code as in effect in the various relevant states, covering all
Collateral hereunder (with the form of such financing statements to be
satisfactory to the Agent), to be filed in the relevant filing offices so that
at all times the Agent has a security interest in all Collateral which is
perfected by the filing of such financing statements (in each case to the
maximum extent perfection by filing may be obtained under the laws of the
relevant states, including, without limitation, Section 9-115(4)(b) of the UCC).
2.3 The Escrow.
(a) Restricted Proceeds. Restricted Proceeds shall be deposited into
one or more Proceeds Accounts, established as a cash account, over which the
Agent shall have exclusive and absolute control and dominion (and no withdrawals
or transfers may be made therefrom by any Person except with the prior written
consent of the Agent). Deposits of Restricted Proceeds shall be held in a
segregated account or accounts. The Proceeds Accounts shall be established at
the Escrow Agent and shall be subject to the Escrow Agreement. Cash deposited in
that account on behalf of the Lenders shall constitute Collateral. The Agent may
exercise all rights granted a secured party under ss. 9-502 of the UCC, without
need of notice or consent of the Borrower, whether or not a Default exists. This
Section 2.3 shall not limit or otherwise affect any other rights and remedies of
the Lenders.
(b) Cash as Collateral. In the event cash is provided as Additional
Collateral, the Borrower shall deposit such sums in an account (other than the
Proceeds Accounts) with the Escrow Agent, subject to the terms of the Escrow
Agreement and shall take all steps necessary to perfect a security interest in
such
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 12
<PAGE> 13
account in favor of the Agent, including permitting such account to be located
in the State of California and complying with all requirements of the UCC of the
State of California necessary to perfect such a pledge.
2.4 Notice, Registration and Consents.
On or prior to the date a Certificate, the Grantor Trust Right or any
other property becomes or is to become Collateral, the Borrower shall:
(a) obtain all requisite consents necessary to provide to the Lenders
the rights granted in this Pledge Agreement, including the grant and perfection
of the Agent (for the account of the Lenders) of a security interest in such
Collateral and, in the case of registered or certificated Collateral, to cause
the registration thereof (on the books of the Securitization trustee,
certificate transfer agent and registrar or similar Person) in the name of the
Agent on behalf of the Lenders; and
(b) provide all requisite notices necessary to provide to the Lenders
the rights granted in this Pledge Agreement, including the grant and perfection
of the Lenders' security interest in such Collateral, including the notice set
forth in Exhibit "G" attached hereto and by this reference incorporated herein.
Notices and consents shall include notices to and consents of the
indenture trustee and the certificate transfer agent and registrar of any
Securitization.
2.5 Additional Collateral.
(a) Delivery of Collateral. If the Current Market Value is less than
the Collateral Requirement at the close of business on any Business Day, the
Borrower shall, within five (5) Business Days of receipt of written notice from
the Agent, make Delivery to the Agent of Additional Collateral such that the
aggregate Current Market Value (determined as of the Business Day prior to such
Delivery) is equal to or in excess of the Collateral Requirement. Once delivered
such Additional Collateral shall remain Collateral pursuant to this Agreement,
even if no longer necessary to cause the Current Market Value to exceed the
Collateral Requirement.
(b) Right of Agent to Direct Payment of Additional Collateral. The
Agent may, at any time, whether or not there then exists a Default or an Event
of Default, without the consent of the Borrower, direct the issuer which has
issued an instrument constituting Additional Collateral to make payment to the
Escrow Agent, on behalf of the Lenders, with such payments to be deposited in a
segregated Proceeds Account with the Escrow Agent to be held as collateral
pursuant to this Pledge Agreement. The Borrower shall provide irrevocable
written notice of such right to the issuer of such instrument in a form
acceptable to the Agent, in its sole and absolute discretion.
(c) Nothing herein shall limit any other right or remedy of the Agent.
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<PAGE> 14
2.6 Subordinated Collateral and Textron Collateral.
(a) Subordinated Collateral. The Intercreditor Agreement, dated as of
the date of this Pledge Agreement, was entered into among the Borrower, the
Agent, Greenwich and Greenwich Capital Markets, Inc. The Subordinated Collateral
was held by Greenwich pursuant to the Intercreditor Agreement until such time as
such Certificates were delivered to the Agent pursuant to the Intercreditor
Agreement, on behalf of the Lenders.
(b) Textron Collateral. On the date Textron's security interest in the
Textron Collateral is terminated in accordance with the terms of the Textron
Documents, the Textron Collateral shall be deemed Collateral as if it were set
forth in Section 2.1 and included on Exhibit "C". Commencing at such time the
Lenders shall have a first priority lien and security interest therein pursuant
to this Pledge Agreement and the Borrower shall within ten (10) Business Days
after the expiration of Textron's security interest deliver to and register in
the name of the Agent (including in compliance with Section 2.2) those items on
Exhibit "F" hereto, together with any other such documents necessary to perfect
the Lenders' first priority lien and security interest therein and to grant
control to the Agent under Article 8.
2.7 Proceeds.
(a) Until such time as all obligations of the Borrower to the Lenders
under the Loan Documents are satisfied and the security interest granted the
Agent herein is terminated, without limiting any rights or remedies of the Agent
in the Loan Documents, all payments due the holder of a Certificate (other than
the Pledged Shares) and/or the Grantor Trust Right shall be disbursed as
follows:
(i) all proceeds from the Collateral received during the
existence and continuance of a Default (including without limitation because the
Current Market Value is less than the Collateral Requirement at the close of
business on any Business Day) or during the existence and continuance of an
Event of Default, shall be made to the Agent's account for deposit into the
Proceeds Accounts as Restricted Proceeds and shall remain as Collateral and
shall not thereafter be released to the Borrower upon cure of a Default or an
Event of Default; and
(ii) should proceeds from the Collateral be received when no
Default or an Event of Default exists and is continuing, Agent shall within five
(5) Business Days of receipt of a written request from the Borrower send written
direction to the Escrow Agent that such sums be disbursed to the Borrower,
except as otherwise limited by this Pledge Agreement or any of the other Loan
Documents.
(b) Nothing in this paragraph shall serve to limit any other rights or
remedies of the Agent;
(c) Possession and Registration of the Certificates and the Grantor
Trust Right shall remain in the name of the Agent until all obligations of the
Borrower to the Lenders under the
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 14
<PAGE> 15
Loan Documents are satisfied and the Lenders' liens under this Pledge Agreement
are terminated. This Section shall not limit or otherwise effect any other
rights or remedies of the Lenders. The Agent shall notify the Securitization
trustees to disburse proceeds to the Borrower during the time period where the
Borrower is entitled to receive such proceeds under the terms hereof. In the
event proceeds to which the Agent (including pursuant to paragraph (a) of this
Section 2.7) is entitled or which are forwarded to the Agent or to be deposited
into Proceeds Accounts as Restricted Proceeds are paid to Borrower, Borrower
shall keep such sums segregated from other funds and shall promptly and in any
event within five (5) Business Days notify the Agent in writing of such event
and pay such proceeds to the Escrow Agent as directed by the Agent. In the event
proceeds to which the Borrower, pursuant to paragraph (a) of this Section 2.7,
is entitled are deposited in the Proceeds Accounts, the Agent shall, within five
(5) Business Days of receipt of a written request from the Borrower, send
written direction to the Escrow Agent to pay such sums to Borrower (or
deliver such sums received by it directly).
(d) The Borrower shall not cause any sums to be deposited into the
Proceeds Accounts which are not proceeds of the Collateral.
2.8 Held in Trust. Any sums collected or received and any property
recovered or possessed by the Borrower in connection with the Collateral, which,
under the terms of this Pledge Agreement, should have been delivered to the
Agent or the Escrow Agent, shall be received and held by the Borrower in trust
for and on the Lenders' behalf, shall be segregated from the other assets and
funds of the Borrower, and shall be delivered to the Escrow Agent or the Agent
for the benefit of the Lenders.
2.9 The Pledged Shares. The Pledged Shares shall serve as Collateral
only as to Notes purchased by the Lenders, up to the sum of $1,750,000.00, which
are purchased on or after December 30, 1999 and additional notes in the sum of
$250,000.00, if subsequently agreed to by the Borrower and the Agent on behalf
of the Lenders. All other Collateral, other than the Pledged Shares, shall serve
(or continue to serve, as the case may be) as Collateral as to all Notes,
including those Notes secured by the Pledged Shares.
ARTICLE III
FURTHER ASSURANCES
Subject to the terms of the Textron Documents, the Borrower will, from
time to time, at its expense, execute, deliver, file, register, and record (in
such manner and form as the Agent may require) any statement, assignment, stock
powers, instrument, document, agreement, or other paper and take any other
action (including, without limitation, any filings of financing or continuation
statements under the UCC) that the Agent may from time to time determine to be
necessary or desirable in order to create, preserve, upgrade in rank (to the
extent required hereby), perfect, confirm, or validate the lien and first or
other priority security interests granted the Lenders, or to enable the Lenders
to obtain the full benefits of this Pledge Agreement (including control, as that
term is used in Articles 8 and 9 of the UCC), and to enable the Lenders to
exercise and enforce any of its rights, powers, and remedies hereunder with
respect to any of the Collateral.
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 15
<PAGE> 16
At the request of the Agent, the Borrower will use its reasonable best
efforts to obtain the consent or acknowledgement of any Person that is necessary
or desirable to effect the pledge hereunder of any right, title, claims, and
benefits now owned or hereafter acquired by the Borrower.
To the extent permitted by law, the Borrower hereby authorizes the
Agent to execute and file financing statements or continuation statements
without the Borrower's signature appearing thereon. The Borrower agrees that a
carbon, photographic, or other reproduction of this Pledge Agreement or of a
financing statement is sufficient as a financing statement. The Borrower shall
pay the costs of, or incidental to, any financing or continuation statements
concerning the Collateral. In the event that any re-recording or refiling
thereof (or filing of any statements of continuation or assignment of any
financing statement) is required to protect and preserve such security interest,
the Borrower, at its own cost and expense, shall cause the same to be
re-recorded and/or refiled at the time and in the manner requested by the Agent.
The Borrower hereby authorizes the Agent for the account of the Lenders
to file or refile any financing statements, continuation statements, and/or
amended statements with respect to the security interests granted or to be
granted pursuant to this Pledge Agreement which, at any time, may be required or
appropriate, although the same may have been executed only by the Agent, and to
execute such statements on behalf of the Borrower.
In addition, in the event and to the extent that any of the Collateral
consists of or is represented by Certificates, including instruments or other
evidences of ownership such as would require physical possession of the same in
order to perfect the security interests therein, subject to the terms of the
Textron Documents, the Borrower will promptly, at its expense, deliver the same
to the Agent, with any necessary endorsements thereon. The Borrower shall take
all steps necessary to cause the Collateral to be registered in the name of the
Agent, on behalf of the Lenders, with the appropriate Person, including under
the Securitizations. Upon the Agent's request, subject to the terms of the
Textron Documents, the Borrower shall promptly deliver any documents related to
any of the Collateral and provide the Lenders all information it may reasonably
request concerning the Collateral. The Borrower will take all steps requested by
the Agent to perfect a security interest in the Additional Collateral, including
delivery of physical possession, the granting of control, the execution and
delivery of assignments and/or endorsements, the registration thereof in the
name of the Agent, and the execution of financing statements. The Borrower
hereby irrevocably designates the Agent for the account of the Lenders as agent
and attorney-in-fact for the Borrower for the aforesaid purposes.
ARTICLE IV
COVENANTS
4.1 No Liens. Subject to the terms of the Textron Documents, the
Borrower shall not, without the prior written consent of the Agent, in any
manner, transfer, assign or further encumber or permit the encumbrance of the
Borrower's interest in the Collateral. If the Collateral, or any part thereof,
is sold or otherwise disposed of in violation of these provisions,
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 16
<PAGE> 17
the security interest of the Lenders shall continue in such Collateral or any
part thereof notwithstanding such sale or other disposition, and the Borrower
will deliver any proceeds thereof to the Escrow Agent.
4.2 Loan Documents. The Borrower shall at all times during the term of
this Pledge Agreement comply with all of the affirmative covenants, negative
covenants and other terms and provisions contained in the Loan Documents.
4.3 Consents. By no later than December 31, 1999, the Borrower shall
have obtained all consents of the respective issuer of any Collateral and of any
third party necessary for an effective pledge thereof, including the consent of
any governmental unit or agency.
4.4 Textron Collateral. The Borrower shall take all action which is
necessary or advisable in order for the Lenders to obtain, and the Lenders shall
receive, a first priority lien and security interest in the Textron Collateral
after the lien of Textron in the Textron Collateral terminates.
4.5 Delivery of Certificates and Reports. The Borrower shall deliver,
by facsimile and first class mail, to the Agent, the following: (a) not later
than ten (10) Business Days following the end of each Quarter, a certificate
setting forth the Current Market Value (determined by the Company under
generally accepted accounting principles pursuant to clause (a) of the
definition of this term) as of the last day of such Quarter in the form of
Exhibit "H", a copy of which is attached hereto and by this reference
incorporated herein; and (b) not later than ten (10) Business Days following the
end of each month, a certificate setting forth an analysis of subpart (b) of the
Current Market Value (as determined pursuant to clause (b) of the definition of
this term) as of the last day of such month, in the form of Exhibit "I", a copy
of which is attached hereto and by this reference incorporated herein. Such
certificates shall set forth in detail the basis of the above information and
attach all reports from the respective trustee, servicer or other party of the
particular Securitization related to such certifications, even in the event such
report is not utilized in preparing such certifications. Each certification
shall be executed by the chief financial officer of the Borrower and shall
provide that such officer has caused such certificate to be reviewed and that
the information provided in such certificate is true and correct in all material
respects. Should the Agent, in writing, request additional information related
to any such certificate, such information shall be provided to the Agent by
facsimile and first class mail not later than five (5) Business Days following
the date of such written request.
4.6 Taxes. All payments due the Lenders under the Loan Documents shall
be made without set-off or counterclaim and free and clear of any deductions,
including deductions for taxes, unless the Borrower is required by law to make
such deductions. If (a) any Lender shall be subject to any tax with respect to
any such payment (other than income or franchise taxes), or (b) the Borrower
shall be required to withhold or deduct any tax on any such payment, then such
Lender may claim compensation from the Borrower under Section 4.7. Whenever
taxes must be withheld by the Borrower with respect to any such payments, the
Borrower shall promptly furnish to the Agent official receipts (to the extent
that the relevant governmental authority delivers such receipts) evidencing
payment of any such taxes so withheld. If the Borrower fails
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<PAGE> 18
to pay any such taxes when due or fails to remit to the Agent the required
receipts evidencing payment of any such taxes so withheld or deducted, the
Borrower shall indemnify the affected Lender for any incremental taxes and
interest or penalties that may become payable by such Lender as a result of any
such failure.
