AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
File No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FEDERAL MORTGAGE MANAGEMENT II, INC.
(Name of small business issuer in its charter)
FLORIDA 6211 65-0625618
- ----------------------- ----------------------------- ----------------------
(State of Incorporation (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
1800 Second Street, Suite 780
Sarasota, Florida 34236
(941) 365-4200
-----------------------------------------------------------
(Address and telephone number of principal executive offices)
1800 Second Street, Suite 780
SARASOTA, FLORIDA 34236
--------------------------------------
(Address of principal place of business)
Guy S. Della Penna, President & CEO
Executive Wealth Management Services, Inc.
1800 Second Street, Suite 760
Sarasota, Florida 34236
(941) 365-4200
-------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies to:
Gregory C. Yadley, Esquire
Shumaker, Loop & Kendrick, LLP
101 E. Kennedy Blvd., Suite 2800
Tampa, FL 33602
(813) 229-7600
Approximate date of proposed commencement of sale to the public: As soon as
practical after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF DOLLAR AMOUNT MAXIMUM OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTED TO BE REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series 1996A Promissory Note $5,000,000 $1,000 $5,000,000 $1,515.15
=================================================================================================================
</TABLE>
The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
FEDERAL MORTGAGE MANAGEMENT II, INC.
$5,000,000 Aggregate Principal Amount of Promissory Notes
FEDERAL MORTGAGE MANAGEMENT II, INC. (the "Company") is a newly formed
Florida corporation based in Sarasota, Florida. The Company is offering its
Promissory Notes (the "Notes") in aggregate principal amount of $5,000,000.
Within such aggregate principal amount of $5,000,000, the Notes are available in
the following maturities and Note interest rates ("Note Rate"):
SELLING
SERIES AMOUNT COMMISSION MATURITY DATE RATE
---------- ---------- ---------- --------------- ------
1996 A-I $ 500,000 3.00% _________, 2000 8.00%
1996 A-II 1,000,000 4.50% _________, 2001 9.00%
1996 A-III 3,500,000 7.00% _________, 2002 10.00%
Interest on the Notes will be payable monthly at the applicable Note Rate
commencing on the first day of the first month following attainment of the
Minimum Requirement (as hereinafter defined) and the release of the proceeds
from the sale of the Notes to the Company, and thereafter, on the first day of
each month (each a "Payment Date"). The amount of interest payable on each
Payment Date will equal the interest accrued during the month ending on the day
prior to such Payment Date ("Interest Accrual Period"). All Note Rates are fixed
and not subject to adjustment during the Note term. The Notes are non-callable.
Subject to certain conditions, interest at the Note Rate will begin to
accrue upon acceptance of a subscription for a Note by the Company and after
attainment of the minimum requirement. The minimum subscription for Notes is
$5,000. See "TERMS OF NOTE OFFERING." Utilizing the net proceeds received from
the sale of the Notes, the Company will originate, acquire, hold and deal in a
portfolio of residential real estate mortgage loans (each a "Portfolio Loan" and
collectively, the "Portfolio Loans") to be acquired in accordance with an
acquisition policy described herein (the "Acquisition Policy"). See "BUSINESS OF
THE COMPANY - PLAN OF OPERATION."
AN INVESTMENT IN THE NOTES IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK, WITH THE HIGHEST DEGREE OF RISK BEING ASSOCIATED WITH THE SERIES 1996
A-III NOTES DUE IN 2002. INVESTORS SHOULD CAREFULLY CONSIDER THE MATERIAL RISKS
SET FORTH UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Notes are being offered on a best efforts basis by Executive Wealth
Management Services, Inc. ("Executive"), which will receive average selling
commissions at the rate of 6.1% of Note proceeds. As indicated in Notes (2) and
(3) below, Executive and its affiliates also will receive certain other fees and
expense allowances.
- --------------------------------------------------------------------------------
MAXIMUM SELLING PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(2) COMPANY(3)
- --------------------------------------------------------------------------------
Per Note (1) $ 1,000 $ 128 $ 878
Total Minimum (4) 1,500,000 191,500 1,308,500
Total Maximum 5,000,000 580,000 4,420,000
- --------------------------------------------------------------------------------
(1) Subscriptions for Notes may be made in increments of $1,000, subject to a
minimum investment of $5,000 principal amount of Notes. Subscribers may
request that their subscriptions be allocated between the three sub-Series
of Notes in $1,000 increments, subject to availability. The Company and
Executive, the selling agent for the Notes, are affiliates. In accordance
with the provisions of the Bylaws of the National Association of
Securities Dealers, Inc. (the "NASD"), the fairness of the Note offering
made hereby has been reviewed by Kashner Davidson Securities Corporation,
a "qualified independent underwriter" as such term is defined in Schedule
E to the Bylaws of the NASD. See "PLAN OF DISTRIBUTION" and "DESCRIPTION
OF NOTES AND CUSTODY AGREEMENT."
<PAGE>
(2) The Notes are being sold on a best efforts basis by Executive, as selling
agent, and may also be sold through the facilities of other securities
broker-dealers who are members of the NASD and are authorized by the
Company to offer the Notes and are permitted to do so under the laws of
the jurisdictions in which the Notes may be offered. Average selling
commissions at the rate of 6.1% of the Note proceeds will be paid to
Executive and the other qualified securities broker-dealers if the Minimum
Requirement is attained (as described in Note 4 below). Additionally,
Executive will be entitled to receive a 3% Note offering management fee
charged against gross Note offering proceeds in connection with the sale
of the Notes offered hereby, as well as a non-accountable expense
allowance equal to 2% of gross Note offering proceeds. The Company will
pay a fee of $15,000 to Kashner Davidson Securities Corporation for its
service as a "qualified independent underwriter" in connection with the
offering of the Notes, and will also pay the expenses of Kashner
Davidson's counsel arising in connection with its representation of
Kashner Davidson in this matter, estimated to be $10,000. The payment of
all selling commissions, fees and the non-accountable expense allowance to
Executive and other qualified securities broker-dealers is subject to the
attainment of the Minimum Requirement described in Note (4) below.
(3) The amount reflected in the table does not take into account expenses
incurred and to be incurred by or on behalf of the Company in connection
with the Note offering and consisting of legal, accounting and filing
fees, printing expenses and other miscellaneous fees and expenses which
are estimated at $235,000. Upon the attainment of the Minimum Requirement,
the Company will pay $85,000 of such expenses. If at least $2,000,000
principal amount of Notes is sold by the Company, the Company will
reimburse Capital Management Group, Inc. ("CMG") for up to an additional
$150,000 of such expenses which may have been paid previously or accrued
by CMG. Such expenses are in addition to selling commissions, the
management fees and the non-accountable expense allowance described in
Note (2) above. See "USE OF PROCEEDS."
(4) The offering of Notes made hereby is subject to the requirement that the
Company receive and accept subscriptions for Notes in the minimum
principal amount of $1,500,000 on or before midnight on the 90th day after
the date of this Prospectus, subject to a one-time extension effected at
the sole option of the Company of up to 90 days from such date. Pending
the receipt and acceptance of such subscriptions for Notes, all
subscription funds delivered by investors to Executive shall be deposited
promptly in an escrow account and maintained therein in accordance with an
Escrow Agreement between the Company, Executive and SouthTrust Asset
Management Company of Florida, N.A., Sarasota, Florida (the "Escrow
Agent"). Such minimum subscriptions for Notes requirement is referred to
in this Prospectus as the "Minimum Requirement." If the Minimum
Requirement is not successfully attained, all subscription funds
maintained in the escrow account shall be returned promptly to investors
with the interest earned thereon. See "TERMS OF NOTE OFFERING." If the
Minimum Requirement is timely attained, the Note offering will continue
until the earlier of (a) the 270th day from the date of this Prospectus,
(b) the sale of the entire $5,000,000 principal amount of Notes, or (c)
termination of the Note offering at the sole election of the Company (the
"Offering Period"). See "USE OF PROCEEDS" and "BUSINESS OF THE COMPANY."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE NOTE OFFERING DESCRIBED HEREIN AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR EXECUTIVE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE NOTES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL.
UNTIL _____________, 1997 [90 DAYS AFTER THE DATE OF THIS PROSPECTUS], ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO OTHER UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
Interested Investors Should Contact:
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Executive Wealth Management Services, Inc.
2323 Stickney Point Road
Sarasota, Florida 34231
941/921-9700
The date of this Prospectus is ___________ __, 1996.
<PAGE>
TABLE OF CONTENTS
PAGE
----
GLOSSARY OF CERTAIN TERMS...............................................1
INVESTOR SUITABILITY................................................... 1
PROSPECTUS SUMMARY..................................................... 2
SUMMARY FINANCIAL INFORMATION.......................................... 7
RISK FACTORS........................................................... 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS.....................14
TERMS OF NOTE OFFERING.................................................15
PLAN OF DISTRIBUTION...................................................16
CONFLICTS OF INTEREST; TRANSACTIONS WITH MANAGEMENT AND AFFILIATES.....17
USE OF PROCEEDS........................................................19
CAPITALIZATION.........................................................20
BUSINESS OF THE COMPANY - PLAN OF OPERATION............................20
Background
Principal Activity
Summary of Portfolio Loan Acquisition Policy
Portfolio Loan Acquisition Policy
Supply of Portfolio Loans
Portfolio Loan Servicing
Competition
Eligible Collateral as Security for the Note Obligations
MANAGEMENT.............................................................26
Information Concerning Mr. Della Penna
Compensation
Indemnification
Key-Man Life Insurance
PRINCIPAL SHAREHOLDERS.................................................27
DESCRIPTION OF THE NOTES AND THE CUSTODY AGREEMENT.....................28
General
Eligible Collateral
Summary of the Custody Agreement
The Trustee
Action by the Trustee upon Default by the Company
Note Prepayment
Transfer Agent
REPORTS TO NOTE HOLDERS................................................31
LITIGATION.............................................................31
LEGAL MATTERS..........................................................31
EXPERTS................................................................31
ADDITIONAL INFORMATION.................................................32
INDEX TO FINANCIAL STATEMENTS.........................................F-1
APPENDIX A - PRIOR PERFORMANCE INFORMATION
EXHIBIT A - NOTE SUBSCRIPTION AGREEMENT
EXHIBIT B - INDENTURE AND CUSTODY AGREEMENT
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<PAGE>
GLOSSARY OF CERTAIN TERMS
The information presented in this Prospectus concerning the Company's
activities in connection with the acquisition of residential real estate
mortgage loans utilizes certain terms to describe such loans and their
characteristics with respect to past and present loan payment performance of the
borrower obligated under a particular Portfolio Loan (the mortgagor), current
financial status of the mortgagor, the manner of origination of the loan,
factors affecting the Company's ability to sell the loan in the secondary
mortgage loan market and other factors and characteristics which may be material
in connection with the Company's purchase, ownership and subsequent sale of a
Portfolio Loan. Unless the text of this Prospectus clearly indicates otherwise,
the terms below which are descriptive of residential real estate mortgage loans
shall have the meanings or definitions indicated:
"Residential real estate mortgage loan" means a mortgage loan secured
by a lien on real estate which is either improved with a one to four
family residential dwelling or is unimproved but zoned and intended for
use as a building lot for a one to four family residential dwelling.
"Conforming loan" means a residential real estate mortgage loan which
has been originated in compliance with the origination criteria of the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"), both of which are federally chartered
corporations. Such loan origination criteria include loan amount to value
of collateral real estate ratios, mortgagor payment history and the
ability of the mortgagor to repay the loan. A conforming loan may also be
a loan not originated in compliance with FNMA or FHLMC origination
criteria but which at the time of acquisition for the Company is salable
to FNMA or FHLMC.
"Non-conforming loan" means a residential real estate mortgage loan
(a) whose mortgagor has an acceptable payment and credit history but which
is otherwise non-conforming to the loan transaction documentation criteria
of FNMA or FHLMC, or (b) which is in compliance with FNMA or FHLMC loan
transaction documentation criteria but does not otherwise conform to FNMA
or FHLMC loan underwriting requirements in terms of loan to value ratios,
credit history or other underwriting criteria.
Within the conforming and non-conforming loan categories, there are three
standards of loan performance:
A "performing loan" is a residential real estate mortgage loan which,
during the prior six months, has been current in terms of scheduled
principal and interest payments or has not been in excess of 30 days
delinquent in any such payment.
An "under-performing loan" is a residential real estate mortgage loan
(a) which is more than 30 days delinquent with respect to one or more
current or historical scheduled principal or interest payments but with
respect to which at least one payment has been received in the last 90
days, or (b) which has been more than 30 days delinquent with respect to
one or more current or historical scheduled principal or interest payments
in the prior six months but which, on a current basis, is now meeting
scheduled principal and interest payments as required by the loans terms
and has done so for a minimum period of 60 days.
A "non-performing loan" is a residential real estate mortgage loan
(a) with respect to which no payment has been received in the past 90
days, or (b) the mortgagor of which, together with the underlying
collateral real estate, is or may be subject to a foreclosure or
bankruptcy proceeding.
INVESTOR SUITABILITY
In the view of the Company, the Notes offered by this Prospectus should be
acquired only if the purchasing investor (a) is able to hold the Notes over the
term thereof and recognizes that until maturity, the Notes offered by this
Prospectus represent an illiquid investment; (b) is able to assume on a
continuing basis with respect to the Note investment the risk of loss of a
substantial portion of the investor's investment in the Notes; and (c) has a net
worth sufficient to permit the assumption of the risks inherent in the Company's
intended activities. See "RISK FACTORS."
In keeping with the foregoing, the Company will accept subscriptions for
Notes only from (i) individuals who, alone or together with his or her spouse,
have a minimum net worth (exclusive of home and automobiles) of $150,000, or
(ii) entities
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which have a net worth of at least $150,000. Further, no subscriber may
subscribe for Notes representing more than ten (10) percent of such subscriber's
net worth.
The Notes offered by this Prospectus involve a high degree of risk and
each investor's investment in Notes will be at risk in the activities of the
Company. If the Company is unsuccessful or only marginally successful in
carrying out its business activities with respect to the purchase and sale of
Portfolio Loans, the Company's ability to meet the interest and principal
obligations represented by outstanding Notes in a timely manner will be
impaired. Accordingly, investors should only purchase Notes with the full
understanding of the risks which must be assumed in order to obtain the
opportunity of receiving the rate of return on their invested capital offered by
the Notes. See "RISK FACTORS."
PROSPECTUS SUMMARY
Set forth below is a summary of certain information which is contained in
this Prospectus. Such information is qualified in its entirety by the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus.
The Company Federal Mortgage Management II, Inc. (the "Company") was
incorporated under Florida law on November 13, 1995. The
Company was formed and is being capitalized primarily to
originate, underwrite, acquire, hold and deal in a portfolio
of primarily first lien residential mortgage loans (the
"Portfolio Loans"). As a general matter, the Company expects
to buy Portfolio Loans which represent higher credit risks,
and therefore offer a higher yield, than loans generally
originated by commercial banks or other institutional
lenders. During a period of generally from three to six
months after the acquisition of a Portfolio Loan, the
Company will endeavor to bring all loan documentation for
the loan into compliance with the institutional mortgage
loan market (referred to as "scrubbing" the loan) and, with
respect to under-performing or non-performing loans, will
attempt to work with the mortgagor to have the loan payments
brought to current status in terms of principal and interest
payments. After servicing the loan for a three to nine month
period and bringing a delinquent loan current, or at least
improving its performing status (referred to as "seasoning"
the loan), the Company will then package together a number
of "scrubbed" and "seasoned" Portfolio Loans and attempt to
sell them into the institutional mortgage loan market at a
premium over the price the Company paid for them.
Pending the purchase of Portfolio Loans, the Company may
invest available cash in deposit or certificate accounts of
state or federally chartered banking institutions with at
least $500 million of assets or debt securities of the
United States or instrumentalities thereof ("Federal
Instruments") or money market or equivalent funds at a New
York Stock Exchange member firm with net assets of at least
$200 million ("Money Market Funds"). See "BUSINESS OF THE
COMPANY - PLAN OF OPERATION."
The Company's offices are located at 1800 Second Street,
Suite 780, Sarasota, Florida 34236; its telephone number is
941/954-2328.
Securities Being The Company is offering $5,000,000 in aggregate principal
Offered amount of Promissory Notes, in varying maturities and with
varying Note Rates, as set forth below:
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<PAGE>
SERIES AMOUNT MATURITY DATE RATE
------ ------ ------------- ----
1996 A-I $ 500,000 __________, 2000 8.00%
1996 A-II 1,000,000 __________, 2001 9.00%
1996 A-III 3,500,000 __________, 2002 10.00%
Interest will be calculated on the principal amount of
outstanding Notes on the basis of a 365 day year and will be
paid to Note holders by the Company on a monthly basis. The
principal obligation of the Notes will be due at Note
maturity. The principal obligation of outstanding Notes may
not be prepaid by the Company prior to maturity.
A maximum principal amount of $5,000,000 of such Notes may
be issued by the Company.
Interest will accrue on each Note at the Note Rate from the
time of acceptance of the subscription for the Note by the
Company. Payment of the interest on subscribed Notes will
commence on the first day of the first month following
attainment of the Minimum Requirement and the release of
Note subscription funds to the Company. Thereafter, Note
interest will be paid on a calendar month basis on the first
day of each month. Such will also be the case for Note
subscriptions accepted subsequent to the attainment of the
Minimum Requirement. If the Company does not attain the
Minimum Requirement within 90 days of the date of this
Prospectus, subject to a one-time extension of up to 90 days
from such date effected at the sole option of the Company,
all subscription funds will be returned promptly to
investors with the interest earned thereon. See "TERMS OF
NOTE OFFERING."
Custody Agreement The Notes will be issued pursuant to an indenture and
custody agreement (the "Custody Agreement"), and the notes
and mortgages comprising the Portfolio Loans will be held
by, and in the name of, Michael Hric, P.A., as trustee (the
"Trustee"), acting as agent for the holders of the Notes.
The Custody Agreement does not contain provisions meeting
the requirements of the Trust Indenture Act of 1939,
although the holders of the Notes and the Trustee will have
certain rights which correspond to some of the requirements
of such act. The Trustee will acquire and maintain a lien on
the Portfolio Loans (as well as the proceeds of any sale of
a Portfolio Loan until the same is reinvested in another
Portfolio Loan or paid out to the Noteholders) and any real
estate acquired upon foreclosure of a Portfolio Loan.
Pending the purchase of Portfolio Loans, the Company may
invest available cash in Federal Instruments or Money Market
Funds which will also be held by the Trustee under the
Custody Agreement. The Portfolio Loans and Federal
Instruments, as well as the cash proceeds from the sale
thereof, Money Market Funds, and any real estate acquired
upon foreclosure of a Portfolio Loan are hereinafter
referred to as Eligible Collateral. As a general matter,
cash payments on the Portfolio Loans, representing the
repayment of principal and interest thereon, will be paid
directly to the Company, and the Trustee will not have
possession and control over the cash from these payments. At
the time of the release of subscription funds to the Company
upon the attainment of the Minimum Requirement and for an
indefinite period thereafter, the face amount or value of
the Eligible Collateral will be less than the aggregate
principal obligation of outstanding Notes, as approximately
16% to 25% of the gross proceeds from the sale of the Notes
will be used immediately to pay offering and other accrued
expenses. Pursuant to the Custody Agreement, the Trustee
will at all times hold Eligible Collateral with an aggregate
Unadjusted Value (as defined below) equal to at least 60% of
the aggregate outstanding principal balance of the Notes.
The Unadjusted Value of a Federal Instrument is the cash
value of the instrument. Money Market Funds are considered
cash equivalents and the Unadjusted Value of Money Market
Funds is the current balance of such funds. The Unadjusted
Value of a Portfolio Loan is equal to the outstanding
balance due under the loan, and may exceed the amount which
could be obtained upon an immediate sale of the same. The
Unadjusted Value of real estate owned by the Company as a
result of a Portfolio loan foreclosure will be valued at the
lesser of the estimated fair market value of the property
received by the Company upon foreclosure or the principal
balance of the loan at the time of foreclosure plus accrued
interest and fees and costs incurred by the Company in
connection with such foreclosure process, and also may
exceed the amount which could be obtained upon an
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immediate sale of the same. The remaining assets of the
Company, including other items of Eligible Collateral, may
be held by the Company. Accordingly, the principal and
interest obligations represented by the Notes may never be
fully collateralized by Eligible Collateral held by the
Trustee, and may be secured by collateral which may have a
liquidation value equal to less than 60% of the aggregate
outstanding principal obligations due under the Notes. To
the extent that the value of the Eligible Collateral held by
the Trustee is less than the aggregate principal and
interest obligations represented by the Notes, or if the
Trustee does not maintain a perfected security interest on
the Eligible Collateral held by it, the Notes will be
general unsecured obligations of the Company. See "RISK
FACTORS - Source of Note Repayment," "USE OF NOTE PROCEEDS,"
"BUSINESS OF THE COMPANY - PLAN OF OPERATION," and
"DESCRIPTION OF THE NOTES AND THE CUSTODY AGREEMENT."
The Company will act in the capacity of paying agent with
respect to the principal and interest obligations of
outstanding Notes.
Terms of Note The Company must receive and accept on or before midnight
Offering _____________, 199_, subject to a one-time extension
effected at the sole option of the Company of up to 90 days
from such date, subscriptions for Notes in the minimum
principal amount of $1,500,000 or more (the "Minimum
Requirement"). Pending the receipt of such subscriptions for
Notes, all subscription funds delivered by investors to
Executive (or other securities broker-dealers participating
in the sale of Notes) shall be promptly deposited in an
escrow account and maintained therein in accordance with an
Escrow Agreement between the Company, Executive and the
Escrow Agent. If the Minimum Requirement is not successfully
attained, all subscription funds maintained in the Escrow
Account will be returned promptly to subscribers with the
interest earned thereon. If the Minimum Requirement is
timely attained, the Note subscription funds then on hand
and under the control of the Escrow Agent will be disbursed
promptly to the Trustee for utilization by the Company in
the acquisition of Portfolio Loans, Federal Instruments and
Money Market Funds and in the payment of selling
commissions, offering management and due diligence fees, the
non-accountable expense allowance and other incurred
expenses. In such event, the Note offering is expected to
continue until the earlier of (a) the 270th day from the
date of this Prospectus, (b) the sale of the entire
$5,000,000 principal amount of Notes, or (c) termination of
the Note offering at the sole election of the Company (the
"Offering Period").
Upon receipt of Note subscription funds from investors and
prior to the attainment of the Minimum Requirement, the
Escrow Agent promptly will invest subscription funds in
investments selected for their safety of invested principal,
liquidity and the rates of interest offered. If the Minimum
Requirement is attained within a period of 90 days from the
date of this Prospectus, subject to a one-time extension of
up to 90 days from such date effected at the sole option of
the Company, interest on Notes subscribed to at the Note
Rate will accrue from the time that the Company accepts each
subscription to Notes delivered by investors and such
interest will be paid to Note holders as described above.
See "TERMS OF NOTE OFFERING."
Minimum Subscriptions for Notes may be made in increments of $1,000,
Investment subject to a minimum investment of $5,000 principal amount
of Notes (except for Individual Retirement Accounts, for
which the minimum investment will be $2,000). Subscribers
may request that their subscriptions be allocated between
the three sub-Series of Notes in $1,000 increments, subject
to availability.
Use of Note Upon the attainment of the Minimum Requirement, Note
Proceeds proceeds will be utilized to pay selling commissions,
management fees, the non-accountable expense allowance,
capitalized interest and the direct costs and expenses of
the Note offering. Net Note proceeds remaining will be
utilized to originate, underwrite, acquire, hold and deal in
Portfolio Loans and, pending full investment in Portfolio
Loans, Federal Instruments and Money Market Funds. In
connection with the organization of the Company and the Note
offering, CMG has provided assistance and has advanced
certain costs. CMG will be reimbursed on an accountable
basis for such assistance and advances in an amount not to
exceed $150,000 if $2,000,000 or more principal amount of
Notes is sold. CMG is wholly owned
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by Guy S. Della Penna, a director and officer and sole
shareholder of the Company. See "USE OF PROCEEDS" and
"MANAGEMENT."
Management; The management of the Company is comprised of Guy S. Della
Principal Penna. Mr. Della Penna serves as the sole member of the
Shareholders Board of Directors and the sole officer of the Company. See
"MANAGEMENT." All of the outstanding voting Common Stock of
the Company is owned beneficially by Mr. Della Penna.
Risk Factors An investment in the Notes offered by this Prospectus and
the intended activities of the Company are subject to
certain risks, including but not limited to the following:
(a) following the release of funds from the sale of the
Notes, the assets of the Company will be approximately 16%
to 25% less than the aggregate obligations of the Company
under the Notes and there can be no assurance that the
Company will be successful in generating sufficient profits
through the trading of Portfolio Loans to permit the Company
to pay its operating expenses and service the interest and
principal obligations represented by the Notes; (b) the
occurrence of material adverse changes in the secondary
market for residential real estate loans which might affect
the ability of the Company to generally sell the Portfolio
Loans for a premium over the price paid for them, which will
be necessary for the Company to be able to repay the
principal amount of the Notes; (c) the occurrence of
increases in interest rates generally and mortgage interest
rates specifically which may cause the value of the
Portfolio Loans held by the Company to decline in value; (d)
the occurrence of decreases in property values in areas
where the Company owns real property as a result of
foreclosures on Portfolio Loans which may cause the value of
the Company's property to decline in value; (e) the fact
that the Notes will be only partially collateralized for an
indefinite period and may never be fully collateralized; (f)
the Company intends to invest in mortgage loans with
mortgagors who have impaired credit and which, therefore,
have a high risk of default; (g) the Company is only
recently formed and has no operating history; (h) in valuing
a property for computing loan to value ratios, the Company
may use various nonstandardized property evaluation methods;
(i) the Company will not maintain any loss reserve or credit
enhancements with respect to the Notes; (j) there can be no
assurance that an adequate supply of mortgage loans meeting
the Company's Acquisition Policy will be available; (k) the
perfomance of the Trustee under the Custody Agreement will
not be covered by a fidelity bond; (l) the fact that the
Notes will constitute an illiquid investment; and (m) the
fact that the offering of the Notes and the management of
the Company will involve numerous and significant conflicts
of interest. See "RISK FACTORS."
Acquisition of The Acquisition Policy gives the Company wide latitude in
Portfolio Loans the type of Portfolio Loans which it may acquire and, with
the exception of complying with certain loan to value ratios
at acquisition, the Company may obtain Portfolio Loans which
are conforming or non-conforming in terms of certain loan
origination criteria established by the Federal National
Mortgage Association and the Federal Home Loan Mortgage
Corporation or which may be performing, non-performing or
under- performing in terms of each borrower's (mortgagor's)
performance with respect to scheduled principal and interest
payments or the mortgagor's credit history. The Portfolio
Loans originated or acquired by the Company generally will
be loans on improved residential real property (home and
property), but they may include loans on parcels of
unimproved real property which is zoned for residential use,
subject to certain limitations on the percentage amount of
unimproved real estate loans which can be originated or
purchased by the Company. It is anticipated that the Company
may purchase a substantial portion of its Portfolio Loans
from affiliates, and certain fees may be paid to affiliates
in connection with such purchases. See "RISK FACTORS -
Conflicts of Interest," "BUSINESS OF THE COMPANY - PLAN OF
OPERATION - Portfolio Loan Acquisition Policy" and
"CONFLICTS OF INTEREST; TRANSACTIONS WITH MANAGEMENT AND
AFFILIATES."
Supply of Portfolio Portfolio Loans may be purchased by the Company from a
Loans variety of sources known to management, although in the
recent past there has been a limited supply of the type of
mortgage loans intended to be purchased as Portfolio Loans.
The type of loans sought by the Company are not generally
available through any recognized national market; rather, in
each geographic region there appears
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to be a limited number of buyers and sellers involved in the
market. Mr. Della Penna has established relationships with
several buyers and sellers in Arkansas, California, Florida,
Kansas, Missouri, North Carolina, Ohio, Oklahoma,
Pennsylvania and Texas. Management believes that such
sellers should be able to provide a steady source of
Portfolio Loans for the Company, and that such buyers will
provide a ready market for all of the mortgage notes
purchased by the Company after the Company has "seasoned"
and "scrubbed" such loans. At present, one company in Texas
is providing a majority of the residential mortgage loans
being purchased by other companies under the control of Mr.
Della Penna which are engaged in the same or similar
business as the Company, and such loan originator may be the
source of a significant amount of the mortgage loans
purchased as Portfolio Loans. Mr. Della Penna beneficially
owns approximately 17% of the common stock of such
originator. It is anticipated that Mr. Della Penna may enter
into a business arrangement with such originator or its
affiliates to establish a network of individuals and
companies to buy and sell residential real estate, with a
focus on sales to credit-impaired buyers and, in connection
with such sales, originate mortgage loans on such real
estate which will meet the Acquisition Policy of the
Company. See "RISK FACTORS - Supply of Portfolio Loans,"
"BUSINESS OF THE COMPANY - PLAN OF OPERATION - Supply of
Portfolio Loans" and "CONFLICTS OF INTEREST; TRANSACTIONS
WITH MANAGEMENT AND AFFILIATES."
Conflicts of Guy S. Della Penna serves as a general partner of Federal
Interest; Mortgage Investors, Ltd., a limited partnership formed in
Transactions with 1991 ("FMIL"), and as the sole director and officer of the
Management and corporate general partner of FMIL. He also serves as the
Affiliates sole director and officer of Federal Mortgage Management,
Inc., a corporation formed in 1993 ("FMMI"). FMIL and FMMI
are engaged in the acquisition, holding and disposition of
residential real estate mortgage loans having the same or
substantially similar characteristics as the residential
real estate mortgage loans to be acquired by the Company.
Mr. Della Penna serves as the sole director and officer of
the Company. Accordingly, in the identification of suitable
Portfolio Loans, it is expected that Mr. Della Penna may be
subject, from time to time, to certain conflicts of interest
relating to the manner in which desirable mortgage loans
will be acquired and allocated among the Company, FMIL and
FMMI or which entity will first liquidate mortgage loans
when the opportunity for loan sales are limited. Such
conflicts of interest will be resolved by Mr. Della Penna in
his discretion, considering such factors as he deems
relevant, including the financial condition and needs of
each entity. There is no requirement and can be no assurance
that conflicts will be resolved in a manner that is in the
best interests of the Company. See "CONFLICTS OF INTEREST;
TRANSACTIONS WITH MANAGEMENT AND AFFILIATES."
From time to time the Company, FMIL and FMMI may act jointly
in the acquisition or disposition of pools of loans. Such
transactions may involve conflicts of interest or the
creation of profit or gain for FMIL, FMMI or Mr. Della Penna
as a result of the consummation of such transactions. Joint
transactions by the Company, FMIL and FMMI will be
undertaken in order to acquire or sell loans on a pooled
basis which is perceived to be more favorable than otherwise
would be available. See "BUSINESS OF THE COMPANY - PLAN OF
OPERATION -- Portfolio Loan Acquisition Policy."
It is anticipated that Mr. Della Penna may enter into a
business arrangement with affiliates of an entity which is
currently a major originator of mortgage loans for other
similar programs in which Mr. Della Penna is involved. Mr.
Della Penna and such affiliates intend to implement a
program which will establish a network of individuals and
companies which will buy and sell residential real estate
with a focus on sales to credit impaired buyers and, in
connection with such sales, originate mortgage loans on such
real estate which will meet the Acquisition Policy of the
Company. It is anticipated that the Company may purchase a
substantial portion of its Portfolio Loans through such
program, and certain fees, such as mortgage placement fees,
may be paid to affiliates of Mr. Della Penna in connection
with such purchases. Such fees will not exceed the fees
generally charged for similar services by independent third
parties.
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The Company will pay to FMIL a monthly servicing fee of
$1,500 plus .5% (on an annual basis) of the aggregate
outstanding principal balance of the Portfolio Loans as of
the end of the prior month. Such servicing fees have not
been determined by arm's length negotiation, even though
management believes that such fees fairly relate to fees
which would be charged by non-affiliated servicing entities.
Such fees are intended to defray the compensation paid by
FMIL to its employees who carry out such servicing
activities. See "BUSINESS OF THE COMPANY - PLAN OF OPERATION
-- Portfolio Loan Acquisition Policy." For his general
management services, Mr. Della Penna will receive an annual
management fee equal to 3% of the aggregate face value of
the Eligible Collateral as of December 31 of the prior year.
See "MANAGEMENT - Compensation." Mr. Della Penna is also a
director, president and the controlling shareholder of
Executive Wealth Management Services, Inc. ("Executive").
Executive will receive commissions, Note offering management
fees and a non-accountable expense allowance aggregating
11.10% of gross Note proceeds, assuming average commissions
at the rate of 6.10%. CMG, an affiliate of Executive which
is also controlled by Mr. Della Penna, will receive
reimbursement for certain expenses paid by it on behalf of
the Company and for support services rendered to the Company
with respect to this Note offering on an accountable basis
in an amount not to exceed $150,000 if $2 million or more
principal amount of Notes is sold by the Company. Such
arrangements have not been negotiated on an arm's length
basis. See "CONFLICTS OF INTEREST; TRANSACTIONS WITH
MANAGEMENT AND AFFILIATES" and "USE OF PROCEEDS."
The Trustee, Michael Hric, P.A., is a law firm in Sarasota,
Florida. Michael Hric, P.A. has performed legal services for
Mr. Della Penna and his affiliates in the past and may
perform additional services in the future. See "CONFLICTS OF
INTEREST; TRANSACTIONS WITH MANAGEMENT AND AFFILIATES."
SUMMARY FINANCIAL INFORMATION
-----------------------------
JUNE 30, 1996
-------------
Statement of Income (Loss) Data:
Revenues $ -
Operating expenses 265
Income (Loss) from operations (265)
Net income (Loss) (265)
Net income (Loss) per share 100 shares (2.65)
Statement of Financial Condition Data:
Working Capital $ 832
Total assets 49,292
Long-term debt, net of current portion -
Shareholders' equity 735
RISK FACTORS
AN INVESTMENT IN THE NOTES IS SPECULATIVE AND PRESENTS SUBSTANTIAL RISKS.
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD REVIEW CAREFULLY THE FOLLOWING RISKS CONCERNING THE COMPANY AND
ITS INTENDED BUSINESS ACTIVITIES BEFORE PURCHASING ANY OF THE NOTES OFFERED
HEREBY. THE RISK FACTORS IDENTIFIED AND DISCUSSED BELOW CONSTITUTE SOME BUT
PERHAPS NOT ALL OF THE MATERIAL RISKS WHICH MAY AFFECT ADVERSELY THE INTENDED
ACTIVITIES OF THE COMPANY, THE PORTFOLIO LOANS AND AN INVESTMENT IN THE NOTES
OFFERED HEREBY.
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<PAGE>
SOURCE OF NOTE REPAYMENT. There is no requirement that the Eligible
Collateral and other assets of the Company have at any time a face amount or
value equal to the outstanding principal obligations due under the Notes. At the
time of the release of subscription funds to the Company upon the attainment of
the Minimum Requirement and for an indefinite period thereafter, the face amount
or value of the Eligible Collateral and such other assets will be less than the
aggregate principal obligation of outstanding Notes, as approximately 16% to 25%
of the gross proceeds from the sale of the Notes will be used immediately to pay
offering and other accrued expenses and other expenses of operation. See "USE OF
PROCEEDS." Further, as the Eligible Collateral will be comprised primarily of
debt instruments (including Portfolio Loans and Federal Instruments), the value
of the Eligible Collateral will decrease from time to time when interest rates
increase (and increase when interest rates decrease). To the extent that the
Company forecloses on Portfolio Loans in default, the value of the Eligible
Collateral will likely decline if and when the value of real estate in the area
in which the foreclosed property is located declines. Further, any such general
decline in property values will likely increase the risk of defaults on the
Portfolio Loans as the amount of each mortgagor's equity in its property
declines, especially if the market value of the property decreases below the
outstanding amount owed under the mortgage loan on the property. In a similar
mortgage program organized by Guy Della Penna, there has been a continuing
deficiency between the outstanding principal obligations of the promissory notes
issued by such company and the aggregate value of the mortgages and other
investments which provide the source of those note repayments. At this point in
time, it is anticipated that Mr. Della Penna will make up this deficiency from
his own financial resources, even though he has no obligation to do so. Similar
deficiencies exist in another mortgage program, organized by Mr. Della Penna as
a limited partnership. See "APPENDIX A - PRIOR PERFORMANCE INFORMATION."