4.7 Compensation Claims. Within fifteen (15) days after the receipt by
the Borrower of a certificate from the Agent on behalf of a Lender setting forth
why such Lender is claiming compensation under Section 4.6 and computations (in
reasonable detail) of the amount thereof, the Borrower shall pay to such Lender
such additional amounts as such Lender sets forth in such certificate as
sufficient fully to compensate it on account of the foregoing provisions of
Section 4.6, together with interest on such amount from the 15th day after
receipt of such certificate until payment in full thereof at the applicable
interest rate on the Notes which is then in effect. The reasonable determination
of such Lender of the amount to be paid to it and the basis for computation
thereof hereunder shall, in the absence of manifest error, be conclusive. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.
4.8 Other Information. The Borrower shall use its best efforts to, and
cause the trustee or servicing agent for a Securitization to, enable the Agent's
authorized officers and representatives, during normal business hours upon
reasonable notice and at reasonable intervals, to examine documents, bank
statements and other records and to make copies and notes therefrom for the
purpose of ascertaining the financial condition of the Borrower and its
subsidiaries and the condition of the Collateral, provided, however, that any
such examination shall be at the Borrower's expense, including all reasonable
and necessary travel expenses, but excluding salaries for the officers and
representatives conducting such examination.
4.9 Books and Records. The Borrower shall at all times keep its
records concerning the Collateral at its chief executive office and principal
place of business (which shall be one and the same) as set forth in this Pledge
Agreement, or so long as the Borrower shall have taken all steps reasonably
necessary to perfect the Agent's security interest in the Collateral with
respect to such new address, at such other address as the Borrower may specify
by notice actually received by the Agent not less than (10) Business Days prior
to such change of address.
4.10 Insurance Policies. The Borrower grants to the Agent full power
and authority as its attorney-in-fact, effective upon notice to the Borrower
after the occurrence and during the continuance of an Event of Default, to
adjust and settle any insurance policy owned by the Borrower insuring against
loss to the Collateral, to endorse any drafts thereon and to sign receipts for
any payments thereunder. Any amounts that the Agent receives under any such
policy (including return of unearned premiums) insuring against loss to the
Collateral shall be delivered to the Escrow Agent to be held as Collateral.
4.11 Performance of Securitization Obligations. The Borrower shall
perform all servicing and other obligations required to be performed by it under
the Securitization agreements or any other agreement relating to the Collateral
and the Textron Collateral.
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4.12 Protection of the Collateral. All Collateral shall be free and
clear of any liens and restrictions on the transfer hereof, except as
specifically permitted or granted herein. The Borrower shall defend the title to
the Collateral against all claims and demands which could have an effect on the
Lenders' rights or privileges hereunder. Except as set forth in the
Securitization documents, the Textron Documents, the Borrower shall keep the
respective Collateral free and clear of all liens, claims, security interests,
restrictions of transfer, charges, encumbrances, taxes and assessments, and
shall pay all taxes, assessments and fees relating to the Collateral. The
Borrower will exclude from contracts to which it becomes a party after the date
hereof, provisions that would prevent the Borrower from creating and maintaining
in favor of the Lenders a security interest in the Collateral as pledged hereby.
The Borrower shall not modify, amend or waive any terms or conditions of the
Collateral or the Textron Collateral (including the waiver of a default), or any
rights or interest therein, without the Agent's prior written consent. The
Borrower will not sell, assign, transfer or otherwise dispose of any of the
Collateral. The Borrower will not take any action or suffer to exist any
conditions that could have an adverse effect on the Lenders' rights (including,
without limitation, the security interest in the Collateral) granted hereunder,
subject to the Greenwich Documents and the Textron Documents.
4.13 Applicable Law. The Borrower will not use any of the Collateral in
violation of any applicable law.
4.14 Reserved
4.15 Records. The Borrower shall allow the Agent to inspect all records
of the Borrower relating to the Collateral or to the obligations, and to make
and take away copies of such records.
4.16 Notice of Change. The Borrower shall promptly notify the Agent of
any change in any fact or circumstances warranted or represented by the Borrower
in this Pledge Agreement or in any other writing (including the First Pledge
Agreement and Second Pledge Agreement) furnished by the Borrower to the Agent in
connection with the Collateral or the obligations.
4.17 Notice of Claims. The Borrower shall promptly notify the Agent of
any claim, action or proceeding affecting title to the Collateral, or any part
thereof, or the security interest herein, and, at the request of the Agent,
appear in and defend, at the Borrower's expense, any such action or proceeding.
4.18 Rule 144 The Borrower will cooperate fully with the Agent with
respect to any sale by the Agent of any of the Collateral, including full and
complete compliance with all requirements of Rule 144 under the Securities Act
of 1933 and will give to the Agent all information and will do all things
necessary, including the execution of all documents, forms, instruments, and
other items, to comply with Rule 144 and any and all other rules, regulations or
laws of the United States or the appropriate state necessary for the complete
and unrestricted sale and/or transfer of the Collateral and will exercise its
best efforts to have the issuer of such collateral, upon the request of the
Agent, publicly disseminate all information required to satisfy Rule 144(c).
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 19
<PAGE> 20
4.19 Merger. The Borrower shall not vote for, or consent to, any
amendment of the articles of incorporation or charter of any issuer of
Collateral that might materially adversely affect the value of the Collateral or
permit the issuer thereof to merge or consolidate with or into any other
corporation, firm or entity.
4.20 Dividends. All stock and/or liquidating dividends, distributions
in property, returns of capital or other distributions made on or in respect of
the Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of any issuer thereof or
received in exchange for Collateral or any part thereof or as a result of any
merger, consolidation, acquisition or other exchange of assets to which any such
issuer may be a party or otherwise, and any and all cash and other property
received in exchange for the Collateral or received in payment of the principal
of or in redemption of the Collateral (either at maturity, upon call for
redemption or otherwise), shall be and become part of the collateral pledged
hereunder and, if received by the Borrower, shall be held in trust for the
benefit of the Agent and forthwith be delivered to the Agent (accompanied by
proper instruments of assignment and/or stock powers executed by the Borrower in
accordance with the Agent's instructions) to be held subject to the terms of
this Pledge Agreement.
ARTICLE V
REMEDIES
5.1 Remedies. If an Event of Default shall have occurred and be
continuing, then the Agent may, at its election, to the fullest extent permitted
by applicable law, but subject to the Textron Documents:
(a) Proceed to exercise any rights or remedies the Lenders' may have
hereunder or under the Notes or any other Loan Documents or otherwise;
(b) Pursue, consecutively or cumulatively, any rights or remedies it
may have at law, equity or otherwise, including all rights and remedies
available to secured parties under the applicable UCC provisions;
(c) Cancel or otherwise terminate this Pledge Agreement, the Notes and
any other agreement with the Borrower without prior notice to the Borrower (and
the Borrower will be liable to the Lenders for any resulting loss, costs and
expenses), and the Lenders may: (i) set off any obligation to the Borrower
hereunder or thereunder against any obligation of the Borrower to the Lenders
hereunder or thereunder; and (ii) realize upon property securing any obligation
to Lenders hereunder or thereunder;
(d) Require the Borrower to, upon the Agents' request, assemble the
Collateral and otherwise make it available to the Agent. The Agent may have a
receiver appointed for all or any portion of the Borrower's assets or business
which constitutes the Collateral in order to manage, protect, preserve, sell and
otherwise dispose of all or any portion of the Collateral in accordance with the
terms of the Loan Documents, to continue the operations of the Borrower and to
collect all revenues and profits therefrom to be applied to the payment of the
Notes,
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 20
<PAGE> 21
including the compensation and expenses of such receiver. The Agent may offset
and apply toward the payment of the Notes or require to be paid to the Escrow
Agent (and/or toward the curing of any Event of Default) any indebtedness from
any Lender to the Borrower, including any indebtedness represented by deposits
in any account maintained with any Lender, and the Proceeds Account regardless
of the adequacy of any security for the Loan. The Agent shall have no duty to
determine the adequacy of any such security in connection with any such offset;
(e) To the extent specified in written notice from the Agent to the
Borrower take any of the following actions (for the sole benefit of the Lenders
but at the Borrower's expense):
(i) To ask for, demand, take, collect, sue for and receive all
payments in respect of any Collateral which the Borrower could otherwise ask
for, demand, take, collect, sue for and receive for its own use;
(ii) To extend the time of payment of any Collateral and to make
any allowance or other adjustment with respect thereto;
(iii) To settle, compromise, prosecute or defend any action or
proceeding with respect to any Collateral and to enforce all rights and remedies
thereunder which the Borrower could otherwise enforce;
(iv) To enforce the payment of any Collateral, either in the name
of the Borrower or in its own name, and to endorse the name of the Borrower on
all checks, drafts, money orders and other instruments tendered to or received
in payment of indebtedness to the Lenders;
(v) To notify the third party payor with respect to any
Collateral of the existence of the security interest created hereby and to cause
all payments in respect thereof thereafter to be made directly to the Agent,
provided, however, that whether or not the Agent shall have so notified such
payor, the Borrower will at its expense render all reasonable assistance to the
Agent in collecting such items and in enforcing claims thereon;
(vi) To sell, transfer, assign or otherwise deal in or with any
Collateral or the proceeds thereof, as fully as the Borrower otherwise could do;
(vii) To withdraw any and all cash from the Proceeds Accounts;
(viii) To vote all or any part of the Collateral (whether or not
transferred into the name of the Agent) and give all consents, waivers and
ratifications in respect of the Collateral and otherwise act with respect
thereto as though it were the outright owner thereof (the Borrower hereby
irrevocably constituting and appointing the Agent the proxy and attorney in fact
of the Borrower, with full power of substitution to do so); and
(ix) To transfer all or any part of the Collateral into the
Agent's name or the name of its nominee or nominees;
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 21
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(f) All or any part of the Collateral may be sold for cash or other
value, and the proceeds thereof applied against any amounts owed to the Lenders
by the Borrower, in any number of lots at public or private sale in a
commercially reasonable manner, without demand, advertisement or notice,
provided, however, that the Agent shall give the Borrower 10 days' prior written
notice of the time and place and proposed terms of any public sale, or the time
after which a private sale may be made, which notice each of the Borrower and
the Agent agrees to be reasonable. At any sale or sales of Collateral, the Agent
or the Lenders or any of their officers acting on their behalf, or their
assigns, may bid for and purchase all or any part of the property and rights so
sold, may use all or any portion of the indebtedness owed to the Lenders as
payment for the property or rights so purchased, and upon compliance with the
terms of such sale may hold and dispose of such property and rights without
further accountability to the Borrower, except for the proceeds of such sale or
sales pursuant to Article X. The Borrower acknowledges that any such sale will
be made by the Agent or the Lenders on an "as is" basis with disclaimers of all
warranties, whether express or implied. The Borrower will execute and deliver or
cause to be executed and delivered such instruments, documents, assignments,
waivers, certificates and affidavits, will supply or cause to be supplied such
further information and will take such further action, as the Agent or the
Lenders shall reasonably request in connection with any such sale. The Agent and
the Lenders shall not be obligated to make such sale of Collateral regardless of
whether such notice of sale has theretofore been given. Each purchaser at any
such sale shall hold the property so sold absolutely free from any claim or
right on the part of the Borrower. In lieu of selling the Collateral, the
Lenders may credit the current market value of the Collateral, as determined in
a commercially reasonable manner, all free from any right of redemption, against
any amounts owed by the Borrower to the Lenders; provided, however, that the
Borrower shall remain liable for any deficiency and shall pay interest on such
deficiency as prescribed in the Notes (the Borrower agreeing that, to the extent
that applicable law requires the giving of notice by the Agent to the Borrower
of any such disposition, the minimum time required by such law (or if no minimum
time is specified, one Business Day) shall constitute reasonable notice).
Neither the Agent nor any Lender shall be liable for failure to collect or
realize upon any or all of the Collateral or for any delay in so doing nor shall
any of them be under any obligation to take action whatsoever with regard
thereto;
(g) If, at any time when the Agent shall determine to exercise its
rights hereunder to sell all or a part of the securities included in the
Collateral, the securities in question shall not be effectively registered under
applicable law, the Agent may, in its sole discretion, sell such securities by
private or other sale not requiring such registration in such manner and in such
circumstances as the Agent may deem necessary or advisable in order that such
sale may be effected in accordance with applicable securities laws without such
registration and the related delays, uncertainty and expense. Without limiting
the generality of the foregoing, in any event the Agent may in its sole
discretion; (a) approach and negotiate with a single purchaser or one or more
possible purchasers to effect such sale; (b) restrict such sale to one or more
purchaser each of whom will represent and agree that such purchaser is
purchasing for its own account, for investment and not with a view to the
distribution or sale of such securities; and (c) cause to be placed on
certificates representing the securities in question a legend to the effect that
such securities have not been registered under applicable law and may not be
disposed of in violation
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 22
<PAGE> 23
of the provisions thereof. The Borrower agrees that such manner of disposition
is commercially reasonable, that it will, upon the Agent's request, give any
such purchaser access to such information regarding the issuer of the securities
in question as the Agent may reasonably request and that the Agent shall not
incur any responsibility for selling all or a part of the securities included in
the Collateral at any private or other sale not requiring such registration,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until after registration under applicable law
or until made in compliance with certain other rules or exemptions from the
registration provisions under applicable law. The Borrower acknowledges that no
adequate remedy at law exists for breach by it of this provision and that such
breach would not be adequately compensable in damages and therefore agrees that
this provision may be specifically enforced; and/or
(h) Transfer or assign the Loan Documents to any Person without the
prior written consent of the Borrower.
5.2 Cost and Expenses on Default. If an Event of Default shall have
occurred, the Lenders shall be entitled to collect, in addition to principal,
interest and delinquency charges hereunder, all costs of collection, including
without limitation, reasonable attorneys' fees and disbursements, incurred in
connection with the protection or realization of Collateral or in connection
with any of the Lenders' collection efforts, whether or not suit on the Notes or
any foreclosure proceeding is filed, and all such costs and expenses shall be
payable on demand and until paid shall also be secured by the Collateral and
other Loan Documents and by all other collateral held by the Agent as security
for the Borrower's obligations to the Lenders.