A deficiency between the value of the Eligible Collateral and the
outstanding principal obligations under the Notes does not constitute an event
of default giving rise to any remedy on the part of Note holders. The principal
and interest obligations represented by outstanding Notes as well as the
operating expenses of the Company are expected to be paid using the cash flow
generated by the receipt of principal and interest payments on the Portfolio
Loans, Federal Instruments and Money Market Funds, the receipt of funds from the
early payoff of Portfolio Loans by the mortgagors and proceeds from the sale of
Portfolio Loans, Federal Instruments and real estate received upon loan
foreclosures. In order for the Company to repay the principal amount due under
the Notes, it will have to generate substantial profits from the trading of
Portfolio Loans. There can be no assurance that such cash flow will be
sufficient at all times to meet the outstanding interest obligations with
respect to the Notes and the principal repayment obligation at the maturity of
the Notes. Potential declines in the value of the Eligible Collateral caused by
increases in interest rates or decreases in property values and the 16% to 25%
gap described above between the face amount of the Notes and the amount of
proceeds from the sale of the Notes which are left to be invested in Portfolio
Loans after the payment of all offering and other accrued expenses are expected
to be made up primarily by profits made by the Company from the trading of
Portfolio Loans by the Company. It is not anticipated that any significant
number of Portfolio Loans will be held to maturity. There can be no assurance
that the Company will be successful in its efforts to generate profits through
the trading of Portfolio Loans.
The status of Portfolio Loans at the time of any Portfolio Loan
liquidation as performing, non-performing or under- performing may have an
adverse affect on the amount of proceeds that the Company may realize as a
result of the liquidation of such loans. To the extent that Portfolio Loans are
non-performing or under-performing, their value in any secondary market for
residential real estate mortgage loans will be less than would be the case if
they were performing.
To the extent that at the time of any required liquidation of Eligible
Collateral (such as upon the maturity of any of the Notes) the value of the
Eligible Collateral has declined due to increases in interest rates or decreases
in property values, or if any Portfolio Loans which are to be sold include a
substantial number of non-performing or under-performing loans, or if the
Company has not been successful in trading Portfolio Loans, the Company may have
insufficient resources with which to meet its obligations under the Notes and
may be placed in circumstances where it will be forced to default on all or part
of the obligations represented by outstanding Notes. IF ALL OF THE NOTES OFFERED
HEREUNDER ARE SOLD, THIS RISK WILL BE THE GREATEST FOR HOLDERS OF THE SERIES
1996 A-III NOTES, DUE IN 2002, SINCE THE SERIES 1996 A-I AND A-II NOTES ARE DUE
TO BE PAID IN FULL IN 2000 AND 2001, AND THE PAYMENT OF THE PRINCIPAL
OBLIGATIONS OF SUCH NOTES WILL LEAVE THE COMPANY WITH A REDUCED AMOUNT OF ASSETS
WITH WHICH TO MEET THE REMAINING INTEREST AND PRINCIPAL REPAYMENT OBLIGATIONS ON
THE SERIES 1996 A-III NOTES, AS WELL AS ITS OPERATING EXPENSES. TO THE EXTENT
THAT FEW IF ANY OF THE SERIES 1996 A-III NOTES ARE SOLD, THIS RISK WILL ALSO
IMPACT HOLDERS OF THE SERIES 1996 A-II NOTES. THERE CAN BE NO ASSURANCE AS TO
THE PRINCIPAL AMOUNT OF NOTES IN ANY SERIES WHICH MAY BE SOLD IN THE OFFERING,
SUBJECT TO THE REQUIREMENT THAT AT LEAST $1,500,000 OF NOTES MUST BE SUBSCRIBED
FOR AND SOLD IN ORDER FOR THE COMPANY TO SELL ANY NOTES. The Company has not
made any arrangements for any alternative source of funds in the event that cash
flow from operations and sales of Eligible Collateral is inadequate to fund
operations and meet its interest and principal obligations under the Notes, and
it is not anticipated that any other sources will be available. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS",
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<PAGE>
"BUSINESS OF THE COMPANY - PLAN OF OPERATION," "DESCRIPTION OF THE NOTES AND TH
CUSTODY AGREEMENT" and "MANAGEMENT - Compensation."
Investors will be subject to additional risk if only the minimum
$1,500,000 principal amount of Notes is sold because the Company will likely be
able to invest in a smaller, less diverse group of Portfolio Loans.
NOTES NOT FULLY SECURED BY ELIGIBLE COLLATERAL; NOTES AS UNSECURED
OBLIGATIONS OF THE COMPANY. There is no requirement that the Eligible Collateral
have at any time a face amount or value equal to the outstanding principal
obligation represented by the Notes. At the time of the release of subscription
funds to the Company upon the attainment of the Minimum Requirement and for an
indefinite period thereafter, the face amount or value of the Eligible
Collateral will be less than the aggregate principal obligation of outstanding
Notes, as approximately 16% to 25% of the gross proceeds from the sale of the
Notes will be used immediately to pay offering and other accrued expenses and
reserves. See "USE OF NOTE PROCEEDS." Such deficiency in terms of relative
values does not constitute an event of default giving rise to any remedies on
the part of Note holders. Under the Custody Agreement, the Trustee will at all
times hold Eligible Collateral with an aggregate Unadjusted Value (as defined
below) equal to at least 60% of the aggregate outstanding principal balance of
the Notes. The remaining assets of the Company, including other items of
Eligible Collateral, may be held by the Company. The Unadjusted Value of a
Federal Instrument is the cash value of the instrument. Money Market Funds are
considered cash equivalents and the Unadjusted Value of Money Market Funds is
the current balance of such funds. The Unadjusted Value of a Portfolio Loan is
equal to the outstanding balance due under the loan, and may exceed the amount
which could be obtained upon an immediate sale of the same. The Unadjusted Value
of real estate owned by the Company as a result of a Portfolio Loan foreclosure
will be valued at the lesser of the estimated fair market value of the property
received by the Company upon foreclosure or the principal balance of the loan at
the time of foreclosure plus accrued interest and fees and costs incurred by the
Company in connection with such foreclosure process, and also may exceed the
amount which could be obtained upon an immediate sale of the same. Accordingly,
the principal and interest obligations represented by the Notes may never be
fully collateralized by Eligible Collateral held by the Trustee, and may be
secured by collateral which may have a liquidation value equal to less than 60%
of the outstanding principal obligations due under the Notes. To the extent that
the value of the Eligible Collateral held by the Trustee is less than the
aggregate principal and interest obligations represented by the Notes, or if the
Trustee does not maintain a perfected security interest on the Eligible
Collateral held by it, the Notes will be general unsecured obligations of the
Company. It is not anticipated that the Company will acquire significant assets
other than the Portfolio Loans. See "USE OF NOTE PROCEEDS," "BUSINESS OF THE
COMPANY - PLAN OF OPERATION," and "DESCRIPTION OF THE NOTES AND THE CUSTODY
AGREEMENT."
No assurance can be given that Note holders will be able to recoup the
amount of their investment in the Notes in the event of the Company's default
under the Notes or the Custody Agreement. The Portfolio Loans should be viewed
as illiquid collateral for the Note obligations since neither the Company nor
the Trustee, acting on behalf of the Note holders, will have any ability to
accelerate the obligations represented by the Portfolio Loans at any particular
time or times except in instances where the Portfolio Loans are in a default
status. Under most likely circumstances, if the Trustee is required to sell the
Portfolio Loans over a short period of time in order to satisfy the aggregate
obligation represented by the Notes, the Portfolio Loans and any Federal
Instruments will have to be sold at a substantial discount from the aggregate
face amount of the Portfolio Loans and Federal Instruments at the time of such
sale. Under such circumstances, it is unlikely that the Trustee will obtain
sufficient proceeds from the sale of the Portfolio Loans and Federal Instruments
to be able to meet the then outstanding principal and interest obligations due
under the Notes. See "ABSENCE OF QUALIFYING TRUST INDENTURE" below and
"DESCRIPTION OF THE NOTES AND THE CUSTODY AGREEMENT."
CHARACTER OF PORTFOLIO LOANS. Certain of the Portfolio Loans acquired by
the Company may be non-performing or under-performing. For a definition of
non-performing loans and under-performing loans, see "GLOSSARY OF CERTAIN TERMS"
and "BUSINESS OF THE COMPANY - PLAN OF OPERATION - Portfolio Loan Acquisition
Policy." Due to the greater discount at which such mortgage loans can be
acquired, the Company intends to acquire mortgage loans which present a higher
risk of default. These loans will generally involve credit impaired borrowers
who may not qualify for traditional mortgage financing because of a prior
bankruptcy, poor or no credit history or previous foreclosures. Also, such loans
may have been originated by small independent mortgage companies or brokers or
individual sellers of real estate who may not have generated the complete credit
and loan file necessary to sell the mortgage loans into the institutional
mortgage market. While it is the intention of the Company to complete the
paperwork necessary to qualify such loans for resale into the institutional
mortgage loan market and to work with the mortgagors under any non-performing or
under-performing loans to have such loans brought into performing status so that
the Company can resell such Portfolio Loans for a premium over their acquisition
price, there can be no assurance that the Company will be successful in such
effort. Significant levels of
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<PAGE>
default on such Portfolio Loans may occur as a result of a number of factors
entirely beyond the control of the Company, including the development of adverse
and recessionary economic conditions in the United States generally or in areas
where the Company has acquired significant numbers of Portfolio Loans, adverse
economic circumstances which affect individual mortgagors, such as loss of
employment, ill health or death, or losses not adequately covered by insurance.
It is not anticipated that the Portfolio Loans will be covered by any mortgage
insurance that will protect the Company from loss in the event of a default by
the mortgagor. To the extent that the Company acquires significant numbers of
under-performing and non-performing Portfolio Loans, the Company's ability to
service the interest and principal payments required by outstanding Notes could
be materially and adversely affected since such non-performing and
under-performing loans may not themselves generate sufficient cash flow to
permit the Company to meet its operating expenses and the obligations
represented by outstanding Notes and the Company may be unable to sell the loans
for a premium over their acquisition prices. The Acquisition Policy of the
Company permits the acquisition of any number of non-performing or
under-performing loans, if the Company determines that such loans are acceptable
from a cash flow standpoint and the loans meet the other criteria of the
Acquisition Policy. The possibility exists that non-performing and
under-performing loans may constitute substantially all of the Portfolio Loans
from time to time. See "BUSINESS OF THE COMPANY - PLAN OF OPERATION - Portfolio
Loan Acquisition Policy."
COMPANY ONLY RECENTLY FORMED. The Company has been formed recently and has
no operational history. The Company is totally dependent upon the receipt of the
net proceeds from the sale of the Notes offered hereby to commence its business
activities. The Company as an entity has no previous experience with respect to
the acquisition of residential real estate mortgage loans, unimproved real
estate mortgage loans and Federal Instruments. See "BUSINESS OF THE COMPANY -
PLAN OF OPERATION." Management of the Company, however, has experience with
respect to the acquisition and trading of residential real estate mortgage loans
and Federal Instruments. See "MANAGEMENT" and Appendix A to this Prospectus
which contains summary information regarding the performance of Federal Mortgage
Management, Inc. and Federal Mortgage Investors, Ltd., two similar programs
sponsored by Mr. Della Penna.
DETERMINATION OF VALUE OF COLLATERAL REAL ESTATE. The Company's
Acquisition Policy does not require any fixed procedure for the determination of
the current estimated fair market value of the real estate collateralizing the
Portfolio Loans. In determining the current estimated fair market value of the
underlying real estate, the Company may use one or a combination of methods,
including a review of the original in-file appraisal which was made at the time
of loan origination, a review of the current tax or assessed value for ad
valorem taxes with respect to the property, procurement of a current appraisal,
including a "drive-by" appraisal. The method or combination of methods utilized
by the Company in each case is at the sole discretion of the Company. See
"BUSINESS OF THE COMPANY - PLAN OF OPERATION - Portfolio Loan Acquisition
Policy."
NO LOSS RESERVE OR CREDIT ENHANCEMENTS. Since the Company will have no
other significant assets except for the proceeds of the Note offering, no
reserve for losses can or will be provided. There are no guarantees by any third
parties of the repayment obligations of the Company under the Notes, nor are
there any insurance arrangements or other sources of funds to repay Note holders
in the event of a default by the Company in its repayment obligations under the
Notes.
SUPPLY OF PORTFOLIO LOANS. Currently, management believes that there is a
limited number of mortgage loans available for purchase that meet the criteria
of the Acquisition Policy of the Company. This may impact the ability of the
Company to invest the proceeds of the Note offering in a timely manner, which
may negatively impact the Company's cash flow. The type of loans sought by the
Company are not generally available through any recognized national market;
rather, in each geographic region there appears to be a limited number of buyers
and sellers involved in the market. Mr. Della Penna has established
relationships with several buyers and sellers in Arkansas, California, Florida,
Kansas, Missouri, North Carolina, Ohio, Oklahoma, Pennsylvania and Texas.
Management believes that such sellers should be able to provide a steady source
of Portfolio Loans for the Company, and that such buyers will provide a ready
market for all of the mortgage notes purchased by the Company after the Company
has "seasoned" and "scrubbed" such loans. There can be no assurance, however,
that such sellers or buyers will continue to sell and purchase mortgage loans on
terms acceptable to the Company or that other sellers or buyers can be found
which will sell and purchase a sufficient quantity of the type of mortgage loans
which meet the Company's acquisition policy. At present, one company in Texas is
providing a majority of the residential mortgage loans being purchased by other
companies under the control of Mr. Della Penna which are engaged in the same
business as the Company, and such loan originator may be the source of a
significant amount of the mortgage loans purchased as Portfolio Loans. Mr. Della
Penna beneficially owns approximately 17% of the common stock of such
originator. It is anticipated that Mr. Della Penna may enter into a business
arrangement with such originator or its affiliates to implement a program which
will establish a network of individuals and companies which will buy and sell
residential real estate with a focus on sales to credit impaired buyers and, in
connection with such sales, originate mortgage loans on such real estate which
will meet the
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Acquisition Policy of the Company. A majority of the loans currently available
to the Company for purchase from its present supply sources are on real estate
located in Texas, Oklahoma, Missouri and Florida. This may continue to be the
case in the future. In the event that the Company's Portfolio Loans are
geographically concentrated, the Company's operations may be affected to a
greater degree by local and regional economic conditions. The Company, FMMI and
FMIL may be in competition for the same mortgage loans from time to time. See
"CONFLICTS OF INTEREST; TRANSACTIONS WITH MANAGEMENT AND AFFILIATES."
The Company is unable to predict changes in the current interest rate
environment affecting residential real estate mortgage loans or the impact that
a change in rates will have on the continuing availability of loans which are
suitable for acquisition by the Company. An increase or decrease in such
mortgage loan interest rates could affect, in a material adverse fashion, the
Company's ability to procure Portfolio Loans in sufficient numbers and amounts
to permit the Company to meet the interest and principal obligations represented
by outstanding Notes. Among other effects, a significant increase in mortgage
interest rates could result in a decreased supply of available mortgage loans
which are suitable for the Company since fewer potential mortgagors will qualify
for desired mortgage loans due to their inability to meet the greater periodic
principal and interest obligations required by higher interest rate loans. To
the extent that residential real estate mortgage loan interest rates decline,
mortgagors may be inclined to refinance their existing mortgage loans to obtain
a lower interest rate. The Company can make no prediction as to what trends will
occur with respect to the levels of residential real estate mortgage loan
interest rates. See "BUSINESS OF THE COMPANY - PLAN OF OPERATION."
PRIOR PERFORMANCE. Information concerning the loan acquisition, ownership
and disposition activities of FMIL and FMMI with respect to their portfolios is
presented in Appendix A to this Prospectus. The information reflected in
Appendix A is at June 30, 1996, with certain subsequent events described. At
June 30, 1996, the loan portfolios of FMIL and FMMI reflected delinquency rates
of approximately 20% and 25%, respectively, in terms of the carrying value of
portfolio loans which were 31 or more days delinquent with respect to any
historical or current scheduled loan principal and interest payment. Five loans
contained in the FMIL portfolio and 19 loans contained in the FMMI portfolio
were delinquent in such fashion at June 30, 1996. Nine of the 19 loans of FMMI
were currently making scheduled monthly principal and interest payments and the
delinquency with respect to five of such FMIL loans and 10 of such FMMI loans
related to historical, past due payments yet to be received. Additionally, some
of such delinquent loans, while classified as under-performing, were effecting
payments in excess of scheduled principal and interest payments in order to pay
historical principal and interest payments which were unpaid. Four of such
under-performing loans of FMIL and six of such under-performing loans of FMMI
had been returned to performing status. In addition to these delinquency
problems, FMIL and FMMI historically have had only limited success at trading
mortgages. It is not anticipated that the operations of FMMI (which issued
promissory notes to investors in order to obtain funds with which to acquire
mortgage loans) together with the sale of all of the portfolio loans and other
assets of FMMI (primarily other investment securities), will generate enough
income and sales proceeds for FMMI to be able to repay all of the promissory
notes issued by it. The possibility exists that the Company will experience
similar delinquencies or trading history with respect to its Portfolio Loans,
and the existence of such delinquencies and such trading history could
materially impair the ability of the Company to pay the interest payments
required by outstanding Notes or to repay the principal of the outstanding Notes
at maturity.
As noted above, FMIL and FMMI have experienced delinquencies with their
current portfolio of mortgage loans. Management of FMMI and FMIL, which will
also be the management of the Company, believes it has isolated the cause of
this increase in delinquencies and has implemented corrective measures,
described below. Management believes that the delinquencies were a result of
underwriting standards in effect at the time. Management believes that the two
most significant factors in assessing the likelihood of a mortgage loan becoming
delinquent are the amount of down payment and the credit history of the
mortgagor. While each of these two factors alone would not necessarily predict a
high probability for the mortgage loan to become delinquent, in the experience
of management of FMIL and FMMI, when both factors are present the probability
increases significantly. In order for FMIL and FMMI to purchase mortgage loans
at the discounts they had been seeking, the mortgages were typically with
mortgagors who had a history of credit problems and had not made substantial
down payments.
In the experience of the management of FMIL and FMMI, mortgagors with past
credit problems who have attempted to resolve delinquencies with their lenders
present an acceptable credit risk. The managements of FMIL and FMMI have
implemented new credit review procedures on the prospective mortgage loans they
buy, providing that if a mortgagor has past credit problems and that mortgagor
has not made a good faith effort to rectify the situation, the mortgage loan
will not be purchased unless there are compensating factors contributing its
purchase. Additionally, loans generally will not be purchased unless a down
payment equal to at least 5% of the purchase price was made at the inception of
the loan, unless there are
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compensating circumstances making the purchase of the loan feasible. In the
past, depending on the circumstances, a mortgage loan with a down payment of as
little as 3% might have been purchased. With the new criteria described above in
place, the management of FMIL and FMMI believe that the delinquencies within the
mortgage loan portfolios of FMIL and FMMI will decrease in the future. The
Company intends to follow the above described procedures with respect to its
Acquisition Policy.
In connection with the delinquencies in its portfolio, FMIL filed a
lawsuit in July 1995, regarding the purchase of 19 first lien residential
mortgage notes in July 1993 for approximately $1,193,000. FMIL's complaint
alleged that the mortgages were worth considerably less than such amount. FMIL
entered into a Mediation Settlement Agreement dated October 7, 1996, with the
defendants in that litigation, pursuant to which FMIL is entitled to earn a
profit of approximately $1 million in connection with the sale of mortgages and
portfolios of mortgages to the defendants. Any funds received as a result of
this litigation will inure to the benefit of FMIL only. The Company will not
receive any of such funds.
ABSENCE OF QUALIFYING TRUST INDENTURE. The Notes are not being issued
pursuant to a trust indenture which meets the requirements of the provisions of
the Trust Indenture Act of 1939 (the "Trust Indenture Act") in reliance upon an
exemption thereunder. In summary, the Trust Indenture Act requires that debt
securities be issued pursuant to the provisions and terms of a trust indenture
instrument and that such issuance and the administration of the trust indenture
be vested in an independent trustee, such as a bank with trust powers or a trust
company. The Company is relying on an exemption from the Trust Indenture Act for
the issuance of debt securities in principal amount of $5,000,000 or less over a
specified period of time. The enactment of the Trust Indenture Act was intended
to assure the independence of indenture trustees and to afford protection to
investors who acquire debt securities issued under the authority of a trust
instrument qualified under the Trust Indenture Act. Under usual circumstances,
the services of an independent trustee acting for the benefit of noteholders
include authentication of the debt securities issued to investors under the
terms of such indenture, periodic assurance that collateral is maintained in
accordance with the terms of the trust indenture, and oversight to ensure that
the issuer of the debt securities performs its obligations under the trust
indenture on an initial and continuous basis with respect to certain debt to
equity ratios, operation of certain aspects of the business of the issuer of the
debt securities and similar matters. Additionally, in the event of specified
defaults with respect to the obligation represented by the debt instruments
issued under the trust indenture, the trustee acting on its own initiative or
upon request of the holders of the debt securities will initiate curative,
remedial action intended to cure such default or to act on behalf of the holders
of the debt securities with respect to action on any collateral securing the
obligation of such debt securities.
The Notes will be issued under the Custody Agreement, pursuant to which
the Trustee will acquire and maintain a lien on certain Eligible Collateral for
the benefit of the holders of the Notes. The Custody Agreement does not contain
provisions meeting the requirements of the Trust Indenture Act, although the
Note holders and the Trustee will have certain rights which correspond to some
of the requirements of the Trust Indenture Act. There is no requirement that the
Trustee hold all items of Eligible Collateral or that the Eligible Collateral
held by the Trustee have a value equal to the outstanding principal obligation
represented by the Notes. Pursuant to the Custody Agreement, the Trustee will at
all times hold Eligible Collateral with an aggregate Unadjusted Value (as
defined below) equal to at least 60% of the aggregate outstanding principal
balance of the Notes. The remaining assets of the Company, including other items
of Eligible Collateral, may be held by the Company. The Unadjusted Value of a
Federal Instrument is the cash value of the instrument. Money Market Funds are
considered cash equivalents and the Unadjusted Value of Money Market Funds is
the current balance of such funds. The Unadjusted Value of a Portfolio Loan is
equal to the outstanding balance due under the loan, and may exceed the amount
which could be obtained upon an immediate sale of the same. The Unadjusted Value
of real estate owned by the Company as a result of a Portfolio Loan foreclosure
will be valued at the lesser of the estimated fair market value of the property
received by the Company upon foreclosure or the principal balance of the loan at
the time of foreclosure plus accrued interest and fees and costs incurred by the
Company in connection with such foreclosure process, and also may exceed the
amount which could be obtained upon an immediate sale of the same. Accordingly,
the principal and interest obligations represented by the Notes may never be
fully collateralized by Eligible Collateral held by the Trustee, and may be
secured by collateral which may have a liquidation value equal to less than 60%
of the outstanding principal obligations due under the Notes. To the extent that
the value of the Eligible Collateral held by the Trustee is less than the
aggregate principal and interest obligations represented by the Notes, or if the
Trustee does not maintain a perfected security interest on the Eligible
Collateral held by it, the Notes will be general unsecured obligations of the
Company. In the event of a continuing default, if the Trustee does not take
action, a vote of persons holding at least 75% in principal amount of the Notes
is required to force the Trustee to take action to collect the amount due under
the Notes. See "DESCRIPTION OF THE NOTES AND THE CUSTODY AGREEMENT."
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Michael Hric, P.A., a law firm in Sarasota, Florida, will serve as the
Trustee under the Custody Agreement. The principal of Michael Hric, P.A. is
Michael Hric. Mr. Hric has performed legal services for Mr. Della Penna and his
affiliated companies in the past and may perform additional services in the
future. Mr. Hric did not provide any services with respect to the formation of
the Company and the offer and sale of the Notes. See "CONFLICTS OF INTEREST;
TRANSACTIONS WITH MANAGEMENT AND AFFILIATES."
ABSENCE OF FIDELITY BOND. Due to the cost involved, no fidelity or surety
bond will be obtained covering the actions of the Trustee. In the event of the
loss or misappropriation of a substantial part of the Eligible Collateral held
by the Trustee, the Company will be adversely affected.
NOTE INVESTMENT ILLIQUID - NO MARKET FOR NOTES. The Notes offered by this
Prospectus have been registered pursuant to the provisions of the Securities Act
of 1933, as amended, and have been qualified for sale in certain states,
including Florida. Accordingly, the Notes are freely transferable by the holders
thereof (other than affiliates of the Company) under applicable Federal and
certain state securities laws. However, the Company does not expect that any
active market will develop at any time for the Notes. Accordingly, purchasers of
Notes should be prepared to hold the Notes for the entire Note term. If a
purchaser desires to sell a Note prior to its maturity, such purchaser likely
will be required to locate a buyer on his own. With respect to any Note transfer
by a holder thereof, the Company will be required to cancel the Note being
transferred and to issue a new Note as a result of such transfer. The Company
reserves the right to obtain certain information from the intended Note
transferee in any transaction in order to assure that such intended Note
transferee is a suitable investor with respect to the Note being transferred.
See "INVESTOR SUITABILITY" and "DESCRIPTION OF THE NOTES AND THE CUSTODY
AGREEMENT."
TERMS OF THE NOTES. The terms of the Notes, including their maturity and
the Note Rate, have been solely determined by the Company in consultation with
Kashner Davidson Securities Corporation, Sarasota, Florida. Because of the
affiliation between Executive and the Company, Kashner Davidson Securities
Corporation has acted as a qualified independent underwriter pursuant to
Schedule E of the Bylaws of the National Association of Securities Dealers,
Inc., and in such role, has passed upon the fairness of the terms of the Note
offering made hereby and the terms of the Notes. See "PLAN OF DISTRIBUTION."
ABSENCE OF RATING. The Notes offered by this Prospectus have not been
afforded any rating by any recognized rating agency such as Standard & Poors or
Moodys, and the Company does not intend to seek any such rating. The Company
does not believe that the Notes would be afforded any investment grade rating by
any recognized rating agency and believes that such rating agencies would likely
view the Notes as speculative debt securities.
NATURE OF THE NOTE OFFERING. The Notes offered by this Prospectus will be
offered to investors through the best efforts of Executive. Executive is under
no obligation to purchase any of the Notes offered hereby. Additionally, this
offering is subject to the requirement that the Company receive and accept
subscriptions for Notes in the minimum principal amount of $1,500,000 by
midnight _____________, 199_, subject to a one-time extension of up to 90 days
from such date (the "Minimum Requirement"). If the Minimum Requirement is timely
met, the subscription funds will be released to the Trustee and the Company may
continue offering Notes and accepting subscriptions for additional Notes through
the termination of the Offering Period. See "TERMS OF NOTE OFFERING." To the
extent that only the minimum principal amount of Notes are sold, the Company
will be required to purchase a reduced number of Portfolio Loans, thereby
increasing risk because of reduced diversification of the Portfolio Loans. Also,
the Company may sustain the adverse consequences of a reduction in economic
scale as a result of certain costs of the Note offering, the organization and
capitalization of the Company and the fees to be paid to certain affiliates of
the Company. See "PROSPECTUS SUMMARY" and "USE OF PROCEEDS."
DEPENDENCE ON MANAGEMENT. Note holders will be entirely dependent upon the
ability of management of the Company to carry out the Company's business and to
acquire and manage the Portfolio Loans, Federal Instruments and Money Market
Funds which will constitute substantially all of the Company's assets. The
death, disability or inability to serve of Mr. Della Penna could have a
material, adverse affect on the ability of the Company to implement and carry
out its business and plan of operation. However, the Company intends to obtain a
key-man life insurance policy on Mr. Della Penna in the amount of $1,000,000,
the proceeds of which could be used to repay up to $1,000,000 of the principal
and interest due under the Notes in the event of Mr. Della Penna's death. See
"BUSINESS OF THE COMPANY - PLAN OF OPERATION" and "MANAGEMENT."
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CONFLICTS OF INTEREST. Guy S. Della Penna serves as an individual general
partner of FMIL and the sole director and officer of the corporate general
partner of FMIL. Additionally, Mr. Della Penna serves as the sole director and
officer of FMMI. FMIL and FMMI are engaged in the acquisition, holding and
disposition of residential real estate mortgage loans having the same or
substantially the same characteristics as the Portfolio Loans to be acquired by
the Company. Mr. Della Penna serves as the sole director and officer of the
Company. As a result of such multiple relationships, conflict of interest
situations may arise between and among the Company, FMIL and FMMI with respect
to the acquisition or sale of residential real estate loans for the Company and
FMIL and FMMI. Mr. Della Penna will deal with such conflict of interest
situations among the Company, FMIL and FMMI in his discretion, considering such
factors as he deems relevant, including the financial condition and needs of
each entity. There is no requirement and can be no assurance that conflicts will
be resolved in a manner that is in the best interests of the Company. See
"CONFLICTS OF INTEREST; TRANSACTIONS WITH MANAGEMENT AND AFFILIATES."
Mr. Della Penna beneficially owns approximately 17% of the common stock of
an entity which is currently a major originator of mortgage loans for other
similar programs in which Mr. Della Penna is involved. Mr. Della Penna and
affiliates of such originator intend to implement a program which will establish
a network of individuals and companies which will buy and sell residential real
estate with a focus on sales to credit impaired buyers and, in connection with
such sales, originate mortgage loans on such real estate which will meet the
Acquisition Policy of the Company. It is anticipated that the Company may
purchase a substantial portion of its Portfolio Loans through such program, and
certain fees, such as mortgage placement fees, may be paid to affiliates of Mr.
Della Penna in connection with such purchases. Such fees will not exceed the
fees generally charged for similar services by independent third parties.
The Company will pay to FMIL a monthly servicing fee of $1,500 plus .5%
(on an annual basis) of the aggregate outstanding principal balance of the
Portfolio Loans as of the end of the prior month. Such servicing fees have not
been determined by arm's length negotiation, even though management believes
that such fees fairly relate to fees which would be charged by non-affiliated
servicing entities. Such fees are intended to defray the compensation paid by
FMIL to its employees who carry out such servicing activities. See "BUSINESS OF
THE COMPANY - PLAN OF OPERATION Portfolio Loan Servicing." For his general
management services, Mr. Della Penna will receive an annual management fee equal
to 3% of the aggregate face value of the Eligible Collateral as of December 31
of the prior year. See "MANAGEMENT - Compensation."
Executive will receive average selling commissions, a Note offering
management fee and a non-accountable expense allowance of 6.1%, 3% and 2%,
respectively. Additionally, CMG will receive expense reimbursement on an
accountable basis in the amount of $150,000 if $2,000,000 or more principal
amount of Notes is sold. Such commission, Note offering management fee and
non-accountable expense allowance amounts and reimbursement which will be paid
to Executive and CMG have not been determined as a result of arm's length
negotiations but have been determined principally by Guy S. Della Penna, the
principal shareholder of Executive and the sole shareholder of the Company and
CMG. See "PLAN OF DISTRIBUTION."
The Trustee, Michael Hric, P.A., is a Florida professional association
(corporation) which engages in the practice of law in Sarasota, Florida. The
principal of Michael Hric, P.A. is Michael Hric. Mr. Hric has performed legal
services for Mr. Della Penna and his affiliated companies in the past and may
perform additional services in the future. Mr. Hric did not provide any services
with respect to the formation of the Company and the offer and sale of the
Notes. See "CONFLICTS OF INTEREST; TRANSACTIONS WITH MANAGEMENT AND AFFILIATES"
and "DESCRIPTION OF THE NOTES AND THE CUSTODY AGREEMENT."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The Company was formed pursuant to the Florida Business Corporation Act in
November 1995, and initially capitalized by the issuance of 100 shares of Common
Stock, $.01 par value, to Guy S. Della Penna, for the nominal cash consideration
of $1,000. See "MANAGEMENT" and "PRINCIPAL SHAREHOLDERS." The Company is
entirely dependent on the receipt of the proceeds of the sale of Notes to
initiate and conduct its operations.
The Company was formed and is being capitalized for the purpose of
originating, acquiring, holding and dealing in a portfolio of residential real
estate mortgage loans ("Portfolio Loans") secured by liens on residential real
estate properties, which for the most part will be improved, in accordance with
a specific acquisition policy. See "BUSINESS OF THE
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COMPANY - PLAN OF OPERATION." The Company intends to utilize the net proceeds of
the Notes offered hereby to acquire the Portfolio Loans. The principal and
interest obligations represented by outstanding Notes are expected to be paid
using the cash flow generated by the receipt of principal and interest payments
on the Portfolio Loans, Federal Instruments and Money Market Funds, the receipt
of funds from the early payoff of Portfolio Loans by the mortgagors, the trading
of Portfolio Loans and proceeds from the sale of Portfolio Loans, Federal
Instruments and real estate received upon loan foreclosures. The Portfolio Loans
will have maturities which are in excess of the maturities of the Notes.
In order for the Company to repay the principal amount due under the
Notes, it will have to generate substantial profits from the sale of Portfolio
Loans that the Company has originated or purchased and then "scrubbed" and/or
"seasoned." No assurance can be given that the Company will generate sufficient
profits or cash flow on an initial or continuing basis to permit the Company to
meet its obligations with respect to outstanding Notes. See "RISK FACTORS -
Source of Note Repayment" and "BUSINESS OF THE COMPANY - PLAN OF OPERATION."
TERMS OF NOTE OFFERING
The Company must receive and accept subscriptions for Notes in the minimum
principal amount of $1,500,000 on or before midnight _____________, 199_,
subject to a one-time extension effected at the sole option of the Company of up
to 90 days from such date, in order for the offering to continue and for the
Note proceeds to be utilized in the business of the Company (the "Minimum
Requirement"). In the event that the Minimum Requirement is not successfully
attained, all subscription funds will be returned promptly to subscribers
without diminution and with interest as provided below. If the Minimum
Requirement is timely attained, the Note offering will continue until the
earlier of (a) the 270th day from the date of this Prospectus, (b) the sale of
the entire $5,000,000 principal amount of Notes, or (c) termination of the Note
offering at the sole election of the Company (the "Offering Period").
Subscription funds for the first $1,500,000 in principal amount of Notes
will be deposited into an escrow account pursuant to an escrow agreement (the
"Escrow Agreement"), dated ______________, 1996, between the Company, Executive
and SouthTrust Asset Management Company of Florida, N.A., Sarasota, Florida (the
"Escrow Agent"). The Escrow Agreement provides that the Escrow Agent will
receive and accumulate such Note subscription funds until midnight
_____________, 199_, subject to a one-time extension of up to 90 days effected
at the sole option of the Company. If at any time there is on deposit in the
escrow account $1,500,000 or more in cash or in securities purchased with Note
subscription funds, then the Escrow Agent will deliver custody of such funds
(and cash equivalent items) to the Trustee for use by the Company in its
intended business activity. If at the end of such period there is less than
$1,500,000 of cash (or investments purchased with Note subscription funds), then
the Note offering will terminate and the Escrow Agent will return such Note
subscription funds to the respective Note subscribers with interest as described
below.
During the time period in which the Escrow Agent is accumulating Note
subscription funds prior to attaining the Minimum Subscription, the Escrow Agent
will invest and reinvest such Note subscription funds in debt securities which
in the opinion of the Escrow Agent assures safety of principal and liquidity.
Interest earned as a result of such investment and reinvestment activities will
be paid to the Company in the event the Minimum Requirement is attained. If the
Minimum Requirement is not attained, such interest shall be paid to the Note
subscribers, taking into account the period of time that each Note subscriber's
subscription funds were on deposit with the Escrow Agent and the amount of each
subscriber's funds. The amount of such interest will be less than the applicable
Note Rate.
Subscriptions for Notes may be made in increments of $1,000, subject to a
minimum investment of $5,000 principal amount of Notes (except for Individual
Retirement Accounts, for which the minimum investment will be $2,000).
Subscribers may request that their subscriptions be allocated between the three
sub-Series of Notes in $1,000 increments, subject to availability.
The Notes will be offered on a best efforts basis by Executive. Guy S.
Della Penna, who also serves as the sole Director and Chief Executive Officer of
the Company, beneficially owns approximately 65% of the outstanding common stock
of Executive. Mr. Della Penna is also the beneficial owner of all of the
outstanding voting Common Stock of the Company. As a result, Executive and the
Company are deemed affiliates as such term is defined in Schedule E of the
Bylaws of the National Association of Securities Dealers, Inc. ("NASD").
Accordingly, the Company is subject to and will comply with certain provisions
required by Schedule E in connection with this offering, which provisions relate
principally to the fairness of the terms of the Notes and their distribution.
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In summary, Schedule E requires that the fairness of the terms of debt
securities and their issuance offered by affiliates of NASD members be passed
upon by another NASD member. Such other NASD member must be independent of the
issuer of the debt securities and the NASD member assisting in the distribution
of such debt securities and also meet the definition of "qualified independent
underwriter" as set forth in Schedule E. Generally, in order to be a qualified
independent underwriter acting in a Schedule E capacity, during the five year
period immediately preceding the filing of the registration statement covering
the securities proposed to be distributed by the affiliated NASD member, the
independent NASD member must (i) have been actively engaged in the investment
banking or securities business; (ii) have generated net income from its
operations as a securities broker-dealer during the last three of such five
years; and (iii) have a board of directors constituted by a majority of persons
who have been actively engaged in the investment banking or securities business
for such five year period. Such qualified independent underwriter also must have
been actively engaged in the underwriting of public offerings of securities of a
similar size and type for at least such five year period.
In addition to passing upon the fairness of certain terms of the debt
securities and their issuance, the qualified independent underwriter also must
participate in the preparation of the registration statement and the prospectus
for the public offering of such debt securities and must exercise the usual
standards of due diligence with respect to such activity. The qualified
independent underwriter is subject to the liabilities imposed on underwriters of
securities by the Securities Act of 1933, as amended.
In connection with this offering of the Notes, Executive and the Company
have engaged Kashner Davidson Securities Corporation ("Kashner Davidson") to act
as the qualified independent underwriter. Executive, the Company and Kashner
Davidson believe that Kashner Davidson is a qualified independent underwriter
pursuant to Schedule E and that the terms of the Note offering made hereby are
in compliance with the provisions of Schedule E. The Company will pay Kashner
Davidson a fee of $15,000 for its services as qualified independent underwriter,
and will also pay the expenses of Kashner Davidson's counsel arising in
connection with its representation of Kashner Davidson in this matter, estimated
to be $10,000.
In connection with its function as a qualified independent underwriter for
the Notes offered by this Prospectus, Kashner Davidson has assisted in the
preparation of the Registration Statement of which this Prospectus is a part and
has reviewed the appropriateness and fairness of the terms to maturity and rates
of interest of the Notes and has concluded that such terms and rates are fair
and appropriate under currently existing market conditions, taking into account
the rates of interest, terms to maturity, and partially secured nature of the
Notes, as well as the amounts of selling commissions, Note offering management
fee and non-accountable expense allowance items of compensation allowed to
Executive. The net income of the Company, if any, will inure to the benefit of
Mr. Della Penna, the sole shareholder of the Company. See "MANAGEMENT" and
"PRINCIPAL SHAREHOLDERS."
PLAN OF DISTRIBUTION
The aggregate $5,000,000 principal amount of the Notes offered by this
Prospectus will be offered on a best efforts basis through Executive, an
affiliate of the Company. See "TERMS OF THE NOTE OFFERING." Executive is a
registered securities broker-dealer pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, and the Blue Sky laws of various states,
including Florida. Executive is a member of the NASD and the Securities Investor
Protection Corporation ("SIPC").
For its best efforts in connection with the sale of the Notes, Executive
will be entitled to receive average selling commissions at the rate of 6.10% of
the principal amount of Notes sold by it, at the specific rates set forth on the
cover of this Prospectus. In addition, Executive will be entitled to receive a
Note offering management fee equal to 3% of the gross proceeds of Notes sold by
Executive or other Qualified Dealers and a non-accountable expense allowance
equal to 2% of such Note proceeds. Accordingly, Executive will be entitled to
receive additional fees and allowance equal to $50 per $1,000 principal amount
of Notes sold and $250,000 if the entire $5,000,000 principal amount of Notes is
sold. Notes may also be sold by Qualified Dealers. Such Qualified Dealers may
receive all or a portion of the selling commissions payable on account of the
sale of the Notes. Executive may also reallow a portion of the non-accountable
expense allowance. Selling commissions and the Note offering management and due
diligence fee will only be paid if the Minimum Requirement is attained. See
"TERMS OF NOTE OFFERING" and "USE OF PROCEEDS."
The Note offering made hereby is subject to the condition that the Company
receive and accept subscriptions for Notes in the minimum principal amount of
$1,500,000 on or before midnight __________________, 199_, subject to a one-
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time extension effected at the sole option of the Company of up to 90 days from
such date (the "Minimum Requirement"). Until such time as the Minimum
Requirement is attained, investors' checks delivered in connection with
subscriptions to Notes will be made payable to the Escrow Agent. Pending the
timely attainment of the Minimum Requirement, all Note subscription funds will
be deposited in the Escrow Account which is administered by the Escrow Agent. In
connection with offerings of securities that involve other than firm
underwriting arrangements, the United States Securities and Exchange Commission
(the "Commission") has adopted Rule 15c2-4, which requires securities
broker-dealers, such as Executive and Qualified Dealers, who participate in
offerings of securities which involve a contingency promptly upon receipt to
transmit any and all checks, drafts, or money orders from investors, together
with a copies of any executed subscription agreement relating to such security,
to an escrow agent. The Commission has interpreted the term "promptly" to mean
by noon of the next business day following receipt of subscription funds until
such time as the minimum offering contingency established in connection with the
offering has been met. Accordingly, Executive and any Qualified Dealer effecting
a subscription for the Notes offered hereby will transmit such funds directly to
the Escrow Agent by noon of the next business day following subscription. If,
upon examination of the subscription documents, it is determined by Executive
and/or the Company that the Note subscriber is not a suitable investor, the
Company and Executive will direct that the subscription funds of such unsuitable
subscriber be returned promptly to such subscriber. See "INVESTOR SUITABILITY"
and "TERMS OF NOTE OFFERING."
CONFLICTS OF INTEREST;
TRANSACTIONS WITH MANAGEMENT AND AFFILIATES
Guy S. Della Penna is the sole director and officer of the Company. Mr.
Della Penna also serves as an individual general partner of Federal Mortgage
Investors, Ltd., a limited partnership formed in 1991 ("FMIL"), and as the sole
director and officer of the corporate general partner of FMIL. He also serves as
the sole director and officer of Federal Mortgage Management, Inc., a
corporation formed in 1993 ("FMMI"). The organization and capitalization of both
of these entities was sponsored by Executive. Mr. Della Penna is an officer,
director and owner of a majority of the outstanding stock of Executive.
Utilizing the proceeds from the public offer and sale of units of limited
partnership interests and promissory notes, respectively, FMIL and FMMI have
acquired portfolios of residential real estate mortgage loans utilizing an
acquisition criteria similar to the criteria to be utilized by the Company.
Appendix A to this Prospectus is a presentation of certain information
concerning the loan portfolios of FMIL and FMMI. See "RISK FACTORS - Conflicts
of Interest." To the extent possible, Mr. Della Penna (acting as management of
the Company and in his capacity as individual general partner and corporate
officer of the corporate general partner of FMIL and as corporate officer of
FMMI) will endeavor to cause the Company to become fully invested in Portfolio
Loans as quickly as possible following attainment of the Minimum Requirement
(subject to the maintenance of the initial reserve for interest payments) for
this Note offering prior to making substantial additional portfolio acquisitions
on behalf of FMIL or FMMI. However, there is no requirement that this be done
and because Mr. Della Penna owes fiduciary duties to FMIL and FMMI as well as to
the Company, no assurance can be given that Mr. Della Penna will be successful
in such effort.
The possibility exists that the Company, FMIL and FMMI may be in a
conflict of interest situation if they are all in the process of acquiring or
selling residential real estate loans for or from their respective portfolios at
the same time. In such instances, Mr. Della Penna will be required to allocate
available residential real estate loans which meet the respective acquisition
criteria of the three entities among them and to determine which entity shall
have the first opportunity to sell loans when sale opportunities are limited.
Portfolio Loans also may be sold or otherwise conveyed or transferred between or
among the Company, FMIL, FMMI, Mr. Della Penna or other affiliates of such
persons. Mr. Della Penna intends to resolve such conflicts of interest as he
sees fit, considering the factors he considers relevant at the time, including
the financial condition and needs of each entity. There is no requirement and
can be no assurance that conflicts will be resolved in a manner that is in the
best interests of the Company.
As a result of such possible conflict of interest situations, the
possibility exists that the Company may be unable to acquire or sell Portfolio
Loans at the time or in the amounts desired. In such case, the financial
condition and operations of the Company could be adversely affected in a
material fashion. As a result, the Company's ability to pay the obligation of
Notes outstanding may also be materially affected. See "RISK FACTORS."
The Company, FMIL and FMMI may act in a joint fashion in the acquisition
or sale of residential real estate mortgage loans for their respective
portfolios. Such procedures will only be followed in instances where such joint
action is desirable due to economies of scale achieved or other mutually
beneficial reasons.
-17-
<PAGE>
In the future, Mr. Della Penna or his affiliates, including Executive, may
organize additional entities which will pursue mortgage loan acquisition
activities similar to those to be undertaken by the Company and will compete
with the Company in the same manner as FMIL and FMMI. It is anticipated that the
conflict of interest policies described above will be utilized to resolve
conflict of interest situations with such entities which may be organized in the
future.
It is anticipated that Mr. Della Penna may enter into a business
arrangement with affiliates of an entity which is currently a major originator
of mortgage loans for other similar programs in which Mr. Della Penna is
involved. Mr. Della Penna beneficially owns approximately 17% of the common
stock of such originator. Mr. Della Penna and such affiliates intend to
implement a program which will establish a network of individuals and companies
which will buy and sell residential real estate with a focus on sales to credit
impaired buyers and, in connection with such sales, originate mortgage loans on
such real estate which will meet the Acquisition Policy of the Company. It is
anticipated that the Company may purchase a substantial portion of its Portfolio
Loans through such program, and certain fees, such as mortgage placement fees,
may be paid to affiliates of Mr. Della Penna in connection with such purchases.
Such fees will not exceed the fees generally charged for similar services by
independent third parties.
The Company's Portfolio Loans will be serviced by FMIL. The Company will
pay a monthly servicing fee to FMIL of $1,500 plus .5% (on an annual basis) of
the aggregate outstanding principal balance of the Portfolio Loans as of the end
of the prior month. Such servicing cost has not been determined as a result of
arm's length negotiations but is believed by the Company to fairly relate to
servicing costs which could be obtained from independent, non-affiliated
sources. Such monthly servicing fee is intended principally to defray the salary
costs of the employees carrying out such servicing activities. Such servicing
costs to be paid by the Company to FMIL under such arrangements are expected to
range on an annual basis from $16,200 to $33,000, depending upon whether the
minimum or maximum principal amount of Notes offered hereby are sold. See
"BUSINESS OF THE COMPANY - PLAN OF OPERATION - Portfolio Loan Servicing."
For his general management services, Mr. Della Penna will receive an
annual management fee equal to 3% of the aggregate face value of the Eligible
Collateral as of December 31 of the prior year. See "MANAGEMENT - Compensation."
Executive is an affiliate of the Company by virtue of the ownership of the
outstanding voting Common Stock of the Company and Executive by Mr. Della Penna.
In connection with the offering made by this Prospectus, Executive will receive
average selling commissions of 6.10% of the principal amount of Notes that it
sells. Additionally, Executive will receive in connection with the Note
offering, a Note offering management fee equal to 3% of the gross Note proceeds
realized by the Company, as well as a nonaccountable expense allowance of 2% of
such gross Note proceeds. The rate of selling commissions, the Note offering
management fee amount and the nonaccountable expense allowance amount have not
been determined by arm's length negotiations, but have been solely determined by
Mr. Della Penna acting on behalf of the Company and Executive with review as to
fairness by Kashner Davidson Securities Corporation. Accordingly, conflict of
interest circumstances may have existed with respect to the different interests
of the Company and Executive in determining such rates. No assurance can be
given that more favorable rates to the Company would not have resulted from an
arm's length negotiation process. See "PLAN OF DISTRIBUTION."
In the event that at least $2,000,000 principal amount of Notes is sold by
the Company, CMG, also an affiliate of the Company and Executive by virtue of
Mr. Della Penna's common ownership of all three entities, will receive
reimbursement for certain expenses which it has advanced in connection with the
organization of the Company and the Note offering made by this Prospectus, as
well as payment for certain support services provided by CMG to the Company in
connection with the Note offering. Such reimbursement amount may not exceed
$150,000 regardless of the amount of expenses paid by CMG or value of services
provided. Such expense reimbursement and service payment will only occur on an
accountable basis and CMG will be required to provide documentation to the
Company with respect to any such payment. Such expense reimbursement
arrangements were determined solely by Mr. Della Penna and, accordingly, may be
less favorable to the Company than if they had been determined through an arm's
length negotiation process. See "USE OF PROCEEDS."
Michael Hric, P.A., will serve as the trustee under the Custody Agreement.
Michael Hric, P.A., is a Florida professional association (corporation) which
engages in the practice of law in Sarasota, Florida. The principal of Michael
Hric, P.A. is Michael Hric. Mr. Hric has engaged in the practice of law in
Sarasota, Florida since 1979 with a practice emphasis in the areas of taxation
and business law. Mr. Hric has performed legal services for Mr. Della Penna and
his affiliated companies in the past and may perform additional services in the
future. Mr. Hric did not provide any services with respect to the formation of
the Company and the offer and sale of the Notes.
-18-
<PAGE>
USE OF PROCEEDS
The gross proceeds from the sale of the Notes will range from a minimum of
$1,500,000 if only the Minimum Requirement is attained to a maximum of
$5,000,000 if the entire principal amount of Notes is sold. Average selling
commissions of 6.1% of the principal amount of the Notes sold will be paid to
Executive and other Qualified Dealers. A 3% Note offering management fee and a
2% non-accountable expense allowance also will be paid to Executive.
Additionally, if at least $2,000,000 principal amount of Notes is sold by the
Company, certain expenses will be reimbursed to CMG in the maximum amount of
$150,000. The items for which reimbursement will be made to CMG by the Company
relate to the payment of certain salaries by CMG to management, clerical,
secretarial and administrative staff; the providing of office space, utilities
and supplies; certain travel expenses; and the providing of computer hardware
and software. Additionally, CMG has accrued or paid certain costs associated
with the Note offering relating to consulting, legal and accounting fees, filing
fees and printing costs. See "CONFLICTS OF INTEREST; TRANSACTIONS WITH
MANAGEMENT AND AFFILIATES." CMG, in its sole discretion but without any
obligation to do so, may determine to defer the payment of such expense
reimbursement until such time as the Company has realized Note proceeds in
excess of $2,000,000.
<TABLE>
<CAPTION>
MINIMUM PERCENT $2,000,000 PERCENT MAXIMUM PERCENT
------- ------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gross Proceeds $1,500,000 100.0% $2,000,000 100.0% $5,000,000 100.0%
Selling Commissions (averag (91,500) 6.1 (122,000) 6.1 (305,000) 6.1
Offering Management Fee (45,000) 3.0 (60,000) 3.0 (150,000) 3.0
Non-accountable Expense All (30,000) 2.0 (40,000) 2.0 (100,000) 2.0
Organizational and Offering
Expense Reimbursement (1) 0 0 (150,000) 7.5 (150,000) 3.0
Organizational and Offering
Expenses (1) (120,000) 8.0 (120,000) 6.0 (120,000) 2.4
---------- ----- --------- ----- ---------- -----
Available for Use in Company
Activities $1,213,500 80.9% $1,508,000 75.4% $4,175,000 83.5%
Cash Held for Interest
Payment (2) 30,000 2.0 (40,000) 2.0 (100,000) 2.0
---------- ----- ---------- ----- ---------- -----
Total to be Invested in
Mortgages $1,183,000 78.9% $1,468,000 73.4% $4,075,000 81.5%
========== ===== =========== ===== ========== =====
- ----------------------
<FN>
(1) CMG is entitled to receive expense reimbursement with respect to
organizational assistance and expenses incurred on the Company's behalf in
connection with the Note offering, up to a maximum of $150,000, provided
that at least $2,000,000 principal amount of Notes is sold by the Company.
Such amounts will be in addition to the $95,000 organizational and
offering expenses payable by the Company upon the attainment of the
Minimum Requirement. Such expense reimbursements to CMG may not exceed
such amounts even though the amounts actually expended by CMG on behalf of
the Company and in connection with the Note offering may exceed such
amounts. Organizational and Offering Expenses also includes the fee of
$15,000 paid by the Company to Kashner Davidson Securities Corporation for
its service as a "qualified independent underwriter" in connection with
the offering of the Notes, and the expenses of Kashner Davidson's counsel
arising in connection with its representation of Kashner Davidson in this
matter, estimated to be $10,000.
(2) Such amounts will provide for the payment of approximately 90 days of Note
interest at the Note Rate. To the extent that cash flow is sufficient to
meet the interest obligation of outstanding Notes, such amounts or a
portion thereof will be utilized to acquire Portfolio Loans. See "RISK
FACTORS - No Loss Reserve or Credit Enhancements."
</FN>
</TABLE>
CAPITALIZATION
The capitalization of the Company as of the date of this Prospectus and as
adjusted for the attainment of the Minimum Requirement and the sale of the
entire $5,000,000 principal amount of Notes is set forth in the table presented
below.
<TABLE>
<CAPTION>
UPON SALE OF ENTIRE
UPON ATTAINMENT OF $5,000,000 PRINCIPAL
OUTSTANDING MINIMUM REQUIREMENT AMOUNT OF NOTES
----------- ------------------- --------------------
<S> <C> <C> <C>
Series 1996 Notes in authorized --- $1,500,000 Principal $5,000,000 Principal
principal amount of $5,000,000 Amount of Notes Amount of Notes
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
UPON SALE OF ENTIRE
UPON ATTAINMENT OF $5,000,000 PRINCIPAL
OUTSTANDING MINIMUM REQUIREMENT AMOUNT OF NOTES
----------- ------------------- --------------------
<S> <C> <C> <C>
Common Stock, $.01 par value, $1,000 $1,000 $1,000
1,000 shares authorized,
100 shares outstanding
</TABLE>
BUSINESS OF THE COMPANY - PLAN OF OPERATION
BACKGROUND
The Company was organized under the Florida Business Corporation Act in
November 1995. Guy S. Della Penna may be deemed the promoter of the Company as
that term is defined in the Securities Act of 1933, as amended. Other than the
development of its business plan, the Company has not engaged in any other
business activities. Mr. Della Penna presently serves as the sole director and
officer of the Company. See "MANAGEMENT." Guy S. Della Penna is affiliated with
FMIL, a Florida limited partnership, and FMMI, a Florida corporation, both of
which have acquired, hold and deal in residential real estate mortgage loans in
accordance with an acquisition policies similar to the Acquisition Policy to be
utilized by the Company. Appendix A to this Prospectus provides summary
information concerning the portfolios and portfolio experience of FMIL and FMMI.
PRINCIPAL ACTIVITY
Utilizing the proceeds from this offering of Notes, the Company will
originate, underwrite, acquire, hold and deal in a portfolio of residential
mortgage loans ("Portfolio Loans") which are secured by liens on the real
estate. Such liens will primarily be first liens, represented by first
mortgages, however, the Company may also invest in second lien mortgage loans,
represented by second mortgages, provided that the aggregate principal balance
of all second lien loans will not at any time exceed 10% of the aggregate
principal balance of all Portfolio Loans. The Portfolio Loans acquired by the
Company will generally be loans on improved residential real property (home and
property), but they may include loans on parcels of unimproved real property
which is zoned for residential use, subject to certain limitations on the
percentage amount of unimproved real estate loans which can be purchased by the
Company. The Company has developed an Acquisition Policy with respect to the
acquisition of Portfolio Loans.
As a general matter, the Company expects to buy Portfolio Loans which
represent higher credit risks, and therefore offer a higher yield, than loans
generally originated by commercial banks and other institutional lenders. These
loans will generally involve credit impaired borrowers who may not qualify for
traditional mortgage financing because of a prior bankruptcy, poor or no credit
history or previous foreclosures. Also, such loans may have been originated by
small independent mortgage companies or brokers or individual sellers of real
estate who may not have generated the complete credit and loan file necessary to
sell the mortgage loans into the institutional mortgage market. During a period
of generally from three to six months after the acquisition of a Portfolio Loan,
the Company will endeavor to bring all documentation for the loan into
compliance with the institutional mortgage loan market (referred to as
"scrubbing" the loan) and, with respect to under-performing or non-performing
loans, will attempt to work with the mortgagor to have the loan payments brought
up to date. After servicing the loan for a three to nine month period and
bringing a delinquent loan current, or at least improving its performing status
(referred to as "seasoning" the loan), the Company will then package together a
number of "scrubbed"
-20-
<PAGE>
and "seasoned" Portfolio Loans and attempt to sell them into the institutional
mortgage loan market at a premium over the price the Company paid for them.
Portfolio Loans may be marketed directly or through brokers that represent
pension funds, insurance companies, banks, savings and loan institutions, credit
unions and mortgage bankers. The Company may sell Portfolio Loans from time to
time through the facilities of FNMA and FHLMC through approved, authorized
sellers. The Company is not required to utilize approved sellers with respect to
sales to pension funds, insurance companies, banks, savings and loan
institutions, credit unions and mortgage bankers. Generally, approved sellers
include mortgage bankers and banks which have received such designation from
FNMA and FHLMC. Management has had only limited experience relative to the sale
of loans, as constituted by the sales experience of FMIL and FMMI. See Appendix
A to this Prospectus.
SUMMARY OF PORTFOLIO LOAN ACQUISITION POLICY
The Company's Acquisition Policy vests substantial discretion in
management with respect to the character of the Portfolio Loans which may be
acquired. Under the Acquisition Policy, a detailed description of which is set
forth below, the Company will:
(a) Originate and acquire residential real estate mortgage loans (i)
secured by a first lien on the collateral real estate, and (ii) with a
loan balance not in excess of 90% of the estimated fair market value of
the collateral real estate at the time of acquisition of the Portfolio
Loan by the Company or, alternatively, a Portfolio Loan with a loan to
value ratio in excess of 90% may be acquired by the Company provided that
the Company's cost to acquire the loan does not exceed 85% of the
estimated fair market value of the real estate as determined at the time
of acquisition of the Portfolio Loan;
(b) Originate and acquire unimproved real estate mortgage loans
having a loan balance at the time of loan acquisition not greater than 50%
of the estimated fair market value of the collateral real estate property,
subject to the further condition that the aggregate principal balance of
unimproved real estate mortgage loans shall not at any time exceed 10% of
the aggregate principal balance of all Portfolio Loans;
(c) In cases when the Company is acquiring a promissory note secured
by a first lien mortgage on a parcel of property, originate or acquire a
residential real estate mortgage loan secured by a second lien on the
collateral real estate, provided that both loans, on an aggregate basis,
meet the criteria of paragraph (a) above; provided however, that the
aggregate principal balance of all second lien loans shall not at any time
exceed 10% of the aggregate principal balance of all Portfolio Loans;
(d) Originate, without limitation as to amount, short-term (up to 12
months) mortgage loans for purposes of purchasing undervalued residential
real estate, as more fully described on below; and
(e) In all loan acquisition transactions, take into account the
relative contribution in terms of cash flow to be provided by such loan or
group of loans in the context of the Company's principal and interest
obligations under the outstanding Notes.
The effect of the Acquisition Policy will be to permit the Company to
acquire in individual and pooled loan acquisitions conforming and non-conforming
loans, which loans may be performing, under-performing and non-performing,
without purchase limitations in terms of the aggregate principal balance of the
Portfolio Loans from time to time. See "RISK FACTORS."
Interested investors are referred to the "GLOSSARY OF CERTAIN TERMS"
contained in this Prospectus for definitions of terms utilized in the
description of the Company's Acquisition Policy described herein.
PORTFOLIO LOAN ACQUISITION POLICY
The Company intends to acquire residential mortgage loans which are
secured primarily by first liens on residential real estate located throughout
the continental United States. In cases when the Company is acquiring a
promissory note secured by a first lien mortgage on a parcel of property, it may
also originate or acquire a residential real estate mortgage loan secured by a
second lien on the collateral real estate, provided that both loans, on an
aggregate basis, meet the Company's
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<PAGE>
Acquisition Policy criteria, and provided further that the aggregate principal
balance of all second lien loans shall not at any time exceed 10% of the
aggregate principal balance of all Portfolio Loans. Some loans may be secured by
vacant residential building lots. The Company anticipates that a majority of
loan purchases will involve the purchase of groups or pools of loans by the
Company from one or more vendors which, in most cases, will have acted as loan
originators. The Company will endeavor to acquire performing loans as Portfolio
Loans. However, in the instance of pooled loan purchases, a number of the loans
acquired and included in the pool may be under-performing or non-performing in
terms of current or historical principal and interest payments at the time of
acquisition by the Company. See "RISK FACTORS." All loans acquired by the
Company, including under-performing and non-performing loans, will be subject to
the Acquisition Policy criteria which requires that the loan balance not exceed
90% of the estimated fair market value of the collateral real estate securing
such loan at the time of acquisition of the Portfolio Loan by the Company or,
alternatively, a Portfolio Loan with a loan to value ratio in excess of 90% may
be acquired by the Company provided that the Company's cost to acquire the loan
does not exceed 85% of the estimated fair market value of the collateral real
estate as determined at the time of acquisition of the Portfolio Loan.
In addition to the foregoing criteria, the maximum amount of
under-performing and non-performing loans in any group of loans being considered
for acquisition by the Company will be viewed in the light of the necessary cash
flow required to service outstanding Notes. Any group of loans considered for
purchase as Portfolio Loans must have sufficient, demonstrated cash flow which,
when combined with the cash flow of all other Portfolio Loans and the profits
from trading the Portfolio Loans, will assure to the extent possible the
servicing of the obligations represented by outstanding Notes. Also, in such
purchases, the Company will take into account the pool purchase price, the
discount from the unpaid aggregate principal balance of the loan pool, the
average age of the pooled loans and the underlying circumstances relating to the
under- performing and non-performing loans contained in the pool (such as
temporary inability to pay, restoration of scheduled payments, servicing
problems and other factors).
The Company anticipates acquiring Portfolio Loans either on an individual
or on a pool basis at discounts from their face amounts, as determined at the
time of purchase. Historically, FMIL and FMMI have been able to acquire loans at
discounts ranging generally from 15% to 30% of the outstanding principal balance
thereof, although no assurance can be given that the Company will be able to
acquire Portfolio Loans within such discount range. Monthly payments of
principal and interest under the mortgage loans must be determined by reference
to amortization schedules with terms not in excess of 360 months (30 years),
calculated from the time of loan origination.
Mortgage loans acquired by the Company may have been originated by a
financial or deposit institution, a credit union, an insurance company, a
mortgage company or mortgage broker or the seller of the real property which
serves as collateral for the mortgage loan (or agents of such sellers). The
Company will acquire loans directly from such persons, and also from pension
funds, mortgage bankers and the Resolution Trust Corporation as a result of its
acquisition of the subject loan from a distressed financial institution.
It is anticipated that Mr. Della Penna may enter into a business
arrangement with affiliates of an entity which is currently a major originator
of mortgage loans for other similar programs in which Mr. Della Penna is
involved. Mr. Della Penna beneficially owns approximately 17% of the common
stock of such originator. Mr. Della Penna and such affiliates intend to
implement a program which will establish a network of individuals and companies
which will purchase undervalued residential real estate and then remarket the
same, either immediately or after making repairs, with a focus on sales to
credit impaired buyers. In connection with such remarketing, the sellers will
originate mortgage loans on such real estate which will meet the Acquisition
Policy of the Company. It is anticipated that the Company may purchase a
substantial portion of its Portfolio Loans through such program, although it
will not be required to purchase any loans and the originators will not be
required to sell any loans to the Company. Certain fees, such as mortgage
placement fees, may be paid to affiliates of Mr. Della Penna in connection with
purchases of such mortgage loans by the Company. Such fees will not exceed the
fees generally charged for similar services by independent third parties.
In connection with the program described in the preceding paragraph, the
Company may also make short-term mortgage loans to the individuals or companies
participating in the program for the purchase of the undervalued residential
real estate. The principal amount of such loans will be limited to an amount no
greater than 60% of the estimated fair market value of the real property as it
exists on the date the loan is made, that is, prior to any needed repairs being
made. The loan will be for a term of 12 months or less and will be secured by a
first lien on the property. No loans will be made to finance any repairs. It is
anticipated that such loans will bear interest at a rate significantly higher
than will be charged on a standard, long-term residential mortgage loan, and
will generate additional income for the Company. Mr. Della Penna and his
affiliates may receive fees from the participants in the program in
consideration for various services performed or provided by them
-22-
<PAGE>
and for the right to participate in such program. There is no limitation on the
amount of capital that the Company may invest in such short-term mortgage loans.
The Company may, on a case-by-case basis and in accordance with an
individual loan analysis, acquire real estate mortgage loans which are secured
by first liens on unimproved real estate, provided that the unpaid principal of
any such mortgage loan does not exceed 50% of the estimated fair market value of
such unimproved real estate. Such acquisitions are subject to the further
condition that the aggregate principal balance of all mortgage loans secured by
unimproved real estate may not exceed 10% of the aggregate principal balance of
all Portfolio Loans. The Company anticipates that the initial loan acquisition
activity of the Company will be directed towards the acquisition of residential
real estate mortgage loans and not unimproved real estate mortgage loans and
that the acquisition of mortgage loans involving as their underlying collateral
unimproved real estate will be an activity undertaken at a time when the cash
flow of the Company is sufficient in the judgment of management to assure the
timely servicing of the obligation represented by outstanding Notes.
In considering loans for acquisition, the Company will determine estimated
fair market value of the underlying collateral real estate utilizing one or a
combination of methods. One such method utilizes the original in-file appraisal
which was made at the time of the loan origination, provided such appraisal was
done within the past 12 months. Additional methods of determining estimated fair
market value include a review of the current tax value or assessed value for ad
valorem taxes of the property, the procurement of a new appraisal, including a
"drive-by" appraisal. A "drive-by" appraisal consists of a comparison of recent
sales of dwellings determined to be comparable to the subject dwelling based
upon an examination of the exterior of the dwelling and a search of tax and
other records which describe the dwelling. Such appraisals are utilized when the
dwelling is occupied and access is limited. The Company will use its best
judgment in determining which method or combination of methods will be used in
connection with the evaluation of any particular loan. In this regard, the
Company may take into account the age of the loan, the status of the
documentation relative to the loan, the mortgagor payment history and current
economic trends in the geographic area of the continental United States in which
the collateral property is located. The Company does not anticipate reappraising
loan collateral properties at any regular intervals unless special circumstances
arise. The manner of determining the estimated fair market value of the real
estate underlying the Company's loans is strictly within the discretion of the
Company, and the Acquisition Policy does not provide any uniform or fixed
procedure.
Factors which the Company will consider in evaluating loans for possible
acquisition include satisfactory title to the collateral real estate, the
sufficiency and adequacy of the initial mortgage loan underwriting procedure,
the existence of hazard and liability insurance (with the Company designated as
a named insured to the extent of its interest in the property), the credit and
payment history of the mortgagor, the adequacy and completeness of the mortgage
instrument and other documentation which created and governs the loan, and other
matters which could affect the relative credit characteristics or salability of
the mortgage loan.
Non-conforming loans may from time to time constitute up to 100% of the
Company's Portfolio Loans. Under- performing loans, if current at the time of
consideration for acquisition by the Company (once delinquent but now making
regularly scheduled monthly payments on a consistent basis), also may comprise
up to 100% of the Portfolio Loans from time to time. Under-performing loans will
be subject to the acquisition considerations and standards described above. The
Company will acquire non-performing loans only when such loans are part of a
pool of loans which the Company desires to acquire and the pool is satisfactory
in terms of the considerations described in the Acquisition Policy. As
previously described, even when an individual loan or group of loans meets the
criteria for acquisition, the Company also will take into account the relative
contribution of any such loan or group of loans to the cash flow needed to cover
the principal and interest obligations of the Company under the outstanding
Notes.
Regardless of the categorization of particular loans as conforming or
non-conforming, all loans which are "performing," in terms of timely principal
and interest payments on a monthly basis, are considered by the Company to have
low to moderate risk. Non-performing loans and under-performing loans present
greater risk, although individual circumstances may have a substantial effect on
the level of risk attributable to such loans. The lack of cash flow as to any
individual loan or group of loans decreases the liquidity of the Company even
though there may be a greater opportunity for gains on the sale of such loans if
the Company can bring them from an under-performing or non-performing status to
a performing status. See "RISK FACTORS - Source of Note Repayment."
When it acquires non-conforming loans involving acceptable credit and
payment histories, the Company, subsequent to loan acquisition, will undertake
the necessary steps to cure the origination deficiencies then present in such
loans, thereby permitting the sale of such loans into the secondary mortgage
market, specifically the market represented by the Federal
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<PAGE>
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). Where this corrective activity is successful, the Company
will generally be able to improve the liquidity of the loan and obtain a premium
on its sale over its acquisition cost.
The Company expects to acquire both fixed-rate and adjustable-rate
mortgage loans ("ARMs") as Portfolio Loans. ARMs provide for automatic
adjustment of the interest rate, usually on an annual basis, as market rates
change. The Company anticipates that a majority of the Portfolio Loans acquired
by the Company will be fixed-rate mortgage loans.
The Acquisition Policy permits but does not require the acquisition of
Federal Instruments and Money Market Funds. In order to maintain sufficient cash
to fund principal in interest payment obligations on the Notes, the Company may
have up to 10% of its available capital invested in Federal Instruments and
Money Market Funds at all times, and may invest any cash received upon the sale
of a Portfolio Loan or parcel of real property received upon foreclosure
temporarily in Federal Instruments or Money Market Funds pending its use to
acquire additional Portfolio Loans. "Federal Instruments" are comprised of
deposit or certificate accounts issued by state or federally chartered banking
institutions with at least $500 million of assets or debt instruments issued by
the United States or instrumentalities thereof. "Money Market Funds" are money
market or equivalent funds at a New York Stock Exchange member firm with net
assets of at least $200 million.
SUPPLY OF PORTFOLIO LOANS
In the recent past there has been a limited supply of the type of mortgage
loans intended to be purchased as Portfolio Loans. The type of loans sought by
the Company are not generally available through any recognized national market;
rather, in each geographic region there appears to be a limited number of buyers
and sellers involved in the market. Mr. Della Penna has established
relationships with several buyers and sellers in Arkansas, California, Florida,
Kansas, Missouri, North Carolina, Ohio, Oklahoma, Pennsylvania and Texas.
Management believes that such sellers should be able to provide a steady source
of Portfolio Loans for the Company, and that such buyers will provide a ready
market for all of the mortgage notes purchased by the Company after the Company
has "seasoned" and "scrubbed" such loans. At present, one company in Texas is
providing a majority of the residential mortgage loans being purchased by FMIL
and FMMI, and such loan originator may be the source of a significant amount of
the mortgage loans purchased by the Company as Portfolio Loans. Mr. Della Penna
beneficially owns approximately 17% of the common stock of such originator. It
is anticipated that Mr. Della Penna may enter into a business arrangement with
such originator or its affiliates to implement a program which will establish a
network of individuals and companies which will buy and sell residential real
estate with a focus on sales to credit impaired buyers and, in connection with
such sales, originate mortgage loans on such real estate which will meet the
Acquisition Policy of the Company.
PORTFOLIO LOAN SERVICING
The responsibility of servicing the Portfolio Loans of the Company is
vested in the management of the Company. See "MANAGEMENT." In that regard,
management will be responsible for the collection of all principal and interest
payments due under the terms of the Portfolio Loans, for the institution and
prosecution of collection proceedings, including foreclosure, with respect to
Portfolio Loans which are in default, the sale of property after completion of
foreclosure, the acquisition and disposition of Portfolio Loans, including
origination activities, and, where appropriate, the elimination of origination
deficiencies from nonconforming loans which otherwise involve acceptable credit
and payment histories. As of the date of this Prospectus, Company management
intends to arrange for the performance of Portfolio Loan service operations
through FMIL, utilizing a loan servicing system which complies with FNMA
standards. The Company will pay a monthly servicing fee of $1,500 plus .5% (on
an annual basis) of the aggregate outstanding principal balance of the Portfolio
Loans as of the end of the prior month. Such servicing fee will inure to the
benefit of FMIL and are intended to defray the compensation paid by FMIL to its
employees who carry out such servicing activities. The monthly servicing fee to
FMIL was not determined as a result of arm's length negotiation but it is
believed to be fair and reasonable in relationship to the servicing costs which
would be incurred by the Company from independent sources. See "CONFLICTS OF
INTEREST; TRANSACTIONS WITH MANAGEMENT AND AFFILIATES."
Mortgagors of Portfolio Loans who do not make timely payment of principal
or interest will receive written notice within 15 days after the due date for
such payment and personal contact within 30 days after the due date if the
payment has not yet been received by the Company. A combination of written and
personal contact will continue during the 90 day period following the initial
occurrence of loan delinquency. If the Portfolio Loan which is in default is not
restored to current and performing status within such 90 day period, the Company
will commence loan foreclosure proceedings or will endeavor promptly to
negotiate the satisfaction of the loan by taking the collateral property by way
of deed in lieu of foreclosure (after
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determination of the estimated fair market value of the underlying collateral
and status of title) or through actual foreclosure proceedings. In certain
circumstances, the Company may grant extensions of the note term or enter into
other workout arrangements in lieu of foreclosure or negotiation of an immediate
satisfaction of the mortgage and note. When collateral property is taken in
connection with a defaulted loan, the Company will endeavor to sell such
collateral property at the best price obtainable consistent with a speedy
disposition of the property. A sale transaction may involve the assumption of
the foreclosed loan by the purchaser of the real estate or the origination of a
new loan by the Company to the purchaser. If such sale transaction involves the
origination of a new loan to the purchaser, the Company generally will require
at least a five percent down payment on the purchase price.