5.3 Marshaling. Neither the Agent nor the other Lenders shall be
required to make any demand upon, or pursue or exhaust any of its rights or
remedies against, the Borrower or any guarantor, pledgor or any other Person
with respect to the payment of the Notes or to pursue or exhaust any of its
rights or remedies with respect to any Collateral therefore or any direct or
indirect guarantee thereof or insurance with respect thereto. Neither the Agent
nor the Lenders shall be required to marshal the Collateral or any guarantee of
the Notes or to resort to the Collateral or any such guarantee in any particular
order, and all of its rights hereunder or under any other Loan Document shall be
cumulative. To the extent it may lawfully do so, the Borrower absolutely and
irrevocably waives and relinquishes the benefit and advantage of, and covenants
not to assert against the Agent or the other Lenders, any valuation, stay,
appraisement, extension, redemption or similar laws now or hereafter existing
which, but for this provision, might be applicable to the sale of any Collateral
made under the judgment, order or decree of any court, or privately under the
power of sale conferred by this Pledge Agreement, or otherwise. Without limiting
the generality of the foregoing, the Borrower: (a) agrees that it will not
invoke or utilize any law which might prevent, cause a delay in or otherwise
impede the enforcement of the rights of the Agent or the Lenders in the
Collateral; (b) waives all such laws; and (c) agrees that it will not invoke or
raise as a defense to any enforcement by the Agent or the other Lenders of any
rights and remedies relating to the Collateral or the Notes, any legal or
contractual requirement with which the Agent or the other Lenders may have in
good faith failed to comply. In addition, the Borrower waives any right to prior
notice (except to the extent expressly required by the other provisions of this
Pledge Agreement) or judicial hearing in connection with
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 23
<PAGE> 24
foreclosure on or disposition of any Collateral, including any such right which
the Borrower would otherwise have under the Constitution of the United States of
America, any state or territory thereof or any other jurisdiction. The Borrower
hereby waives and releases to the fullest extent permitted by law any right or
equity of redemption with respect to the Collateral, whether before or after
sale hereunder.
ARTICLE VI
CONTINUING SECURITY INTEREST
The Borrower shall not assign or otherwise transfer this Pledge
Agreement or any interest herein without the Agent's prior written consent. This
Pledge Agreement shall create a continuing security interest in the Collateral
and shall: (a) remain in full force and effect until the final payment in full
of all amounts payable under the Notes and the other Loan Documents; (b) bind
the Borrower, its successors and permitted assigns; and (c) inure to the benefit
of the Lenders and its successors, transferees and assigns.
Subject to the requirements of Sections 3.2 of the Purchase Agreement,
upon transfer of Notes, each of the respective Lenders may transfer its interest
in the Loan Documents to any of its successors or assigns, by notice to the
Borrower, and such other person or entity shall thereupon be vested with all the
benefits in respect thereof granted to such Lender herein or otherwise; provided
that such successor or assign has agreed in a writing, which shall be delivered
to the Borrower, to assume all of the obligations of the respective Lender under
the Loan Documents.
ARTICLE VII
REPRESENTATIONS, WARRANTIES
AND ADDITIONAL COVENANTS OF BORROWER
7.1 Representations and Warranties. The Borrower represents and
warrants to the Lenders continuously throughout the term of the Notes, that:
(a) The Collateral is owned by the Borrower free and clear of all
liens, claims or encumbrances, except for those granted Lenders herein (except,
as to the Textron Collateral, the security interest of Textron, and as to the
Certificates and the Grantor Trust Right, subject to the applicable
Securitization). Except as disclosed in this Pledge Agreement, none of the
Collateral is subject to any option to purchase or similar rights of any Person;
(b) All Collateral (other than cash, the Grantor Trust Right or
Additional Collateral consented to in writing) shall be evidenced by
certificates or instruments, which certificates or instruments shall be
registered in the name of and delivered to the Agent with any related assignment
forms, duly completed by the Borrower, required by the Securitization agreements
(or as to the Textron Collateral, shall be subject to the Textron Documents
until such registration in the name of the Agent and delivery to the Agent). The
Borrower will, promptly upon the receipt thereof, deliver to the Agent any
certificate or similar instrument representing any of such Collateral, together
with appropriate, duly executed assignment forms, in accordance with the
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 24
<PAGE> 25
terms hereof. The Borrower will take all steps necessary to register the pledge
to the Agent (or ownership if requested by the Agent in writing) on the books of
the issuer, purchaser, trustee or custodian, as the case may be, with respect to
all Collateral that is not evidenced by certificates or other instruments in
accordance with the terms hereof;
(c) The Borrower has obtained any and all permits, licenses, approval
and consents of any Governmental Authority and any third party as may be
required to own, purchase, pledge, sell or otherwise dispose of the Collateral
and to conduct or to transact its business or own, lease or operate its
properties and is in material compliance with all applicable requirements of
law;
(d) The lien of this Pledge Agreement constitutes a first priority
perfected and enforceable security interest in the Collateral in favor of the
Lenders (other than the Textron Collateral, which shall be subject to the
existing security interest of Textron); on each occasion which the Borrower
makes a Delivery of Collateral to the Agent, the Borrower will be the sole
record and beneficial owner of that Collateral (until registration thereof in
the name of the Agent) and will, subject to the terms of the Pledge Agreement,
have the right to receive all payments (subject to the terms of any sales and
servicing or pooling and servicing agreement, indenture or any similar agreement
pursuant to which the Certificates were issued or to which the Grantor Trust
Right or any other right or interest arose) on the Collateral, in each case free
and clear of all liens and security interests other than the lien of this Pledge
Agreement, and other than the Textron Collateral, which is subject to the
Textron Documents and the security interest of Textron;
(e) Except for financing statements contemplated or permitted by this
Pledge Agreement, there are no financing statements or other actions required
under the UCC or similar law of any state or jurisdiction required in connection
with the grants of security interests to the lenders set forth in this Pledge
Agreement;
(f) No representation or warranty made by or on behalf of Borrower
contained in any Loan Document and no information (written or oral),
certificate, financial statement or report furnished or to be furnished by or on
behalf of the Borrower thereunder or in connection with the transactions
contemplated thereby, contains or will contain an untrue statement of a material
fact, or, omits or will omit to state any material fact (including without
limitation, whether, to the best knowledge of Borrower, Borrower or any of its
respective officers or directors (past or present) is (or during the last five
(5) years has been) under civil or criminal investigation by a Governmental
Authority or is under indictment by any Governmental Authority) necessary to
make the statements herein or therein contained, in light of the circumstances
in which made, not misleading;
(g) The Borrower does not have any reason to believe that it will not
be able to perform in all material respects all covenants and agreements to be
performed by it under this Pledge Agreement and each of the other Loan
Documents;
(h) Each of the representations and warranties of the Borrower
contained in the other Loan Documents is true and correct;
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 25
<PAGE> 26
(i) The right of Borrower to receive a residual cash payment pursuant
to Section 4.05(b)(xvii) of the sale Agreement arising from the Mego Mortgage
Home Loan Trust 1996-3 is non-certificated and is evidenced only by the Sale
Agreement arising from that Securitization;
(j) Any Residual Interest Instrument pledged as Collateral shall
represent the right of the holder thereof to receive one hundred percent (100%)
of the residual interest in the interest and principal payments due on the
underlying loans securitized in that Securitization, except as follows: (a)
Class R Certificate R-0001, 1996-3 represents the right to receive one hundred
percent (100%) of the residual interests in Group 1 Loans, as that term is
defined in the Sale Agreement for that Securitization; and (b) Residual Interest
Instrument No. 1 1997-1 and Residual Certificate No. 1, 1997-2 each represent
the right to receive ninety-nine percent (99%) of the residual interest in the
respective Securitization;
(k) Except as disclosed on Schedule I hereto, there is no circumstance
presently in existence which prohibits the receipt of payment of obligations due
pursuant to the terms of the Certificates and the Grantor Trust Right pledged as
Collateral;
(l) To the best of Borrower's knowledge, all of the Collateral has been
duly and validly authorized, issued, is fully paid and non-assessable and is
subject to no options to purchase or similar rights;
(m) Each Pledged Share is validly authorized, issued, is fully paid and
non assessable and is subject to no option to purchase or similar rights;
(n) The execution, delivery and consummation of this Pledge Agreement
will not violate the charter or bylaws of the Borrower or the issuer of any
Collateral or any law, regulation, mortgage, indenture, contract, instrument,
judgment or decree applicable to or binding on the Borrower or the issuer of the
Collateral;
(o) The Pledged Shares constitute and shall at all times constitute one
hundred percent of the issued and outstanding voting and nonvoting stock of The
Money Centre;
(p) The Borrower has held the Pledged Shares, free and clear of all
liens, encumbrances and debt, and borne the full economic risk thereof since the
time of acquisition thereof on August 31, 1999 and at no time during said period
did the Borrower hold any short position in the Pledged Shares or option to
sell, and at no time during such period did any other party hold a short
position in the Pledged Shares or an option to sell thereof;
(q) The pledge, collateral assignment and delivery to and continuous
possession by the Agent of the Collateral consisting of certificated securities
pursuant to this Pledge Agreement creates a valid and perfected first priority
security interest in such securities and the proceeds thereof, subject to no
prior lien or encumbrance or to any agreement purporting to grant to any third
party a lien or encumbrance on the property or assets of the Borrower which
would include the Collateral and the Agent for the account of the Lender is
entitled to all the rights, priorities
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 26
<PAGE> 27
and benefits afforded by the UCC or other relevant law as enacted in any
relevant jurisdiction to perfect security interests in respect of such
Collateral; and
(r) "Control" (as defined in Section 8-106 of the UCC) has been
obtained by the Lenders over all Collateral consisting of Securities with
respect to which such "control" may be obtained pursuant to Section 8-106 of the
UCC.
ARTICLE VIII
THE AGENT MAY PERFORM
The Borrower hereby appoints any officer, general partner or agent of
the Agent as the Borrower's true and lawful attorney-in-fact with full authority
in the place and stead of the Borrower and in the name of the Agent or
otherwise, from time to time in the Agent's discretion, to take any action and
to execute any agreements, documents and instruments which the Agent may deem
necessary or advisable to accomplish the purpose of this Pledge Agreement. The
powers conferred on the Agent hereunder are solely to protect its interest in
the Collateral and shall not impose any duty upon the Agent to exercise any such
powers. All authorization and agencies herein contained with respect to the
Collateral are irrevocable and powers coupled with an interest.
ARTICLE IX
CUSTODY OF COLLATERAL
Except as provided by applicable law that cannot be waived, the Agent
will have no duty as to the custody and protection of the Collateral, the
collection of any part thereof or of any income thereon or the preservation or
exercise of any rights pertaining thereto, including rights against prior
parties, except for the use of reasonable care in the custody and physical
preservation of any Collateral in its possession. The Agent will not be liable
or responsible for any loss or damage to any Collateral, or for any diminution
in the value thereof, by reason of the act or omission of any agent selected by
the Agent (including without limitation the Escrow Agent) acting in good faith.
ARTICLE X
APPLICATION OF COLLATERAL AND PROCEEDS
The proceeds of any sale of, or other realization upon, all or any part
of the Collateral shall be applied in the order set forth in Section 5.3 of the
Notes.
ARTICLE XI
SECURITY INTEREST ABSOLUTE
All rights of the Lenders hereunder and the interest and all
obligations of the Borrower hereunder shall be absolute and unconditional
irrespective of:
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 27
<PAGE> 28
(a) except as expressly provided in Section 14.9, any lack of
validity or enforceability of the Loan Documents or any other agreement or
instrument relating to the Loan Documents;
(b) any change in the time, manner or place of payment of, or
in any other term of, the Loan Documents, or any renewal or extension of the
Loan Documents or any other amendment or waiver of or any consent to any
departure from this Pledge Agreement or any other agreement or instrument;
(c) any sale, exchange, release or nonperfection of any of the
Collateral, or any release of any guarantor or any person liable in any manner
for the collection of the Notes, or any amendment or waiver of or consent to or
departure from any guaranty or the Loan Documents; or
(d) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Borrower in respect of any of the
Loan Documents.
ARTICLE XII
REMEDIES CUMULATIVE
Each right, power and remedy of the Borrower provided for in this
Pledge Agreement or any other Loan Document, or now or hereafter existing at law
or in equity or by statute shall be cumulative and concurrent and shall be in
addition to every other such right, power or remedy. The exercise or beginning
of the exercise by the Agent of any one or more of the rights, powers or
remedies provided for in this Pledge Agreement or any other Loan Document or now
or hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the Agent of all such other
rights, powers or remedies, and no failure or delay on the part of the Agent to
exercise any such right, power or remedy shall operate as a waiver thereof.
Unless otherwise required by the Loan Documents, no notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar other circumstances or constitute waiver of any of the
rights of the Agent to any other or further action in any circumstances without
demand or notice. The obligations of the Borrower under the Loan Documents are
with full recourse to the Borrower and the Borrower shall remain liable for any
deficiency upon the exercise of remedies by Agent.
ARTICLE VIII
REFERENCES IN PLEDGE AGREEMENT AND
CONFIRMATION OF LIENS
13.1 References in Pledge Agreement All references in this Pledge
Agreement to the Notes, the Loan Documents and this Pledge Agreement shall
henceforth include references to the Notes, the Loan Documents and this Pledge
Agreement as such documents are amended, modified, extended, renewed, restated,
reinstated and increased hereby, and as such documents may, from time to time,
be further amended, modified, extended, renewed, restated, reinstated and/or
increased.
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 28
<PAGE> 29
13.2 Confirmation of Liens The Borrower hereby modifies, confirms,
extends, renews and affirms to the Lenders the security interests, liens and
rights of any and all security for the Notes, including without limitation, the
liens, security interests and rights set forth in the First Pledge Agreement,
the Second Pledge Agreement and all other Loan Documents, to secure repayment of
the Notes. The Borrower confirms that the liens, security interests and rights
of the Lenders under the First Pledge Agreement and Second Pledge Agreement and
other Loan Documents are valid and subsisting liens, security interests and
rights against the property described therein. The Borrower confirms that this
modification shall in no manner affect or impair any of the liens, security
interests or rights securing payment of the Notes and other obligations as set
forth in the First Pledge Agreement and Second Pledge Agreement, and that none
of those liens, security interests and rights shall in any manner be waived, the
purpose of this instrument being in part to carry forward, renew and extend all
those liens, security interests and rights. The Lenders shall have the right to
exercise all of its rights and remedies under the Loan Documents and under
applicable law upon the occurrence of any Default or Event of Default under any
of the Loan Documents and under any and all existing or future amendment,
restatement or modification to any of the Loan Documents or the terms hereof. To
the extent not provided in this Pledge Agreement, this Pledge Agreement,
including Section 2.1, shall be deemed amended to include as an obligation,
repayment of which is secured thereby, all future advances by the Lenders to the
Borrower whether under the Loan Documents, as they may be modified, amended,
extended, restated, reinstated, renewed and/or increased from time to time, or
under other separate documents, agreements or instruments. The parties do not
intend that the Second Pledge Agreement constitute a novation of the First
Pledge Agreement or that this Amended and Restated Pledge Agreement constitute a
novation of the First Pledge Agreement or the Second Pledge Agreement.
13.3 Representations, Warranties, Covenants and Agreements of the
Borrower.
The Borrower further represents, warrants and covenants and agrees with
the Agent as follows:
a. the information set forth in the recitals of this Pledge Agreement
are true and correct in all respects;
b. except as effected by the repayment of obligations of the Borrower
to Greenwich Capital Financial Products, Inc., the representations and
warranties of the Borrower as set forth in the First Pledge Agreement and Second
Pledge Agreement are true and correct as of the date hereof;
c. Borrower hereby confirms all of its covenants, obligations and
duties under the First Pledge Agreement and the Second Pledge Agreement as
modified herein and each shall remain effective as of the date originally made;
and
d. Borrower has not pledged, transferred, conveyed, or assigned any
interest in the Collateral except to the Agent on behalf of the Lender pursuant
to the Loan Documents.
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 29
<PAGE> 30
13.4 Continued Effect
Except to the extent amended hereby or in connection herewith, all
terms, provisions and conditions of the Loan Documents (including all documents
executed in connection herewith) shall be enforceable and binding in accordance
with their respective terms.
13.5 Waiver of Defaults.
All defaults of the Agent on behalf of the Lender, if any, under the
First Pledge Agreement and Second Pledge Agreement, are hereby waived.
13.6 Further Amendments.
All of the terms and provisions of the First Pledge Agreement and
Second Pledge Agreement are hereby amended and modified wherever necessary, even
though not specifically addressed herein, so as to conform to the amendments and
modifications set forth herein.
ARTICLE XIV
RESERVED
ARTICLE XV
MISCELLANEOUS
14.1 Successors and Assigns; No Third-Party Beneficiaries. This Pledge
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective permitted successors and assigns. This Pledge Agreement
shall not confer any rights, obligations, remedies or liabilities upon any
Person other than the parties hereto and their permitted successors and assigns.
14.2 GOVERNING LAW. THE PARTIES HERETO ACKNOWLEDGE THAT THE
TRANSACTIONS CONTEMPLATED BY THIS PLEDGE AGREEMENT AND THE NOTES BEAR A
REASONABLE RELATION TO THE STATE OF MARYLAND IN THAT, INTER ALIA, AN INTENDED
PARTICIPANT IN THE NOTES HAS ITS PRINCIPAL PLACE OF BUSINESS IN THE STATE OF
MARYLAND, PART OF THE NEGOTIATIONS RELATING TO THE TRANSACTIONS CONTEMPLATED
HEREBY HAS OCCURRED IN THE STATE OF MARYLAND AND THE CLOSING WILL OCCUR IN SUCH
STATE. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT
OF LAWS THEREOF.
14.3 Notices. All notices, requests, demands, claims and other
communications under this Pledge Agreement shall be in writing (unless otherwise
specified herein) and shall be deemed duly given if (and then two (2) Business
Days after) it is sent by registered or certified
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 30
<PAGE> 31
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to Borrower:
Altiva Financial Corporation
Sixth Floor
1000 Parkwood Circle
Atlanta, Georgia 30339
Attention: Office of the Chief Executive Officer
Telephone: (770) 952-6700
Facsimile: (770) 937-7576
With a Copy to:
King & Spalding
191 Peachtree Street
48th Floor
Atlanta, Georgia 30303
Attention: Walter Driver, Esq.
Telephone: (404) 572-4600
Facsimile: (404) 572-5149
If to the Agent:
Value Partners, Ltd.
4514 Cole Avenue
Suite 808
Dallas, Texas 75205
Attention: Timothy G. Ewing
Telephone: (214) 522-2100
Facsimile: (214) 522-2176
With a copy to:
Bergman, Stein & Bird, L.L.P.
4514 Travis Street
Suite 300
Dallas, Texas 75205
Attention: Jack R. Bird
Telephone: (214) 528-2444
Facsimile: (214) 599-0602
And
Elias, Matz, Tiernan & Herrick
734 15th Street, N.W.
12th Floor
Washington, DC 20005
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 31
<PAGE> 32
Attention: Gerard L. Hawkins
Telephone: (202) 347-0300
Facsimile: (202) 347-2172
Any party may send any notice, request, demand, claim or other
communications hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other party notice in the manner herein set forth.
14.4 Amendments; Waivers. This Pledge Agreement may not be amended,
modified or supplemented except in writing signed by each of the parties hereto.
Each party may, by written notice to the other, extend the time for or waive the
performance of any of the obligations of such other hereunder. The waiver by any
party hereto of a breach of this Pledge Agreement shall not operate or be
construed as a waiver of any other or subsequent breach. No delay, omission or
act by a party shall be deemed a waiver of such party's rights, powers or
remedies. No course of dealing between the parties hereto shall operate a waiver
of any provision hereof.
14.5 Payment of Expenses; Indemnity. The Borrower shall:
(a) pay or reimburse the Agent on demand for all of its reasonable
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of any amendment, modification or supplement to, or
any waiver under, any Loan Document and any other document prepared in
connection therewith, and the consummation of the transactions contemplated
thereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Lenders;
(b) pay on demand all reasonable costs and expenses of the Lenders,
including, without limitation, the reasonable fees and disbursements of counsel
to Lenders, in connection with the occurrence or continuance of an Event of
Default and the enforcement, collection, protection or preservation (whether
through negotiation, legal proceedings or otherwise) of this Pledge Agreement or
any other Loan Document, the Collateral, and any obligation or any rights,
remedy, power or privilege of the Lenders hereunder or thereunder;
(c) pay and hold the Lenders harmless from and against any and all
present and future stamp, excise, recording or other similar taxes or fees
payable in connection with the execution, delivery, recording and filing of any
Loan Document and hold the Lenders harmless from and against any and all
liabilities with respect to or resulting from any delay or omission to pay such
taxes or fees; and
(d) indemnify and hold harmless the Lenders and their respective
directors, officers, partners, employees and agents from and against, any and
all liabilities, losses, damages,
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 32
<PAGE> 33
penalties, actions, judgments, suits, claims, costs, expenses and disbursements,
including, without limitation, the reasonable fees and disbursement of counsel
to the Lenders and such other parties, incurred by any of them in connection
with, arising out of or in any way relating to any investigation, claim,
litigation or other proceeding, pending or threatened (whether or not any of
them is designated a party thereto), in connection with, arising out of or in
any way related to this Pledge Agreement or any other Loan Document or any of
the transactions contemplated herein or therein or any use of the proceeds of
the Notes by the Borrower; provided that the Lenders shall not be entitled to
any indemnification for any of the foregoing resulting from their gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
If, and to the extent that, the indemnity obligations of the Borrower
hereunder may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contributions to the payment and satisfaction of each of such
indemnity obligations which is permissible under applicable law.
14.6 Limited Liability. No recourse under any Loan Document shall be
had against, and no personal liability shall attach to, any officer, employee,
director, partner, affiliate, shareholder or agent of any party hereto, as such,
by the enforcement of any assessment or by any legal or equitable proceeding, by
virtue of any statute or otherwise in respect of any of the Loan Documents, it
being expressly agreed and understood that each Loan Document is solely a
corporate or limited liability entity obligation of each party hereto, and that
any and all personal liability, either at common law or in equity, or by statute
or constitution, of every such officer, employee, director, partner, affiliate,
shareholder or agent for breaches by any party hereto of any obligation under
any Loan Document is hereby expressly waived as a condition of and in
consideration for the execution and delivery of this Pledge Agreement.
14.7 Counterparts. This Pledge Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
14.8 Severability; Interpretation. Any term or provision of this Pledge
Agreement that is invalid, illegal or unenforceable in any situation in any
jurisdiction shall not affect the validity, legality or enforceability of the
remaining terms and provisions hereof or the validity, legality or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
14.9 Usury. All agreements between Borrower and the Agent on behalf of
the Lenders, whether now existing or hereafter arising and whether written or
oral, are hereby limited so that in no contingency, whether by reason of demand
or acceleration of the maturity Date, as that term is defined in the Notes, or
otherwise, shall the interest contracted for, charged, received, paid or agreed
to be paid to the Lenders exceed the maximum amount permissible under the laws
of the State of Maryland (hereinafter the "Applicable Law"). If, from any
circumstance whatsoever, interest would otherwise be payable to Lenders in
excess of the maximum amount permissible under the Applicable Law, the interest
payable to Lenders shall be
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 33
<PAGE> 34
reduced to the maximum amount permissible under the Applicable Law, and if from
any circumstance Lenders shall ever receive anything of value deemed interest by
the Applicable Law in excess of the maximum amount permissible under the
Applicable Law, an amount equal to the excessive interest shall be applied to
the reduction of the principal of the Notes and not to the payment of interest,
or if such excessive amount of interest exceeds the unpaid balance of principal
of the Notes, such excess shall be refunded to the Borrower. All interest paid
or agreed to be paid to the Lenders shall, to the extent permitted by the
Applicable Law, be amortized, pro-rated, allocated and spread throughout the
full period (including any renewal or extension) until payment in full of the
principal so that the interest on the Notes for such full period shall not
exceed the maximum amount permissible under the Applicable Law. The Lenders
expressly disavow any intent to contract for, charge or receive interest in an
amount which exceeds the maximum amount permissible under the Applicable Law.
This paragraph as well as a similar paragraph as set forth in the Notes shall
control all agreements between Borrower and the Lenders.
14.10 Time is of the Essence; No Waiver; Cumulative Remedies. Time and
exactitude of each of the terms, obligations, covenants and conditions of this
Pledge Agreement are hereby declared to be of the essence.
14.11 Binding Effect. This Pledge Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns. Subject to Article VI, the
Lenders may assign this Pledge Agreement, and if assigned, the assignee shall be
entitled, upon notifying the Borrower, to the payment and performance of the
obligations arising under the Loan Documents and agreements of the Borrower
hereunder and to all of the rights and remedies of the Lenders hereunder, and
the Borrower will assert no claims or defenses the Borrower may have against the
Lenders against the assignee. The gender and number used in this Pledge
Agreement are used for reference term only and shall apply with the same effect
whether the parties are masculine, feminine, neuter, singular or plural.
14.12 Multiple Counterparts. This Pledge Agreement may be executed in
separate or multiple counterparts by the parties, and all of such counterparts
shall be considered as one and the same instrument notwithstanding the fact that
various counterparts are signed by only one or more of the parties, and all of
such Pledge Agreements shall be deemed but one and the same Pledge Agreement.
14.13 Headings. The captions and Section headings in this Pledge
Agreement are for convenience of reference only, and shall not limit or
otherwise affect the meaning or interpretation of any provision hereof.
14.14 Secured Party. This Pledge Agreement shall constitute a security
agreement, and the Lenders shall have all of the rights in the Collateral of a
secured party, including under Articles 8 and 9 of the UCC.
14.15 Chief Executive Office; Records. The chief executive office of
the Borrower is located at the address specified in the introduction. The
Borrower will not move its chief
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 34
<PAGE> 35
executive office except to such new location as such Borrower may establish in
accordance with the last sentence in this Section 13.16. The Borrower shall not
establish a new location for such office until (i) it shall have given to the
Agent and the Escrow Agent not less than 30 days' prior written notice of its
intention so to do, clearly describing such new location and providing such
other information in connection therewith as the Agent may reasonably request
and (ii) with respect to such new location, it shall have taken all action,
satisfactory to the Agent, to maintain the security interest of the Agent in the
Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 35
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed as of the date first above written.
VALUE PARTNERS, LTD., on its own behalf and on
behalf of the Lenders as Agent
By: EWING & PARTNERS,
General Partner
By:
-----------------------------------------
Name: Timothy G. Ewing
Title: Managing Partner
Address:
4514 Cole Avenue, Suite 808
Dallas, Texas 75205
ALTIVA FINANCIAL CORPORATION
By: /S/ Edward B. Meyercord
-----------------------------------------
Name: Edward B. Meyercord
Title: Chairman of the Board/CEO
Address:
1000 Parkwood Circle, Sixth Floor
Atlanta, Georgia 30339
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AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT PAGE 36
<PAGE> 1
EXHIBIT 10.5
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement (the "Agreement"), dated as of August
31, 1999, by and among Altiva Financial Corporation, a Delaware corporation
(the "Company"), and Holders (as defined herein) of the Company's 12% Secured
Convertible Notes due 2006 (the "Notes").
WHEREAS, the Company has issued to Holders $7,000,000 principal amount
of the Notes; and
WHEREAS, the Notes are convertible, subject to certain conditions,
into 1,400,000 shares of the common stock of the Company, par value $0.01 (the
"Common Stock") (such shares, subject to adjustment in accordance with the
terms of the Notes are herein after referred to as the "Securities"); and
WHEREAS, as an inducement to Holders to purchase the Notes, the
Company agreed to register the Securities into which the Notes are convertible;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged
by all parties hereto, the parties, intending to be legally obligated, hereby
agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
"Act": The Securities Act of 1933, as amended.
"Broker-Dealer": Any broker or dealer registered as such under the
Exchange Act.
"Closing Date": The date of this Agreement.
"Commission" or "SEC ": The United States Securities and Exchange
Commission.
"DTC": The Depository Trust Company.
"Effectiveness Target Date": As defined in Section 3 hereof.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
<PAGE> 2
"Holders": As defined in Section 2(b) hereof.
"Indemnified Holder": As defined in Section 7(a) hereof.
"NASD": National Association of Securities Dealers, Inc.
"Person": An individual, partnership, corporation, trust or
unincorporated organization, or a government or an agency, authority or
political subdivision thereof.
"Prospectus": The prospectus included in a Resale Registration
Statement, as amended or supplemented, including post-effective amendments,
thereto.
"Registration Default": As defined in Section 4 hereof.
"Resale Registration Statement": As defined in Section 3 hereof.
"Securities": As defined in the preamble hereto.
"Transfer Restricted Securities": Each Security, until the earliest to
occur of (a) the date on which such Security has been effectively registered
under the Act and disposed of in accordance with a Resale Registration
Statement or other applicable registration statement and (b) the date on which
such Security is distributed to the public pursuant to Rule 144 under the Act
or may be sold to the public without compliance with such rule.
"Underwritten Registration" or "Underwritten Offering": An offering in
which securities of the Company are sold to an underwriter for reoffering to
the public pursuant to an effective registration statement filed with the
Commission.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(A) TRANSFER RESTRICTED SECURITIES. The Transfer Restricted Securities
are subject to the terms of this Agreement and may be sold in accordance with
the provisions hereof.
(B) HOLDERS OF TRANSFER RESTRICTED SECURITIES. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns (i) Notes, directly or indirectly through a participation interest
therein, or (ii) Securities prior to (A) the resale of Securities in accordance
with the terms hereof or (B) the time that such Securities are no longer
considered to be Transfer Restricted Securities.