COMPETITION
The Company anticipates that it will encounter competition from many
sources in its efforts to acquire acceptable mortgage loans. The type of loans
sought by the Company are not generally available through any recognized
national market; rather, in each geographic region there appears to be a limited
number of buyers and sellers involved in the market. Numerous investment and
other entities are in the business of acquiring residential real estate mortgage
loans on an ongoing basis. The basis of such competition in Portfolio Loan
acquisitions is expected to relate to the ability of the Company to rapidly
identify sources of loans for purchase, the ability of the Company to rapidly
and effectively evaluate mortgage loans and the price that the Company is able
and willing to pay for acceptable residential mortgage loans. FMIL and FMMI,
affiliates of the Company and Guy S. Della Penna, are engaged in the
acquisition, holding and disposition of residential real estate mortgage loans
having the same or substantially the same characteristics as the mortgage loans
to be acquired for the Company. In addition, Mr. Della Penna may form additional
companies in the future which will engage in the same or similar business. All
of such companies may compete with each other from time to time in acquiring
mortgage loans from a limited pool of mortgage loans, as well as in the sale of
such loans to third parties. See "RISK FACTORS - Conflicts of Interest" and
"CONFLICTS OF INTEREST; TRANSACTIONS WITH MANAGEMENT AND AFFILIATES."
ELIGIBLE COLLATERAL AS SECURITY FOR THE NOTE OBLIGATIONS
The Notes will be issued under the Custody Agreement, pursuant to which
the notes and mortgages comprising the Portfolio Loans will be held by, and in
the name of, the Trustee for the benefit of the holders of the Notes. The
Custody Agreement does not contain provisions meeting the requirements of the
Trust Indenture Act, although the Note holders and the Trustee will have certain
rights which correspond to some of the requirements of the Trust Indenture Act.
The Trustee will acquire and maintain a lien on the Portfolio Loans (as well as
the proceeds of any sale of a Portfolio Loan until the same is reinvested in
another Portfolio Loan or paid out to the Noteholders). Pending the purchase of
Portfolio Loans, the Company may invest available cash in debt instruments of
the United States government and certificates or deposit accounts ("Federal
Instruments") or money market or equivalent funds at a New York Stock Exchange
member firm with net assets of at least $200 million ("Money Market Funds")
which will initially also be held by the Trustee under the Custody Agreement.
The Portfolio Loans and Federal Instruments, as well as the cash proceeds from
the sale thereof, Money Market Funds, and any real estate acquired upon
foreclosure of a Portfolio Loan are hereinafter referred to as Eligible
Collateral. As a general matter, cash payments on the Portfolio Loans,
representing the repayment of principal and interest thereon, will be paid
directly to the Company, and the Trustee will not have possession and control
over the cash from these payments. Pursuant to the Custody Agreement, the
Trustee will at all times hold Eligible Collateral with an aggregate Unadjusted
Value (as defined below) equal to at least 60% of the aggregate outstanding
principal balance of the Notes. The Unadjusted Value of a Federal Instrument is
the cash value of the instrument. Money Market Funds are considered cash
equivalents and the Unadjusted Value of Money Market Funds is the current
balance of such funds. The Unadjusted Value of a Portfolio Loan is equal to the
outstanding balance due under the loan, and may exceed the amount which could be
obtained upon an immediate sale of the same. The Unadjusted Value of real estate
owned by the Company as a result of a Portfolio Loan foreclosure will be valued
at the lesser of the estimated fair market value of the property received by the
Company upon foreclosure or the principal balance of the loan at the time of
foreclosure plus accrued interest and fees and costs incurred by the Company in
connection with such foreclosure process, and also may exceed the amount which
could be obtained upon an immediate sale of the same. The remaining assets of
the Company, including other items of Eligible Collateral, may be held by the
Company. Accordingly, the principal and interest obligations represented by the
Notes may never be fully collateralized by Eligible Collateral held by the
Trustee, and may be secured by collateral which may have a liquidation value
equal to less than 60% of the outstanding principal obligations due under the
Notes. To the extent that the value of the Eligible Collateral held by the
Trustee is less than the aggregate principal and interest obligations
represented by the Notes, or if the Trustee does not maintain a perfected
security interest on the Eligible Collateral held by it, the Notes will be
general unsecured obligations of
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the Company. See "RISK FACTORS," "USE OF PROCEEDS," and "DESCRIPTION OF THE
NOTES AND THE CUSTODY AGREEMENT."
MANAGEMENT
The administration of the business and properties of the Company is vested
in the Board of Directors of the Company. The day-to-day operations of the
Company will be carried out by Guy S. Della Penna who serves as the sole
Director and officer of the Company, as well as other key employees. The table
set forth below sets forth information concerning Mr. Della Penna.
Name and Age Positions Held with the Company
- ------------------------ -----------------------------------------
Guy S. Della Penna, 44 Director, President and Chief Executive Officer,
Secretary, Treasurer and Chief Financial Officer
INFORMATION CONCERNING MR. DELLA PENNA
Mr. Della Penna, a resident of Sarasota, Florida, since 1980, has been
active in the financial and securities industries for approximately 19 years.
Mr. Della Penna acquired Executive, the selling agent for the Notes offered by
this Prospectus, in March 1990, and is the principal, a member of the Board of
Directors and President and Chief Executive Officer of Executive. Mr. Della
Penna is a General Securities Principal and Financial and Operations Principal
pursuant to NASD Rules. See "TERMS OF NOTE OFFERING" and "PLAN OF DISTRIBUTION."
Mr. Della Penna also serves in an individual capacity as a General Partner
of Federal Resource Income Program, Ltd. ("FRIP"), a privately capitalized
Florida limited partnership, principally engaged in the purchase and holding of
producing petroleum leases. Since August 1990, Mr. Della Penna has served as the
sole shareholder, director and officer of Midwest Energy Corporation, which acts
as the corporate General Partner of FRIP. Capital Mortgage Management, Inc., a
Florida corporation wholly-owned by Mr. Della Penna, serves as the General
Partner of FMIL, a publicly held Florida limited partnership. Mr. Della Penna
has served as the sole director and officer of Capital Mortgage Management, Inc.
since August 1991. Since July 1994, Mr. Della Penna has served as the sole
shareholder, director and officer of Federal Mortgage Management, Inc. ("FMMI").
FMIL and FMMI were organized to invest, hold and deal in residential real estate
mortgage loans.
Mr. Della Penna is also the President of CMG. CMG was organized by Mr.
Della Penna in 1989 to provide financial and advisory services, as well as
insurance products, to individuals and corporate entities. CMG acts as general
agent for various insurance companies.
Mr. Della Penna holds a Bachelor of Science degree in Business
Administration from Ithaca College, Ithaca, New York and received a Master of
Business Administration degree in Finance from the State University of New York,
Albany, New York.
COMPENSATION
As the Company's sole director and officer, Mr. Della Penna will provide
management services to the Company, including management of the Portfolio Loans,
supervision of the Company's affairs such as the maintenance of books and
records and the preparation of reports, and such other managerial
responsibilities as may reasonably be required of him in connection with the
operation of the Company's business. For his general management services, he
will receive an annual management fee equal to 3% of the aggregate face value of
the Eligible Collateral as of December 31 of the prior year. Such fees may be
paid in monthly or other installments as determined by Mr. Della Penna.
Mr. Della Penna intends to devote such time to the affairs of the Company
as is reasonably required. However, he will continue to serve as an officer and
director of the other businesses described herein, as well as other businesses
in the future. The amount of time that Mr. Della Penna will devote to the
Company may increase or decrease depending on the Company's level of activity at
various points in time.
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INDEMNIFICATION
Under the provisions of the Articles of Incorporation and Bylaws of the
Company, the officers and directors of the Company and former officers and
directors of the Company are entitled to indemnification from the Company to the
full extent permitted by law, provided that such director or officer seeking
indemnification acted in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his or her conduct was not unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that in the opinion of the United States Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable.
KEY-MAN LIFE INSURANCE
The Company intends to obtain a key-man life insurance policy on Mr. Della
Penna in the amount of $1,000,000, the proceeds of which could be used to repay
up to $1,000,000 of the principal and interest due under the Notes in the event
of Mr. Della Penna's death.
PRINCIPAL SHAREHOLDERS
As of the date of this Prospectus, all of the outstanding voting Common
Stock of the Company is owned beneficially by Guy S. Della Penna. Mr. Della
Penna holds his shares of Common Stock pursuant to the provisions of a family
trust.
DESCRIPTION OF THE NOTES AND THE CUSTODY AGREEMENT
GENERAL
The Notes offered by this Prospectus have been authorized and designated
by the Company as its Series 1996 A-I, A-II and A-III Promissory Notes in the
authorized aggregate principal amount of $5,000,000. The Notes of the 1996A
Series will represent the general obligation of the Company and will be
partially secured by liens on the Eligible Collateral held by the Trustee under
the Custody Agreement as described below. As of the date of this Prospectus,
there are no other series of Notes of the Company outstanding.
The Notes are offered in varying maturities and Note Rates as set forth in
the table below:
PRINCIPAL
AMOUNT ANNUAL
SERIES AVAILABLE MATURITY DATE NOTE RATE
------ --------- ------------- ---------
1996 A-I $ 500,000 _________, 2000 8.00%
1996 A-II 1,000,000 _________, 2001 9.00%
1996 A-III 3,500,000 _________, 2002 10.00%
All Note Rates are fixed. The available principal amount within each of
the three Series maturities identified in the table is not subject to variation.
The minimum subscription for Notes is $5,000, with the exception of
Individual Retirement Accounts (for which the minimum investment is $2,000). A
minimum of $1,500,000 principal amount of Notes of any of the maturities
available within the Series 1996A must be timely sold in order for the proceeds
to be utilized by the Company in the manner described in this Prospectus. See
"TERMS OF NOTE OFFERING."
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Interest on the principal amount of Notes will be calculated on the basis
of a 365 day year. With respect to Note interest, such interest will commence to
accrue at the time that the subscription for a Note or Notes is accepted by the
Company. Each Note subscriber will be promptly advised of such Note subscription
acceptance or rejection. During the period that the Minimum Requirement is being
attained, interest will not be distributed. Interest on the Notes will be
payable monthly at the applicable Note Rate commencing on the first day of the
first month following attainment of the Minimum Requirement and the release of
the proceeds from the sale of the Notes to the Company and on the first day of
each month thereafter. Investors who acquire Notes subsequent to the attainment
of the Minimum Requirement will first receive interest on the first interest
payment date subsequent to their subscription acceptance and at the Note Rate.
Such later investors will also be promptly advised of such subscription
acceptance or rejection.
The principal of each Note will be paid at the stated maturity thereof.
The principal and interest obligations represented by outstanding Notes as well
as the operating expenses of the Company are expected to be paid using the cash
flow generated by the receipt of principal and interest payments on the
Portfolio Loans, Federal Instruments and Money Market Funds, the receipt of
funds from the early payoff of Portfolio Loans by the mortgagors, profits from
the trading of Portfolio Loans and proceeds from the sale of Portfolio Loans,
Federal Instruments and real estate received upon loan foreclosures.
See "RISK FACTORS - Source of Note Repayment."
The terms of issuance of the Notes (interest rate, term to maturity,
manner of collateral) have been determined by the management of the Company
taking into account market rates of interest, the anticipated Portfolio Loan
purchase capability of the Company in terms of discount and availability, the
observed cash flow of real estate mortgage loans and the experience of FMIL and
FMMI. See Appendix A to the Prospectus. Such terms have been reviewed as to
fairness by Kashner Davidson Securities Corporation, Sarasota, Florida.
ELIGIBLE COLLATERAL
The Portfolio Loans and Federal Instruments, as well as the cash proceeds
from the sale thereof, Money Market Funds, and any real estate acquired upon
foreclosure of a Portfolio Loan are referred to as Eligible Collateral. The
Trustee will have possession of and a lien on only a limited amount of the
Eligible Collateral. The remaining Eligible Collateral, as well as the other
assets of the Company, may be held by the Company and will not directly secure
the obligations of the Company under the Notes. As a general matter, cash
payments on the Portfolio Loans, representing the repayment of principal and
interest thereon, will be paid directly to the Company, and the Trustee will not
have possession and control over the cash from these payments, and such cash
will not be an item of Eligible Collateral. See "SUMMARY OF THE CUSTODY
AGREEMENT" below.
SUMMARY OF THE CUSTODY AGREEMENT
THE FOLLOWING GENERAL DESCRIPTION OF CERTAIN FEATURES OF THE INDENTURE AND
CUSTODY AGREEMENT IS A SUMMARY ONLY AND IS QUALIFIED IN ITS ENTIRETY TO
REFERENCE TO THE INDENTURE AND CUSTODY AGREEMENT, WHICH IS ATTACHED AS EXHIBIT B
TO THIS PROSPECTUS.
Upon the attainment of the Minimum Requirement, all of the subscription
funds will be turned over to the Trustee by the Escrow Agent. The Trustee will
use those funds, as well as all future subscription funds, to pay the expenses
of the Company as directed by Mr. Della Penna and purchase Portfolio Loans
identified by Mr. Della Penna. The promissory notes and mortgages constituting
the Portfolio Loans will be acquired directly by, and in the name of, the
Trustee for the benefit of the holders of the Notes. The Trustee will maintain
physical custody of such notes and mortgages at its offices in Sarasota,
Florida, and will record the mortgage assignments in the public records of the
county or other appropriate filing location for the jurisdiction in which the
real property which is the subject of the Portfolio Loan is located. Although
the Trustee will be the designated mortgagee of record and will hold all legal
title to the Portfolio Loans, the Company will receive mortgagor payments of
principal and interest under such loans.
To the extent that sufficient mortgage loans are not available for
purchase to fully invest all available funds (other than the cash balance
maintained to fund interest payments on the Notes), the Trustee will purchase
Federal Instruments or Money Market Funds as directed by Mr. Della Penna. The
Trustee will take initial possession of the Federal Instruments or, in the case
of Money Market Funds and deposit accounts, the respective account will be in
the name of the Trustee, as trustee under the Custody Agreement.
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At the time of the release of subscription funds to the Company upon the
attainment of the Minimum Requirement and for an indefinite period thereafter,
the face amount or value of the Eligible Collateral will be less than the
aggregate principal obligation of outstanding Notes, as approximately 16% to 25%
of the gross proceeds from the sale of the Notes will be used immediately to pay
offering and other accrued expenses. There is no requirement that the Trustee
hold all items of Eligible Collateral or that the Eligible Collateral held by
the Trustee have a value equal to the outstanding principal obligation
represented by the Notes. Pursuant to the Custody Agreement, the Trustee will at
all times hold Eligible Collateral with an aggregate Unadjusted Value (as
defined below) equal to at least 60% of the aggregate outstanding principal
balance of the Notes. The Unadjusted Value of a Federal Instrument is the cash
value of the instrument. Money Market Funds are considered cash equivalents and
the Unadjusted Value of Money Market Funds is the current balance of such funds.
The Unadjusted Value of a Portfolio Loan is equal to the outstanding balance due
under the loan, and may exceed the amount which could be obtained upon an
immediate sale of the same. The Unadjusted Value of real estate owned by the
Company as a result of a Portfolio Loan foreclosure will be valued at the lesser
of the estimated fair market value of the property received by the Company upon
foreclosure or the principal balance of the loan at the time of foreclosure plus
accrued interest and fees and costs incurred by the Company in connection with
such foreclosure process, and also may exceed the amount which could be obtained
upon an immediate sale of the same. The remaining assets of the Company,
including other items of Eligible Collateral, may be held by the Company.
Accordingly, the principal and interest obligations represented by the Notes may
never be fully collateralized by Eligible Collateral held by the Trustee, and
may be secured by collateral which may have a liquidation value equal to less
than 60% of the outstanding principal obligations due under the Notes. To the
extent that the value of the Eligible Collateral held by the Trustee is less
than the aggregate principal and interest obligations represented by the Notes,
or if the Trustee does not maintain a perfected security interest on the
Eligible Collateral held by it, the Notes will be general unsecured obligations
of the Company. See "RISK FACTORS - Source of Note Repayment."
On the last day of each calendar month, the Company will calculate the
outstanding Unadjusted Value of all items of Eligible Collateral held by the
Trustee. The monthly report also will report the aggregate outstanding principal
balance of the Notes as of the corresponding date. A report of such calculations
will be delivered to the Trustee within two business days of the end of each
calendar month. If such report indicates that the aggregate Unadjusted Value of
the Eligible Collateral is less than 60% of the aggregate outstanding principal
balance of the Notes, the Company must deliver along with such report Federal
Instruments or cash in such amount as may be required to restore the ratio of
Unadjusted Value of the Eligible Collateral to the outstanding principal balance
of the Notes to .6 to 1.0.
THE TRUSTEE
Michael Hric, P.A., is a Florida professional association (corporation)
which engages in the practice of law in Sarasota, Florida. The office address of
the Trustee is 2801 Fruitville Road, Suite 100, Sarasota, Florida 34237. The
principal of Michael Hric, P.A. is Michael Hric. Mr. Hric has engaged in the
practice of law in Sarasota, Florida since 1979 with a practice emphasis in the
areas of taxation and business law. Mr. Hric has performed legal services for
Mr. Della Penna and his affiliated companies in the past and may perform
additional services in the future. Mr. Hric did not provide any services with
respect to the formation of the Company and the offer and sale of the Notes. Due
to the cost involved, no fidelity or surety bond will be obtained covering the
actions of the Trustee under the Custody Agreement.
ACTION BY THE TRUSTEE UPON DEFAULT BY THE COMPANY
The Company shall be in default with respect to its obligations under each
of the Notes of each Series and the Custody Agreement upon the occurrence of any
of the events described below, which events are continuing for the periods of
time indicated:
(1) the Company defaults in the payment of interest on any Note at the
Note Rate when the same becomes due and payable and the default in
the payment of such Note interest continues for a period of thirty
(30) consecutive days;
(2) the Company defaults in the payment of the principal of any Note when
the same becomes due and payable;
(3) the Company or its assets become subject to any voluntary or
involuntary proceeding under the Federal Bankruptcy Act or any state
statute which relates to credit relief and/or the liquidation of the
Company, which proceeding remains undismissed for a period of sixty
(60) or more days; and/or
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(4) the Company fails to perform any of its covenants set forth in the
Custody Agreement.
In the event of an occurrence of an event of default by the Company with
respect to outstanding Notes and the Custody Agreement which is continuing, the
Trustee on its own initiative or at the request of persons holding at least 75%
in principal amount of the Notes may initiate and prosecute available remedies
at law or in equity in the Circuit Court of the Twelfth Judicial Circuit in and
for Sarasota County, Florida in order to obtain satisfaction of the then
outstanding principal and interest obligation of the Notes. The anticipated
purpose of such remedial action undertaken by the Trustee will be to accelerate
the obligation represented by the Notes as being immediately due and payable to
the holders of all Notes then outstanding, as well as such other corrective and
remedial action as may be identified and pursued by the Trustee on behalf of the
Note holders.
The court in such proceedings are brought may at the request of the
Trustee or by its own action, appoint another trustee or receiver with respect
to the liquidation of the Eligible Collateral and the administration and
distribution of any proceeds which may be realized as a result of the
liquidation of such Eligible Collateral. The cost of prosecuting and concluding
such remedial action may reduce the amount payable to the Note holders. Any
obligation of the Notes which remains unpaid after the liquidation of the
Eligible Collateral and the application of such liquidation proceeds to the
obligation represented by the Notes shall remain the general obligation of the
Company, which obligation shall be unsecured. See "RISK FACTORS - Source of Note
Repayment."
NOTE PREPAYMENT
The principal obligation represented by an outstanding Note may not be
prepaid by the Company in whole or in part prior to the maturity of the
particular Note, except upon the written request of a holder and at the
discretion of the Company.
TRANSFER AGENT
The Trustee will act as transfer agent with respect to outstanding Notes.
REPORTS TO NOTE HOLDERS
The fiscal year of the Company is December 31 and the first fiscal year of
the Company following commencement of operations will end on December 31, 1996.
Commencing with the conclusion of the Company's first fiscal year after the
commencement of operations and for fiscal years thereafter in which Notes remain
outstanding, the Company will provide to the holders of the Notes annual reports
which will contain financial statements audited by the independent certified
public accountants of the Company. The Company also intends to provide quarterly
or other interim reports to Note holders, although such reports are not expected
to include financial statements which are audited.
On the last day of each calendar quarter, the Company will calculate the
value of Portfolio Loans. For purposes of such calculation, Portfolio Loans will
be valued at the attributed carrying value thereof as reflected in the Company's
financial records. Generally, carrying value relates to the cost of such loans
to the Company. The Company will also calculate the value of cash and cash
equivalents, including Money Market Funds, and Federal Instruments, as well as
the value of owned real estate. A copy of such report reflecting the calculation
of such collateral values will be mailed to Note holders of record on a
quarterly basis. Additionally, any Note holder may inquire of the Company by
telephone or in writing as to the Unadjusted Value of Eligible Collateral held
by the Trustee as of the close of any calendar month. Such quarterly reports
will indicate the aggregate purchase price of the Portfolio Loans and the
aggregate unpaid principal amount of such loans. The quarterly report will also
reflect the aggregate loan to value ratio of Portfolio Loans to the aggregate
estimated fair market value of the underlying collateral real estate securing
the Portfolio Loans. As indicated elsewhere in this Prospectus, only loans
meeting certain loan to value requirements will be acquired. Note holders will
not be able to independently determine whether such loan to value requirements
have been complied with, however. See "RISK FACTORS." Additionally, the annual
financial statements which will be provided to Note holders will contain a
confirmation of the Unadjusted Value of the Eligible Collateral held by the
Trustee and the outstanding Note principal balance as determined by the
independent certified public accountants of the Company.
The quarterly report will be provided within 60 days of the close of the
first three fiscal quarters of each year and within 145 days of the close of the
fiscal year.
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LITIGATION
As of the date of this Prospectus, the Company and its officers and
directors (in their capacities as such) are not parties to any material items of
litigation which relate to the conduct of the business of the Company or this
issuance of Notes.
LEGAL MATTERS
The validity of the Notes offered by this Prospectus will be passed upon
for the Company by Shumaker, Loop & Kendrick, LLP, Tampa, Florida.
EXPERTS
The financial statements of the Company reflecting its financial condition
for the period November 13, 1995 (inception) through June 30, 1996, are included
herein in reliance upon the report of Bobbitt, Pittenger & Co., P.A., Sarasota,
Florida, independent certified public accountants, which report appears
elsewhere herein and is included herein upon the authority of said firm as
experts in accounting and auditing.
Kashner Davidson Securities Corporation, Sarasota, Florida, has acted in
the capacity of qualified independent underwriter in accordance with the
provisions of Schedule E to the Bylaws of the NASD. The fairness report of
Kashner Davidson Securities Corporation is summarized under "TERMS OF THE NOTE
OFFERING" and is included as an exhibit to the Registration Statement of which
this Prospectus is a part. The fairness report may be obtained by interested
investors upon request to Executive. In addition to rendering its fairness
report, Kashner Davidson Securities Corporation also assisted in the preparation
of the Registration Statement relating to the Notes, of which this Prospectus is
a part. William T. Kirtley, P.A., Sarasota, Florida, assisted Kashner Davidson
Securities Corporation with respect to such activity.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form
SB-2 filed by the Company with the Securities and Exchange Commission
("Commission") under the Securities Act through the Electronic Data Gathering
and Retrieval ("EDGAR") system with respect to the Notes offered hereby. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and
related exhibits and schedules for further information with respect to the
Company and the Notes offered hereby. Any statements contained herein concerning
the provisions of any document are not necessarily complete, and in each such
instance reference is made to the copy of such document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety by
such reference. The Registration Statement and the exhibits and schedules
forming a part thereof can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, DC 20549, and should also be available for inspection and copying at
the following regional offices of the Commission: 7 World Trade Center, Suite
1300, New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Registration statements,
reports, proxy and information statements filed through the EDGAR system are
publicly available through the Commission's Internet web site at
"http://www.sec.gov".
During the fiscal year ending December 31, 1996, the Company will be
subject to the information providing requirements of Section 13 of the
Securities Exchange Act of 1934, as amended, and in accordance therewith will be
required to file certain periodic and annual reports and other information with
the Commission. It is anticipated that such obligation on the part of the
Company will cease to exist after such fiscal year as the Company will most
likely be exempt from such information providing requirements thereafter. The
Company does not anticipate being subject to the proxy solicitation rules which
have been adopted by the Commission pursuant to its authority under such
statute.
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INDEX TO FINANCIAL STATEMENTS
FEDERAL MORTGAGE MANAGEMENT II, INC.
(a Development Stage Corporation)
PAGE
----
Report of Independent Public Accountants............................. F-2
Balance Sheet........................................................ F-3
Statement of Operations and Deficit Accumulated During the
Development Stage ....................................................F-4
Statement of Changes in Stockholder's Equity......................... F-5
Statement of Cash Flows.............................................. F-6
Notes to Financial Statements........................................ F-7
F-1
<PAGE>
[Letterhead of Bobbitt, Pittenger & Company, P.A.]
August 8, 1996
TO THE STOCKHOLDER
Federal Mortgage Management II, Inc.
Sarasota, Florida
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of Federal Mortgage Management
II, Inc.(a development stage corporation), as of June 30, 1996, and the related
statements of operations and deficit accumulated during the development stage,
changes in stockholder's equity and cash flows for the period from November 13,
1995 (inception) through June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Federal Mortgage Management II,
Inc. (a development stage corporation) at June 30, 1996, and the results of its
operations and its cash flows for the period from November 13, 1995 (inception)
through June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Bobbitt, Pittenger & Company, P.A.
Certified Public Accountants
F-2
<PAGE>
FEDERAL MORTGAGE MANAGEMENT II, INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEET
JUNE 30, 1996
ASSETS
CURRENT ASSETS
Cash $ 832
OTHER ASSETS
Deferred financing costs 48,460
--------
$ 49,292
========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 97
Due to affiliate 48,460
------
$ 48,557
========
STOCKHOLDER'S EQUITY
Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding 1
Additional paid-in capital 999
Deficit accumulated during the development stage (265)
--------
735
--------
$ 49,292
========
See notes to financial statements.
F-3
<PAGE>
FEDERAL MORTGAGE MANAGEMENT II, INC.
(a Development Stage Corporation)
STATEMENT OF OPERATIONS AND DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STAGE
FOR THE PERIOD FROM NOVEMBER 13, 1995 (INCEPTION)
THROUGH JUNE 30, 1996
REVENUE $ -
-----
EXPENSES
Bank service charges 15
Legal fees 98
Office supplies 148
Taxes 4
-----
NET LOSS (265)
=====
LOSS PER COMMON SHARE (2.65)
=====
See notes to financial statements.
F-4
<PAGE>
FEDERAL MORTGAGE MANAGEMENT II, INC.
(a Development Stage Corporation)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM NOVEMBER 13, 1995 (INCEPTION)
THROUGH JUNE 30, 1996
COMMON ADDITIONAL ACCUMULATED
STOCK PAID-IN CAPITAl DEFICIT TOTAL
-------- --------------- ----------- -----
BALANCE
November 13, 1995
(Inception) $ - $ - $ - $ -
NET LOSS FROM OPERATIONS (265) (265)
ISSUANCE OF
COMMON STOCK 1 999 1,000
------- ------- ------ ------
BALANCE,
June 30, 1996 $ 1 $ 999 $ (265) $ 735
======= ======= ======= ======
See notes to financial statements.
F-5
<PAGE>
FEDERAL MORTGAGE MANAGEMENT II, INC.
(a Development Stage Corporation)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM NOVEMBER 13, 1995 (INCEPTION)
THROUGH JUNE 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES $ (265)
Net Loss
Adjustments to reconcile net loss to net
cash provided (used) by operating activities.
Changes in operating assets and liabilities:
Increase in accounts payable 97
-----
NET CASH USED IN OPERATING ACTIVITIES (168)
-----
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,000
-----
INCREASE IN CASH 832
CASH, beginning of period -
-----
CASH, end of period $ 832
=====
See notes to financial statements.
F-6
<PAGE>
FEDERAL MORTGAGE MANAGEMENT II, INC.
(a Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM NOVEMBER 13, 1995 (INCEPTION)
THROUGH JUNE 30, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Federal Mortgage Management II, Inc. (the "Corporation"), a Florida corporation,
was organized on November 13, 1995. The purpose of the Corporation is to acquire
and market mortgage notes secured by first liens on real estate, and to acquire
insured instruments of deposits and/or debt securities issued by the United
States government and instrumentalities thereof. Purchase of the mortgage notes,
instruments of deposits and debt securities are to be in accordance with
policies set forth in the Acquisition Policy of the Corporation as described in
the registration statement. Interest payments on the notes and other
distributions will be made in accordance with the registration statement.
NOTE B - RELATED PARTY TRANSACTIONS
The principal stockholder of the Corporation consists of one individual.
This principal stockholder, promoter of the offering, serves as director and
officer of a similar mortgage program. Additionally, the stockholder is a
director and chief executive officer of the registered securities broker-dealer
who will offer the notes for sale to the general public. The broker-dealer will
earn commissions averaging 6.1% on notes sold by the broker-dealer. The
broker-dealer will also receive an offering management fee of 3% of the note
proceeds sold by the broker-dealer and an additional non-accountable expense
allowance equal to 2% of note proceeds.
The stockholder is also the sole stockholder in a Corporation which will receive
an organizational expense reimbursement in the amount of $85,000 for assistance
in the offering upon the sale of $1,500,000 in promissory notes and another
$150,000 in the event $2,000,000 or more promissory notes are sold. The
Corporation may elect to defer the payment of a portion of these expenses.
NOTE C - STOCKHOLDER'S EQUITY
COMMON STOCK
The Corporation is authorized to issue 1,000 shares of common stock having a
par value of $.01. As of June 30, 1996, the Corporation has issued and
outstanding 100 shares.
F-7
<PAGE>
FEDERAL MORTGAGE MANAGEMENT II, INC.
(a Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM NOVEMBER 13, 1995 (INCEPTION)
THROUGH JUNE 30, 1996
NOTE D - ESCROW
An interest-bearing escrow account has been established to accumulate, invest
and reinvest the proceeds realized from the sale of the promissory notes. The
escrow account will hold such proceeds beginning with the commencement of the
offering period and shall terminate upon the earlier of the date upon which the
escrow agent receives gross proceeds of $1,500,000, or the date of the
termination of the offering.
During the escrow period, no amounts deposited in the escrow account are the
property of the Corporation, nor subject to the debts of the Corporation.
NOTE E - DEVELOPMENT STAGE OPERATIONS
The Corporation is in the process of filing a registration statement with the
Securities and Exchange Commission (SEC) for the sale of promissory notes in the
aggregate principal amount of $5,000,000. The notes consist of three series with
varying maturities and interest rates. The Corporation will commence its
designated operational activities only upon the sale of notes in the minimum
principal amount of $1,500,000. Proceeds from the sale of the notes prior to
commencement of the Corporation's designated operational activity will be placed
in an interest bearing escrow account (see Note D). In the event the Corporation
does not sell $1,500,000 of notes within the offering period, all proceeds
collected from the sale of these notes, plus applicable interest, will be
returned to the respective investors.
NOTE F - DEFERRED FINANCING COSTS
Deferred financing costs consist of legal and accounting fees associated with
the filing of the registration statement with the Securities and Exchange
Commission. These costs will be amortized over the life of the promissory notes
commencing on the effective date of the registration statement.
NOTE G - INCOME TAXES
The Corporation is recognized as a Sub-Chapter S corporation by the Internal
Revenue Service. Therefore, the financial statements include no provision for
federal income taxes since the income or loss is reportable on the tax return of
the stockholder.
NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS IN ACCORDANCE
WITH THE REQUIREMENTS OF SFAS NO. 107
The Corporation's financial instruments consist of all of its assets and
liabilities with the exception of deferred financing costs. The Corporation's
management has determined that the fair value of all of its financial
instruments is equivalent to the carrying cost.
F-8
<PAGE>
APPENDIX A TO PROSPECTUS OF
FEDERAL MORTGAGE MANAGEMENT II, INC.
Set forth herein is certain summary information concerning the activities
of Federal Mortgage Investors, Ltd. ("FMIL") and Federal Mortgage Management,
Inc. ("FMMI") relating to their acquisition, ownership and disposition of
residential real estate mortgage loans for their portfolios. Such information is
provided to interested investors in connection with the Note offering made by
the Prospectus of the Company. Such information is unaudited and has been
prepared from the financial records of FMIL by the General Partners thereof and
the financial records of FMMI by its management. FMIL is a partnership that
raised funds from investors through the sale of limited partnership interests
for investment by FMIL in mortgage loans. FMMI is a corporation that raised
funds from investors through the sale of promissory notes for investment by FMMI
in mortgage loans. The information presented in this Appendix with respect to
the activities and circumstances of FMIL and FMMI should not be viewed by
investors as necessarily indicative of the experience which will be sustained by
the Company in connection with its intended assembly and ownership of
residential real estate mortgage loans as described in the Prospectus. The
results experienced by the Company, assuming that the Minimum Requirement is
met, may be more or less favorable than those experienced by FMIL or FMMI.
Table I - Experience in Raising and Investing Funds
Table II - Compensation to Sponsor
Table III - Operating Results of Prior Programs
Table IV - Experience in Trading Mortgage Loans
-1-
<PAGE>
TABLE I
Experience in Raising and Investing Funds
(Not Covered by Report of Independent Public Accountants)
Table I sets forth the dollars raised in prior programs, the amount available
for investment and acquisition costs for the Company's affiliated partnership
(Federal Mortgage Investors, Ltd. (FMIL)) and corporation (Federal Mortgage
Management, Inc. (FMMI)).
<TABLE>
<CAPTION>
FEDERAL MORTGAGE INVESTORS, LTD. FEDERAL MORTGAGE MANAGEMENT, INC.
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Dollar amount offered $7,500,000 $5,000,000
========== ==========
Dollar amount raised $2,348,000 100.0% $4,252,500 100.0%
Less offering expenses:
Selling commissions 164,360 7.0% 284,020 6.7%
Offering management fee 46,960 2.0% 127,875 3.0%
Non-accountable expense allowance - 0.0% 85,250 2.0%
Organizational expense reimbursed 50,000 2.1% 148,503 3.5%
Organizational and offering expenses 84,510 3.6% 118,120 2.8%
Capitalized interest - 0.0% 87,755 2.1%
---------- ---- ---------- ----
Available for investment $2,002,170 85.3% $3,400,977 80.0%
========== ==== ========== ====
Date offering began November 20, 1991 December 21, 1993
Length of offering in months 14 9
</TABLE>
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
Table II sets forth the compensation to the general partner of FMIL and
the sole shareholder of FMMI and their affiliates from the offering proceeds and
from operations of FMIL and FMMI, respectively, through June 30, 1996. Both FMIL
and FMMI are still in operation, and therefore the general partner, sole
shareholder and their affiliates will continue to receive additional
compensation from these entities.
FMIL FMMI
----------------- -----------------
Date offering commenced November 20, 1991 December 21, 1993
Dollar amount raised $ 2,348,000 $ 4,252,500
========== ==========
Amount paid to sponsor from proceeds
of offering:
Offering management fee 46,960 127,875
Non-accountable expense allowance - 85,250
Organizational expense reimbursement 50,000 148,503
Dollar amount of cash generated from
operations
before deducting payments to sponsor 624,105 (15,056)
Amount paid to sponsor from operations:
Management fees (1) 225,041 308,620
Servicing fees - 31,011
- ---------------------------------------------
(1) Management fees for FMIL and FMMI are computed as follows:
FMIL - Management fee is equal to three percent (3%) of the aggregate
principal balance of the portfolio investments at December 31, plus
one percent (1%) of the cash flow of the Partnership (as defined by
the partnership agreement). In addition, the management fee also
includes one percent (1%) of the net income from capital
transactions.
FMMI - Management fee is equal to three percent (3%) of the aggregate
principal balance of the portfolio investments at December 31.
-3-
<PAGE>
TABLE III
Operating Results of Prior Programs
Table III sets forth the operating results of the Company's affiliated
partnership and corporation, distributions to investors and certain tax
information.
Federal Mortgage Investors, Ltd. and Federal Mortgage Management, Inc. (a
Florida Limited Partnership and S-Corporation, respectively) (Not Covered by
Report of Independent Public Accountants)
<TABLE>
<CAPTION>
FEDERAL MORTGAGE INVESTORS, LTD. (1) FEDERAL MORTGAGE MANAGEMENT, INC.