SECTION 3. RESALE REGISTRATION STATEMENT
(A) REGISTRATION. The Company shall cause to be filed with the
Commission promptly after the Closing Date, but in no event later than November
30, 1999, one or more registration
2
<PAGE> 3
statements on Form S-1, S-2 or S-3, or other applicable form (each a "Resale
Registration Statement"), and use its reasonable best efforts to cause such
Resale Registration Statement to be declared effective by the Commission on or
before the date of the meeting of the stockholders of Altiva called for the
purpose of approving the conversion features of the Notes, but in no event
later than February 28, 2000 (the "Effectiveness Target Date"). In connection
with the foregoing, the Company shall (A) file all pre-effective amendments to
such Resale Registration Statement as may be necessary in order to cause such
Resale Registration Statement to become effective, (B) if applicable, file a
post-effective amendment to such Resale Registration Statement pursuant to Rule
430A under the Securities Act and (C) cause all necessary filings in connection
with the registration and qualification of the Securities to be made under the
state securities and Blue Sky laws of such jurisdictions as are necessary.
Subject to the provisions of Section 5(c) hereof, the Company shall use its
reasonable best efforts to keep such Resale Registration Statement continuously
effective, supplemented and amended to the extent necessary to ensure that it
is available for resales of Securities by the Holders of Transfer Restricted
Securities entitled to the benefit of this Section 3(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, and all
state securities or Blue Sky laws until the earlier of (i) the sale of all
Securities in accordance with a Resale Registration Statement or (ii) the date
on which all Transfer Restricted Securities may be sold without restriction
pursuant to Rule 144 under the Act.
(B) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE
SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Resale Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within twenty (20) business days after receipt of a
request therefor, such information as the Company may reasonably request for
use in connection with any Resale Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted
Securities shall be entitled to Liquidated Damages pursuant to Section 4 hereof
unless and until such Holder shall have used its reasonable best efforts to
provide all such reasonably requested information. Each Holder as to which any
Resale Registration Statement is being effected agrees to promptly furnish to
the Company any and all information required to be disclosed in order to make
the information previously furnished to the Company by such Holder not
materially misleading.
SECTION 4. LIQUIDATED DAMAGES
If (a) the Company shall not have filed the Resale Registration
Statement with the Commission on or prior to November 30, 1999, (b) the Resale
Registration Statement shall not have been declared effective by the SEC by the
Effectiveness Target Date or (c) the Resale Registration Statement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded within ten (10)
business days by a post-effective amendment that cures such failure and that is
itself declared effective within thirty (30) business days (each such event
referred to in clauses (a) through (c), a "Registration Default"), additional
cash interest ("Liquidated Damages") shall accrue to each Holder of the Notes
commencing upon the
3
<PAGE> 4
occurrence of such Registration Default in an amount equal to $0.05 per week
per $1,000 principal amount of the Notes held by such Holder during the ninety
(90) day period following the occurrence of such Registration Default. The
amount of Liquidated Damages will increase by an additional $0.05 per week per
$1,000 principal amount of the Notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Liquidated Damages for all Registration Defaults of $0.50 per week per
$1,000 principal amount of Notes. All accrued Liquidated Damages shall be paid
to Holders by the Company in the same manner as interest is paid pursuant to
the Notes. Following the cure of all Registration Defaults relating to any
particular Transfer Restricted Securities, the accrual of Liquidated Damages
with respect to such Transfer Restricted Securities will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such Security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Security shall
have been satisfied in full.
SECTION 5. REGISTRATION PROCEDURES
(A) RESALE REGISTRATION STATEMENT. In connection with each Resale
Registration Statement, the Company shall comply with all the provisions of
Section 5(b) below and shall file and use its reasonable best efforts to effect
such registration to permit the sale of the Transfer Restricted Securities in
accordance with the terms of this Agreement.
(B) GENERAL PROVISIONS. In connection with any Resale Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
the Securities by Broker-Dealers), the Company shall:
(i) use its reasonable best efforts to keep such Resale
Registration Statement continuously effective and provide all
requisite financial statements during the period specified in Section
3 of this Agreement, and upon the occurrence of any event that would
cause any such Resale Registration Statement or the Prospectus
contained therein (A) to contain a material misstatement or omission
or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this Agreement,
the Company shall file promptly, and as appropriate, an amendment or
supplement to such Resale Registration Statement, in the case of
clause (A), correcting any such misstatement or omission, and, in the
case of either clause (A) or (B), use its reasonable best efforts to
cause such amendment to be declared effective and such Resale
Registration Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Resale Registration Statement as may
be necessary to keep the Resale
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Registration Statement effective for the applicable period set forth
in Section 3 hereof or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Resale Registration
Statement cease to be Transfer Restricted Securities; cause the
Prospectus to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the Act
in a timely manner; and reasonably assist Holders in complying with
the provisions of the Act with respect to the disposition of all
Securities covered by such Resale Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Resale
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons in writing, to confirm such
advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with
respect to any Resale Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Resale Registration
Statement or amendments or supplements to the Prospectus or for
additional information relating thereto, (C) of the issuance by the
Commission of any stop order or other order or action suspending the
effectiveness of the Resale Registration Statement under the Act or of
the suspension by any state securities or Blue Sky commission of the
exemption, qualification or registration of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes, or (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Resale Registration
Statement, the Prospectus, any amendment or supplement thereto, or any
document incorporated by reference therein untrue, or that requires
the making of any additions to or changes in the Resale Registration
Statement or the Prospectus in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
or other order or take other action suspending the effectiveness of
the Resale Registration Statement, or any state securities commission
or other regulatory authority shall issue an order suspending the
exemption, qualification or registration of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Company shall
use its reasonable best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(iv) furnish to each of the selling Holders and each of the
underwriter(s), if any, before filing with the Commission, copies of
any Resale Registration Statement or any Prospectus included therein
or any amendments or supplements to any such Resale Registration
Statement or Prospectus (including all documents incorporated by
reference after the initial filing of such Resale Registration
Statement), which documents will be subject to the review of such
Holders and underwriter(s), if any, for a period of at least five (5)
business days, and the Company will not file any such Resale
Registration Statement or Prospectus or any amendment or supplement to
any such Resale Registration Statement or
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Prospectus (including all such documents incorporated by reference) to
which a selling Holder of Transfer Restricted Securities covered by
such Resale Registration Statement or the underwriter(s), if any,
shall reasonably object within five (5) business days after the
receipt thereof. A selling Holder or underwriter, if any, shall be
deemed to have reasonably objected to such filing if such Resale
Registration Statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed, contains a material misstatement
or omission;
(v) make available at reasonable times and upon reasonable
notice for inspection by the selling Holders, any underwriter
participating in any disposition pursuant to such Resale Registration
Statement and any attorney or accountant retained by such selling
Holders or any of the underwriter(s), all financial and other records,
pertinent corporate documents and properties of the Company and cause
the Company's officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter,
attorney or accountant in connection with such Resale Registration
Statement subsequent to the filing thereof and prior to its
effectiveness;
(vi) if requested by any selling Holders or the underwriter(s),
if any, promptly incorporate in any Resale Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment, if
necessary, such information as such selling Holders and underwriter(s),
if any, may reasonably request to have included therein, provided such
information is usual and customary in such a document, including,
without limitation, information relating to the "Plan of Distribution"
of the Transfer Restricted Securities, information with respect to the
Transfer Restricted Securities being sold to such underwriter(s) and
any other terms of the offering of the Transfer Restricted Securities
to be sold in such offering, and make all required filings of such
Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
(vii) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, one copy of the Resale
Registration Statement, as first filed with the Commission, and of
each amendment thereto, including all documents incorporated by
reference therein and all exhibits;
(viii) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary Prospectus) and any amendment
or supplement thereto as such Persons reasonably may request; and the
Company hereby consents to the use of the Prospectus and any amendment
or supplement thereto (other than in those states or jurisdictions in
which the Company has not complied with or satisfied the requirements
of the relevant securities or Blue Sky laws) by each of the selling
Holders and each of the underwriter(s), if any, in connection with the
offering and the sale of the Transfer Restricted Securities covered by
the Prospectus or any amendment or supplement thereto;
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<PAGE> 7
(ix) enter into such agreements (including an underwriting
agreement), and make such representations and warranties and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to any Resale Registration Statement contemplated by this
Agreement, all to the extent customary in offerings of the type
contemplated hereby and as may be reasonably requested by any Holder
of Transfer Restricted Securities or underwriter in connection with
any sale or resale pursuant to any Resale Registration Statement
contemplated by this Agreement; and if the registration is an
Underwritten Registration, the Company shall:
(A) furnish to each selling Holder and each underwriter, if
any, in such substance and scope as they may request and as are
customarily made by issuers to underwriters in primary underwritten
offerings, upon the date of the effectiveness of the Resale Resale
Registration Statement:
(1) a certificate, dated the date of effectiveness
of the Resale Resale Registration Statement, signed by (i)
the President or any Vice President and (ii) a principal
financial or accounting officer of the Company,
confirming, as of the date thereof, that the
representations and warranties of the Company in the
underwriting agreement, if applicable, are true and
correct in all material respects as of such date and such
other matters as such parties may reasonably request;
(2) an opinion, dated the date of effectiveness of
the Resale Resale Registration Statement, of counsel for
the Company to the effect that the shares covered by the
Resale Resale Registration Statement shall be validly
issued and non-assessable, and such opinion shall include
a statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company, the
underwriters' representatives and the underwriters'
counsel in connection with the preparation of such Resale
Registration Statement and the related Prospectus and have
considered the matters required to be stated therein and
the statements contained therein, although such counsel
has not independently verified the accuracy, completeness
or fairness of such statements; and that such counsel
advises that, on the basis of the foregoing, no facts came
to such counsel's attention that caused such counsel to
believe that the applicable Resale Registration Statement,
at the time such Resale Registration Statement or any
post-effective amendment thereto became effective,
contained an untrue statement of a material fact or
omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such
Resale Registration Statement, as of its date, contained
an untrue statement of a material fact or omitted to state
a material fact necessary in order to make the statements
therein, in light of the
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<PAGE> 8
circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state
further that such counsel assumes no responsibility for,
and has not independently verified, the accuracy,
completeness or fairness of the financial statements,
notes and schedules and other financial data included in
any Resale Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of the
date of effectiveness of the Resale Registration
Statement, from the Company's independent public
accountants, in the customary form and covering matters of
the type customarily covered in comfort letters by
underwriters in connection with primary underwritten
offerings;
(B) set forth in full or incorporate by reference in the
Underwriting Agreement, if any, the indemnification provisions and
procedures of Section 7 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (ix), if any.
If at any time the representations of the Company contemplated in
clause (A)(1) above cease to be true and correct, the Company shall so advise
the underwriter(s), if any, and each selling Holder promptly and, if requested
by such Persons, shall confirm such advice in writing;
(x) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s) may reasonably request
and do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities covered
by the Resale Registration Statement; provided that the Company shall not be
required to register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of process
in suits or to taxation, other than as to matters and transactions relating to
the Resale Registration Statement, in any jurisdiction where it is not now so
subject;
(xi) cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Securities to be in such denominations and
registered in such names as the Holders or the underwriter(s), if any, may
reasonably request at least two (2) business days prior to any sale of Transfer
Restricted Securities made by such underwriter(s) or selling Holders;
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<PAGE> 9
(xii) use its reasonable best efforts to cause the Transfer Restricted
Securities covered by the Resale Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s), if
any, to consummate the disposition of such Transfer Restricted Securities,
subject to the provisions contained in paragraph (x) above;
(xiii) if any fact or event contemplated by paragraph (b)(iii)(D)
above shall exist or have occurred, prepare a supplement or post-effective
amendment to the Resale Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of Transfer Restricted
Securities, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading;
(xiv) provide a CUSP number for all Transfer Restricted Securities not
later than the effective date of the Resale Registration Statement;
(xv) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter that is required to be retained in accordance with the rules and
regulations of the NASD, and use its reasonable best efforts to cause such
filings to become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer Restricted
Securities;
(xvi) otherwise comply with all applicable rules and regulations of
the Commission, and make generally available to its security holders, as soon
as practicable, a consolidated earnings statement meeting the requirements of
Rule 158 under the Act (which need not be audited) for the twelve-month period
(A) commencing at the end of any fiscal quarter in which Transfer Restricted
Securities are sold to underwriters in a firm commitment or best efforts
Underwritten Offering or (B) if not sold to underwriters in such an offering,
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of the Resale Registration Statement;
(xvi) cause all shares of Transfer Restricted Securities covered by the
Resale Registration Statement to be listed on each securities exchange or
market, if applicable, on which similar securities issued by the Company are
then listed; and
(xvii) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or Section
15 of the Exchange Act.
(C) BLACKOUT. Each Holder agrees by acquisition of a Transfer
Restricted Security that, upon receipt of any notice from the Company of the
existence of any fact of the kind described in Section 5(b)(iii)(D) hereof,
such Holder will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the Resale Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus as contemplated
by section 5(b)(xiii) hereof, or until it is
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advised in writing (the "Advice") by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus. If so directed by
the Company, each Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Transfer Restricted Securities that was current
immediately prior to the time of receipt of such notice. In the event the
Company shall give any such notice, the time period regarding the effectiveness
of such Resale Registration Statement or any post-effective amendment thereto
set forth in Section 3 shall be extended by the number of days during the period
from and including the date of the giving of such notice pursuant to Section
5(b)(iii)(D) hereof to and including the date when each selling Holder covered
by such Resale Registration Statement shall have received the copies of the
supplemented or amended Prospectus as contemplated by section 5(b)(xiii) hereof
or shall have received the Advice, provided that, notwithstanding the foregoing,
such time period may be extended in any given calendar year only one time for a
maximum of (30) business days.
SECTION 6. REGISTRATION EXPENSES
All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless whether a Resale
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made by any Holder
with the NASD (and, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel that may be required by the NASD));
(ii) all fees and expenses of compliance with federal securities, foreign
securities and state Blue Sky or securities laws; (iii) all expenses of printing
(including the printing of Prospectuses and new certificates representing
Securities), messenger and delivery services and telephone expenses incurred by
the Company; (iv) all fees and disbursements of counsel for the Company; (v) all
application and filing fees in connection with listing the Securities on a
national securities exchange or automated quotation system pursuant to the
requirements hereof; and (vi) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance).
The Company will, in any event, bear its internal expense (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit, all
trustee and rating agency fees and charges and the fees and expenses of any
person, including special experts, retained by the Company.
Each Holder shall pay all expenses of its counsel, underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Transfer Restricted Securities pursuant to a Resale
Registration Statement.
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SECTION 7. INDEMNIFICATION
(a) The Company shall indemnify and hold harmless (i) each Holder, (ii)
each person, if any, who controls (within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act) any Holder (any of the persons referred to in
this clause (ii) being hereinafter referred to as a "Controlling Person") and
(iii) the respective officers, directors, partners, employees, representatives
and agents of any Holder or any Controlling Person (any person referred to in
clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified
Holder"), to the fullest extent lawful, from and against any and all losses,
claims, damages, liabilities, judgments, actions and expenses, joint or several
(including without limitation, reimbursement of all reasonable costs of
investigating, preparing, pursuing or defending any claim or action,
investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and charges of counsel directly or
indirectly caused by, related to, based upon, arising out of or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in (A) any Resale Registration Statement or Prospectus (or any
amendment or supplement thereto) or (B) any state securities or Blue Sky
application or other document prepared or executed by the Company (or based upon
any information furnished by the Company) for the purpose of qualifying any of
the Securities under the securities or Blue Sky laws of any state or other
jurisdiction (any such application, document or information hereinafter is
referred to as a "Blue Sky Application") or any omission or alleged omission to
state in any Resale Registration Statement or Prospectus (or any amendment or
supplement thereto) or in any Blue Sky Application a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by an untrue
statement or omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to any of the Holders
furnished in writing to the Company by any of the Holders or counsel or agents
of Holders expressly for use therein. The foregoing indemnification is in
addition to any liability which the Company may otherwise have to any
Indemnified Holder.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless (i) the Company, (ii) each person who controls (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act) the Company and
(iii) the respective officers, directors, partners, employees, representatives
and agents of the Company and any such controlling person to the same extent as
the foregoing indemnity from the Company to each of the Indemnified Holders, but
only with respect to claims and actions based on information relating to such
Holder furnished in writing by such Holder expressly for use in any Resale
Registration Statement. The foregoing indemnification is in addition to any
liability which any Holder may otherwise have to any of the foregoing
indemnified persons.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 7, notify the indemnifying party in writing of the
claim or the commencement of that action; provided, however, that the failure to
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notify the indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent it has been materially
prejudiced by such failure and, provided further, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 7 (except to the extent
so provided in any such other obligation). If any such claim or action shall be
brought against an indemnified party, and it shall have notified the
indemnifying thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such action, the indemnifying party shall not be liable to the
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation, provided, however, that
the indemnified party shall have the right to employ separate counsel to
represent jointly the indemnified party and those other Indemnified Holders and
their respective officers, employees and controlling persons who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by Indemnified Holders against the indemnifying party under this Section
7, but the fees and expenses of such counsel shall be at the expense of such
indemnified party unless, (i) the employment thereof has been specifically
authorized by the indemnifying party in writing, (ii) such indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party and in the reasonable judgment of such
counsel it is advisable for such indemnified party to employ separate counsel or
(iii) the indemnifying party has failed to assume the defense of such action and
employ counsel reasonably satisfactory to the indemnified party, in which case,
if such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party. In no event shall the indemnifying parties
be liable for the fees and expenses of more than one counsel (in addition to
local counsel). Each indemnified party, as a condition of the indemnity
agreements contained in this Section 7, shall use its reasonable best efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall (i) without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding or (ii) be liable for any
settlement of any such action, compromise of any action or any judgment with
respect to any action effected without its written consent, but if settled with
its written consent or if there be a final judgment of the plaintiff in any such
action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party, to the extent set forth herein, from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 7 shall for any
reason be
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unavailable to (except for a reason expressly provided herein) or insufficient
to hold harmless an indemnified party under Section 7(a) or 7(b) in respect of
any loss, claim, damage or liability, or any action in respect thereof, referred
to therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, in such proportion as shall be appropriate to reflect the relative
fault of the Company on the one hand and the Holders on the other hand with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference to
whether the untrue or alleged statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Holders, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Holders agree that it would not be just and
equitable if contributions pursuant to this Section 7(d) were to be determined
by pro rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 7(d) shall be
deemed to include, for purposes of this Section 7(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7(d), no Indemnified Holder shall be required to
contribute any amount in excess of the amount by which proceeds received by such
Indemnified Holder from an offering of the Securities exceeds the amount of any
damages which such Indemnified Holder has otherwise paid or become liable to pay
by reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Indemnified Holders'
obligations to contribute as provided in this Section 7(d) are several and not
joint.
SECTION 8. RULE 144 AND RULE 144A
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding, to use its reasonable best efforts to
make and keep public information available as is required by Rules 144 and 144A
under the Act to permit sales of Transfer Restricted Securities pursuant to such
rules, including, without limitation, complying with the requirements of Rule
144A(d)(4), and to furnish to each Holder promptly upon request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 and Rule 144A under the Act.
SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any
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underwriting arrangements provided by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements, lock-up letters and
other documents required under the terms of such underwriting arrangements.
SECTION 10. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Resale
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority of the
Transfer Restricted Securities included in such offering; provided, that such
investment bankers and managers must be reasonably satisfactory to the Company.
SECTION 11. MISCELLANEOUS
(A) REMEDIES. The Company agrees that monetary damages (including the
Liquidated Damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(B) NO INCONSISTENT AGREEMENTS. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way breach or conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any agreement in effect on the date hereof.
(C) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding Transfer Restricted
Securities. Notwithstanding the foregoing, a waiver or consent to departure from
the provisions hereof that relates exclusively to the rights of Holders whose
Transfer Restricted Securities are being resold pursuant to the Resale
Registration Statement and that does not affect directly or indirectly the
rights of other Holders whose Transfer Restricted Securities are not reselling
pursuant to such Resale Registration Statement may be given by the Holders of a
majority of the outstanding Transfer Restricted Securities being resold pursuant
to such Resale Registration Statement.
(D) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class or
certified mail, telex, telecopier or reliable overnight delivery service:
14
<PAGE> 15
(i) if to a Holder, initially at the address set forth below its
name on the signature page hereto, and thereafter at such other address
notice of which is given in accordance with this Section 11(d); and
(ii) if to the Company:
Altiva Financial Corporation
Sixth Floor
1000 Parkwood Circle
Atlanta, Georgia 30339
Telecopier No.: (770) 937-9576
Attention: Edward B. Meyercord
With a copy to:
King & Spalding
191 Peachtree Street
Atlanta, GA 30303
Telecopier No.: (404) 572-5100
Attention: John D. Capers, Jr., Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five (5) business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if sent via a reliable overnight delivery service.
(E) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities.
(F) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, by the parties hereto, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
(G) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(H) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED.
IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(I) SEVERABILITY. In the event that any one or more of the provisions
contained herein or the application thereof, in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
15
<PAGE> 16
(J) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ALTIVA FINANCIAL CORPORATION
By: /s/ Edward B. Meyercord
-------------------------------------------
Name: Edward B. Meyercord
Title: Chairman and Chief Executive Officer
VALUE PARTNERS, LTD
By: EWING & PARTNERS,
General Partner
By: /s/ Timothy Ewing
--------------------------------------------
Name: Timothy Ewing
Title: Managing Partner
Address:
4514 Cole Avenue - Suite 808
Dallas, Texas 75205
16
<PAGE> 17
T. ROWE PRICE RECOVERY FUND II, L.P.
By: T. Rowe Price Recovery Fund II Associates, L.L.C.,
General Partner
By: /s/ Hubert M. Stiles, Jr.
---------------------------------------------------
Name: Hubert M. Stiles, Jr.
Title: President
Address:
100 E. Pratt Street
Baltimore, Maryland 21202
17
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NUMBER ONE TO THE
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NUMBER ONE (this "Amendment") to the REGISTRATION RIGHTS
AGREEMENT (the "Agreement") by and among Value Partners, LTD, a Texas limited
partnership ("Value Partners"), T. Rowe Price Recovery Fund II, L.P., a Maryland
limited partnership ("T. Rowe Price Recovery Fund II"), and Altiva Financial
Corporation, a Delaware corporation (the "Company"), dated as of August 31,
1999, is entered into this 13th day of December 1999. Terms used but not
otherwise defined herein shall have the meanings ascribed to them in the
Agreement.
PRELIMINARY STATEMENTS
The Company previously issued to Value Partners and T. Rowe Price
Recovery Fund II (collectively, the "Holders") the Notes (or, in the case of the
T. Rowe Price Recovery Fund II, the Company has recognized the participation
interest of the T. Rowe Price Recovery Fund II in the Notes) in the aggregate
principal amount of $7,000,000. As of the date hereof, the Company has issued
additional 12% Secured Convertible Notes due 2006 in the aggregate principal
amount of $250,000 (the "Additional Notes") to Value Partners and T. Rowe Price
Recovery Fund II has purchased a 100% participation interest therein.
The parties hereto desire to amend the Agreement to reflect the
issuance of the Additional Notes.
AGREEMENTS
NOW, THEREFORE, for and in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree to amend the Agreement
as follows:
1. The first recital in the Agreement is amended and restated as
follows:
"WHEREAS, the Company has issued to Holders
$7,250,000 aggregate principal amount of the Notes; and"
2. The second recital in the Agreement is amended and restated as
follows:
"WHEREAS, the Notes are convertible, subject to
certain conditions, into 1,450,000 shares of the common stock
of the Company, par value $0.01 (the "Common Stock") (such
shares, subject to adjustment in accordance with the terms of
the Notes are herein after referred to as the "Securities");
and"
<PAGE> 2
3. This Amendment may be executed in any number of counterparts.
All of the separate counterparts of this Amendment shall constitute but one and
the same instrument. This Amendment shall be binding upon the parties hereto and
their respective successors and assigns.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
VALUE PARTNERS, LTD
By: EWING & PARTNERS,
General Partner
By: /s/ Timothy G. Ewing
----------------------------------
Name: Timothy G. Ewing
Title: Managing Partner
T. ROWE PRICE RECOVERY FUND II, L.P.
By: T. Rowe Price Recovery Fund II Associates, L.L.C.
By: /s/ Hubert M. Stiles, Jr.
----------------------------------
Name: Hubert M. Stiles, Jr.
Title: President
ALTIVA FINANCIAL CORPORATION
By: /s/ Edward B. Meyercord
----------------------------------
Name:
Title:
3
<PAGE> 1
EXHIBIT 10.7
AMENDMENT NUMBER TWO TO THE
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NUMBER TWO (this "Amendment") to the REGISTRATION RIGHTS
AGREEMENT (the "Agreement") by and among Value Partners, LTD, a Texas limited
partnership ("Value Partners"), T. Rowe Price Recovery Fund II, L.P., a Maryland
limited partnership ("T. Rowe Price Recovery Fund II"), and Altiva Financial
Corporation, a Delaware corporation (the "Company"), dated as of August 31,
1999, is entered into this 30th day of December 1999. Terms used but not
otherwise defined herein shall have the meanings ascribed to them in the
Agreement.
PRELIMINARY STATEMENTS
The Company previously issued to Value Partners and T. Rowe Price
Recovery Fund II (collectively, the "Holders") the Notes (or, in the case of the
T. Rowe Price Recovery Fund II, the Company has recognized the participation
interest of the T. Rowe Price Recovery Fund II in the Notes) in the aggregate
principal amount of $7,250,000. As of the date hereof, the Company has issued
additional 12% Secured Convertible Notes due 2006 in the aggregate principal
amount of $1,750,000 (the "Additional Notes") to Value Partners and T. Rowe
Price Recovery Fund II has purchased a participation interest therein.
The parties hereto desire to amend the Agreement to reflect the
issuance of the Additional Notes.
AGREEMENTS
NOW, THEREFORE, for and in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree to amend the Agreement
as follows:
1. The first recital in the Agreement is amended and restated as
follows:
"WHEREAS, the Company has issued to Holders
$9,000,000 aggregate principal amount of the Notes; and"
2. The second recital in the Agreement is amended and restated as
follows:
"WHEREAS, the Notes are convertible, subject to
certain conditions, into 1,800,000 shares of the common stock
of the Company, par value $0.01 (the "Common Stock") (such
shares, subject to adjustment in accordance with the terms of
the Notes are herein after referred to as the "Securities");
and"
<PAGE> 2
3. This Amendment may be executed in any number of counterparts.
All of the separate counterparts of this Amendment shall constitute but one and
the same instrument. This Amendment shall be binding upon the parties hereto and
their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
VALUE PARTNERS, LTD
By: EWING & PARTNERS,
General Partner
By:
-----------------------------------
Name: Timothy G. Ewing
Title: Managing Partner
T. ROWE PRICE RECOVERY FUND II, L.P.
By: T. Rowe Price Recovery Fund II Associates, L.L.C.
By:
-----------------------------------
Name: Hubert M. Stiles, Jr.
Title: President
ALTIVA FINANCIAL CORPORATION
By: /s/ Edward B. Meyercord
-----------------------------------
Name: Edward B. Meyercord
Title: CHAIRMAN OF THE BOARD/CEO
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 11,341
<SECURITIES> 0
<RECEIVABLES> 53,166
<ALLOWANCES> 1,841
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,865
<DEPRECIATION> 2,021
<TOTAL-ASSETS> 132,608
<CURRENT-LIABILITIES> 83,283
<BONDS> 30,698
0
1
<COMMON> 40
<OTHER-SE> 18,586
<TOTAL-LIABILITY-AND-EQUITY> 132,608
<SALES> 0
<TOTAL-REVENUES> 3,662
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (3,979)
<INCOME-TAX> (1,488)
<INCOME-CONTINUING> (2,491)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,491)
<EPS-BASIC> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
In passing the Private Securities Litigation Reform Act of 1995 ("the
Reform Act"), 15 U.S.C.A. Section 77z-2 and 78u-5 (Supp. 1996), Congress
encouraged public companies to make "forward-looking statements" by creating a
safe harbor to protect companies from securities law liability in connection
with forward-looking statements. Altiva Financial Corporation ("Altiva" or the
"Company") intends to qualify both its written and oral forward-looking
statements for protection under the Reform Act and any other similar safe
harbor provisions. "Forward-looking statements" are defined by the Reform
Act.
Generally, forward-looking statements include expressed expectations of
future events and the assumptions on which the expressed expectations are based.
All forward-looking statements are inherently uncertain as they are based on
various expectations and assumptions concerning future events and they are
subject to numerous known and unknown risks and uncertainties, which could cause
actual events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of Altiva. The Company
undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements (the "Safe Harbor Statement") to
reflect future developments. In addition, Altiva undertakes no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results
over time.
Altiva provides the following risk factor disclosure in connection with
its continuing effort to qualify its written and oral forward-looking statements
for the safe harbor protection of the Reform Act and any other similar safe
harbor provisions. Important factors currently known to management that could
cause actual results to differ materially from those in forward-looking
statements include the following:
Liquidity Risks
Our business operations require continued access to adequate cash to fund,
purchase and make mortgage loans, to pay interest on, and repay, our debts and
to pay general and administrative expenses. We are currently dependent on the
Sovereign Warehouse Line to fund, purchase and make mortgage loans before we
sell them. If we successfully increase loan production, we will need
increasingly larger amounts of cash for our operations.