SIX MONTHS ENDED SIX MONTHS ENDED
-----YEARS ENDED----- JUNE 30(2) ----YEARS ENDED---- JUNE 30(2)
------------------------------------------------------- ------------------------------------
1992 1993 1994 1995 1996 1994 1995 1996
------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross revenues $ 91,170 $207,782 $ 148,621 $ 135,995 $ 68,884 $ 187,382 $ 314,531 $ 145,339
Profit (loss) on sale of mortgages 4,239 194,633 64,324 80,998 (12,179) 218,050 120,222 19,853
Less:
Operating expenses 51,374 174,012 151,362 143,486 91,631 243,944 268,498 72,035
Interest expense 3,891 452 653 85 - 299,428 372,666 174,292
Depreciation and amortization 788 2,851 4,995 4,993 2,668 158,716 158,716 79,358
-------- -------- --------- --------- --------- --------- --------- ---------
Net income - GAAP Basis $ 39,356 $225,100 $ 55,935 $ 68,429 $ (37,594) $(296,656) $(365,127) $(160,493)
======== ======== ========= ========= ========= ========= ========= =========
Taxable income (loss)
--from operations $ 39,356 $223,361 $ 55,286 $ 68,951 $ (37,594) $(294,615) $(363,450) $(160,493)
======== ======== ========= ========= ========= ========= ========= =========
Cash generated from operations $ 39,796 $ 33,770 $ (2,741) $ (7,491) $ (22,747) $ (56,562) $ 46,033 $ 73,304
Cash generated from sales 4,239 194,633 64,324 80,998 (12,179) 218,050 120,222 19,853
-------- -------- --------- --------- --------- --------- --------- ---------
Cash generated from operations
and sales 44,035 228,403 61,583 73,507 (34,926) 161,488 166,255 93,157
Less: Cash distribution to investors
--from operating cash flow 39,796 33,770 - - - 46,033 73,304
--from sales 4,239 194,633 64,324 80,998 218,050 120,222 19,853
--from other 83,301 56,035 170,541 133,433 80,710 81,378 206,411 81,135
-------- -------- --------- --------- --------- --------- --------- ---------
Cash generated (deficiency) after
cash distributions $(83,301) $(56,035) $(173,282) $(140,924) $(115,636) $(137,940) $(206,411) $ (81,135)
======== ======== ========= ========= ========= ========= ========= =========
TAX DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
--from operations $ 29.36 $ 88.81 $ 22.95 $ 31.35 $ (17.09) N/A N/A N/A
Cash distributions to investors:
Source (on GAAP Basis):
-Investment income $ 29.36 $ 89.50 $ 23.22 $ 31.11 $ (17.09) N/A N/A N/A
-Return of capital 65.64 8.00 74.28 66.39 114.59 N/A N/A N/A
<FN>
(1) The structure of this partnership differs from that of the Company. The
Company uses a promissory note offering verses the limited partnership
structure. Thus all distributions are ordinary income in the form of
interest.
(2) FMIL and FMMI experienced net losses for the six months ended June 30,
1996. These losses are primarily attributable to delinquency rates
experienced by each. See RISK FACTORS - Prior Performance. As a result
of these delinquencies and the changing market place their (FMIL & FMMI)
ability to sell portfolio loans has been
diminished, resulting in the losses.
</FN>
</TABLE>
-4-
<PAGE>
TABLE IV
Experience in Trading Mortgage Loans
Table IV sets forth certain information relating to the mortgage loans
that have been sold by each of FMIL and FMMI since inception.
FMIL
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
# of Mortgage Loans 1 56 54 25 5
Selling Price $47,100 $2,226,316 $2,583,160 $766,935 $61,922
Carrying Value 42,861 2,031,683 2,518,836 685,973 74,101
------ --------- --------- ------- ------
Gain on Sale $ 4,239 $ 194,633 $ 64,324 $ 80,998 $(12,179)
====== ======== ========= ======= ========
FMMI
1994 1995 1996
---- ---- ----
# of Mortgage Loans 84 59 17
Selling Price $2,065,383 $1,570,547 $602,537
Carrying Value 1,847,333 1,450,325 582,684
--------- --------- -------
Gain on Sale $ 218,050 $ 120,222 $ 19,853
========= ========= =======
-5-
<PAGE>
EXHIBIT A TO PROSPECTUS OF
FEDERAL MORTGAGE MANAGEMENT II, INC.
Promissory Notes
Series 1996 A-I, II and III
in aggregate principal amount
of $5,000,000
FEDERAL MORTGAGE MANAGEMENT II, INC.
NOTE SUBSCRIPTION AGREEMENT
Executive Wealth Management Services, Inc.
1800 Second Street, Suite 780
Sarasota, Florida 34236
Gentlemen:
The undersigned has received, read and understood a copy of the Prospectus
dated ____________________, 1996, of Federal Mortgage Management II, Inc. (the
"Company") relating to the public offering, in states where the securities have
been qualified for sale, of Promissory Notes designated as the Company's Series
1996 A-I, A-II and A-III, which Notes are offered in the following aggregate
principal amounts, maturities and Note Rates in an aggregate principal amount of
$5,000,000:
SELLING
SERIES AMOUNT COMMISSION MATURITY DATE RATE
------ ------ ---------- ------------- ----
1996 A-I $ 500,000 3.00% _________, 2000 8.0%
1996 A-II 1,000,000 4.50% _________, 2001 9.0%
1996 A-III 3,500,000 7.00% _________, 2002 10.0%
The undersigned has made a decision to invest in the Notes as herein
provided and in connection with such investment in the Notes, the undersigned
represents to the Company that:
1. The undersigned understands that an investment in the Notes and the
intended activities of the Company are subject to substantial risk and the
undersigned has carefully examined, among other sections of the Prospectus,
those Prospectus sections captioned "INVESTOR SUITABILITY" and "RISK FACTORS."
2. There are substantial risks incident to the investment in the Notes.
This investment is SPECULATIVE and involves a high degree of risk of loss of the
undersigned's entire investment in the Notes. The undersigned, if an individual,
acknowledges that (i) the purchase price for the investment in the Notes
subscribed for hereby represents not more than ten percent (10%) of his or her
total net worth, exclusive of his or her home, home furnishings and automobiles;
(ii) the undersigned, alone or together with his or her spouse, has a minimum
net worth (exclusive of home and automobiles) of $150,000, (iii) he or she has
an overall commitment to investments which are not readily marketable that is
not disproportionate to his or her net worth so that an investment in the Notes
will not cause such overall commitment to be excessive; and (iv) he or she has
such knowledge and experience in business and financial matters that he or she
is capable of evaluating the Company and its business and the merits of
investment in the Notes. The undersigned further represents that he or she has
adequate means of providing for his or her current needs, living expenses and
personal contingencies and has no need for liquidity in this investment and can
afford to lose the entire amount of the investment.
The undersigned, if other than an individual, acknowledges that (i) the purchase
price for the investment in the Notes subscribed for hereby represents not more
than ten percent (10%) of its total net worth; (ii) the undersigned has a
minimum net worth of $150,000, (iii) the undersigned has an overall commitment
to investments which are not readily marketable that is not disproportionate to
its net worth so that an investment in the Notes will not cause such overall
commitment to be excessive; and (iv) the individual making the investment
decision relating to the Notes on behalf of the undersigned has such knowledge
and experience in business and financial matters that he or she is capable of
evaluating the Company and its
-6-
<PAGE>
business and the merits of investment in the Notes. The undersigned further
represents that it has adequate means of providing for its current needs and has
no need for liquidity in this investment and can afford to lose the entire
amount of the investment.
3. The undersigned understands that the minimum subscription to Notes
which will be accepted by the Company with the exception of Individual
Retirement Accounts is to Notes in aggregate principal amount of $5,000, which
$5,000 aggregate principal amount may be allocated among any Division of the
Series 1996 Notes in $1,000 increments.
4. The undersigned understands that the Note subscription funds will be
placed in an Escrow Account and accumulated until such time as there has been
timely received Note subscription funds of $1,500,000 or more, all as is in
accordance with the terms of the Note offering as set forth in the Prospectus
section captioned "TERMS OF NOTE OFFERING."
In accordance with the terms of the Note offering as set forth in the
Prospectus and subject to the minimum subscription requirements, the undersigned
hereby subscribes for the principal amount of the Notes set forth below:
Series 1996 A-I $___________________
Series 1996 A-II $___________________
Series 1996 A-III $___________________
The undersigned acknowledges that the subscription to the above-designated Notes
is subject to availability and that Note subscriptions will be considered and
accepted or rejected by the Company with respect to the various maturities
available within the Series 1996 Notes as received by the Company.
In connection with the undersigned's subscription to the Notes designated
above, the undersigned herewith tenders a check in payment of such subscription
made payable to "Southtrust Asset Management Company of Florida, N.A., Escrow
Agent - Federal Mortgage Management II, Inc." unless at the time of the
undersigned's subscription, the Minimum Requirement as described and set forth
in the Prospectus has been timely attained, in which event such check shall be
made to the order of "Michael Hric, P.A., Trustee".
The undersigned understands that the Notes subscribed to herein have been
registered pursuant to the Securities Act of 1933, as amended, and pursuant to
the provisions of those state securities statutes in those states where the
Notes have been qualified for sale and that, accordingly, from the standpoint of
Federal securities law and the applicable law of such states, the Notes are
freely transferable by the undersigned. With respect to any proposed transfer,
however, the undersigned acknowledges that the Company reserves the right to
request information of any proposed transferee in order to make a reasoned
determination as to the suitability of such proposed transferee as a holder and
investor in the Notes subscribed for herein. The undersigned also acknowledges
that the Company reserves the right to affix an endorsement to the Note
instrument delivered to the undersigned as a result of this subscription setting
forth such right of the Company to request information relative to the investor
suitability of any proposed transferee.
This Subscription Agreement shall be governed by and interpreted in
accordance with the laws of the State of Florida and shall be binding upon the
successors, assigns, heirs and personal representatives of the Company and the
undersigned.
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note Subscription
Agreement on the ___ day of _______________, 199_.
-------------------------------------------------
Name of Subscriber (Please Print)
(If a corporation, partnership or other entity,
please provide full legal name of subscribing
entity)
-------------------------------------------------
Signature of individual subscriber or authorized
signatory of corporate or other entity)
-------------------------------------------------
If subscriber is a corporation, partnership or
other entity, please print full name and title
of person signing Subscription Agreement)
-----------------------------------
Social Security Number or
Taxpayer Identification Number
INSTRUCTIONS FOR ISSUANCE OF NOTES
(Please Print)
1. REGISTERED OWNER(S) ______________________________________________________
2. IF MORE THAN ONE REGISTERED OWNER, METHOD OF OWNERSHIP:
_____ JOINT TENANTS WITH RIGHT OF SURVIVORSHIP;
_____ TENANTS IN COMMON;
_____ TENANTS BY THE ENTIRETIES;
or otherwise _________________________________________________________
3. ADDRESS _________________________________________________________
4. CITY _________________________________________________________
5. STATE _________________________________________________________
6. ZIP CODE _________________________________________________________
7. HOME PHONE ___________________ BUSINESS PHONE__________________
-8-
<PAGE>
Accepted this ___ day of _____________, 199_, by Federal Mortgage
Management II, Inc.
Federal Mortgage Management II, Inc.
By:________________________________________
Guy S. Della Penna, President
-9-
<PAGE>
EXHIBIT B
FEDERAL MORTGAGE MANAGEMENT II, INC.
and
MICHAEL HRIC, P.A.
Sarasota, Florida
Trustee
INDENTURE AND CUSTODY AGREEMENT
Dated as of ____________, 1996
$5,000,000
AGGREGATE PRINCIPAL AMOUNT
OF PROMISSORY NOTES
(SERIES 1996 A-I, A-II AND A-III)
<PAGE>
TABLE OF CONTENTS
PAGE
Preamble - Recitals and Representations......................................3
Article 1 - Definitions......................................................5
Article 2 - Appointment and Acceptance.......................................5
Article 3 - The Notes........................................................7
Article 4 - Covenants of the Corporation.....................................9
Article 5 - Successor Corporation.......................................... 12
Article 6 - Defaults and Remedies...........................................13
Article 7 - Trustee........................................................ 16
Article 8 - Discharge of Indenture......................................... 20
Article 9 - Amendments, Supplements and Waivers............................ 20
Article 10 - Miscellaneous................................................. 21
Signatures................................................................. 26
Exhibit A - Form of Note
-i-
<PAGE>
THIS INDENTURE AND CUSTODY AGREEMENT, dated as of ___________, 1996,
between FEDERAL MORTGAGE MANAGEMENT II, INC., a Florida corporation (the
"Corporation") and MICHAEL HRIC, P.A., a professional association engaged in the
practice of law in Sarasota, Florida (the "Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Corporation's Series 1996
A-I, A-II and A-III Promissory Notes.
PREAMBLE
RECITALS AND REPRESENTATIONS
The Corporation has publicly offered its Series 1996 A-I, A-II and
A-III Promissory Notes in aggregate principal amount of $5,000,000 pursuant to a
prospectus included in a registration statement on Form SB-2, as filed with the
Securities and Exchange Commission, File No. ________________ (such prospectus,
as amended or supplemented during the offering, is hereinafter referred to as
the "Prospectus").
The Corporation desires to appoint the Trustee as custodian of certain
items of Eligible Collateral (as defined below) and the Trustee is willing to
act in such capacity upon the terms and conditions herein set forth. The Trustee
shall hold at all times Eligible Collateral with an aggregate Unadjusted Value
(as defined below) equal to at least 60% of the aggregate outstanding principal
balance of the Notes.
Pursuant to the terms and provisions of this Indenture and Custody
Agreement, the Trustee shall act in the collective interests of all of the Note
Holders as trustee and agent of all of the Note Holders.
Accordingly, the Corporation and the Trustee are entering into this
Indenture and Custody Agreement as of the date and year first above written.
ARTICLE I - DEFINITIONS
SECTION 1.01. DEFINITIONS.
"Book-Entry Securities" means securities issued by the Treasury of the
United States of America and federal agencies of the United States of
America which are maintained in the book-entry system as provided in
Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR
Part 350, and the book-entry regulations of federal agencies
substantially in the form of Subpart O and the term Book-Entry Account
shall mean an account maintained by a Federal Reserve Trustee in
accordance with the aforesaid Circular and regulations.
<PAGE>
"Corporation" means Federal Mortgage Management II, Inc., a
Florida corporation.
"Default" means any event which is, or after notice or lapse of time or
both would be, an Event of Default, as set forth in Section 6.01.
"Eligible Collateral" means Portfolio Loans and Federal Instruments, as
well as the cash proceeds from the sale thereof, Money Market Funds,
and any real estate acquired upon foreclosure of a Portfolio Loan.
"Event of Default" has the meaning set forth in Section 6.01.
"Federal Instruments" means debt instruments of the United States
government and certificates or deposit accounts of state or federally
chartered banking institutions with at least $500 million of assets.
"Holder" or "Note Holder" means the person in whose name a Note is
registered on the Corporation's books.
"Indenture and Custody Agreement" means this Indenture and Custody
Agreement, as amended or supplemented from time to time.
"Money Market Funds" means money market or equivalent funds deposited
at a New York Stock Exchange member firm with net assets of at least
$200 million.
"Note" means any of the Series 1996 A-I, A-II or A-III
Promissory Notes.
"Note Rate" means the rate of interest, in the amount and paid at the
specified times on the principal of any Note as set forth in the Note.
"Officer" means the President, any Vice President, the
Treasurer or the Secretary of the Corporation.
"Officers' Certificate" means a certificate signed by two Officers or
by an Officer and an Assistant Treasurer or Assistant Secretary of the
Corporation.
"Oral Instructions" means an authorization, instruction, approval, item
or set of data, or information of any kind transmitted to the Trustee
in person or by telephone, telegram, telecopy or other mechanical or
documentary means lacking original signature, by a person or persons
reasonably believed in good faith by the Trustee to be a person or
persons authorized by a resolution of the Board of Directors
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of the Corporation to give Oral Instructions on behalf of the
Corporation.
"Portfolio Loan" means a residential real estate mortgage loan secured
by a first mortgage.
"Principal" of a Note means the amount stated as principal on
the face of the Note.
"Registered Note" means the Series 1996 A-I, A-II and A-III Promissory
Notes of the Corporation issued by the Corporation and fully registered
on the Corporation's books.
"SEC" means the United States Securities and Exchange Commis-
sion.
"Securities" means promissory notes secured by mortgages on real
estate, Federal Instruments and Money Market Funds.
"Securities Depository" means a system for the central handling of
securities where all securities of any particular class or series of
any issuer deposited within the system are treated as fungible and may
be transferred or pledged by bookkeeping entry without physical
delivery of the Securities.
"Trust Account" has the meaning set forth in Section 7.01(2).
"Trustee" means the party named as such in this Indenture and Custody
Agreement until a successor replaces it and thereafter means the
successor.
"Unadjusted Value" means: (a) with respect to a Federal Instrument, the
cash value of the instrument, (b) with respect to a Portfolio Loan, the
outstanding balance due under the loan, (c) with respect to real
property owned by the Corporation as a result of the foreclosure of a
Portfolio Loan, the lesser of the estimated fair market value of the
property as determined by the Corporation and communicated to the
Trustee or the principal balance of the loan at the time of foreclosure
plus accrued interest and fees and costs incurred by the Corporation in
connection with such foreclosure process.
"Written Instruction" means an authorization, instruction, approval,
item or set of data, or information of any kind transmitted to the
Trustee in original writing containing original signatures or a copy of
such document transmitted by telecopy including transmission of such
signature, reasonably believed in good faith by the Trustee to be the
signature of a person authorized by a resolution of the Board of
Directors
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of the Corporation to give written Instructions on behalf of
the Corporation.
SECTION 1.02. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles;
(3) "or" is not exclusive; and
(4) words in the singular include the plural, and in the plural
include the singular.
ARTICLE 2 - APPOINTMENT AND ACCEPTANCE
The Corporation hereby appoints the Trustee as Trustee and custodian of
the Eligible Collateral delivered to Trustee hereunder, to be held by the
Trustee and applied as provided in this Indenture and Custody Agreement. The
Trustee hereby accepts such appointment subject to the terms and conditions set
forth herein. From the date of this Indenture and Custody Agreement and until
all Notes are paid, the Trustee, in its capacity as Trustee and agent for the
Note Holders, shall physically possess such items of Eligible Collateral and
shall deal with the same in accordance with the terms hereof.
ARTICLE 3 - THE NOTES
SECTION 3.01. FORM AND DATING.
The Notes are substantially in the form of Exhibit A. The Notes may
have notations, legends or endorsements required by law, stock exchange rule or
usage. The Corporation shall approve the form of the Notes and any notation,
legend or endorsement on them. Each Note shall be dated as of the date that the
subscription therefore has been accepted by the Corporation.
SECTION 3.02. EXECUTION AND ISSUANCE.
Two Officers or an Officer and an Assistant Secretary shall sign the
Notes for the Corporation by original or facsimile signature. The Corporation's
seal shall be reproduced on the Notes. The aggregate principal amount of Notes
outstanding at any time may not exceed $5,000,000.
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SECTION 3.03. TRUSTEE AS REGISTRAR.
The Trustee shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange. The Trustee shall keep a
register of the Registered Notes and of their transfer and exchange.
SECTION 3.04. NOTE HOLDER LISTS.
As the Corporation issues Notes, it shall provide promptly to the
Trustee the names, addresses and taxpayer identification numbers of the Note
Holders. The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names, addresses and
taxpayer identification numbers of the Note Holders. The Trustee shall promptly
furnish to the Corporation notice of any transfer of a Note by any Note Holder,
along with the new Note Holder's complete name, address and taxpayer
identification number, as provided by the Note Holder. Further, the Trustee
shall furnish to the Corporation at such times as the Corporation may request in
writing a list in such form and as of such date as the Corporation may
reasonably require of the names, addresses and taxpayer identification numbers
of the Note Holders and the Corporation may exclusively rely on the accuracy and
completeness of each such list.
SECTION 3.05. REGISTRATION, TRANSFER AND EXCHANGE.
The Corporation shall issue fully Registered Notes in the form of
Exhibit A.
When a Registered Note is presented to the Corporation or Trustee with
a request to register transfer, the Trustee shall register the transfer as
requested if the applicable requirements of the Florida Uniform Commercial Code
are met. When Registered Notes are presented to the Trustee with a request to
exchange them for an equal principal amount of Registered Notes of other
denominations, the Trustee shall make the exchange as requested if the same
requirements are met. The Trustee may charge a reasonable fee for any transfer
or exchange but not for any exchange pursuant to Section 3.08.
SECTION 3.06. REPLACEMENT NOTES.
If the Holder of a Note claims that the Note has been lost, destroyed
on wrongfully taken, the Trustee shall issue a replacement Note corresponding to
the Note that was lost, destroyed or wrongfully taken, if the applicable
requirements of the Florida Uniform Commercial Code are met. In the event any
lost, destroyed or wrongfully taken Note shall have matured or is about to
mature, the Trustee may effect payment of same if the requirements of the
Florida Uniform Commercial Code are met. An indemnity bond shall
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be provided to the Corporation to protect the Corporation from any loss which it
may suffer if a replacement Note is issued. The Trustee may charge a Note Holder
for its expenses in replacing a Note.
SECTION 3.07. OUTSTANDING NOTES.
Notes outstanding at any time are all Notes issued by action of the
Corporation except for those cancelled by it upon the repayment, exchange or
reissuance thereof. Notes outstanding include those held by the Corporation or
its affiliates.
SECTION 3.08. CANCELLATION.
The Trustee at any time may receive Notes for cancellation upon payment
or exchange. The Trustee shall promptly advise the Corporation of any such Note
cancellation and the Corporation may rely upon such representation. The Trustee
and no one else shall cancel and destroy all Notes surrendered for transfer,
exchange, payment or cancellation. Neither the Trustee nor the Corporation may
issue new Notes to replace Notes that have been paid or cancelled.
ARTICLE 4 - COVENANTS OF THE CORPORATION
SECTION 4.01. PAYMENT OF NOTES.
The Corporation shall promptly pay the principal of and interest on the
Notes on the dates and in the manner provided in the Notes.
The Corporation shall pay interest on overdue principal at the rate
borne by the Notes; it shall pay interest on overdue installments of interest at
the same rate to the extent lawful.
In the event that the Corporation desires the Trustee to make any
payments due under the Notes, the Corporation shall, at least ten days before
the payment date, provide the Trustee with Written Instructions concerning the
payments to be made, including a schedule showing the payment to be made to each
Note Holder, with the name and address of each Note Holder and whether any Notes
must be tendered against payment (such as at maturity), along with a set of
checks of the Corporation, drawn on the Trust Account, made payable to the Note
Holders who are to be paid on such interest payment date or maturity date and
ready for signature by the Trustee. The Corporation shall also provide stamped
window envelopes to the Trustee for use in mailing the checks. Provided that the
Trustee will hold Eligible Collateral with an aggregate Unadjusted Value equal
to at least 60% of the aggregate outstanding
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principal balance of the Notes following any requested payment, the Trustee
shall make such requested payments.
SECTION 4.02. LIEN OF INDENTURE.
So long as any Note remains unpaid, the obligation of the Corporation
represented by the Notes shall be secured by a lien on the Eligible Collateral
held by the Trustee effected by this Indenture and Custody Agreement. Such
security interest shall be in favor of the Trustee and the Trustee shall act for
the collective benefit of Note Holders as provided herein. The lien effected
pursuant to this Section 4.02 shall be prior to any other liens which come into
existence with respect to the Eligible Collateral held by the Trustee.
SECTION 4.03. WRITTEN AND ORAL INSTRUCTIONS TO TRUSTEE.
The Corporation shall from time to time file with the Trustee a
certified copy of each resolution of its Board of Directors authorizing
execution of Written Instructions and the number of signatories required,
together with certified signatures of the officers and other signatories
authorized to sign, which shall constitute conclusive evidence of the authority
of the officers and other signatories designated therein to act, and shall be
considered in full force and effect with the Trustee fully protected in acting
in reliance thereon until it receives a new certified copy of a resolution
adding or deleting a person or persons with authority to give written
Instructions. If the certifying officer is authorized to sign Written
Instructions, the certification shall also be signed by a second officer of the
Corporation.
The Corporation shall from time to time file with the Trustee a
certified copy of each resolution of its Board of Directors authorizing the
transmittal of Oral Instructions and specifying the person or persons authorized
to give Oral Instructions in accordance with this Agreement. Any resolution so
filed with the Trustee shall be considered in full force and effect and the
Trustee shall be fully protected in acting in reliance thereon until it actually
receives a new certified copy of a resolution adding or deleting a person or
persons with authority to give Oral Instructions. If the certifying officer is
authorized to give Oral Instructions, the certification shall also be signed by
a second officer of the Corporation.
SECTION 4.04. DEPOSIT OF ELIGIBLE COLLATERAL.
The Corporation shall cause to be transferred and deposited with the
Trustee all of the cash held for the Corporation by SouthTrust Asset Management
Company of Florida, N.A., Sarasota, Florida, as escrow agent for the offering of
the Notes at the time
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this Agreement becomes effective. The Corporation shall also cause to be
deposited with the Trustee all funds which are tendered by subscribers for Notes
after the Minimum Condition (as defined in the Prospectus) is achieved upon the
acceptance of such subscriptions by the Corporation. Such deposits shall be
evidenced by appropriate schedules duly executed by the Corporation and the
Corporation agrees that it is solely responsible for the accuracy of said
schedules. The Corporation shall cause to be deposited with the Trustee
hereunder the net proceeds of all Portfolio Loans sold from time to time. The
Corporation shall cause to be deposited with the Trustee additional Securities
or cash of the Corporation from time to time so that at all times the Trustee
holds Eligible Collateral with an aggregate Unadjusted Value equal to at least
60% of the aggregate outstanding principal balance of the Notes. The Trustee
shall deal with such funds as provided in Article 7 hereof. The Trustee shall
provide to the Corporation a receipt with respect to the items of Eligible
Collateral deposited with the Trustee and copies of such receipt may be provided
to the Holders of Notes.
The Securities held by the Trustee shall, unless payable to bearer or
maintained in a Securities Depository or Book-Entry Account pursuant to Section
7.02(1), be registered in the name of the Trustee or in the name of its nominee,
or if directed by Written Instructions, in the name of the Corporation or its
nominee. Securities, excepting bearer securities, delivered from time to time to
the Trustee upon purchase or otherwise shall in all cases be in due form for
transfer or already registered as above provided. Such Securities and any cash
of the Corporation delivered to the Trustee hereunder shall, however, be and
remain the sole property of the Corporation and the Trustee shall have only the
bare custody thereof, subject to the lien of this Indenture and Custody
Agreement.
SECTION 4.05. CORPORATE EXISTENCE.
Subject to Article 5, the Corporation covenants and agrees that it will
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence, rights and franchises; provided, however,
that the Corporation shall not be required to preserve any right or franchise if
it shall determine that the preservation thereof is no longer desirable in the
conduct of the Corporation's business and that the loss thereof will not be
disadvantageous in any material respect to the holders of Notes. The Trustee
shall be under no obligation to investigate the Corporation's compliance with
the foregoing covenant.
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SECTION 4.06. COMPLIANCE CERTIFICATES.
On the last day of each calendar month, the Corporation shall calculate
the outstanding Unadjusted Value of all items of Eligible Collateral held by the
Trustee, as well as the aggregate outstanding principal balance of the Notes. A
report of such calculations shall be delivered to the Trustee within two
business days of the end of each calendar month. If such report indicates that
the aggregate Unadjusted Value of the Eligible Collateral is less than 60% of
the aggregate outstanding principal balance of the Notes, the Corporation shall
deliver along with such report Federal Instruments or cash in such amount as may
be required to restore the ratio of Unadjusted Value of the Eligible Collateral
to the outstanding principal balance of the Notes to .6 to 1.
The Corporation shall deliver to the Trustee within forty-five (45)
days after the end of each quarter an Officers' Certificate in a form acceptable
to the Trustee, and signed by the President or Vice President of the
Corporation, stating whether or not the signer, after having made a diligent
investigation, knows of the existence of any Event of Default as set forth in
Section 6.01. If so, the Certificate shall describe the default.
SECTION 4.07. SEC REPORTS.
The Corporation shall provide to the Trustee exact copies of the
reports and other documents (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Corporation is
required to file with the SEC pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934, if any, within fifteen (15) days after it files such
reports or documents with the SEC.
SECTION 4.08. NOTICE OF DEFAULT.
Upon the occurrence of an Event of Default, the Corporation shall
immediately provide to the Trustee written notice thereof.
ARTICLE 5 - SUCCESSOR CORPORATION
SECTION 5.01. WHEN CORPORATION MAY MERGE, ETC.
The Corporation shall not consolidate with or merge into, or transfer
all or substantially all of its assets to, another corporation unless the
resulting, surviving or transferee corporation assumes by appropriate binding
instrument all of the obligations of the Corporation under the Notes and this
Indenture and Custody Agreement. Thereafter all such obligations of the
predecessor corporation shall terminate.
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SECTION 5.02. CONTINUATION OF LIEN OF INDENTURE.
Upon the occurrence of any of the events affecting the Corporation
described in Section 5.01 above, the lien of this Indenture and Custody
Agreement established by Section 4.02 hereof shall continue unabated and of the
same first lien priority. The Corporation shall initiate and complete such
action as is required to assure such continuation and priority and shall furnish
such evidence of the accomplishment of such as the Trustee may require.
ARTICLE 6 - DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(1) the Corporation defaults in the payment of interest on any Note at
the Note Rate when the same becomes due and payable and the
Default in the payment of such Note interest continues for a
period of thirty (30) consecutive days;
(2) the Corporation defaults in the payment of the principal of any
Note when the same becomes due and payable;
(3) the Corporation or its assets become subject to any voluntary or
involuntary proceeding under the Federal Bankruptcy Act or any
state statute which relates to credit relief and/or the
liquidation of the Corporation, which proceeding remains
undismissed for a period of sixty (60) or more days; and/or
(4) the Corporation fails to perform any of its covenants set forth in
Sections 4.04, 4.05, 4.06 or 4.07 hereof, and such failure
continues for a period of ten consecutive days.
SECTION 6.02. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect the payment of
principal or interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture and Custody Agreement. Such remedial
action undertaken by the Trustee and/or any Note Holder shall be initiated in
the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County,
Florida and may include action undertaken to effect the liquidation and
utilization of the Eligible Collateral held by the Trustee to discharge to the
extent possible the payment of the principal and interest obligation of the
Notes then subject to the
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lien effected pursuant to this Indenture and Custody Agreement. The Trustee may
use funds received with respect to, or from the sale of, the Eligible Collateral
to pursue remedies at law or in equity to collect the payment of principal or
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture and Custody Agreement.
A delay or omission by the Trustee or any Note Holder in exercising any
right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. No
remedy is exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.03. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the Notes may direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on it. The Trustee,
however, may refuse to follow any direction that conflicts with law or this
Indenture and Custody Agreement, that is unduly prejudicial to the rights of
other Note Holders or that may involve the Trustee in personal liability.
SECTION 6.04. LIMITATIONS ON SUITS.
A Note Holder may not use this Indenture and Custody Agreement to
prejudice the rights of another Note Holder or to obtain a preference or
priority over the other Note Holders.
SECTION 6.05. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture and Custody
Agreement, the right of any Holder of a Note to receive payment of principal and
interest on its Note, to receive payment of interest on or after the respective
due dates expressed in the Note, or to bring suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of the Holder of the Note.
SECTION 6.06. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of interest or principal specified in
Section 6.01 occurs and is continuing, the Trustee may recover judgment or
obtain settlement in its own name and as trustee of an express trust against the
Corporation for the whole amount of principal and interest remaining unpaid
along with costs associated with such action as described in Section 6.09.
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SECTION 6.07. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
the Note Holders allowed in any judicial proceedings relative to the
Corporation, its creditors or its property.
SECTION 6.08. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6 or any
other provision of this Agreement, it shall pay out the money in the following
order:
FIRST: to the Trustee for all amounts due under Section 6.09 and
Section 7.05;
SECOND: to Note Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for
principal and interest, respectively; and
THIRD: to the Corporation.
The Trustee may fix a record date and payment date for any payment to
Note Holders.
SECTION 6.09. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture and Custody Agreement or in any suit against the Trustee for any
action taken or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit. Additionally, the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. Each preceding sentence in this Section 6.09 shall
not apply to a suit by the Trustee or a suit by a Holder of Notes as provided in
this Article 6. All such costs and fees shall be paid pursuant to Sections 6.08
and 7.05. For purposes of this Section 6.09, attorneys' fees shall include those
fees incurred as a result of any trial of any controversy, appeal therefrom,
arbitration or mediation process, negotiation process or attorneys' fees
incurred as a result of any bankruptcy, receivership or similar proceedings
initiated, continuing and effecting the Corporation, the Note Holders and the
Eligible Collateral and the lien intended to be established by this Indenture
and Custody Agreement. The term "attorneys' fees" shall also include the fees
and costs of
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paraprofessional personnel and persons performing a similar
function.
ARTICLE 7 - TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
1) GENERAL.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise its rights and powers in accordance with Article 6
and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture and Custody
Agreement and no others.
(ii) In the absence of bad faith on its part, for all purposes
under this Agreement, the Trustee is authorized to act upon
receipt of the first of any Written or Oral Instruction it
receives. In cases where the first Instruction is an Oral
Instruction that is not in the form of a document or written
record, the Corporation shall be responsible for delivering,
or having delivered to the Trustee, a confirmatory Written
Instruction or Oral Instruction in the form of a document or
written record. The Trustee shall be entitled to rely on the
first Instruction received, and any reasonable act or
omission undertaken in compliance therewith shall be free of
liability and fully indemnified and held harmless by the
Corporation. The Trustee shall act upon and comply with any
subsequent Written or Oral Instruction which modifies such
first Instruction. The sole obligation of the Trustee with
respect to any follow-up or confirmatory Written Instruction
or Oral Instruction in documentary or written form shall be
to make reasonable efforts to detect any discrepancy between
the original Instruction and such confirmation and to report
such discrepancy to the Corporation. The Corporation shall
be responsible, at the Corporation's expense, for taking any
action, including any reprocessing, necessary to correct any
discrepancy or error, and
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to the extent such action requires the Trustee to act the
Corporation shall give the Trustee specific Written
Instructions as to the action required.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(i) The Trustee shall not be liable for any error of business
judgment made in good faith by a shareholder or other
professional employee of the Trustee.
(ii) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to paragraph (b) of this
Section.
(d) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against
any loss, liability or expense.
(e) The Trustee shall not be liable for interest on any money received
by it except as otherwise provided herein.
(f) Every provision of this Indenture and Custody Agreement that in
any way relates to the Trustee is subject to this paragraph
7.01(1).
2) MAINTENANCE OF SEPARATE BANK ACCOUNT.
The Trustee shall establish an interest-bearing checking account in the
name of the Corporation in a federally insured, Florida state chartered bank or
national bank with at least $500,000,000 in deposits, in which the Trustee shall
hold all cash of the Corporation to be held by the Trustee hereunder (the "Trust
Account"). The Trustee shall be the only person authorized to draw on such
account.
3) DEALING WITH PORTFOLIO SECURITIES.
The Trustee is hereby authorized and directed to deliver Securities of
the Corporation from time to time as follows:
(a) for the purpose of completing sales of Securities sold by the
Corporation, upon receipt of both (i) the net proceeds of sale and (ii) Written
or Oral Instructions specifying the Securities sold and stating the amount to be
received and the broker, banker or other party to or upon whose order the
Securities are to be delivered; provided, however, that the Trustee may accept
payment owing in connection with the disposition by the Corporation of
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Securities on deposit with a Securities Depository and Book-Entry Securities, by
means of a credit in the appropriate amount to the account described in Section
5 hereof.
(b) for the purpose of exchanging Securities for other Securities
and/or cash upon timely receipt of (i) Written or Oral Instructions stating the
Securities to be delivered and the Securities and/or cash to be received in
exchange and the manner in which the exchange is to be made, and (ii) against
receipt of the other Securities and/or cash as specified in the Written or Oral
Instructions;
(c) for the purpose of presenting Securities for payment which have
matured.
The lien of this Indenture and Custody Agreement shall be released by
the Trustee and discharged with respect to any Security constituting an item of
Eligible Collateral which is
(A) completely paid with respect to the principal and interest
obligation thereof; or
(B) sold in a transaction in which all interests therein become vested
in a person or entity other than the Corporation or the Trustee.
With respect to items of Eligible Collateral which achieve the status
described in subparagraph (A) above, the Trustee shall deliver to such party as
the Corporation may specify all documents and evidence of such Security upon
receipt of Written Instructions from the Corporation. With respect to items of
Eligible Collateral which achieve the status described in paragraph (B) above,
the Trustee shall deliver to such party as the Corporation may specify all
documents and evidence of such Security upon the payment of the purchase price
therefor, delivered to the Trustee. If requested by the Corporation, the Trustee
shall also deliver an instrument(s) of release sufficient to completely
discharge the items of Eligible Collateral which are being delivered hereunder
from the lien of this Indenture and Custody Agreement.
4) DISBURSEMENTS.