- We are currently experiencing a liquidity shortage
During the period from August 31, 1999 to December 10, 1999, our cash and
cash equivalents decreased from $10.5 million to $909,000. This decrease was
attributable to operating performance being less than
<PAGE> 2
forecast and unexpected losses on the rule of loans during the period. As a
result of the decrease, the Company's cash and cash equivalents currently on
hand will not be sufficient to enable the Company to sustain operations past
December 31, 1999. In addition, as a result of this decrease, the Company
currently lacks sufficient liquidity to pay its outstanding debts, including
accrued interest on the Company's outstanding indebtedness. While we are
attempting to relieve our current liquidity shortage through the refinancing of
our existing New Notes and the sale of additional Convertible Notes as described
above in " -- Liquidity and Capital Resources," there can be no assurances that
we will be successful in this effort. A failure to improve our current liquidity
position will have a serious adverse effects on the Company, which may include:
(1) defaults by the Company with respect to the Company's outstanding
indebtedness, including its New Notes and Convertible Notes;
(2) an inability by the Company to implement its strategic plan; and
(4) insolvency
Risks Related to the Sale of Loans
We historically have principally relied on selling loans in securitization
transactions to generate cash. As a major part of our strategic initiatives, we
intend to generate positive cash flow mainly by selling loans to institutional
purchasers in the secondary market. Under the terms of the Flow Purchase
Agreement with Sovereign Bancorp (the "Flow Purchase Agreement"), we have agreed
to sell, and Sovereign Bancorp has agreed to buy, up to $100.0 million of our
mortgage loans per quarter through September 2001. Sovereign Bancorp also has a
right of first refusal to buy the balance of our loans, subject to our mutual
agreement as to the purchase terms. The right of first refusal could make it
more difficult for us to sell our loans to others if Sovereign Bancorp decides
not to acquire some of our loans or if we cannot negotiate mutually acceptable
terms for the purchase of our loans.
The value of, and markets for, selling our loans are dependent on, among
other things:
(1) the willingness of banks, thrifts and other institutional purchasers to
acquire Home Equity and Equity + loans;
(2) the premiums over the principal amount of these loans that
institutional purchasers are willing to pay; and
(3) the resale market for our loans.
The markets also are affected by more general factors, including general
economic conditions, interest rates and government regulations. These factors
currently affect, and may continue to affect, our ability to sell loans in the
secondary market for acceptable prices within reasonable time frames. A
reduction in the secondary market for first mortgage loans, home equity loans
and high loan-to-value loans would hurt our ability to sell loans in the
secondary market as well as our liquidity and future loan production. We cannot
predict whether the liquidity of the secondary market will continue to diminish
in the future.
- Risks Associated with the Need For Alternative Financing
If the amounts available under the Sovereign Warehouse Line to fund our
loan production prior to its sale are insufficient to enable us to produce the
volume of loans necessary for us to operate profitably or on a positive cash
flow basis, we will have to seek out other sources of liquidity. This may
include additional warehouse financing and debt and/or equity securities
offerings. The Sovereign Warehouse Line terminates at the end of February 2000
and is renewable, at Sovereign's option, in six-month intervals for up to five
years. Sovereign may terminate the Sovereign Warehouse Line if we do not sell
them $100.0 million of loans in each fiscal quarter beginning with the calendar
quarter ending March 31, 1999. If that happens, we cannot guarantee that
additional financing will be available on favorable terms, or at all. If we are
not successful in maintaining or replacing existing financing or obtaining
additional financing, we would have to reduce our activities.
2
<PAGE> 3
Except for certain financial covenants in a pledge and security agreement
entered into in April 1997, we are currently complying with the Sovereign
Warehouse Line and agreements with our other lenders.
As of December 1, 1999, we went into default with respect to our
outstanding New Notes due to our failure to make a scheduled interest payment.
We have 30 days to cure this default without penalty. As discussed above in
"-- Liquidity and Capital Resources" we are currently attempting to refinance
our New Notes. There can be no assurances that their refinancing will be
successful.
Before the recapitalization, we were in violation of our warehouse
agreement, the indenture governing the Old Notes and agreements with our other
lenders. If we breach or violate any covenant or condition contained in our
borrowing arrangements, we might be unable to obtain funding for our operations
which would have a material adverse effect on us.
Some of our borrowing arrangements limit the amount of advances that can be
made to us. These limitations are based on the value of, and the delinquency
experience relating to, our mortgage related securities pledged to the lender. A
decrease in the value of the pledged securities would reduce the amount of funds
that we can borrow under the facilities, requiring us to pay down the loans.
- Risk of Violation of Representations Made to Loan Purchasers
We make representations and warranties to the purchasers of our mortgage
loans regarding compliance with laws, regulations and program standards and the
accuracy of information. Under certain circumstances we could become liable for
damages or be required to repurchase a loan if there has been a breach of these
representations or warranties. We generally receive similar representations and
warranties from our loan sources. If these representations and warranties are
breached, we would be subject to the risk that a loan source will not have the
financial capacity to repurchase loans or that a loan source will not otherwise
respond to our demands. We cannot guarantee that we will not experience losses
due to breaches of representations and warranties in the future.
Risks Associated with Implementing Our New Strategic Plan
Since February 1998, our business strategy has been substantially revised.
Our new business strategy has three main components:
(1) focusing on producing Home Equity loans and reducing our historical
focus on the production of Equity + loans;
(2) increasing loan production by acquiring other mortgage lending
companies; and
(3) selling loans produced by us for cash to institutional purchasers in a
secondary market instead of selling loans in securitization transactions.
During the three months ended August 31, 1998, we produced only $1.9
million principal amount of mortgage loans. For the year ended August 31, 1999,
we produced only $ million principal amount of mortgage loans. Our ability to
increase loan production will depend on many factors, including our ability to:
- successfully acquire and integrate the operations of other mortgage
lending companies
- offer attractive loan products to prospective borrowers
- successfully market our loan products
- establish, maintain and expand relationships with mortgage brokers and
bankers
- obtain and maintain increasingly larger lines of credit to fund loans
prior to their sale
- access capital markets
- attract and retain qualified funding, quality control and other personnel
3
<PAGE> 4
You should consider our future prospects in light of the risks, delays,
expenses and difficulties frequently encountered by an early-stage business in a
highly-regulated, competitive environment. We cannot guarantee that we will
implement successfully our new business strategy, develop our current operations
in a timely or effective manner, or generate significant revenues, positive cash
flow or profits.
Risks Associated with Our Management Team
We cannot guarantee that the our management team will be able to operate
effectively or implement successfully our new strategic plan. Our new management
team's ability to manage our growth as we implement our strategic initiatives
depends upon many factors, including their ability to:
(1) maintain appropriate procedures, policies and systems to ensure that
our loans perform at least in accordance with industry standards;
(2) satisfy our need for additional financing on reasonable terms;
(3) manage the costs associated with expanding our infrastructure,
including systems, personnel and facilities; and
(4) operate profitably and on a cash flow positive basis.
If management cannot execute successfully our new business strategy, it
will have a material adverse effect on our financial condition, results of
operations and cash flow.
Our expansion and development largely will be dependent upon the continued
services of the senior members of our new management team including Champ
Meyercord, our Chief Executive Officer, and J. Richard Walker, our Executive
Vice President and Chief Financial Officer. The loss of the services of Messrs.
Meyercord or Walker for any reason could have a material adverse effect on us.
In addition, our future success will require us to recruit and retain additional
key personnel, including additional sales and marketing personnel. We do not
maintain key person life insurance on any members of senior management.
Performance of Future Acquisitions
As part of our business strategy, we intend to acquire other mortgage
lending companies. By acquiring other mortgage lending companies, we believe we
can expand our loan production, while avoiding the time and expense required to
build new mortgage loan production platforms. The value of these companies
generally will be in their ability to immediately produce mortgage loans at a
low cost. This type of value will typically be a substantial portion of the
assets acquired and it is classified under generally accepted accounting
principles as an intangible. Generally acceptable accounting principles require
us to amortize (write off) expenses related to goodwill and other intangible
assets that we acquire. This will reduce our earnings. Future acquisitions may
also result in dilutive issuances of equity securities and our incurrence of
additional debt. All of these factors could have a material adverse effect on
our financial condition, results of operations and cash flows.
Future acquisitions would involve numerous additional risks, including:
- difficulties in the integration of the acquired company's operations,
services, products and personnel
- entry into markets in which we have little or no direct prior experience
- the potential loss of the acquired company's key employees
Mortgage lending companies that we acquire in the future may not perform in
accordance with our expectations. We cannot predict whether we will identify
acquisition opportunities, whether we can negotiate acquisitions on favorable
terms or whether any acquisition will result in profitable operations in the
future or be successfully integrated with our existing business.
4
<PAGE> 5
Acquisitions in which all or a portion of the purchase price is in shares
of Common Stock would require, in certain cases, the written consent of each of
City National Bank and Sovereign. We cannot guarantee that we would be able to
obtain any such consent.
Risks Associated with Mortgage Backed Securities
- Risks Related to our Junior Interest
We historically have sold the greater portion of our Equity + and Title I
loans in securitization transactions. As a result, we are at risk because these
loans back our mortgage related securities. In a securitization transaction, the
cash flow from the mortgage loans backing the securitization, principal and
interest is first paid to the owners of the senior interests according to a
pre-established schedule of required interest and principal payments. Payment of
cash flow to our mortgage related securities is junior to the scheduled
principal and interest payments to the senior interests.
If the borrowers do not make their payments on the loans backing a
securitization or if the payments are insufficient to make required principal
and interest payments on the senior interests, the amounts that would be paid to
us will be used to cover the shortfall. This would reduce or in some cases
eliminate the stream of revenues that would have been paid to us on our mortgage
related securities. If payments received from the loans backing a securitization
are less than the amounts we anticipated at the time we sold the loans in a
securitization transaction, we may be required to write down the fair value of
our mortgage related securities retained in that securitization. This would
result in a charge to earnings. We cannot guarantee that estimates of future
losses on loans backing our mortgage related securities will be adequate in the
future.
- Risk of Write Down of the Value of Mortgage Backed Securities due to Poor
Performance of Mortgage Loans
We had to write down the fair value of our mortgage related securities
during fiscal 1998. This write down resulted from unexpectedly high rates of
prepayments, delinquencies, default, and credit losses. As a result, we
substantially increased the anticipated prepayment rates, delinquency rates,
default rates and credit losses on the mortgage loans backing our mortgage
related securities. The new assumptions significantly decreased the cash flow we
expected to receive on these securities in the future, which required us to
reduce the fair value of our mortgage related securities to $34.8 million on
August 31, 1998 compared to $106.3 million on August 31, 1997.
In the future, we may have to make additional reductions in the carrying
value of our mortgage related securities. We cannot guarantee that the
prepayment rate, delinquency rate, default rate, and credit losses on the
mortgage loans backing the securities will not increase above the levels we
currently anticipate. If we have to further write down these securities' value,
we may incur losses in the quarter when we write them down. We may then violate
the net worth covenants in our borrowing agreements. Any of these events could
have a material adverse effect on our financial condition and operations. For
additional details concerning the valuation of our mortgage backed securities,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Securitization Transactions" and Notes 2, 5 and 17 to our
financial statements located later in this prospectus.
- Risks Related to Over-Collateralization
As part of the sale of loans in securitization transactions, we are
required to establish over-collateralization and/or build over-collateralization
levels by retaining distributions of excess cash flow otherwise payable to us on
our mortgage related securities. Excess cash flow results from the positive
difference between the higher interest rate paid by our borrowers on the
mortgage loans sold in the securitization and the lower yield paid to the owners
of the senior interests in the trust established to own the loans sold by us.
Over-collateralization serves as credit enhancement for the owners of the senior
interests and is available to absorb losses realized on loans backing the
securitization. Were it not for these over-collateralization requirements, we
would be able to use the excess cash flow in our operations. Because of those
requirements, if borrowers default on principal and interest payments on their
loans, the securitization trust holding the
5
<PAGE> 6
mortgages would have to use part of the over-collateralization to pay the owners
of the senior interests. This could delay, reduce or eliminate the excess cash
flow otherwise payable to us on our mortgage related securities.
- Risk Related to Interest Rate Spread
During fiscal 1997, we sold $398.4 million principal amount of mortgage
loans, that had a weighted-average interest rate of 14.0%, in securitization
transactions. The $390.1 million principal amount of senior interests sold to
institutional investors as part of these securitizations had an initial
weighted-average interest rate of 6.88%. The $8.3 million difference between the
amount of mortgage loans sold and the amount of senior interests sold creates
the initial over-collateralization. The 7.1% difference between the interest
paid by the borrowers and the interest paid to the owners of the senior
interests (the "spread") declines over time primarily because of payoffs
(including defaults) of the loans backing the securitization. The initial spread
would be equal to 7.1% times $390.1 million, or $27.7 million annually plus
interest at 14.0% on the $8.3 million principal amount of loans in the
over-collateralization account. We use the spread and the cash flow from the
loans in an initial over-collateralization to reduce the principal balances of
the senior interests or fund the additional over-collateralization.
The initial over-collateralization and retained amounts are determined by
the entity that, as a condition to obtaining insurance, issues any guarantee of
the related senior interests and/or by the rating agencies as a condition to
obtaining the desired rating on the senior interests. If we use the spread and
the cash flow from the loans in an initial over-collateralization in this
manner, we will continue to be subject to the risks of faster than anticipated
rates of voluntary prepayments, delinquencies, defaults and credit losses on
foreclosure on the mortgage loans backing our mortgage related securities that
we sold in prior securitizations.
In addition, using the spread to fund reserves delays or in some cases
eliminates cash distributions that we would be entitled to receive on our
mortgage related securities. For a detailed explanation of excess cash flow,
mortgage related securities and securitization transactions, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Securitization Transactions".
- Risks Related to Loan Repurchases
We agree to repurchase or replace loans that do not conform to our
representations and warranties at the time we sell the loans. If we were
required to repurchase or replace loans, we cannot guarantee that the loans
repurchased or replaced repurchased could be sold at a price equal to our total
cost of acquisition. For additional details, see "Business -- Loan Servicing"
and "-- Sale of Loans" and Note 2 to our financial statements.
Risks from the Sale of Servicing Rights
We historically have sold substantially all of our mortgage loans with
servicing retained. This means that we retained the right to service the loans.
As part of the recapitalization, we sold our existing mortgage loan servicing
rights, including the right to service all of the mortgage loans backing our
mortgage related securities, to City Mortgage Services. To the extent that City
Mortgage Services is ineffective in servicing these loans, we would experience
increased delinquencies, defaults and credit losses, which would have an adverse
effect on us. Consequences could include the additional write downs of the fair
value of our mortgage related securities and a restriction on our ability to
access capital markets for our future financing requirements.