The Trustee is hereby authorized and directed to disburse cash on hand
in the Trust Account from time to time as follows:
(a) for the purpose of payment for the purchase of Securities purchased
by the Corporation, upon receipt by the Trustee of both (i) Written or Oral
Instructions specifying the Securities and stating the purchase price, and the
name of the broker, banker or other party to or upon whose order the purchase
price is to be paid, and (ii) the Securities so purchased in due form for
transfer
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or already registered as provided in Section 4.04, provided, however, that the
Trustee may make payment for Securities on deposit with a Securities Depository
and Book-Entry Securities at such times as the Trustee enters a credit in the
account it maintains for the Corporation to the effect that it has accepted
delivery of such Securities on behalf of the Corporation;
(b) for the purpose of paying principal or interest due on the Notes,
upon receipt by Trustee of Written Instructions to pay a specified amount of
interest to a Note Holder, or to repay a specified amount of principal to a Note
Holder and stating the Notes to be tendered against payment; and
(c) for the purpose of reimbursing the Corporation for other corporate
expenditures, such as management or supervisory fees, administration,
compensation of personnel, compensation of the Trustee, or operating expenses
(including, without limitation, fees for legal, accounting and auditing
services), and to disburse cash for other corporate purposes upon receipt of
Written Instructions stating that such expenditures were authorized by
resolution of the Board of Directors of the Corporation and are or were for
corporate purposes, and specifying the amount of payment, the purpose for which
such payment is to be made, and naming the person or persons to whom payment is
to be made;
provided, however, that in the case of disbursements under subparagraphs (b) and
(c) above, such disbursements shall only be made to the extent that the Trustee
would continue to hold Eligible Collateral with an aggregate Unadjusted Value
equal to at least 60% of the aggregate outstanding principal balance of the
Notes following such disbursement.
Before making any payment or disbursement under subparagraphs (b) or
(c) above, however, the Corporation shall provide the Trustee with Written
Instructions concerning the payments to be made at least 10 days before such
payments are to be sent, including a schedule showing the payments to be made
with the name and address of each payee and whether any goods must be tendered
against payment, along with a set of checks of the Corporation, drawn on the
Trust Account, made payable to the payees who are to be paid and ready for
signature by the Trustee. The Corporation shall also provide stamped window
envelopes to the Trustee for use in mailing the checks. Such Written
Instructions shall state that the disbursement is for one or more of the
purposes hereinabove enumerated, and if such payment or disbursement is for any
purpose specified in subparagraph (c) above, the Written Instructions shall
state that such payment or disbursement was authorized by resolution of the
Board of Directors of the Corporation and is for a proper corporate purpose.
Simultaneous with the delivery of the Written Instructions, the Corporation
shall provide to the Trustee the calculations of the Unadjusted Value of all
items of Eligible
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Collateral which will continue to be held by the Trustee after such
disbursement, as well as the aggregate outstanding principal balance of the
Notes after such disbursement.
5) FIDELITY BOND.
Upon the request of the Corporation, the Trustee shall procure a
fidelity bond in favor of the Corporation in an amount equal to the outstanding
balance due under the Notes, it being understood that so long as any Note is
outstanding, any proceeds from a claim under such bond shall be covered by the
lien of this Indenture and Custody Agreement as between the Corporation and the
Note Holders. The Corporation shall reimburse the Trustee for the actual cost of
such bond.
SECTION 7.02. RIGHTS OF TRUSTEE.
1) SECURITIES DEPOSITORY. The Corporation hereby authorizes the Trustee to (a)
deposit in its account(s) with any Securities Depository registered as a
Clearing Agency under Section 17A of the Securities Exchange Act of 1934, all or
any part of the Securities as may from time to time be held for the Corporation,
and (b) deposit Book-Entry Securities belonging to the Corporation in a
Book-Entry Account which is maintained for the Trustee by a Federal Reserve
Trustee. So long as any deposit referred to in (a) and (b) above is maintained
for the Corporation, the Trustee:
(i) shall deposit the Securities in an account that includes
only assets held by it for the Corporation;
(ii) shall send the Corporation a confirmation (i.e. an
advice or notice of a transaction) of any transfers to or from the
account of the Corporation;
(iii) shall, with respect to Securities transferred to the
account of the Corporation, identify as belonging to the
Corporation a quantity of securities in a fungible bulk of
securities (i) registered in the name of the Trustee or its
nominee, or (ii) shown on the Trustee's account on the books of
the Securities Depository, the Book-Entry System, or the Trustee's
agent; and
(iv) shall send to the Corporation such reports of the
systems of internal accounting control of the Trustee and its
agents through which such Securities are deposited as are
available and as the Corporation may reasonably request from time
to time.
2) RIGHT TO FURTHER ASSURANCES.
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Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or opinion of counsel for the Corporation or an opinion of
counsel selected by the Trustee. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on the Certificate or
opinion.
3) USE OF AGENTS.
The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
4) LIABILITY OF TRUSTEE.
The Trustee shall not be liable for any action it takes or omits to take
in good faith which it believes to be authorized or within its rights or powers.
SECTION 7.03. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of this
Indenture and Custody Agreement or the Notes and it shall not be accountable for
the Corporation's use of the proceeds from the Notes, nor shall it be
responsible for any statement in the Notes or the Prospectus used in the sale of
the Notes.
SECTION 7.04. NOTICE OF DEFAULT.
If an Event of Default occurs and is continuing and if it is known to
the Trustee, the Trustee shall mail and first publish as provided in Section
10.02 notice of the Event of Default within ten (10) days after such Default
occurs. Except in the case of a Default in payment on any Note, the Trustee may
withhold the notice if and so long as it in good faith determines that
withholding the notice is in the interests of the Note Holders.
SECTION 7.05. COMPENSATION AND INDEMNITY.
The Corporation shall pay to the Trustee from time to time reasonable
compensation for its services. The Corporation shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred by it. Such expenses
may include the reasonable compensation and expenses of the Trustee's agents and
attorneys, as defined in Section 6.09. The Corporation shall indemnify the
Trustee against any loss or liability incurred by it. The Trustee shall notify
the Corporation promptly of any claim for which it may seek indemnity. The
Corporation shall defend the claims and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel and the Corporation shall pay the
reasonable fees and expenses of such counsel. The Corporation need not pay for
any
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settlement made without its consent. The Corporation need not reimburse any
expense or indemnify against any loss or liability incurred by the Trustee
through gross negligence or bad faith.
SECTION 7.06. REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Corporation. The Holders of
a majority in principal amount of the Notes may remove the Trustee by so
notifying the removed Trustee and may appoint a successor Trustee by so
notifying the removed Trustee and may appoint a successor Trustee with the
Corporation's consent. The Corporation may remove the Trustee if:
(1) the Trustee is adjudged a bankrupt or an insolvent;
(2) a receiver or other public officer takes charge of the Trustee or
its property; or
(3) The Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of the Trustee for any reason, the Corporation shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Corporation. Immediately after
that, the retiring Trustee shall transfer all property, if any, held by it as
Trustee under this Indenture and Custody Agreement to the successor Trustee, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all of the rights, powers and duties of the Trustee
under this Indenture and Custody Agreement. A successor Trustee shall give
notice of its succession to each Note Holder as provided in Section 10.02.
If a successor Trustee does not take office within sixty (60) days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Corporation or the Holders of a majority in principal amount of the Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
SECTION 7.07. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate assets to another professional
association, the resulting, surviving or transferee professional association,
without any further act, shall be the successor Trustee.
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SECTION 7.08. FAILURE TO DEPOSIT.
The Trustee assumes no duty, obligation or responsibility whatsoever
with respect to items of Eligible Collateral not deposited with the Trustee.
Eligible Collateral shall not be considered deposited with the Trustee until
physically received by, or registered in the name of, the Trustee in accordance
with the provisions of this Agreement.
SECTION 7.09. BOOKS AND RECORDS.
The Trustee acknowledges and agrees that all books and records
maintained for the Corporation in any capacity under this Agreement are the
property of the Corporation and may be inspected by the Corporation, or any
authorized regulatory agency, at any reasonable time, and that upon request they
shall be surrendered promptly to the Corporation.
SECTION 7.10. INDEMNIFICATION.
The Trustee assumes only the usual duties and obligations normally
performed by Trustees under trust indentures and custodians of Securities. It
specifically assumes no responsibility for the management, investment or
reinvestment of the Securities from time to time owned by the Corporation
whether or not on deposit hereunder, it being understood that the responsibility
for the proper and timely management, investment and reinvestment of said
Securities shall be that of the Corporation.
The Trustee shall not be liable for any taxes, assessments or
governmental charges which may be levied or assessed upon the Securities held by
it hereunder, or upon the income therefrom or otherwise whatsoever. The Trustee
may pay any such tax, assessment or charge and reimburse itself out of the
moneys of the Corporation or out of the cash held hereunder; provided, however,
the Trustee shall advise the officers of the Corporation before making any such
payment.
The Trustee may rely upon the advice of counsel, who may be counsel for
the Corporation or for the Trustee, and upon statements of accountants, brokers
or other persons reasonably believed by it in good faith to be expert in the
matters upon which they are consulted; and for any reasonable action taken or
suffered in good faith based upon such advice or statements the Trustee shall
not be liable to anyone. The Trustee shall not be liable for any reasonable act
or omission done in good faith in accordance with any Written or Oral
Instructions, request or advice of, or based upon information furnished by, the
Corporation or its officers. The Trustee is authorized to accept a certificate
of the President, Secretary or Assistant Secretary of the Corporation to the
effect that a resolution in the form submitted has been duly adopted by
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its Board of Directors, as conclusive evidence that such resolution has been
duly adopted and is in full force and effect. The Trustee shall not be liable
for any reasonable action done in good faith and reasonably believed to be
within the powers conferred upon it by this Agreement.
No liability of any kind other than to the Corporation shall be
attached to the Trustee by reason of its custody of the Securities and funds on
deposit with it from time to time under this Agreement or otherwise by reason of
its administration of its custodianship, except such as shall result from its
own gross negligence or willful misconduct or that of its officers, agents or
employees.
ARTICLE 8 - DISCHARGE OF INDENTURE
The Notes which are the subject of this Indenture and Custody Agreement
may not be prepaid by the Corporation prior to maturity. The obligations of the
Corporation under this Indenture and Custody Agreement and the obligations of
the Trustee hereunder shall be fully discharged when each and every Note which
is the subject of this Indenture and Custody Agreement is fully paid with
respect to the principal obligation of such Notes and the accrued interest
thereon. At the time that the principal of and interest on the Notes have been
fully paid by the Corporation in accordance with the terms of each such Note,
the Corporation and the Trustee shall acknowledge in writing the termination of
their respective obligation under this Indenture and Custody Agreement, and the
Trustee shall transfer custody of all items of Eligible Collateral to the
Corporation, and shall execute any instruments or documents deemed reasonably
necessary or advisable by the Corporation to evidence such transfer and the
ownership of complete title of all items of Eligible Collateral by the
Corporation.
ARTICLE 9 - AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
The Corporation may amend or supplement this Indenture and Custody
Agreement or the Notes without notice to or consent of any Note Holder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to make any change that does not adversely affect the rights of
the Trustee or any Note Holder.
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SECTION 9.02. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Note, the
Corporation may require the Holder of the Note to deliver it to the Corporation.
The Corporation may place an appropriate notation on the Note regarding the
changed terms and return it to the Holder. Alternatively, if the Corporation so
determines, the Corporation, in exchange for the Note, shall issue a new Note
that reflects the changed terms.
SECTION 9.03. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article 9 if the amendment, supplement or waiver does not
adversely affect the rights of the Trustee or any Note Holder. The Corporation
may not sign an amendment or supplement until the Board of Directors of the
Corporation approves it. The foregoing provisions of this Section 9.03
notwithstanding, no amendment, supplement or waiver authorized pursuant to this
Article 9 shall have the affect of increasing the rights, duties and
responsibilities of the Trustee without the explicit written consent of the
Trustee.
ARTICLE 10 MISCELLANEOUS
SECTION 10.01. TRUST INDENTURE ACT.
The Corporation and the Trustee acknowledge that this Indenture and
Custody Agreement and the Trustee with respect to its service as Trustee under
this Indenture and Custody Agreement are not subject to the provisions of the
Trust Indenture Act of 1939 (the "TIA"). If this Indenture and Custody Agreement
and the Trustee's service hereunder subsequently become subject to the TIA, this
Indenture and Custody Agreement shall be appropriately amended to accomplish any
necessary compliance.
SECTION 10.02. NOTICES.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first class mail addressed as follows:
If to the Corporation:
Federal Mortgage Management II, Inc.
1800 Second Street, Suite 780
Sarasota, Florida 34236
Attention: President
If to the Trustee:
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Michael Hric, P.A.
2801 Fruitville Road, Suite 100
Sarasota, Florida 34237
Attention: Michael Hric, Esq.
The Corporation or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication to Note Holders shall be sufficiently given
if mailed by first class mail to each Note Holder at the address of each such
Note Holder as such appears on the lists or registration books of the
Corporation acting as Registrar. Any notice or communication mailed to a Note
Holder at his address as it appears on the lists or registration books of the
Corporation shall be sufficiently given to him if so mailed within the time
prescribed.
Failure to give notice or communication to a Note Holder or any defect
in the notice given shall not affect its sufficiency with respect to other Note
Holders. If a notice or communication is mailed and, if required, published in
the manner provided above, it is duly given, whether or not the Note Holder
receives it or reads it.
SECTION 10.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Note Holders may communicate with other Note Holders with respect to
their rights under this Indenture and Custody Agreement or the Notes.
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Corporation to the Trustee to
take any action under this Indenture and Custody Agreement, the Corporation
shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture and Custody Agreement relating to the proposed action
have ben complied with; and
(2) an opinion of counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Each opinion of counsel shall be in writing. The legal counsel who
renders it may be an employee of or counsel to the Corporation. The legal
counsel shall be acceptable to the Trustee.
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SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OF OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture and Custody Agreement shall include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
SECTION 10.06. RULES BY TRUSTEE.
The Trustee may make reasonable rules for the administration of this
Indenture and Custody Agreement. Such rules may cover matters relating to action
by or a meeting of Note Holders.
SECTION 10.07. DAYS OF SERVICE.
Nothing contained in this Agreement is intended to or shall require the
Trustee in any capacity hereunder to perform any functions or duties on any
holiday, day of special observance or any other day on which the Trustee or
Florida state chartered banks are closed. Functions or duties normally scheduled
to be performed on such days shall be performed on, and as of, the next
succeeding business day on which both Florida state chartered banks and the
Trustee are open.
SECTION 10.08. GOVERNING LAW.
This Indenture and Custody Agreement and the Notes shall be governed by
the laws of the State of Florida.
SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture and Custody Agreement may not be used to
interpret another indenture, loan or debt agreement of the
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Corporation. Any such Indenture, loan or debt agreement may not be
used to interpret this Indenture and Custody Agreement.
SECTION 10.10. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the
Corporation shall not have any liability or any obligations of the Corporation
under the Notes or this Indenture and Custody Agreement or for any claim based
on, in respect of or by reason of such obligations or their creation.
SECTION 10.11. SUCCESSORS.
All agreements of the Corporation in this Indenture and Custody
Agreement and the Notes shall bind its successor. All agreements of the Trustee
in this Indenture and Custody Agreement shall bind its successor.
SECTION 10.12. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture and Custody
Agreement. Each signed copy shall be an original, but all of them together
represent the same agreement.
IN WITNESS WHEREOF, the Corporation and the Trustee have caused this
Agreement to be signed by their respective Presidents as of the day and year
first above written.
FEDERAL MORTGAGE MANAGEMENT II, INC.
By____________________________
Guy S. Della Penna, President
MICHAEL HRIC, P.A.
By____________________________
Michael Hric, President
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EXHIBIT A
FORM OF NOTE
$__________________ NO._____
FEDERAL MORTGAGE MANAGEMENT II, INC.
Promissory Note - Series 1996 [A-I/A-II/A-III]
0 B L I G A T I 0 N
FEDERAL MORTGAGE MANAGEMENT II, INC., a corporation organized and
existing under the laws of the State of Florida (the "Corporation"), for value
received hereby promises to pay to the registered holder of this Note the
principal sum of $______________________, together with interest thereon at the
annual rate of _______% (the "Note Rate"). Payment of the principal of this Note
in the amount of $________________ shall occur on ___________________. Interest
on the unpaid principal amount of this Note at the Note Rate shall accrue from
the date of acceptance by the Corporation of the Payee's subscription to the
Note herein and shall be paid on a date within thirty (30) days after attainment
of the Minimum Requirement, as such Minimum Requirement is established and
described in the Prospectus relating to this Note and other Notes of like
Series, which Prospectus is dated _________________, 1996 (the "Note
Prospectus"). Thereafter, interest shall be paid on the first day of each month
that this Note is outstanding at the Note Rate until maturity.
The Corporation shall establish and maintain a Note register which
shall reflect the record holders of the Notes and any transfer of such Notes
which may occur. When permitted, title to this Note and all other Notes of this
Series may only be transferred by delivery of this Note or other Notes of the
same Series duly endorsed by the registered holder, and any transfer or
attempted transfer shall, in all events, be subject to the right of the
Corporation to request such assurances and appropriate documents from the
intended transferee to permit the Corporation to determine that any such
proposed transferee is a suitable holder of a Note of this Series. The right of
the Corporation to determine such suitability of any transferee of a Note shall
not apply to transferees who are members of the original Note holder's immediate
family. The term "immediate family" shall include a spouse and/or an adult
child. The Corporation shall be entitled to rely upon the information reflected
in the Note register and to treat the registered holder of this Note as
reflected in such register as the owner of this Note for all purposes,
including, without limitation,
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the payment of obligations arising hereunder and the carrying out of transfer
instructions with respect thereto.
PREPAYMENT
The principal amount of this Note may not be prepaid in whole or in
part by the Corporation at any time.
NOTE OBLIGATION PARTIALLY SECURED
This Note has been issued under that certain Indenture and Custody
Agreement, dated as of _________________, 1996 (the "Agreement"), which
Agreement provides for the deposit of certain assets of the Corporation with a
trustee as collateral which partially secures the repayment of the obligations
of the Corporation represented by the Series 1996 A Notes. All of the covenants,
conditions and agreements contained in such Agreement are hereby made a part of
this instrument. A copy of the Agreement may be obtained from the Corporation at
its principal business office at 1800 Second Street, Suite 780, Sarasota,
Florida 34236, or from the Trustee, Michael Hric, P.A., 2801 Fruitville Road,
Suite 100, Sarasota, Florida 34237.
DEFAULT - REMEDIES
The Corporation shall be deemed to be in Default with respect to its
obligations under this Note and all like Notes of the 1996 A Series if:
(1) the Corporation defaults in the payment of interest on any Note at
the Note Rate when the same becomes due and payable and the
Default in the payment of such Note interest continues for a
period of thirty (30) consecutive days;
(2) the Corporation defaults in the payment of the principal of any
Note when the same becomes due and payable;
(3) the Corporation or its assets become subject to any voluntary or
involuntary proceeding under the Federal Bankruptcy Act or any
state statute which relates to credit relief and/or the
liquidation of the Corporation, which proceeding remains
undismissed for a period of sixty (60) or more days; and/or
(4) the Corporation fails to perform any of its covenants set forth in
Sections 4.04, 4.05, 4.06 or 4.07 hereof, and such failure
continues for a period of ten consecutive days.
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In the event of the occurrence of any of the foregoing Events of Default which
are continuing, the trustee under the Agreement may initiate, on behalf of all
of the registered holders of the Series 1996 A Notes, such action at law or in
equity as may be appropriate to timely cure such Default.
In the event of default in the payment of this promissory note, and if
the same is collected by an attorney-at-law, the undersigned hereby agrees to
pay all costs of collection, including a reasonable attorney's fee for
collection, trial or appellate service.
Presentment for payment, notice of dishonor, notice of non-payment,
protest and notice of protest are hereby waived by the undersigned and any and
all others who may at any time become liable for payment of all or any part of
this obligation.
IN WITNESS WHEREOF, the Corporation has caused this Note to be signed
and imprinted with its corporate seal, and to be dated _______________, 1996.
FEDERAL MORTGAGE MANAGEMENT, INC.
ATTEST:
By:_______________________ By:______________________________
Secretary Guy S. Della Penna, President
(CORPORATE SEAL)
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0831 of the Florida Business Corporation Act ("FBCA") limits
the liability of directors of Florida corporations. Section 607.0831 provides as
follows:
1. A director is not personally liable for monetary damages to the
corporation or any other person for any statement, vote, decision, or
failure to act, regarding corporate management or policy, by a director,
unless:
a. The director breached or failed to perform his duties as a
director; and
b. The director's breach of, or failure to perform, those
duties constitutes:
(1) A violation of the criminal law, unless the
director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful.
A judgment or other final adjudication against a director in any
criminal proceeding for a violation of the criminal law estops
that director from contesting the fact that his breach, or
failure to perform, constitutes a violation of the criminal law;
but does not estop the director from establishing that he had
reasonable cause to believe that his conduct was lawful or had
no reasonable cause to believe that his conduct was unlawful;
(2) A transaction from which the director derived an
improper personal benefit, either directly or indirectly;
(3) A circumstance under which the liability
provisions of Florida Statutes ss.607.0834 are applicable;
(4) In a proceeding by or in the right of the
corporation to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best
interest of the corporation, or willful misconduct; or
(5) In a proceeding by or in the right of someone
other than the corporation or a shareholder, recklessness or an
act or omission which was committed in bad faith or with
malicious purpose or in a manner exhibiting wanton and willful
disregard of human rights, safety, or property.
2. For the purposes of this section, the term "recklessness" means
the action, or omission to act, in conscious disregard of a risk;
a. Known, or so obvious that it should have been known to the
director; and
b. Known to the director, or so obvious that it should have been
known, to be so great as to make it highly probable that harm would
follow from such action or omission.
3. A director is deemed not to have derived an improper personal
benefit from any transaction if the transaction and the nature of any
personal benefit derived by the director are not prohibited by state or
federal law or regulation and, without further limitation:
a. In an action other than a derivative suit regarding a
decision by the director to approve, reject, or otherwise affect the
outcome of an offer to purchase the stock of, or to effect a merger
of, the corporation, the transaction and the nature of any personal
benefits derived by a director are disclosed or known to all
directors voting on the matter, and the
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transaction was authorized, approved or ratified by at least two
directors who comprise a majority of the disinterested directors
(whether or not such disinterested directors constitute a quorum);
b. The transaction and the nature of any personal benefits
derived by a director are disclosed or known to the shareholders
entitled to vote, and the transaction was authorized, approved, or
ratified by the affirmative vote or written consent of such
shareholders who hold a majority of the shares, the voting of which
is not controlled by directors who derived a personal benefit from or
otherwise had a personal interest in the transaction; or
c. The transaction was fair and reasonable to the
corporation at the time it was authorized by the board, a committee,
or the shareholders, notwithstanding that a director received a
personal benefit.
4. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors which
authorizes, approves, or ratifies such a transaction.
5. The circumstances set forth in subsection 3 are not exclusive and
do not preclude the existence of other circumstances under which a
director will be deemed not to have derived an improper benefit.
Section 607.0850 of the FBCA empowers a Florida corporation, subject to
certain limitations, to indemnify its directors and officers against expenses
(including attorneys' fees, judgments, fines and certain settlements) actually
and reasonably incurred by them in connection with any suit or proceeding to
which they are a party so long as they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to a criminal action or proceeding, so long as
they had no reasonable cause to believe their conduct to have been unlawful.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses to be
borne by the Company in connection with the offering described in the
Registration Statement, other than underwriting commissions and discounts. All
of such expenses will be borne by the Company.
SEC Registration Fees................................ $ 1,515
NASD Registration Fees............................... 1,000
Blue Sky Registration Fees........................... 3,500
Legal Fees........................................... 60,000
Documentary Stamp Taxes on Notes..................... 17,500
Auditors' Fees.......................................
Fee of Kashner Davidson Securities Corporation....... 15,000
Printing and Engraving Expenses......................
Miscellaneous....................................... 1,000
------
Total.......................................... $
======
- ----------------
All of the above items are estimated except the SEC, NASD and Blue Sky
Registration Fees, and the fee to Kashner Davidson Securities Corporation.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In November 1995, the Company issued 100 shares of its Common Stock to Guy
Della Penna in consideration of the payment of $1,000. The Company relied upon
the exemption from registration contained in Section 4(2) of the Securities Act
of 1933, as amended. There were no underwriters involved in the foregoing
transaction.
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ITEM 27. EXHIBITS.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
-------- -------------------
1.1 Form of Distribution Agreement between Executive Wealth Management
Services, Inc. and the Registrant.
1.2 Form of Selected Dealer Agreement to be used by Executive Wealth
Management Services, Inc.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Form of Promissory Note.
4.2 Form of Indenture and Custody Agreement between the Registrant and
Michael Hric, P.A., Trustee (included as Exhibit B to the
Prospectus contained in this Registration Statement).
5* Opinion of Shumaker, Loop & Kendrick, LLP regarding the Notes being
issued.
10 Form of Escrow Agreement between the Registrant, SouthTrust Asset
Management Company of Florida and Executive Wealth Management
Services, Inc.
23.1* Consent of Shumaker, Loop & Kendrick, LLP (included in the opinion
filed as Exhibit 5).
23.2 Consent of Bobbitt, Pittenger & Co., P.A., independent certified
public accountants.
23.3 Consent of Kashner Davidson.
27 Financial Data Schedule.
* (To be filed by amendment)
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the Securities
Act; (ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registratio
statement; and (iii) include any additional or changed material
information on the plan of distribution.
(2) That for purposes of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
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<PAGE>
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sarasota, State of Florida on October 30, 1996.
FEDERAL MORTGAGE MANAGEMENT II, INC.
By: /S/ GUY S. DELLA PENNA
-----------------------------
Guy S. Della Penna, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 30, 1996.
SIGNATURE TITLE
- --------- -----
/s/ GUY S. DELLA PENNA
- -----------------------
Guy S. Della Penna Director, President, Chief Executive Officer, Chief
Financial Officer and Principal Accounting Officer
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
1.1 Form of Distribution Agreement between Executive Wealth Management
Services, Inc. and the Registrant.
1.2 Form of Selected Dealer Agreement to be used by Executive Wealth
Management Services, Inc.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Form of Promissory Note.
4.2 Form of Indenture and Custody Agreement between the Registrant and
Michael Hric, P.A., Trustee (included as Exhibit B to the
Prospectus contained in this Registration Statement).
5* Opinion of Shumaker, Loop & Kendrick, LLP regarding the Notes being
issued.
10 Form of Escrow Agreement between the Registrant, SouthTrust Asset
Management Company of Florida and Executive Wealth Management
Services, Inc.
23.1* Consent of Shumaker, Loop & Kendrick, LLP (included in the opinion
filed as Exhibit 5).
23.2 Consent of Bobbitt, Pittenger & Co., P.A., independent certified
public accountants.
23.3 Consent of Kashner Davidson.
27 Financial Data Schedule.
* (To be filed by amendment)
II-6
EXHIBIT 1.1
DISTRIBUTION AGREEMENT
_________________, 1996
Between:
FEDERAL MORTGAGE MANAGEMENT II, INC.
1800 Second Street, Suite 780
Sarasota, Florida 34236
and
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
2323 Stickney Point Road
Sarasota, Florida 34231
Gentlemen:
FEDERAL MORTGAGE MANAGEMENT II, INC. (herein the "Company") is a Florida
corporation having its principal place of business in Sarasota, Florida. The
Company has or is expected to soon file with the United States Securities and
Exchange Commission its Registration Statement on Form SB-2 covering what has
been designated by the Company as its Promissory Notes, Series 1996A-I, II and
III to be offered pursuant to such Registration Statement and Prospectus
contained therein to the public in aggregate principal amount of $5 million. As
used in this Agreement, such Promissory Notes Series 1996A are referred to as
the "Notes". As used in this Agreement, the term "Registration Statement"
includes the entire Registration Statement and the Prospectus which contains the
offer of the Notes intended to be made by the Company to the public. The Note
Series are being offered to the public with the following maturities and
allocated principal amounts, which principal amounts are not subject to
alteration by way of increase or decrease from one maturity to another maturity:
PRINCIPAL AMOUNT ANNUAL
SERIES AVAILABLE MATURITY NOTE RATE
- ----------- --------- -------- ---------
1996 A-I $ 500,000 _________, 2000 8.00%
1996 A-II 1,000,000 _________, 2001 9.00%
1996 A-III 3,500,000 _________, 2002 10.00%
The Registration Statement has also been duly filed in the State of Florida
pursuant to the Florida Securities and Investor Protection Act. Such
Registration Statement may also be filed in other states in order to effect the
qualification of the Notes for public offer in such states. The Company desires
to appoint EXECUTIVE WEALTH MANAGEMENT SERVICES, INC. of Sarasota, Florida as
its exclusive distribution agent with respect to the public offer and sale of
the Notes in Florida and in such other states where the Notes may be qualified
for offer and sale to the public. Accordingly, the Company hereby appoints
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC., a duly registered securities
broker-dealer under the Securities Exchange Act of 1934, as amended, and
applicable state law, and a member of the National Association of Securities
Dealers, Inc. (the "NASD"), as the Company's exclusive Distri-
<PAGE>
bution Agent (the "Agent") with respect to the best efforts offer and sale of
the Notes as described and in accordance with the terms of this Agreement and
the Registration Statement covering such Notes.
Therefore, the parties hereby agree as follows:
1. APPOINTMENT AND SOLICITATION. Upon the terms contained herein, the
Agent is appointed as the exclusive Distribution Agent to solicit written
Subscriptions of suitable investors to subscribe to the Notes and thereby become
holders thereof upon Subscription acceptance by the Company. It is the intention
of the Company to accept Subscriptions in the form included with the
Registration Statement from qualified investors who meet the suitability
standards set forth in the Registration Statement. The foregoing intention
notwithstanding, the Company has reserved the right to refuse any Subscriptions
for Notes for any reason, to reduce Subscriptions to an amount less than
otherwise subscribed for, and to terminate the offering at any time. The
privilege of soliciting Subscriptions for the Notes is extended to the Agent
only if the Notes may be lawfully offered and sold in states in which the Agent,
or any appointed Selected Dealer, is a registered securities broker-dealer or is
exempt from registration. The Agent also understands and agrees that such
Subscription activity may only occur in those states with respect to which such
subscription authority may be lawfully conducted.
2. TRANSMITTAL OF SUBSCRIPTION AND PROCEEDS. The Company and the Agent
acknowledge that, in accordance with the terms of the Note offering as set forth
in the Registration Statement, the Company is required to sell a minimum
principal amount of Notes of $1,500,000 (of any maturity or combination thereof)
on or before midnight [_____________], 1997 in order for the Note offering to
continue until the entire $5 million principal of Notes are sold or the offering
is earlier terminated and that pending the accumulation of Note Subscription
proceeds in the amount of $1,500,000 or more, all Note Subscription proceeds
will be held and accumulated pursuant to escrow arrangements established by an
Escrow Agreement existing between the Company, the Agent and SouthTrust Asset
Management Company of Florida, Sarasota, Florida (herein the "Escrow Agent"). In
accordance with the terms of the Note offering as set forth in the Registration
Statement, the Agent shall transmit promptly (not later than noon of the next
business day following receipt), and only to such Escrow Agent, all funds
received from the subscribers to Notes in the public offering (without deduction
for any commission or concession) in compliance with Rule 15c2-4 as promulgated
by the United States Securities and Exchange Commission under the Securities
Exchange Act of 1934, and a confirmation or record of each Note sale shall also
accompany such funds, which confirmation or record (which may be in the form of
the Subscription Agreement to Notes) shall set forth the name, residential
address and social security number of each individual Note purchaser, the number
of Notes purchased and instructions with respect to the issuance of the
certificates to evidence the ownership of Notes. The Agent acknowledges that the
Company may refuse Note subscriptions for the reasons stated above and that in
such event, the Escrow Agent shall return to the Note purchaser all funds paid
by the Note purchaser which have been received by the Escrow Agent, together
with interest thereon as provided in the Registration Statement.
3. COMPENSATION. For its services rendered pursuant to this Agreement, the
Agent will be paid selling commissions ranging from 3% to 7.5%, depending upon
the particular maturity of Series 1993A Notes sold as set forth below:
2
<PAGE>
SERIES AND NOTE MATURITY SELLING COMMISSION
------------------------ ------------------
1996A-I - ________, 2000 3.0%
1996A-II - ________, 2001 4.5%
1996A-III - ________, 2002 7.0%
Additionally, the Agent shall be entitled to receive a 3% Note offering
management fee to be charged against gross Note offering proceeds on and
subsequent to the time that the minimum accumulation requirement of $1,500,000
has been successfully attained, as well as a non-accountable expense allowance
equal to 2% of gross Note offering proceeds. Such commissions and fees shall not
be paid unless and until the $1,500,000 minimum requirement is successfully
attained. Thereafter, such commissions and fees may be paid on a weekly basis.
In connection with the public offering of Notes, the Company shall be solely
responsible for all expenses incurred by it in connection with such Note
offering, including, but not limited to, legal and accounting fees, filing fees
with the United States Securities and Exchange Commission and state securities
regulatory authorities, printing and engraving costs, filing fees with the
National Association of Securities Dealers, Inc., transfer agent fees, if any,
and any miscellaneous fees. The Company shall be solely responsible for the fee
of Kashner Davidson Securities Corporation, which has acted as qualified
independent underwriter with respect to the Note offering and in accordance with
Schedule E to the Bylaws of the National Association of Securities Dealers,
Inc., as well as the fees of counsel to Kashner Davidson in connection with its
activities related to this matter. The Company and the Agent acknowledge that
certain of those fees and costs have been paid on the Company's behalf by
Capital Management Group, Inc. ("Capital Management") and Capital Management is
expected to be reimbursed by the Company on account of such payment.
4. REPRESENTATIONS AND WARRANTIES OF THE AGENT. The Agent hereby
represents and warrants to the Company as follows:
(a) It is a member in good standing of the NASD, and will maintain such
registration throughout the term of this Agreement. It is also duly registered
as a securities broker-dealer in accordance with the requirements of the
Securities Exchange Act of 1934, as amended and the rules and regulations
promulgated under such act, as well as under the laws of such states, including
Florida, where its activities hereunder require such registration and it will
maintain such registrations in good standing during the course of its service as
Distribution Agent to the Company.
(b) It will comply with the restrictions, conditions and limitations of
all applicable laws and regulations including, without limitation, the
applicable provisions of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, the rules of the NASD, as well
as applicable state law.
(c) It will not offer or sell the Notes unless such offer or sale is
preceded or accompanied by the Prospectus which is included in the Registration
Statement, together with any amendment or supplement thereto.
5. COMPLIANCE WITH SCHEDULE E. The Agent and the Company acknowledge that
3
<PAGE>
because of the affiliation between the Agent and the Company, the fairness of
the terms of the offering of the Notes and the terms of issuance of the Notes
with respect to Note maturity and rates of interest are subject to review as to
fairness by a securities broker-dealer which meets the definition of a qualified
independent underwriter as that term is defined in Schedule E to the Bylaws of
the NASD. The Agent and the Company acknowledge that compliance with the
provisions of Schedule E shall be accomplished prior to the time that the Notes
are offered to the public pursuant to the Registration Statement. The Agent will
cooperate in every respect with the Company and Kashner Davidson Securities
Corporation, the broker-dealer acting as the qualified independent underwriter
with respect to the Note offering in accomplishing compliance with Schedule E to
the Bylaws of the NASD. Additionally, the Agent shall comply in every respect
with the provisions of Section 11 of Schedule E. The Agent shall not effect any
transaction with respect to the Notes in any discretionary account.
6. INDEMNIFICATION.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Agent and each person, if any, who controls the
Agent, within the meaning of Section 15 of the Act, against any and all loss,
liability, claim, damage and expense whatsoever (including but not limited to
any and all expense whatsoever reasonably incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (as from
time to time amended and supplemented), prepared by the Company or based upon
written information provided by or on behalf of the Company and used in the
offer of the Notes; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading; unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company with respect to
the Agent or by or on behalf of the Agent for use in the Registration Statement
or any amendment or supplement thereto; or the failure of the Company to comply
with any of the applicable provisions of the Act or the Rules and Regulations
thereunder; or any unauthorized verbal or written representations in connection
with the offering and sale of the Notes made by the Company, or the agents
(other than by the Agent or its agents, employees or affiliates), employees or
affiliates of such persons; or any actions, direct or indirect, in connection
with the offering and sale of the Notes by the Company, or the agents (other
than by the Agent or its agents, employees or affiliates), employees or
affiliates of such persons in violation of the Act and rules and regulations
thereunder.