The delinquency and default rates on the mortgage loans backing our
mortgage related securities has increased significantly since we sold the
servicing rights on these loans to City Mortgage Services. In the past, this
increase in delinquencies and defaults has caused us to write down the fair
value of these securities. We cannot guarantee that City Mortgage Services will
perform up to industry standards, which could result in the adverse consequences
described above. If City Mortgage Services does not perform well, we have the
right to terminate City Mortgage Services. However, we would have to find a new
servicer for these loans after such a
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termination. We might be unable to find an appropriate servicer or, if
identified, we may not be able to hire such servicer on favorable terms.
Interest Rate Risks
Changes in interest rates affect our business by decreasing the demand for
loans during periods of higher interest rates and increasing prepayment rates
during periods of lower interest rates. The profits we realize from loans are,
in part, a function of the difference between the fixed long term interest rates
we charge to borrowers and the adjustable short term interest rates we pay on
the Sovereign Warehouse Line, which we use to fund loans until we sell them.
Generally, short-term rates are lower than long-term rates. We benefit from
the positive interest rate differential during the time we own the loans pending
their sale. During the period from 1994 to the present, the interest rate
differential was high. Interest rates are not predictable or controllable, and
we cannot predict whether the positive interest rate differential will continue
in the future. A change in the differential could have a material adverse effect
on our financial position, results of operations and cash flows.
Changes in interest rates during the period between the establishment of
the borrowers' interest rate on a loan and the sale of the loan affect the
revenues we realize. As part of our loan production process, we issue loan
commitments (sometimes referred to as "interest rate locks") for periods of up
to 30 days to mortgage bankers and brokers. The period of time between the
closing of a loan and the sale of the loan generally ranges from 10 to 90 days.
Increases in interest rates during these periods will result in lower gains (or
even losses) on loan sales than would be recorded if interest rates had remained
stable or had declined. We intend to expand our loan production, increase the
amount of our borrowings under the warehouse lines of credit and increase the
amount of loans held for sale, which will increase our exposure to the risk of
interest rate increases.
Increases in interest rates also may require us to write down the fair
value of our mortgage related securities, which could have a material adverse
effect on our financial condition, results of operations, and cash flows. This
interest rate is the rate we believe would be used by a third party in
determining the value of our mortgage related securities. Increasing the rate at
which we discount to present value the cash flow we expect to receive on our
mortgage related securities reduces their fair value. Decreases in interest
rates may result in increased prepayment rates which may require us to write
down the fair value of our mortgage related securities.
Risk of Variations in Quarterly Operating Results
Several factors affecting our business can cause significant variation in
our quarterly operating results. Variations in the volume of our production,
differences between our costs of borrowings and the average interest rates paid
by our borrowers, our inability to complete scheduled loan sale transactions and
the condition of the mortgage loan industry and the specialty finance industry
can result in significant increases or decreases in our revenues from quarter to
quarter. A delay in closing a particular loan sale transaction during a
particular quarter would postpone recognition of revenues and gain or loss on
the sale of those loans. In addition, unanticipated delays in closing a
particular loan sale transaction would also increase our exposure to interest
rate fluctuations by lengthening the period during which our variable rate
borrowings under the Sovereign Warehouse Agreement are outstanding. If we were
unable to sell a sufficient number of loans at a premium in a particular
reporting period, our revenues for that period would decline, resulting in lower
net income and possibly a net loss for that period. This could have a material
adverse effect on our financial condition and results of operations.
Risks Associated with Delinquencies and Defaults on Loans
Potential loan delinquencies and defaults by our borrowers expose us to
risks of loss and reduced net earnings. During economic slowdowns or recessions,
loan delinquencies, defaults and credit losses generally increase. In addition,
significant declines in market values of residences securing the loans reduce
homeowners' equity in their homes. The limited borrowing power of our customers
also increases the likelihood of delinquencies, defaults and credit losses on
foreclosure. For Home Equity loans, we rely primarily on the
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appraised value of the borrower's home and for Equity + loans we rely on the
creditworthiness of the borrower. We determine the amount of a loan based on the
loan-to-value ratio and the borrower's creditworthiness. After a default by a
borrower, we, or the servicer of the mortgage loan, evaluates the cost
effectiveness of foreclosing on the property. Such default may cause us to
charge our allowances for credit losses on loans held for sale, except to the
extent that FHA insurance proceeds are available. If we must take losses on a
loan backing our mortgage related securities or loans that exceed our
allowances, our financial position, results of operations and cash flows could
suffer.
Many of our borrowers have limited access to consumer financing for a
variety of reasons, including insufficient home equity value and unfavorable
past credit histories. We are subject to various risks associated with these
borrowers, including, but not limited to, the risk that borrowers will not pay
interest and principal due, and that the value received from the sale of the
borrower's residence in a foreclosure will not be sufficient to repay the
borrower's obligation to us.
The risks associated with the our business increase during an economic
downturn or recession. These periods also may be accompanied by decreased demand
for consumer credit and declining real estate values. Any material decline in
real estate values reduces the ability of borrowers to use the value of their
homes to support borrowings and increases the loan-to-value ratios of our loans
and the loans backing our mortgage related securities. This weakens collateral
values and the amount, if any, obtained upon foreclosures.
The frequency and severity of losses generally increases during economic
downturns or recessions. Because our borrowers generally do not satisfy criteria
of government agencies that traditional lenders rely on in evaluating whether to
make loans to potential borrowers, these borrowers do not qualify for
traditional "A" credit loans. The actual rate of delinquencies, foreclosures and
credit losses on these loans are often higher under adverse economic conditions
than those currently experienced in the mortgage loan industry in general
because of the lower credit quality of the borrower. Any sustained period of
increased delinquencies, foreclosures and losses could hurt our financial
condition, results of operations and cash flows.
Litigation; Risk of Claims
In the ordinary course of business, we are subject to claims made by
borrowers and private investors from, among other things, losses allegedly
incurred as a result of potentially breaches of fiduciary obligations and
misrepresentations, errors and omissions of our employees, officers and agents.
Industry participants are frequently named as defendants in litigation involving
alleged violations of federal and state consumer lending laws because of the
consumer-oriented nature of the industry and uncertainties with respect to the
application of various laws and regulations. Pending claims and any claims made
in the future may result in legal expenses or liabilities which could have a
material adverse effect on our financial condition, results of operations and
cash flows. For details about pending litigation, see "Business -- Legal
Proceedings" located elsewhere in this report.
Competition
We face intense competition in producing and selling Home Equity loans and
Equity + loans. Our competitors include other consumer finance companies,
mortgage banking companies, commercial banks, credit unions, thrifts, credit
card issuers and insurance finance companies. Many of these competitors are
substantially larger than we are. In addition, our competitors may have more
capital and other resources and a lower cost of capital than we do. In addition,
we may face competition from government-sponsored entities which have entered
the market for non-conforming mortgage loans. Existing mortgage loan purchase
programs may be expanded by the Federal National Mortgage Association ("FNMA"),
the Federal Home Loan Mortgage Corporation ("FHLMC"), or the Government National
Mortgage Association ("GNMA") to include non-conforming mortgages, particularly
loans similar to our Home Equity loans. Entries of government-sponsored entities
into the non-conforming loan market may reduce the interest rate borrowers are
willing to pay on our mortgage loans and may reduce or eliminate premiums on
their sale.
Industry participants compete for business in many ways. Some provide
borrowers more convenience in obtaining a loan, some have better customer
service and others have strong marketing and distribution
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channels. This industry has a relatively low barrier to entry, which permits new
competitors to enter the broker-sourced loan market quickly. This may lower the
rates we can charge borrowers, potentially lowering gains on future loan sales.
If any of our competitors significantly expand their activities in our markets,
such action could have a material adverse effect on us.
Changes in interest rates and general economic conditions may also affect
our competition. During periods of increasing interest rates, competitors who
have locked in low borrowing costs may have a competitive advantage. During
periods of declining rates, competitors have solicited, and may in the future
solicit, our customers to refinance their loans. To the extent these
solicitations are successful, the prepayment rates on the loans backing our
mortgage related securities may increase beyond the levels currently anticipated
which may result in a write down in the fair value of these securities.
We depend on mortgage brokers and bankers for substantially all of our
mortgage loan production. These mortgage brokers and bankers generally deal with
multiple lenders for each prospective borrower. Our competitors also attempt to
establish relationships with these entities, none of which are contractually or
otherwise obligated to deal exclusively, or to continue to do business, with us.
In addition, we expect the volume of broker and mortgage banker-sourced loans
funded and purchased by us to increase significantly. Our future operating and
financial results may be more susceptible to fluctuations in the volume and cost
of our broker and mortgage banker-sourced loans from, among other things,
competition from other purchasers of these loans.
As we expand our retail, broker and mortgage banker-sourced loan production
into new geographic markets, we will face competition from lenders with
established positions in these markets. We cannot predict whether we will be
able to compete successfully with those established lenders.
Volatility of Stock Price
The price of our Common Stock has experienced significant volatility since
our initial public offering in November 1996. The market price of our common
stock, as adjusted to reflect a one-for-ten reverse stock split which became
effective on March 22, 1999, has ranged from a high of $157.50 per share to a
low of $1.00 per share through December 13, 1999. As of December 13, 1999, the
last sale price of our Common Stock as reported on the Nasdaq SmallCap Market
was $2.19 per share. The stock market recently has experienced extreme price and
volume fluctuations which may be unrelated to the operating performance of
particular companies. Market conditions in the specialty finance industry and
factors such as legislative and regulatory changes, announcements of new
products and services by us, our competitors or third parties, and changes in
earnings estimates by analysts may have a significant effect on the price of our
Common Stock.
Risk of Failing to Comply with the Listing Requirements of the Nasdaq SmallCap
Market
The Nasdaq SmallCap Market requires that all listed companies maintain
certain levels with respect to each of the following:
- net tangible assets
- number of publicly held shares
- value of capital stock traded in the Nasdaq SmallCap Market
- bid price
- number of stockholders
- number of market makers
If we fail to comply with any of these requirements, our shares of Common Stock
could be delisted from the Nasdaq SmallCap Market. If our Common Stock was
delisted, we cannot guarantee that there would be a market for you to trade in
the Common Stock.
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Factors Inhibiting Takeover; Effect of Change of Control
Sovereign and City Holding Company each has a right of first refusal to
acquire us if our board of directors decides to offer us for sale. In addition,
the change of control provisions of the New Notes, as well as the change in for
sale control provisions of certain of our other credit arrangements and
employment agreements with our senior executives, could inhibit a takeover
attempt by a third party.
Certain provisions of our Certificate of Incorporation and Bylaws may
delay, defer or prevent a takeover attempt by a third party. Our Certificate of
Incorporation authorizes the board of directors to determine the rights,
preferences, privileges and restrictions of unissued series of preferred stock
and to fix the number of shares and designation of any series of preferred stock
without any vote or action by our stockholders. The issuance of preferred stock
may have the effect of delaying, deferring or preventing a change of control,
since the terms of the preferred stock that might be issued could potentially
prohibit or otherwise restrict our ability to consummate any merger,
reorganization, sale of substantially all of our assets, liquidation or other
extraordinary corporate transaction without the approval of the holders of the
outstanding shares of the preferred stock. Other provisions of our Certificate
of Incorporation and Bylaws provide that special meetings of the stockholders
may be called only by the board of directors or upon the written demand of the
holders of not less than 30% of the votes entitled to be cast at a special
meeting.
Legislative and Regulatory Risks
Our business is subject to extensive regulation, supervision and licensing
by federal, state and local governmental authorities. These rules and
regulations, among other things, impose licensing obligations on us, establish
eligibility criteria for mortgage loans, prohibit discrimination, provide for
inspections and appraisals of properties, govern credit reports on loan
applicants, regulate assessment, collection, foreclosure and claims handling,
investment and interest payments on escrow balances and payment features,
mandate disclosures and notices to borrowers and, in some cases, fix maximum
interest rates, fees and mortgage loan amounts. If we do not comply with these
requirements, many of which are highly technical, we could lose our approved
status, our servicing contracts could be terminated or suspended without
compensation to the servicer, we could face demands for indemnification or
mortgage loan repurchases, we may suffer the exercise of certain rights of
rescission for mortgage loans by our borrowers, and we may be subject to class
action lawsuits and administrative enforcement actions.
The Internal Revenue Service is considering a rule that would require
lenders to "flag" all of their high loan-to-value loans and to inform consumers
that some portion of their interest payments on high loan-to-value loans are not
tax-deductible. The adoption of this change could have an adverse affect on our
Equity + loan production. In addition, Congress is considering a recommendation
of the National Bankruptcy Review Commission that, if adopted, would treat in a
consumer bankruptcy proceeding the portion of a second mortgage loan that
exceeds the value of a house as unsecured debt. Adoption of these or more
restrictive laws, rules and regulations would have an adverse effect on our
financial condition, results of operations and cash flows.
Members of Congress and government officials periodically have suggested
the elimination of the mortgage interest as a deduction for federal income tax
purposes in certain situations, based on, among other things, borrower income,
type of loan or the principal amount of the loan. Because many of our loans are
used by borrowers to consolidate consumer debt, make home improvements or for
other consumer needs, the reduction or elimination of these tax benefits could
substantially reduce the demand for the type of loans that we offer.
Environmental Risks
In the course of our business, we have acquired, and may acquire in the
future, residences that are the collateral or security for loans that are in
default. There is a risk that hazardous substances or waste, contaminants,
pollutants or their sources could be discovered on-site after these residences
are acquired by us. In that event, we may be required by law to remove the
substances from the residences at our cost and
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expense. We cannot guarantee that: (1) the cost of removal would not
substantially exceed the value of the residence that is the collateral or
security for a loan; (2) we would have adequate remedies against the prior owner
or other responsible parties; or (3) we would be able to sell the residence
prior to or following the removal.
At August 31, 1998, the Company had begun to make inquiry of substantially
all of its strategic partners, vendors and third party entities with which it
has material relationships, and had begun to compile data related to their Year
2000 plans. The Company's reliance upon certain third parties, vendors and
strategic partners for loan servicing, investor reporting, document custody and
other functions, means that their failure to adequately address the Year 2000
issue could have a material adverse impact on the Company's operations and
financial results. The Company has received assurances from its two major
strategic partners, City Mortgage Services and Sovereign, that they have
implemented plans to address the Year 2000 issue. The Company has not evaluated
these plans or assurances for their accuracy and adequacy, or developed
contingency plans in the event of their failure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are listed under Item 14 (a) of this Annual Report
and are filed as part of this report on the pages indicated, and the
supplementary data are included in the notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
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