If any action is brought against the Agent or a controlling person in
respect of which indemnity may be sought against the Company pursuant to the
foregoing paragraph, the Agent shall promptly notify the Company in writing of
the institution of such action, and the Company shall assume the defense of such
action, including the employment of counsel to be chosen by the Company to be
reasonably satisfactory to the Agent or such controlling persons. The Agent or
such controlling person shall have the right to employ its own counsel in any
such case, but the fees and expenses of such counsel shall be at the Agent's
expense or the expense of such controlling person, unless the employment of such
counsel shall have been authorized in writing by the Company in connection with
the defense of such action, or the Company shall not have employed counsel to
have charge of the defense of such action or such indemnified party
4
<PAGE>
or parties shall have reasonably concluded that there may be defenses available
to it or them which are different from or additional to those available to the
Company (in which case the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the Company. Anything in
this paragraph to the contrary notwithstanding, the Company shall not be liable
for any settlement of, or any expenses incurred with respect to, any such claim
or action effected without its written consent, which consent shall not be
unreasonably withheld. The Company agrees to promptly notify the Agent of the
commencement of any litigation or proceedings against the Company, or any of its
officers, directors, employees or agents in connection with the issue and sale
of the Notes or in connection with the Registration Statement.
(b) The Agent agrees to indemnify and hold harmless the Company and
each person, if any, who controls the Company within the meaning of Section 15
of the Act, to the same extent as the foregoing indemnity from the Company to
the Agent; but only with respect to statements or omissions, if any, made in the
Registration Statement or any amendment or supplement thereto in reliance upon,
and in conformity with, written information furnished to them with respect to
the Agent by the Agent or on the Agent's behalf expressly for use in such
Registration Statement or any amendment or supplement thereto. The Agent further
agrees to indemnify and hold harmless the Company and each person, if any, who
controls the Company within the meaning of Section 15 of the Act, against any
and all loss, liability, claim, damage and expense whatsoever (including but not
limited to any and all expense whatsoever reasonably incurred in investigation,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever) arising out of or based upon any unauthorized verbal or
written representations in connection with the offering and sale of the Notes
made by the Agent, the Agent's agents, employees or affiliates; or any actions,
direct or indirect, in connection with the offering and sale of the Notes by the
Agent, the Agent's agents, employees or affiliates in violation of the Act, the
Rules and Regulations thereunder, or any applicable state securities laws and
regulations. In the event any action shall be brought against the Company or any
other person so indemnified based on the Registration Statement or any amendment
thereof or supplement thereto and in respect of which indemnity may be sought
against the Agent, the Agent shall have the rights and duties given to the
Company, and each other person so indemnified shall have the rights and duties
given to the Agent by the provisions of Subsection (a) above.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Subsections (a) or
(b) of this Section 6 is for any reason held by a court of competent
jurisdiction to be unenforceable as to the Company or the Agent, the Company and
the Agent shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted) to which the Company and the Agent may be
subject in such proportion so that the Agent is responsible for that portion
represented by the percentage that the aggregate fees received by the Agent
pursuant to this Agreement bear to the aggregate price of the Notes, and the
Company shall be responsible for the balance. No person guilty of fraudulent
misrepresentation or guilty of misstating or misrepresenting a material fact or
failing to state a material fact shall be entitled to contribution, as to any
liability arising from such fraudulent misrepresentation, from any person who
was not guilty of such fraudulent or other misrepresentation. For purposes of
this Section 6, each person, if any, who controls the Agent within the meaning
of the Act shall have the same
5
<PAGE>
rights to contribution as the Company. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Subsection (c), notify such
party or parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Subsection (c).
(d) Such indemnification by the Company shall extend to any
Participating Dealer appointed by the Agent to assist in the sale of the Notes,
which appointment shall occur only by virtue of the Selected Dealer Agreement,
the form and content of which has been approved by the Company.
7. TERMINATION. This Agreement may be terminated at any time by either
party if there shall have occurred any material change in applicable law which,
in the reasonable judgment of such party, renders it inadvisable to proceed with
the offering. In any event, this Agreement shall terminate upon completion of
the offering and the final receipt of all fees.
8. NOTICES. All notices required or permitted pursuant to this Agreement
shall be in writing and delivered in person or by registered or certified mail
with return receipts requested. Such notices shall be sent to the parties'
respective addresses as set forth herein.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
The Agent hereby agrees to participate in procuring subscriptions to Notes
with the foregoing correctly setting forth our understanding and agreement as
confirmed by execution of a duplicate copy of this letter and returning such
executed copy to the Company, whereupon this letter shall constitute a binding
contract.
FEDERAL MORTGAGE MANAGEMENT II, INC.
By__________________________________
Guy S. Della Penna, President
Accepted and agreed as of the date first above written.
EXECUTIVE WEALTH MANAGEMENT
SERVICES, INC.
By__________________________________
Guy S. Della Penna, President
6
EXHIBIT 1.2
FEDERAL MORTGAGE MANAGEMENT II, INC.
$5,000,000 Aggregate Principal Amount of Promissory Notes
SELECTED DEALER AGREEMENT
- ---------------------------
Name of Firm
- ---------------------------
Street Address
- ---------------------------
City, State, Zip Code
Executive Wealth Management Services, Inc., 2323 Stickney Point Road,
Sarasota, Florida 34231, announces its participation as underwriter on a best
efforts basis as agents for Federal Mortgage Management II, Inc. (the
"Company"), subject to the terms and conditions of our Underwriting Agreement
with the company, an aggregate of up to $5,000,000 aggregate principal amount of
promissory notes (the "Notes") of the Company as described below. The offering
is more fully described in the Prospectus. We invite your participation on the
terms and conditions stated herein:
1. OFFERING TO SELECTED DEALERS. We are offering to certain dealers
("Selected Dealers") who are members of the National Association of Securities
Dealer's, Inc. ("NASD"), including yourselves, the privilege of selling, when,
as and if delivered and accepted by us, subject to prior sale and to the
approval of counsel and to the terms and conditions hereof, Notes at the public
offering price of $1,000, on which you will be due a selected dealers commission
stated as follows:
SERIES COMMISSION MATURITY RATE
------ ---------- -------- ----
1996A-I 3.0% _______, 1999 8.0%
1996A-II 4.5% _______, 2001 9.0%
1996A-III 7.0% _______, 2002 10.0%
1
<PAGE>
In addition to the commission stated above Selected Dealers will be
entitled to a 2% non-accountable expense allowance.
Subscription books may be closed by us at any time in our discretion
without notice and the right is reserved to reject any subscription in whole or
in part, but notification of allotments against and rejections of subscriptions
will be made as promptly as practicable.
2. SALES BY SELECTED DEALERS. You agree that in selling the Notes
hereunder, you will comply with the applicable requirements of the Securities
Act of 1933, the Securities Exchange Act of 1934 and the interpretation of the
Board of Governors of the NASD entitled "Free Riding and Withholding". Notes
shall not be offered or sold below the public offering price before the
termination of the offering by dealers who are members in good standing of the
NASD or foreign dealers not registered under the Securities Exchange Act of 1934
who shall agree not to sell or deliver any Notes in the United States, its
territories or possessions or to persons who they have reason to believe are
citizens thereof or residents therein.
3. ESCROW PAYMENT AND DELIVERY. During the period of the Public Offering,
in accordance with Rule 15c2-4 under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), all proceeds received from the sale of the Notes will
be transmitted by the Representative by noon of the next business day after
receipt thereof to a special escrow account entitled "SOUTHTRUST ASSET
MANAGEMENT COMPANY OF FLORIDA, N.A., ESCROW AGENT - FEDERAL MORTGAGE MANAGEMENT
II, INC." with SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A., 1800 Second
Street, Suite 770, Sarasota, Florida 34236. All proceeds in the form of
subscriber's checks will be at the public offering price and made payable to the
escrow account.
Payment for Notes sold directly by you shall be made by check payable to
the order of "SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A.". The above
payments for sales made by you shall be made at the public offering price and
the Selected Dealers' Commission payable to you hereunder shall be paid to you
promptly after the breakage of escrow for the offering.
4. POSITION OF SELECTED DEALERS AND UNDERWRITERS. You represent that you
are a member in good standing of the NASD, or, if a foreign dealer, that you
will not sell or deliver any Notes in the United States, its territories or
possessions or to persons who you have reason to believe are citizens thereof or
residents therein. You also confirm that you have complied with the prospectus
delivery requirements of Securities Act Release No 4968 and had and will comply
with such requirements of rule 15c-8 under the Securities Exchange Act of 1934.
You, by your acceptance to sell these Notes represent that neither you nor
any of your directors, officers, partners or "persons associated with" you (as
defined in the By-Laws of the
2
<PAGE>
NASD) nor, to your knowledge, any "related person", as defined by the NASD in
its Interpretation with Respect to Review of Corporate Financing have
participated or intend to participate in any transaction or dealing as to which
documents or information are required to be filed with the NASD pursuant to such
Interpretation or its Statement of Policy Concerning Venture Capital and Other
Investments.
You are not authorized to give any information or make any representations
other than as contained in the Prospectus. Neither we nor any Underwriter shall
be under any liability to you, except for obligations expressly assumed by us in
this Agreement, and no obligations on our part shall be implied or inferred here
from, but you shall be liable for your proportionate share of any tax, liability
or expense based on any claim to the contrary.
In making sales you hereby agree to comply with the provisions of Sections
8, 24, 25 and 36 of Article III of the Rules of Fair Practice of the NASD and if
you are a foreign dealer and not a member of the NASD, you also hereby agree to
comply with the NASD's interpretation with respect to free-riding and
withholding, to comply, as though you were a member of the NASD, with the
provisions of Sections 8 and 36 of Article III of such Rules of Fair Practice,
and to comply with Section 25 or Article III thereof as that section applies to
a non-member foreign dealer.
5. REGISTRATION STATEMENT. We have been advised by the Company that a
Registration Statement in respect of the Notes under the Securities Act of 1933,
amended, has or will soon become effective. Neither you nor any other person is
authorized by the Company or by us to give any information or make any
representations, other than those contained in the Prospectus, in connection
with the issue and sale of the Notes.
6. CLAIMS, DEMANDS, AND LIABILITIES. You agree to pay your proportionate
share of any claim, demand or liability asserted against and discharged by you
and the other Selected Dealers, or any of them who sell Notes in accordance with
the terms of this Agreement, or asserted against and discharged by us, based on
the claim that such Selected Dealers constitute an association, unincorporated
business or other separate entity, including in each case your proportionate
share of any expense incurred in defending against any such claim, demand or
liability.
7. BLUE SKY MATTERS. Upon application to us, we will inform you as to the
states in which we believe the Notes have been qualified for sale under the
respective securities or Blue Sky laws of such states. Neither we nor any
Underwriter shall have any responsibility with respect to the right of any
dealer to sell any of the Notes in any jurisdiction, notwithstanding any
information we may furnish in that connection.
8. DEFAULT. In the event of your default in any of your obligations
hereunder, or in
3
<PAGE>
the performance of the terms and conditions of your agreement, we may in our
discretion, in addition to other remedies reserved hereunder, sell at any time,
or from time o time, any Notes which you have accepted and agreed to sell
without notice, demand or legal proceedings, at such price and upon such terms
as we may deem fair and to such persons as we may desire. Notwithstanding any
such action under this Section, you shall remain liable for any losses to us
resulting from such default.
9. LIABILITY OF THE REPRESENTATIVE. We shall have full authority to take
such action as we may deem advisable in respect of all matters pertaining to the
offering. Except as to any liability arising under the Securities Act of 1933,
as amended, we shall not be under any liability to you for or in respect of the
value of validity of the Notes or the validity of the form of, or the
representations contained in the Registration Statement or the Prospectus, or in
any amendments or supplement to any of the, or in the Underwriting Agreement or
in any other instrument executed by the Company or by other, or for the delivery
of the Notes or the performance by the Company or others of any agreement on its
or their part, nor shall we be liable under the provisions of this Agreement, or
for any matter connected with this Agreement or any of the foregoing, except for
lack of good faith and for obligations expressly assumed under this Agreement.
Please confirm the foregoing and indicate the number of Notes requested to be
sold by you by telephone (941-921-9700) and by signing and returning at once to
Mr. Guy S. Della Penna, Executive Wealth Management Services, Inc., 2323
Stickney Point Road, Sarasota, Florida 34231, the enclosed copy of the
Acceptance and Order on the next page. Upon receipt thereof, this Agreement and
such signed Acceptance and Order will evidence the agreement between us.
10. REPRESENTATION OF SELECTED DEALER. You agree and represent to us that
no beneficial owner of the issuer's unregistered securities, has any direct or
indirect affiliation or association with you and that no officer, director or 5%
or greater shareholder of the issuer has any direct or indirect affiliation or
association with you.
Very truly yours,
By:____________________________
Guy S. Della Penna
Date:____________________________
4
<PAGE>
ACCEPTANCE AND ORDER
Executive Wealth Management Services, Inc.
2323 Stickney Point Road
Sarasota, Florida 34231
Dear Sirs:
We hereby confirm our acceptance to sell __________ Promissory Notes of
Federal Mortgage Management II, Inc., in accordance with all the terms and
conditions stated in the foregoing letter setting forth the number of Promissory
Notes reserved for sale by us and the price to be paid by subscribers. We hereby
acknowledge receipt of the Prospectus relating to the above Promissory Notes,
and we further state that in selling such Promissory Notes we have relied upon
said Prospectus and on no other statements whatsoever, written or oral.
We hereby confirm that we are in a member of good standing of the National
Association of Securities Dealers, Inc., or if we are not such a member, we are
a foreign bank, dealer or institution not registered under the Securities
Exchange Act of 1934, as amended, which agrees to make no sales within the
United States, its territories or possessions or to persons who are citizens
thereof or residents therein, and in making sales to comply with the National
Association of Securities Dealers, Inc.'s interpretation with respect to
free-riding and withholding. In connection with the sale of any of the
Promissory Notes with respect to which a selling concession is received or
granted to us, we agree: (i) to comply with Section 24 or Article III of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.;
and (ii) if we are not a member of the National Association of Securities
Dealers, Inc., to comply as though we were a member with the provisions of
Sections 8 and 36 of such Article III and to comply with section 25 thereof as
that Section applies to a non-member broker or dealer in a foreign country.
We hereby confirm that no beneficial owner of the issuer's unregistered
securities, has any direct or indirect affiliation or association with us.
SELECTED DEALER:_____________________________________
BY:__________________________________________________
DATE:________________________________________________
5
EXHIBIT 3.1
ARTICLES OF INCORPORATION OF
FEDERAL MORTGAGE MANAGEMENT II, INC.
The undersigned, acting as incorporator of a Florida corporation under the
Florida Business Corporation Act, Chapter 607 of the Florida Statutes, hereby
adopts the following Articles of Incorporation for such Corporation:
ARTICLE I
NAME
The name of the Corporation is Federal Mortgage Management II, Inc.
ARTICLE II
PRINCIPAL OFFICE AND MAILING ADDRESS
The address of the Corporation's principal office is 1800 Second Street,
Suite 780, Sarasota, Florida 34236 and the mailing address of the Corporation is
1800 Second Street, Suite 780, Sarasota, Florida 34236.
ARTICLE III
PURPOSE
The Corporation is organized for the purpose of transacting any and all
lawful business for which corporations may be incorporated under the laws of
Florida.
ARTICLE IV
CAPITAL STOCK
The Corporation is authorized to issue 1,000 shares of common stock, One
Cent ($.01) par value per share.
ARTICLE V
INITIAL REGISTERED AGENT AND OFFICE
The name of the initial registered agent of the Corporation and the street
address of the initial registered office of the Corporation are as follows:
NAME ADDRESS
---- -------
Paul R. Lynch 101 East Kennedy Boulevard, Suite 2800
Tampa, Florida 33602
ARTICLE VI
INITIAL BOARD OF DIRECTORS
The Corporation shall initially have one director to hold office until the
first annual meeting of shareholders and until his successor shall have been
elected and qualified, or until his earlier resignation, removal from office or
death. The number of directors may be either
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increased or decreased from time to time in accordance with the Bylaws of the
Corporation. The name and address of the initial director of the Corporation
are:
NAME ADDRESS
---- -------
Guy S. Della Penna 1800 Second Street, Suite 780
Sarasota, Florida 34236
ARTICLE VII
INCORPORATOR
The name and address of the person signing these Articles as Incorporator
are:
NAME ADDRESS
---- -------
Paul R. Lynch 101 East Kennedy Boulevard, Suite 2800
Tampa, Florida 33602
ARTICLE VIII
INDEMNIFICATION
The Corporation shall indemnify any person who is or was a Director,
Officer, employee, or agent of the Corporation or was serving at the request of
the Corporation as a Director, Officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, to the
fullest extent permitted by law.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation this 8th day of November, l995.
/s/ PAUL R. LYNCH
-----------------------------------
Paul R. Lynch, Incorporator
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this 8th day of
November, 1995, by Paul R. Lynch, an individual who is personally known to me
and did not take an oath.
/s/ DENA L. KAPOCIUS
-----------------------------------
Notary Public
Print Name: Dena L. Karpocius
-----------------------------
My Commission Expires: October 2, 1999
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CERTIFICATE OF DESIGNATION
REGISTERED AGENT/REGISTERED OFFICE
Pursuant to the provisions of Section 607.0501, Florida Statutes, the
undersigned corporation, organized under the laws of the State of Florida,
submits the following statement in designating the registered office/registered
agent, in the State of Florida.
1. The name of the corporation is Federal Mortgage Management II, Inc.
2. The name and address of the registered agent and office is:
Paul R. Lynch
101 East Kennedy Boulevard, Suite 2800
Tampa, Florida 33602
SIGNATURE:/s/ PAUL R. LYNCH
-----------------------------
TITLE: Paul R. Lynch, Incorporator
DATE: November 8, 1995
HAVING BEEN NAMED AS REGISTERED AGENT AND TO ACCEPT SERVICE OF PROCESS FOR THE
ABOVE STATED CORPORATION AT THE PLACE DESIGNATED IN THIS CERTIFICATE, I HEREBY
ACCEPT THE APPOINTMENT AS REGISTERED AGENT AND AGREE TO ACT IN THIS CAPACITY. I
FURTHER AGREE TO COMPLY WITH THE PROVISIONS OF ALL STATUTES RELATING TO THE
PROPER AND COMPLETE PERFORMANCE OF MY DUTIES, AND I AM FAMILIAR WITH AND ACCEPT
THE OBLIGATION OF MY POSITION AS REGISTERED AGENT.
SIGNATURE: /s/ PAUL R. LYNCH
-----------------------------
Paul R. Lynch
DATE: November 8, 1995
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EXHIBIT 3.2
BYLAWS
OF
FEDERAL MORTGAGE MANAGEMENT II, INC.
ARTICLE I - OFFICES
1. BUSINESS OFFICES. Federal Mortgage Management II, Inc. (hereinafter
referred to as the "Corporation"), may have such offices, either within or
without the State of Florida, as the Board of Directors may designate from time
to time. The Corporation shall designate an office as its "principal office" in
accordance with Florida law.
2. REGISTERED OFFICE. The Corporation shall have and continuously maintain
a registered office in the State of Florida, which may be changed from time to
time by the Board of Directors or by an Officer of the Corporation so authorized
by the Board of Directors.
ARTICLE II - SHAREHOLDERS
1. ANNUAL MEETING. The Corporation shall hold an Annual Meeting of the
Shareholders for the election of Directors and for the transaction of any proper
business. The Annual Meeting of Shareholders shall be held at such time and on
such date as the Corporation's Board of Directors shall determine from time to
time but not later than thirteen (13) months after the last Annual Meeting of
Shareholders. The failure to hold it at the designated time does not affect the
validity of any corporate action and shall not work as a forfeiture of or
dissolution of the Corporation.
2. SPECIAL MEETINGS. Special meetings of the Shareholders may be called by
the President or the Board of Directors and shall be called if the holders of
not less than Ten Percent (10%) of the votes entitled to be cast on any issue
proposed to be considered at the proposed meeting sign, date and deliver a
written demand or several such written demands for the special meeting
describing the purpose or purposes for the meeting to the Corporation's
Secretary. Only business within the purpose or purposes described in the special
meeting notice may be conducted at such special meeting.
3. PLACE OF MEETING. The Board of Directors may designate any place either
within or without the State of Florida as the place of meeting for any annual
meeting or for any special meeting of the Shareholders. If no designation is
made, then the place of the meeting shall be the principal office of the
Corporation.
4. NOTICE OF MEETING. Written notice stating the place, date, and time of
the meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
first class mail, by or at the direction of the President or the Secretary of
the Corporation or the persons calling the meeting to each Shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed
delivered upon deposit
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in the United States mail, with postage prepaid, addressed to the Shareholder at
the address specified in the Corporation's stock transfer records.
5. NOTICE OF ADJOURNED MEETING. Notice of an adjourned meeting is
necessary only if the new place, date and time are not announced at the meeting
from which the adjournment is taken or a new record date is fixed for the
reconvening of the meeting. At the adjourned meeting, any business may be
transacted that might have been transacted on the original date of the meeting.
6. WAIVER OF NOTICE. A Shareholder may waive any notice required by
statute, the Articles of Incorporation, or Bylaws before or after the date and
time stated in the notice. The waiver must be in writing, be signed by the
Shareholder entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of the Shareholders need be specified in any written waiver of notice. A
Shareholder's attendance at a meeting waives objection to (a) lack of notice or
defective notice of the meeting, unless the Shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting or
(b) consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the Shareholder
objects to considering the matter when it is presented.
7. RECORD DATE DETERMINATIONS. The Board of Directors may fix the record
date for one or more voting groups in order to determine the Shareholders
entitled (a) to notice of or to vote at any meeting of Shareholders or any
adjournment thereof, (b) to demand a special meeting, (c) to receive any
distribution or (d) to take any other action. Such a record date must be a date
after the date upon which the Board of Directors made the record date
determination. The record date cannot be more than seventy (70) days before the
meeting or action requiring a determination of Shareholders. A determination of
Shareholders entitled to notice of or to vote at a Shareholders' meeting is
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it must do if the meeting is adjourned to a date more
than one hundred twenty (120) days after the date fixed for the original
meeting.
8. QUORUM. Unless otherwise required in the Articles of Incorporation, a
majority of the outstanding shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of Shareholders. When a specified
item of business is required to be voted on by a class, series of stock, or
voting group, a majority of the shares of such class, series or voting group
shall constitute a quorum for the transaction of such item of business by that
class, series or voting group. This quorum requirement can be changed only by an
amendment to the Corporation's Articles of Incorporation. After a quorum has
been established, the subsequent withdrawal of Shareholders, so as to reduce the
shares represented at the meeting below the number required for the original
quorum, does not affect the validity of any action taken at the meeting.
9. VOTING. Each outstanding share entitled to vote shall be entitled to
one vote upon each matter submitted to a vote at a meeting of Shareholders. If a
quorum exists at a meeting
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of Shareholders, (a) action on a matter, other than the election of Directors,
is approved if the votes cast by the holders of the shares represented at the
meeting and entitled to vote on the subject matter favoring the action exceed
the votes cast opposing the action, unless a greater number of affirmative votes
or voting by classes is required by law; and (b) action on a matter, other than
the election of Directors, by a voting group is approved if the votes cast
within the voting group favoring the action exceed the votes cast opposing the
action, unless a greater number of affirmative votes is required by law.
10. PROXIES. A Shareholder, other person entitled to vote on behalf of a
Shareholder pursuant to law, or a Shareholder's attorney-in-fact may vote the
Shareholder's shares in person or by proxy. A Shareholder may appoint a proxy to
vote or otherwise act for him by signing an appointment form, either personally
or by his attorney-in-fact. An executed telegram or cablegram appearing to have
been transmitted by such person, or a photographic, photostatic or equivalent
reproduction of an appointment form, is a sufficient appointment form. An
appointment of a proxy is effective when received by the corporate officer or
agent authorized to tabulate votes. An appointment is valid for up to eleven
(11) months unless a longer period is expressly provided in the appointment
form. An appointment of a proxy is revocable by the Shareholder, except as
otherwise provided by law.
11. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of Shareholders may be taken without a
meeting, without prior notice, and without a vote, if the action is taken by the
holders of shares of each voting group entitled to vote thereon having not less
than the minimum number of votes with respect to each voting group that would be
necessary to authorize or take such action at a duly constituted meeting. In
order to be effective, the action must be evidenced by one or more written
consents describing the action taken, dated and signed by approving Shareholders
having the requisite number of votes of each voting group entitled to vote
thereon, and delivered to the Corporation's principal office in Florida, its
principal place of business or its officer or agent having custody of the book
in which proceedings of meetings of Shareholders are recorded. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty (60) days of the date of the earliest dated consent
delivered in the manner required by this section, written consent signed by the
number of holders required to take action is delivered to the Corporation in the
manner required by t his section. Such a written consent has the effect of a
meeting vote.
Any written consent, once given, may be revoked prior to the date
that the Corporation receives the required number of consents to authorize the
proposed action. No revocation is effective unless in writing and until received
by the Corporation at its principal office in Florida or its principal place of
business, or received by the corporate officer or agent having custody of the
book in which proceedings of meetings of Shareholders are recorded.
Notice of such action must be given to those Shareholders who have
not consented in writing or who are not entitled to vote on the action within
ten (10) days after obtaining such authorization by written consent. The notice
shall fairly summarize the material features of the authorized action and, if
the action be such for which dissenter's rights are provided by law, the notice
shall contain a clear statement of the right of the Shareholders dissenting
therefrom to be
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<PAGE>
paid the fair value of their shares upon compliance with the provisions of
Florida law regarding the rights of dissenting shareholders.
12. SHAREHOLDERS' LIST FOR MEETING. After fixing a record date for a
meeting, the Corporation shall prepare an alphabetical list of the names of all
its Shareholders who are entitled to notice of a Shareholders' meeting, arranged
by voting group with the address of, and the number and class and series, if
any, of shares held by each. The Shareholders' list must be available for
inspection by any Shareholder for a period of ten (10) days prior to the meeting
or such shorter time as exists between the record date and the meeting and
continuing through the meeting at the Corporation's principal office, at a place
identified in the meeting notice in the city where the meeting will be held, or
at the office of the Corporation's transfer agent or registrar. A Shareholder or
his agent or attorney is entitled on written demand to inspect the list, during
regular business hours and at his expense, during the period it is available for
inspection; provided that such demand is made in good faith and for a proper
purpose, the purpose is described with reasonable particularity and the list is
directly connected with the purpose.
The Corporation shall make the Shareholders' list available at the
meeting, and any Shareholder or his agent or attorney is entitled to inspect the
list at any time during the meeting or any adjournment. The Shareholders' list
is prima facie evidence of the identity of Shareholders entitled to examine the
Shareholders' list or to vote at a meeting of Shareholders.
ARTICLE III - DIRECTORS
1. POWERS. All corporate powers shall be exercised by or under the
authority of, and the business and affairs of the Corporation managed under the
direction of, its Board of Directors, subject to any limitation set forth by law
or in the Corporation's Articles of Incorporation.
2. NUMBER, TENURE, ELECTION AND QUALIFICATIONS. The number of Directors
shall be the number of Directors elected from time to time in accordance with
these Bylaws. From time to time, the number of Directors may be increased or
decreased by Shareholder action. Each Director shall hold office until the next
annual meeting of Shareholders and until his successor shall have been duly
elected and qualified, or until his earlier resignation, removal by Shareholders
or death. Directors must be natural persons who are eighteen (18) years of age
or older. Directors need not be residents of Florida or Shareholders of the
Corporation.
3. GENERAL STANDARDS FOR DIRECTORS. A Director shall discharge his duties
as a Director, including his duties as a member of any committee of the Board of
Directors upon which he may serve, (a) in good faith, (b) with such care as an
ordinarily prudent person in a like position would use under similar
circumstances, and (c) in a manner he reasonably believes to be in the best
interests of the Corporation. In discharging his duties, a Director shall be
entitled to rely on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented by: (i) one or more officers or employees of the Corporation whom the
Director reasonably believes to be reliable and competent in the matters
presented; (ii) legal counsel, public accountants, or other persons as to
matters that the
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<PAGE>
Director reasonably believes are within the person's professional or expert
competence; or (iii) a committee of the Board of Directors of which he is not a
member if the Director reasonably believes the committee merits confidence.
In discharging his duties, a Director may consider such factors as the
Director deems relevant, including but not limited to the long-term prospects
and interests of the Corporation and its Shareholders, and the social, economic,
legal, or other effects of any action on the employees, suppliers, customers of
the Corporation or its subsidiaries, the communities and society in which the
Corporation or its subsidiaries operate, and the economy of the state and the
nation.
A Director is not acting in good faith if he has knowledge concerning
the matter in question that makes reliance otherwise permitted by this section
unwarranted.
A Director is not liable for any action taken as a Director, or any
failure to take any action, if he performed the duties of his office in
compliance with this section.
4. ELECTION OF DIRECTORS. At the annual meeting of Shareholders, Directors
shall be elected by a plurality of the votes cast by the shares represented at
the meeting and entitled to vote for the election of Directors. If the election
of Directors is not held on a day designated in these Bylaws for any annual
meeting of Shareholders, or at any adjournment thereof, the Board of Directors
may cause the election to be held at a special meeting of Shareholders
specifically called for that purpose.
5. REGULAR MEETINGS. The annual meeting of the Board of Directors shall be
held without notice immediately after, and at the same place as, the annual
election of Directors. The Board of Directors may, from time to time, by
resolution appoint the time and place, either within or without the State of
Florida, for holding other regular meetings of the Board, if by it deemed
advisable; and such regular meetings shall thereupon be held at the time and
place so appointed, without the giving of any notice with regard thereto. In
case the day appointed for a regular meeting shall fall upon a Saturday, Sunday
or legal holiday in the State of Florida, such meeting shall be held on the next
succeeding day not a Saturday, Sunday or legal holiday in the State of Florida,
at the regularly appointed hour.
6. SPECIAL MEETING. Special meetings of the Board of Directors shall be
held whenever called by the Chairman of the Board, any two Directors or the
President of the Corporation. Special meetings may be held within or without the
State of Florida. Notice of a special meeting must be given at least two (2)
days prior to the date of the meeting by written notice delivered personally, by
mail, telegram, telecopy or nationally recognized overnight courier service
(such as Federal Express, Airborne, UPS, Emory or Purolator) to each Director at
his address. Such notice shall be effective upon the earliest of (a) receipt,
(b) five days after its deposit in the United States mail, as evidenced by the
postmark, if mailed postpaid and correctly addressed, or (c) the date shown on
the return receipt or other evidence of delivery, if sent by registered or
certified mail, return receipt requested, or overnight courier service, and the
delivery receipt is signed by or on behalf of the addressee. Such written notice
shall include the date,
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<PAGE>
time and place of the meeting. The notice of a special meeting need not describe
the purpose of the special meeting.
7. NOTICE OF ADJOURNED MEETING. Notice of any adjourned meeting shall be
given to the Directors who were not present at the time of the adjournment and,
unless the date, time and place of the adjourned meeting are announced at the
time of the adjournment, to the other Directors also.
8. WAIVER OF NOTICE. A Director can waive the requirement of notice of a
meeting of the Board of Directors by signing a waiver of notice either before or
after the meeting. The attendance of a Director at a meeting constitutes a
waiver of notice of such meeting and a waiver of any and all objections to the
time or place of the meeting or the manner in which it has been called or
convened, except when a Director states, at the beginning of the meeting or
promptly upon arrival at the meeting, any objection to the transaction of
business because the meeting is not lawfully called or convened.
9. QUORUM AND VOTING. A majority of the number of Directors in office
shall constitute a quorum for any meeting of the Board of Directors. The Board
of Directors may permit any or all Directors to participate in a regular or
special meeting by, or conduct the meeting through any use of, any means of
communication by which all Directors participating may simultaneously hear each
other during the meeting. A Director participating in a meeting by this means is
deemed to be present in person at the meeting.
If a quorum is present when a vote is taken, the affirmative vote of a
majority of Directors present is the act of the Board of Directors, unless
applicable law, the Articles of Incorporation of the Corporation or these Bylaws
require the vote of a greater number of Directors. A majority of the Directors
present at a meeting, whether or not a quorum exists, may adjourn the meeting to
another time and place.
10. PRESUMPTION OF ASSENT. A Director who is present at a meeting of the
Board of Directors or a committee thereof when corporate action is taken is
deemed to have assented to the action taken unless (a) he objects at the
beginning of the meeting or promptly upon arrival thereat to the holding of the
meeting or the transacting of specified business at the meeting or (b) he votes
against or abstains from the action taken.
11. ACTION WITHOUT A MEETING. Any action required or permitted to be taken
by the Board of Directors at a meeting may be taken without a meeting if the
action is taken by all the Directors. The action must be evidenced by one or
more written consents describing the action taken and signed by each Director.
The action is effective when the last Director signs a consent, unless the
consent specifies a different effective date. Such a consent has the effect of a
meeting vote.
12. DIRECTOR CONFLICTS OF INTEREST. No contract or other transaction
between the Corporation and one or more of its Directors or any other
corporation, firm, association, or entity in which one or more of its Directors
are directors or officers or are financially interested shall
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be either void or voidable because of such relationship or interest, because
such Director or Directors are present at the meeting of the Board of Directors
or a committee thereof which authorizes, approves or ratifies such contract or
transaction, or because his or their votes are counted for such purpose, if: (a)
the fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves, or ratifies the contract or
transaction by a vote or consent sufficient for the purpose without counting the
votes or consents of such interested Directors; (b) the fact of such
relationship or interest is disclosed or known to the Shareholders entitled to
vote and they authorize, approve, or ratify such contract or transaction by vote
or written consent; or (c) the contract or transaction is fair and reasonable as
to the Corporation at the time it is authorized by the Board of Directors, a
committee, or the Shareholders.
Common or interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves, or ratifies such contract or transaction.
For the purposes of Shareholder action pursuant to this section, a
conflict of interest transaction is authorized, approved, or ratified if it
receives the vote of a majority of the shares entitled to be counted under this
section. Shares owned by or voted under the control of a Director who has a
relationship or interest in the transaction may not be counted in a vote of
Shareholders to determine whether to authorize, approve, or ratify the
transaction. A majority of the shares, whether or not present, that are entitled
to be counted in the vote on the transaction constitutes a quorum for the
purpose of taking action thereon.
13. COMPENSATION OF DIRECTORS. The Board of Directors may fix the
compensation of Directors. Each Director may be paid a stated salary as such or
a fixed sum for the attendance at meetings of the Board of Directors or any
committee thereof, or both, and may be reimbursed for his expenses of attendance
at each such meeting. The Board of Directors may also pay to each Director
rendering services to the Corporation not ordinarily rendered by Directors, as
such, special compensation appropriate to the value of such services, as
determined by the Board of Directors from time to time. None of these payments
shall preclude any Director from serving the Corporation in any other capacity
and receiving compensation therefor. The Board of Directors may determine the
compensation of a Director who is also an Officer for service as an Officer as
well as for service as a Director.
14. RESIGNATIONS. A Director may resign at any time by delivering written
notice to the Board of Directors or its Chairman or to the Corporation. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date. If a resignation is made effective at a later
date, the Board of Directors may fill the pending vacancy before the effective
date if the Board of Directors provides that the successor does not take office
until the effective date.
15. REMOVAL OF DIRECTORS. The Shareholders may remove one or more
Directors with or without cause. If a Director is elected by a voting group of
Shareholders, only the Shareholders of that voting group may participate in the
vote to remove him. A Director may
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be removed only if the number of votes cast to remove him exceeds the number of
votes cast not to remove him. A Director may be removed by the Shareholders at a
meeting of the Shareholders, provided the notice of the meeting states that the
purpose, or one of the purposes, of the meeting is removal of the Director.
16. VACANCIES. Any vacancy occurring in the Board of Directors, including
any vacancy resulting from an increase in the number of Directors, may be filled
by the affirmative vote of a majority of the remaining Directors, though less
than a quorum of the Board of Directors, or by the Shareholders, whichever acts
first.
Whenever the holders of shares of any voting group are entitled to
elect a class of one or more Directors, vacancies in such class may be filled by
the holders of shares of that voting group or by a majority of the Directors
then in office elected by such voting group or by a sole remaining Director so
elected. If no Director elected by such voting group remains in office,
Directors not elected by such voting group may fill vacancies by the affirmative
vote of a majority of the remaining Directors, though less than a quorum of the
Board of Directors.
A vacancy that will occur at a specific later date may be filled
before the vacancy occurs but the new Director may not take office until the
vacancy occurs.
ARTICLE IV - COMMITTEES
1. CREATION. The Board of Directors may, by resolution adopted by a
majority of the full Board of Directors, designate from among its members an
Executive Committee and one or more other committees each of which, to the
extent provided in such resolution, shall have and may exercise all the
authority of the Board of Directors, except that no such committee shall have
the authority to: (a) approve or recommend to Shareholders actions or proposals
required by law to be approved by the Shareholders; (b) fill vacancies on the
Board of Directors or any committee thereof; (c) adopt, amend or repeal the
Bylaws; (d) authorize or approve the reacquisition of shares unless pursuant to
a general formula or method specified by the Board of Directors; (e) authorize
or approve the issuance or sale or contract for the sale of shares, or determine
the designation and relative rights, preferences, and limitations of a voting
group except that the Board of Directors may authorize a committee to do so
within the limits specifically prescribed by the Board of Directors.
Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted by a majority of the full Board of Directors, may designate one or more
Directors as alternate members of any such committee who may act in the place
and stead of any absent member or members at any meeting of such committee.
2. OPERATION. The sections of these Bylaws that govern meetings, notice
and waiver of notice, quorum and voting, and action without a meeting
requirements of the Board of Directors apply to committees and their members as
well.
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ARTICLE V - OFFICERS
1. OFFICERS. The Officers of the Corporation shall include a President, a
Treasurer and a Secretary. Other Officers may be elected by the Board of
Directors from time to time. A duly elected Officer may appoint one or more
Officers or assistant officers, if authorized to do so by the Board of
Directors. The same individual may simultaneously hold more than one office in
the Corporation.
2. ELECTION AND TERM OF OFFICE. As far as practicable, the Officers of the
Corporation shall be elected at the regular meeting of the Board of Directors
following the annual election of Directors. If the election of Officers is not
held at such meeting, the election shall be held as soon thereafter as
conveniently may be. Each Officer shall hold office until the regular meeting of
the Board of Directors following the annual election of Directors in the next
subsequent year and until his successor shall have been duly elected and shall
have qualified, or until his earlier resignation, removal from office or death.
3. RESIGNATION AND REMOVAL. An Officer may resign at any time by
delivering notice to the Corporation. A resignation is effective when the notice
is delivered unless the notice specifies a later effective date. If a
resignation is made effective at a later date and the Corporation accepts the
future effective date, the Board of Directors may fill the pending vacancy
before the effective date if the Board of Directors provides that the successor
does not take office until the effective date.
The Board of Directors may remove any Officer at any time with or
without cause. Any Officer or assistant officer, if appointed by another
Officer, may likewise be removed by such Officer.
The appointment of an Officer does not itself create contract rights.
An Officer's removal does not affect the Officer's contract rights, if any, with
the Corporation. An Officer's resignation does not affect the Corporation's
contract rights, if any, with the Officer.
4. VACANCIES. A vacancy in any office because of resignation, removal,
death or otherwise, may be filled by the Board of Directors for the unexpired
portion of the term.
5. PRESIDENT. The President shall be the chief executive officer of the
Corporation, and, under the direction of the Board of Directors, shall have
general responsibility for the management and direction of the business,
properties and affairs of the Corporation. He shall have general executive
powers, including all powers required by law to be exercised by a president of a
corporation as such, as well as the specific powers conferred by these Bylaws or
by the Board of Directors.
6. VICE PRESIDENT. In the absence of the President or in the event of his
death, inability or refusal to act, the Vice President, if one has been
appointed or elected (or in the event there be more than one Vice President, the
Vice Presidents in the order designated at the time
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of their appointment or election, or in the absence of any designation, then in
the order of their appointment or election), shall perform the duties of the
President and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President.
Each Vice President shall have general executive powers as well as
the specific powers conferred by these Bylaws. He shall also have such further
powers and duties as may from time to time be conferred upon, or assigned to,
him by the Board of Directors or the President.
7. SECRETARY. The Secretary shall (a) prepare minutes of meetings of the
Board of Directors and Shareholders; (b) authenticate records of the
Corporation; (c) keep the minutes of the proceedings of the Board of Directors
and the Shareholders in one or more books provided for that purpose; (d) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (e) be custodian of the corporate records and of
the seal of the Corporation and see that the seal of the Corporation is affixed
to all documents the execution of which on behalf of the Corporation under its
seal is duly authorized; (f) be the registrar of the Corporation and keep a
register of the post office addresses of all Shareholders that shall be
furnished to the Secretary by the Shareholders; (g) have general charge of the
stock transfer books of the Corporation; and (h) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Board of Directors.
8. TREASURER. The Treasurer shall (a) have charge and custody of, and be
responsible for, all funds and securities of the Corporation; (b) receive and
give receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositaries as the Board of Directors may
select; and (c) in general perform all of the duties as from time to time may be
assigned to him by the President or by the Board of Directors. If required by
the Board of Directors, the Treasurer shall give a bond for the faithful
discharge of his duties in such sum and with such surety or sureties as the
Board of Directors shall determine.
9. SALARIES. The salaries of the officers shall be fixed from time to time
by the Board of Directors and no officer shall be prevented from receiving such
salary by reason of the fact that he is also a Director of the Corporation.
ARTICLE VI - SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES. Shares may but need not be represented by
certificates. Unless otherwise provided by law, the rights and obligations of
Shareholders are identical whether or not their shares are represented by
certificates. Certificates representing shares of the Corporation shall be in
such form as shall be determined by the Board of Directors. Each certificate for
shares shall be consecutively numbered or otherwise identified. Each share
certificate must state on its face (a) the name of the Corporation and that the
Corporation is organized under the laws of Florida; (b) the name of the person
to whom issued; and (c) the number and class of shares and the designation of
the series, if any, the certificate represents.
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Each share certificate (i) must be signed either manually or in facsimile by the
Chairman of the Board of Directors, if any, the President or a Vice President
and the Secretary, Treasurer or an assistant Secretary or Treasurer and (ii) may
bear the corporate seal or its facsimile.
If the Corporation is authorized to issue different classes of shares
or different series within a class, the designations, relative rights,
preferences, and limitations applicable to each class and the variations in
rights, preferences, and limitations determined for each series must be
summarized on the front or back of each certificate. Alternatively, each
certificate may state conspicuously on its front or back that the Corporation
will furnish the Shareholder a full statement of this information on request and
without charge.
Any certificate representing shares that are restricted as to the
sale, disposition, or other transfer of such shares, shall also state that such
shares are restricted as to transfer and shall set forth or fairly summarize on
the front of back of the certificate, or shall state that the Corporation will
furnish to any Shareholder on request and without charge, a full statement of
such restrictions.
2. TRANSFER OF SHARES. If a certificated security in registered form is
presented to the Corporation with a request to register transfer or an
instruction is presented to the Corporation with a request to register transfer,
pledge, or release, the Corporation shall register the transfer, pledge, or
release as requested if: (a) the security is indorsed or the instruction was
originated by the appropriate person or persons; (b) reasonable assurance is
given that those indorsements or instructions are genuine and effective; (c) the
Corporation has no duty as to adverse claims or has discharged the duty; (d) any
applicable law relating to the collection of taxes has been complied with; and
(e) the transfer, pledge, or release is in fact rightful or is to a bona fide
purchaser.
3. LOST, DESTROYED OR STOLEN CERTIFICATED SECURITIES. If a certificated
security has been lost, apparently destroyed, or wrongfully taken, and the owner
fails to notify the Corporation of that fact within a reasonable time after he
has notice of it and the Corporation registers a transfer of the security before
receiving notification, the owner is precluded from asserting against the
Corporation any claim for registering the transfer or any claim to a new
security.
If the owner of a certificated security claims that the security has
been lost, destroyed, or wrongfully taken, the Corporation shall issue a new
certificated security or, at the option of the Corporation, an equivalent
uncertificated security in place of the original security if the owner (a) so
requests before the Corporation has notice that the security has been acquired
by a bona fide purchaser; (b) files with the Corporation a sufficient indemnity
bond; and (c) satisfies any other reasonable requirements imposed by the
Corporation.
ARTICLE VII - BOOKS, RECORDS AND REPORTS
1. BOOKS AND RECORDS. The Corporation shall keep as permanent records
minutes of all meetings of its Shareholders and Board of Directors, a record of
all actions taken by the Shareholders or Board of Directors without a meeting,
and a record of all actions taken by a
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committee of the Board of Directors in place of the Board of Directors on behalf
of the Corporation. The Corporation shall maintain accurate accounting records.
The Corporation or its agent shall maintain a record of its Shareholders in a
form that permits preparation of a list of the names and addresses of all
Shareholders in alphabetical order by class of shares showing the number and
series of shares held by each. The Corporation shall maintain its records in
written form or in another form capable of conversion into written form within a
reasonable time.
The Corporation shall keep a copy of the following records: (a) its
Articles or Restated Articles of Incorporation and all amendments to them
currently in effect; (b) its Bylaws or Restated Bylaws and all amendments to
them currently in effect; (c) resolutions adopted by its Board of Directors
creating one or more classes or series of shares and fixing their relative
rights, preferences, and limitations, if shares issued pursuant to those
resolutions are outstanding; (d) the minutes of all Shareholders' meetings and
records of all action taken by Shareholders without a meeting for the past three
(3) years; (e) written communications to all Shareholders generally or all
Shareholders of a class or series within the past three (3) years, including the
financial statements furnished for the past three (3) years; (f) a list of the
names and business street addresses of its current Directors and Officers; and
(g) its most recent annual report delivered to the Florida Department of State.
2. SHAREHOLDER'S INSPECTION RIGHTS. If a Shareholder gives the Corporation
written notice of his demand at least five (5) business days before the date on
which he wishes to inspect and copy, he is entitled to inspect and copy, during
regular business hours at the Corporation's principal office, any of the
following records: (a) the Corporation's Articles or Restated Articles of
Incorporation and all amendments to them currently in effect; (b) the
Corporation's Bylaws or Restated Bylaws and all amendments to them currently in
effect; (c) resolutions adopted by the Board of Directors creating one or more
classes or series of shares and fixing their relative rights, preferences, and
limitations, if shares issued pursuant to those resolutions are outstanding; (d)
the minutes of all Shareholders' meetings and records of all action taken by
Shareholders without a meeting for the past three (3) years; (e) written
communications to all Shareholders generally or all Shareholders of a class or
series within the past three (3) years, including the financial statements
furnished for the past three (3) years; (f) a list of the names and business
addresses of the Corporation's current Directors and Officers; and (g) the
Corporation's most recent annual report delivered to the Florida Department of
State.
If (a) a Shareholder makes a demand for inspection in good faith and
for a proper purpose, (b) he describes with reasonable particularity his purpose
and the records he desires to inspect, (c) the records are directly connected
with his purpose, and (d) he gives the Corporation written notice of his demand
at least five (5) business days before the date on which he wishes to inspect
and copy, he is entitled to inspect and copy, during regular business hours at a
reasonable location specified by the Corporation, any of the following records
of the Corporation: (i) excerpts from minutes of any meeting of the Board of
Directors, records of any action of a committee of the Board of Directors while
acting in place of the Board of Directors on behalf of the Corporation, minutes
of any meeting of the Shareholders, and records of action taken by the
Shareholders or Board of Directors without a meeting, to the extent not
otherwise subject to
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<PAGE>
inspection pursuant to this section; (ii) accounting records of the Corporation;
(iii) the record of Shareholders; and (iv) any other books and records.
If a Shareholder gives the Corporation written notice of his demand
at least fifteen (15) business days before the date on which he wishes to
inspect and copy, he is entitled to inspect and copy, during regular business
hours at a reasonable location in Florida specified by the Corporation, (a) the
Corporation's Bylaws or Restated Bylaws and all amendments to them currently in
effect and (b) a list of the names and business street addresses of the
Corporation's current Directors and Officers.
3. ANNUAL REPORTS. On or after January 1 and on or before May 1 of each
year, the Corporation shall deliver to the Florida Department of State for
filing a sworn annual report, on such forms as the Department of State may
prescribe and containing such information as is prescribed by law. Similar
reports shall be filed as required by law in those jurisdictions other than the
State of Florida where the Corporation may be authorized to transact business.
4. FINANCIAL STATEMENTS. Unless modified by resolution of the Shareholders
within 120 days of the close of each fiscal year, the Corporation shall furnish
its Shareholders annual financial statements, which may be consolidated or
combined statements of the Corporation and one or more of its subsidiaries, as
appropriate, that include a balance sheet as of the end of the fiscal year, an
income statement for that year, and a statement of cash flows for that year. If
financial statements are prepared for the Corporation on the basis of generally
accepted accounting principles, the annual financial statements must also be
prepared on that basis.
If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the President or the person responsible for the
Corporation's accounting records (a) stating his reasonable belief whether the
statements were prepared on the basis of generally accepted accounting
principles and, if not, describing the basis of preparation; and (b) describing
any respects in which the statements were not prepared on a basis of accounting
consistent with the statements prepared for the preceding year.
The Corporation shall mail the annual financial statements to each
Shareholder within 120 days after the close of each fiscal year or within such
additional time thereafter as is reasonably necessary to enable the Corporation
to prepare its financial statements if, for reasons beyond the Corporation's
control, it is unable to prepare its financial statements within the prescribed
period. Thereafter, on written request from a Shareholder who was not mailed the
statements, the Corporation shall mail him the latest annual financial
statements.
5. OTHER REPORTS TO SHAREHOLDERS. If the Corporation indemnifies or
advances expenses of defense to any Director, Officer, employee, or agent
otherwise than by court order or action by the Shareholders or by an insurance
carrier pursuant to insurance maintained by the Corporation, the Corporation
shall report the indemnification or advance in writing to the Shareholders with
or before the notice of the next Shareholders' meeting, or prior to such meeting
if the indemnification or advance occurs after the giving of such notice but
prior to the
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<PAGE>
time such meeting is held, which report shall include a statement specifying the
persons paid, the amounts paid, and the nature and status at the time of such
payment of the litigation or threatened litigation.
If the Corporation issues or authorizes the issuance of shares for
promises to render services in the future, the Corporation shall report in
writing to the Shareholders the number of shares authorized or issued, and the
consideration received by the Corporation, with or before the notice of the next
Shareholders' meeting.
ARTICLE VIII - MISCELLANEOUS
1. DISTRIBUTIONS TO SHAREHOLDERS. The Board of Directors may authorize and
the Corporation may make distributions to its Shareholders subject to
restriction by the Articles of Incorporation and the limitations provided by
law. Dividends may be paid in cash, in property, or in shares of stock, subject
to the provisions of the Articles of Incorporation and applicable law.
2. CORPORATE SEAL. The Board of Directors may provide for a corporate
seal, which may be altered at will and used itself or by a facsimile thereof, by
impressing or affixing it or in any other manner reproducing it.
3. EXECUTION OF INSTRUMENTS. All bills, notes, checks, other instruments
for the payment of money, agreements, indentures, mortgages, deeds, conveyances,
transfers, certificates, declarations, receipts, discharges, releases,
satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds,
undertakings, proxies, and other instruments or documents may be signed,
executed, acknowledged, verified, delivered, or accepted on behalf of the
Corporation by such Officers, employees, or agents of the Corporation as the
Board of Directors may from time to time direct.
4. INDEMNIFICATION.
The Corporation shall indemnify any person who is or was a Director,
Officer, employee, or agent of the Corporation or was serving at the request of
the Corporation as a Director, Officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, to the full
extent permitted by law.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a Director, Officer, employee, or agent of the Corporation
or is or was serving at the request of the Corporation as a Director, Officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this section.
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<PAGE>
ARTICLE IX - AMENDMENTS
The Corporation's Board of Directors may amend or repeal the
Corporation's Bylaws unless: (a) the Articles of Incorporation or law reserves
the power to amend the Bylaws generally or a particular Bylaw provision
exclusively to the Shareholders; or (b) the Shareholders, in amending or
repealing the Bylaws generally or a particular Bylaw provision, provide
expressly that the Board of Directors may not amend or repeal the Bylaws or that
Bylaw provision.
The Corporation's Shareholders may amend or repeal the Corporation's
Bylaws even though the Bylaws may also be amended or repealed by its Board of
Directors.
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EXHIBIT 4.1
FORM OF NOTE
$__________________ NO._____
FEDERAL MORTGAGE MANAGEMENT II, INC.
Promissory Note - Series 1996 [A-I/A-II/A-III]
0 B L I G A T I 0 N
FEDERAL MORTGAGE MANAGEMENT II, INC., a corporation organized and existing
under the laws of the State of Florida (the "Corporation"), for value received
hereby promises to pay to the registered holder of this Note the principal sum
of $______________________, together with interest thereon at the annual rate of
_______% (the "Note Rate"). Payment of the principal of this Note in the amount
of $________________ shall occur on ___________________. Interest on the unpaid
principal amount of this Note at the Note Rate shall accrue from the date of
acceptance by the Corporation of the Payee's subscription to the Note herein and
shall be paid on a date within thirty (30) days after attainment of the Minimum
Requirement, as such Minimum Requirement is established and described in the
Prospectus relating to this Note and other Notes of like Series, which
Prospectus is dated _________________, 1996 (the "Note Prospectus"). Thereafter,
interest shall be paid on the first day of each month that this Note is
outstanding at the Note Rate until maturity.
The Corporation shall establish and maintain a Note register which shall
reflect the record holders of the Notes and any transfer of such Notes which may
occur. When permitted, title to this Note and all other Notes of this Series may
only be transferred by delivery of this Note or other Notes of the same Series
duly endorsed by the registered holder, and any transfer or attempted transfer
shall, in all events, be subject to the right of the Corporation to request such
assurances and appropriate documents from the intended transferee to permit the
Corporation to determine that any such proposed transferee is a suitable holder
of a Note of this Series. The right of the Corporation to determine such
suitability of any transferee of a Note shall not apply to transferees who are
members of the original Note holder's immediate family. The term "immediate
family" shall include a spouse and/or an adult child. The Corporation shall be
entitled to rely upon the information reflected in the Note register and to
treat the registered holder of this Note as reflected in such register as the
owner of this Note for all purposes, including, without limitation, the payment
of obligations arising hereunder and the carrying out of transfer instructions
with respect thereto.
<PAGE>
PREPAYMENT
The principal amount of this Note may not be prepaid in whole or in part
by the Corporation at any time.
NOTE OBLIGATION PARTIALLY SECURED
This Note has been issued under that certain Indenture and Custody
Agreement, dated as of _________________, 1996 (the "Agreement"), which
Agreement provides for the deposit of certain assets of the Corporation with a
trustee as collateral which partially secures the repayment of the obligations
of the Corporation represented by the Series 1996 A Notes. All of the covenants,
conditions and agreements contained in such Agreement are hereby made a part of
this instrument. A copy of the Agreement may be obtained from the Corporation at
its principal business office at 1800 Second Street, Suite 780, Sarasota,
Florida 34236, or from the Trustee, Michael Hric, P.A., 2801 Fruitville Road,
Suite 100, Sarasota, Florida 34237.
DEFAULT - REMEDIES
The Corporation shall be deemed to be in Default with respect to its
obligations under this Note and all like Notes of the 1996 A Series if:
(1) the Corporation defaults in the payment of interest on any Note at
the Note Rate when the same becomes due and payable and the Default
in the payment of such Note interest continues for a period of thirty
(30) consecutive days;
(2) the Corporation defaults in the payment of the principal of any Note
when the same becomes due and payable;
(3) the Corporation or its assets become subject to any voluntary or
involuntary proceeding under the Federal Bankruptcy Act or any state
statute which relates to credit relief and/or the liquidation of the
Corporation, which proceeding remains undismissed for a period of
sixty (60) or more days; and/or
(4) the Corporation fails to perform any of its covenants set forth in
Sections 4.04, 4.05, 4.06 or 4.07 hereof, and such failure continues
for a period of ten consecutive days.
In the event of the occurrence of any of the foregoing Events of Default which
are continuing, the trustee under the Agreement may initiate, on behalf of all
of the registered holders of the Series
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<PAGE>
1996 A Notes, such action at law or in equity as may be appropriate to timely
cure such Default.
In the event of default in the payment of this promissory note, and if the
same is collected by an attorney-at-law, the undersigned hereby agrees to pay
all costs of collection, including a reasonable attorney's fee for collection,
trial or appellate service.
Presentment for payment, notice of dishonor, notice of non-payment,
protest and notice of protest are hereby waived by the undersigned and any and
all others who may at any time become liable for payment of all or any part of
this obligation.
IN WITNESS WHEREOF, the Corporation has caused this Note to be signed and
imprinted with its corporate seal, and to be dated _______________, 1996.
FEDERAL MORTGAGE MANAGEMENT, INC.
ATTEST:
By________________________
By:_______________________________
Secretary Guy S. Della Penna, President
(CORPORATE SEAL)
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EXHIBIT 10
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (THE "ESCROW AGREEMENT") IS ENTERED INTO BY AND BETWEEN
FEDERAL MORTGAGE MANAGEMENT II, INC. (THE "COMPANY"), SOUTHTRUST ASSET
MANAGEMENT COMPANY OF FLORIDA (THE "ESCROW AGENT") AND EXECUTIVE WEALTH
MANAGEMENT SERVICES, INC. (THE "PLACEMENT AGENT").
BACKGROUND
THE COMPANY INTENDS TO OFFER FOR PUBLIC SALE PROMISSORY NOTES (IN SERIES
1996A-I, II AND III HAVING VARYING MATURITIES RANGING FROM 48 TO 72 MONTHS IN
AGGREGATE PRINCIPAL AMOUNT OF $5 MILLION (THE "NOTES"). SUCH NOTES WILL BE
PUBLICLY OFFERED IN FLORIDA AND SUCH OTHER STATES IN WHICH THE NOTES HAVE BEEN
QUALIFIED FOR SALE THROUGH THE BEST EFFORTS OF THE PLACEMENT AGENT (THE
"OFFERING"). THE TERMS OF THE NOTE OFFERING BY THE COMPANY PROVIDE THAT THE
COMPANY MUST SELL A MINIMUM PRINCIPAL AMOUNT OF NOTES OF $1,500,000 ON OR BEFORE
THE TERMINATION OF THE INITIAL OFFERING PERIOD, WHICH INITIAL OFFERING PERIOD
SHALL CONCLUDE ON A DATE WHICH IS 90 DAYS FROM THE DATE THAT THE NOTE OFFERING
COMMENCES, WHICH DATE OF OFFERING CONCLUSION IS ANTICIPATED TO BE ______, 1997
(THE "OFFERING PERIOD"), UNLESS EXTENDED. THE TERMS OF THE NOTE OFFERING FURTHER
PROVIDE THAT UPON THE SALE OF THE MINIMUM PRINCIPAL AMOUNT OF NOTES
($1,500,000), THE COMPANY MAY CONTINUE TO SELL ADDITIONAL NOTESS OF THE SERIES
UNTIL AN AGGREGATE OF $5 MILLION IN PRINCIPAL AMOUNT OF NOTES HAS BEEN SOLD. THE
COMPANY AND THE PLACEMENT AGENT DESIRE TO ESTABLISH ESCROW ARRANGEMENTS WHEREBY
THE PROCEEDS REALIZED FROM THE SALE OF THE INITIAL $1,500,000 PRINCIPAL AMOUNT
OF NOTES (OF ANY CATEGORY OF THE SERIES) WILL BE DEPOSITED IN AN ESCROW ACCOUNT
PENDING THE SUCCESSFUL ATTAINMENT AND TIMELY SALE OF SUCH MINIMUM PRINCIPAL
AMOUNT OF NOTES ($1,500,000). THE COMPANY AND THE PLACEMENT AGENT, BY MEANS OF
THIS AGREEMENT, DESIRE TO APPOINT THE ESCROW AGENT AS THE ESCROW AGENT WITH
RESPECT TO THE ACCUMULATION, INVESTMENT AND REINVESTMENT OF THE PROCEEDS
REALIZED FROM THE SALE OF THE INITIAL $1,500,000 PRINCIPAL AMOUNT OF NOTES,
WHICH PROCEEDS ARE TO BE DEPOSITED IN ESCROW HEREUNDER (THE "ESCROWED
PROCEEDS").
AGREEMENT
1. ESTABLISHMENT OF ESCROW ACCOUNT. ON OR PRIOR TO THE DATE OF THE COMMENCEMENT
OF THE OFFERING, THE PARTIES SHALL ESTABLISH AN ESCROW ACCOUNT WITH THE ESCROW
AGENT, WHICH ESCROW ACCOUNT SHALL BE ENTITLED FEDERAL MORTGAGE MANAGEMENT II,
INC. - ESCROW ACCOUNT (THE "ESCROW ACCOUNT"). THE PLACEMENT AGENT WILL INSTRUCT
SUBSCRIBERS TO MAKE CHECKS FOR SUBSCRIPTIONS PAYABLE TO THE ORDER OF THE ESCROW
AGENT DURING THE PERIOD OF THE ESCROW. ANY CHECKS RECEIVED THAT ARE MADE PAYABLE
TO A PARTY OTHER THAN THE ESCROW AGENT SHALL BE RETURNED TO THE PLACEMENT AGENT.
<PAGE>
2. ESCROW PERIOD. THE ESCROW PERIOD SHALL BEGIN WITH THE COMMENCEMENT OF THE
OFFERING PERIOD AND SHALL TERMINATE UPON THE EARLIER TO OCCUR OF THE FOLLOWING
DATES:
(A) THE DATE UPON WHICH THE ESCROW AGENT CONFIRMS THAT IT HAS RECEIVED IN
THE ESCROW ACCOUNT ESCROWED PROCEEDS OF $1,500,000 IN DEPOSITED FUNDS (THE
"MINIMUM REQUIREMENT"); OR
(B) MIDNIGHT,_______________________- (UNLESS EXTENDED AS PERMITTED IN THE
OFFERING DOCUMENT FOR AN ADDITIONAL 90 DAYS AT THE SOLE OPTION OF THE COMPANY
WITH A COPY OF SUCH EXTENSION TO THE ESCROW AGENT); OR
(C) THE DATE UPON WHICH A DETERMINATION IS MADE BY THE COMPANY TO TERMINATE
THE NOTE OFFERING PRIOR TO ATTAINMENT OF THE MINIMUM REQUIREMENT.
DURING THE ESCROW PERIOD, THE COMPANY AND THE PLACEMENT AGENT ARE AWARE AND
UNDERSTAND THAT THEY ARE NOT ENTITLED TO ANY FUNDS RECEIVED INTO ESCROW AND NO
AMOUNTS DEPOSITED IN THE ESCROW ACCOUNT SHALL BECOME THE PROPERTY OF THE COMPANY
OR ANY OTHER ENTITY, OR BE SUBJECT TO THE DEBTS OF THE COMPANY OR ANY OTHER
ENTITY.
3. DEPOSITS INTO THE ESCROW ACCOUNT. THE PLACEMENT AGENT AGREES THAT IT SHALL
PROMPTLY DELIVER ALL MONIES RECEIVED FROM SUBSCRIBERS FOR THE PAYMENT OF THE
INITIAL $1,500,000 PRINCIPAL AMOUNT OF NOTES FOR DEPOSIT IN THE ESCROW ACCOUNT
TOGETHER WITH A SUBSCRIPTION AGREEMENT FOR EACH SALE, WHICH SUBSCRIPTION
AGREEMENT SHALL SET FORTH, AMONG OTHER THINGS, THE SUBSCRIBER'S NAME AND
ADDRESS, THE PRINCIPAL AMOUNT OF NOTES PURCHASED, THE AMOUNT PAID THEREFOR, A
COMPLETED FORM W-9 (WHEN AND IF REQUIRED) AND WHETHER THE CONSIDERATION RECEIVED
WAS IN THE FORM OF A CHECK, DRAFT, OR MONEY ORDER. ALL MONIES SO DEPOSITED IN
THE ESCROW ACCOUNT ARE HEREIN REFERRED TO AS THE ESCROWED PROCEEDS.
4. DISBURSEMENTS FROM THE ESCROW ACCOUNT. IN THE EVENT THE ESCROW AGENT DOES
NOT RECEIVE THE MINIMUM REQUIREMENT OF $1,500,000 PRIOR TO THE TERMINATION OF
THE OFFERING, THE ESCROW AGENT SHALL REFUND TO EACH SUBSCRIBER THE AMOUNT
RECEIVED FROM THE SUBSCRIBER, WITHOUT DEDUCTION, PENALTY, OR EXPENSE TO THE
SUBSCRI BER, AND THE ESCROW AGENT SHAL1 NOTI FY THE COMPANY AND THE PLACEMENT
AGENT OF ITS DISTRIBUTION OF THE FUNDS. THE ESCROWED PROCEEDS RETURNED TO EACH
SUBSCRIBER SHALL BE FREE AND CLEAR OF ANY AND ALL CLAIMS OF THE COMPANY OR ANY
OF ITS CREDITORS, AND SHALL INCLUDE INTEREST AS HEREIN PROVIDED.
IN THE EVENT THE ESCROW AGENT DOES RECEIVE THE PROCEEDS REPRESENTING THE
MINIMUM REQUIREMENT OR MORE PRIOR TO TERMINATION OF THE ESCROW PERIOD, THE
ESCROWED PROCEEDS, TOGETHER WITH ANY INTEREST EARNED THEREON, SHALL BE RELEASED
TO THE "TRUSTEE", MICHAEL HRIC, P.A. UNDER THAT CERTAIN INDENTURE AND CUSTODY
AGREEMENT DATED _____ BETWEEN THE COMPANY AND THE TRUSTEE; PROVIDED, HOWEVER,
THAT IN NO EVENT WILL THE ESCROWED PROCEEDS BE RELEASED TO THE TRUSTEE UNTIL
SUCH AMOUNT IS RECEIVED BY THE ESCROW AGENT IN COLLECTED FUNDS. FOR PURPOSES OF
THIS AGREEMENT, THE TERM "COLLECTED FUNDS" SHALL MEAN ALL FUNDS RECEIVED BY THE
ESCROW AGENT WHICH HAVE CLEARED NORMAL BANKING CHANNELS AND ARE IN THE FORM OF
CASH.
<PAGE>
5. COLLECTION PROCEDURE. THE ESCROW AGENT IS HEREBY AUTHORIZED TO FORWARD EACH
CHECK FOR COLLECTION AND, UPON COLLECTION OF THE PROCEEDS OF EACH CHECK, DEPOSIT
THE COLLECTED PROCEEDS IN THE ESCROW ACCOUNT. AS AN ALTERNATIVE, THE ESCROW
AGENT MAY TELEPHONE THE BANK ON WHICH THE CHECK IS DRAWN TO CONFIRM THAT THE
CHECK HAS BEEN PAID.
ANY CHECK RETURNED UNPAID TO THE ESCROW AGENT SHALL BE RETURNED TO THE
PLACEMENT AGENT. IN SUCH CASES, THE ESCROW AGENT WILL PROMPTLY NOTIFY THE
COMPANY OF SUCH RETURN.
IF THE COMPANY REJECTS ANY SUBSCRIPTION FOR WHICH THE ESCROW AGENT HAS
ALREADY COLLECTED FUNDS, THE ESCROW AGENT SHALL PROMPTLY ISSUE A REFUND CHECK TO
THE REJECTED SUBSCRIBER. IF THE COMPANY REJECTS ANY SUBSCRIPTION FOR WHICH THE
ESCROW AGENT HAS NOT YET COLLECTED FUNDS BUT HAS SUBMITTED THE SUBSCRIBER'S
CHECK FOR COLLECTION, THE ESCROW AGENT SHALL PROMPTLY ISSUE A CHECK IN THE
AMOUNT OF THE SUBSCRIBER'S CHECK TO THE REJECTED SUBSCRIBER AFTER THE ESCROW
AGENT HAS CLEARED SUCH FUNDS. IF THE ESCROW AGENT HAS NOT YET SUBMITTED A
REJECTED SUBSCRIBER'S CHECK FOR COLLECTION, THE ESCROW AGENT SHALL PROMPTLY
REMIT THE SUBSCRIBER'S CHECK DIRECTLY TO THE SUBSCRIBER.
6. INVESTMENT OF ESCROW AMOUNT. THE ESCROW AGENT SHALL INVEST THE ESCROWED
PROCEEDS ONLY IN SUCH ACCOUNTS OR INVESTMENTS OFFERED BY THE ESCROW AGENT AS THE
COMPANY MAY SPECIFY BY WRITTEN NOTICE. THE COMPANY MAY ONLY SPECIFY INVESTMENT
IN (1) BANK ACCOUNTS, (2) BANK MONEY-MARKET ACCOUNTS, (3) SHORT-TERM
CERTIFICATES OF DEPOSIT ISSUED BY A BANK, OR (4) SHORT-TERM SECURITIES ISSUED OR
GUARANTEED BY THE U.S. GOVERNMENT.
7. INTEREST EARNED ON ESCROW ACCOUNT. IN THE EVENT THAT THE ESCROW AGENT
EFFECTS A RETURN OF THE NOTE SUBSCRIPTION PROCEEDS TO NOTE SUBSCRIBERS AS
DESCRIBED IN SECTION 4 HEREOF, THE ESCROW AGENT SHALL, WITH RESPECT TO INTEREST
EARNED AS A RESULT OF THE INVESTMENT OF THE ESCROWED PROCEEDS, IF ANY IS EARNED,
PAY SUCH INTEREST TO THE NOTE SUBSCRIBERS, TAKING INTO ACCOUNT THE AMOUNT OF THE
NOTE SUBSCRIPTION PROCEEDS DELIVERED WITH RESPECT TO EACH SUBSCRIBER AND THE
PERIOD OF TIME THAT SUCH NOTE SUBSCRIPTION PROCEEDS WERE INVESTED BY THE ESCROW
AGENT. IN EFFECTING SUCH INTEREST CALCULATION, THE ESCROW AGENT MAY EXCLUSIVELY
RELY ON THE COMPUTATIONS EFFECTED BY THE COMPANY AND PROVIDED TO THE ESCROW
AGENT. IN THE EVENT THAT THE NOTE SUBSCRIPTION PROCEEDS ARE DELIVERED TO THE
TRUSTEE AS A RESULT OF THE SUCCESSFUL ATTAINMENT OF THE MINIMUM REQUIREMENT, THE
ESCROW AGENT SHALL DIRECT SUCH INTEREST EARNED ON THE ESCROWED PROCEEDS TO THE
TRUSTEE. IN ALL EVENTS, THE COMPANY SHALL BE RESPONSIBLE FOR THE FEES OF THE
ESCROW AGENT.
8. COMPUTATIONS. ALL DETERMINATIONS OF SUMS PAYABLE TO NOTE SUBSCRIBERS, WITH
RESPECT TO THE BALANCE OF SUBSCRIPTION PROCEEDS TO BE RETURNED TO SUBSCRIBERS,
SHALL BE MADE BY THE COMPANY AND DELIVERED TO THE ESCROW AGENT IN THE FORM OF A
CERTIFICATE FROM THE COMPANY AND THE ESCROW AGENT MAY EXCLUSIVELY RELY ON SUCH
CERTIFICATE. ALL DISTRIBUTIONS OF INTEREST TO NOTE SUBSCRIBERS, IF ANY ARE MADE,
SHALL BE EFFECTED BY THE COMPANY.
<PAGE>
9. NO IMPLIED DUTIES OF ESCROW AGENT. THE ESCROW AGENT UNDERTAKES TO PERFORM
ONLY SUCH DUTIES AS ARE EXPRESSLY SET FORTH IN THIS ESCROW AGREEMENT AND NO
DUTIES OR OBLIGATIONS OF THE ESCROW AGENT SHALL BE IMPLIED IN THIS ESCROW
AGREEMENT, OR OTHERWISE.
10. RELIANCE OF ESCROW AGENT ON DOCUMENTS. THE ESCROW AGENT MAY ACT IN RELIANCE
UPON ANY WRITING OR INSTRUMENT OR SIGNATURE WHICH IT, IN GOOD FAITH, BELIEVES TO
BE GENUINE; MAY ASSUME THE VALIDITY AND ACCURACY OF ANY STATEMENT OR ASSERTION
CONTAINED IN SUCH A WRITING OR INSTRUMENT; AND MAY ASSUME THAT ANY PERSON
PURPORTING TO GIVE ANY WRITING, NOTICE, ADVICE, OR INSTRUCTIONS IN CONNECTION
WITH THE PROVISIONS OF THIS ESCROW AGREEMENT HAS BEEN DULY AUTHORIZED TO DO SO.
THE ESCROW AGENT SHALL NOT BE LIABLE IN ANY MANNER FOR THE SUFFICIENCY OR
CORRECTNESS AS TO FORM, EXECUTION, OR VALIDITY OF ANY INSTRUMENT OR COPY OF ANY
INSTRUMENT DEPOSITED IN ESCROW, NOR AS TO THE IDENTITY, AUTHORITY, OR RIGHT OF
ANY PERSON WHO EXECUTED THE SAME; AND ITS DUTIES SHALL BE LIMITED TO THOSE
PROVIDED IN THIS ESCROW AGREEMENT.
11. INDEMNIFICATION OF ESCROW AGENT. UNLESS THE ESCROW AGENT DISCHARGES ANY OF
ITS DUTIES UNDER THIS ESCROW AGREEMENT IN A GROSSLY NEGLIGENT MANNER OR IS
GUILTY OF WILLFUL MISCONDUCT WITH REGARD TO ITS DUTIES UNDER THIS ESCROW
AGREEMENT, THE COMPANY SHALL INDEMNIFY THE ESCROW AGENT AND HOLD THE ESCROW
AGENT HARMLESS FROM ANY AND ALL CLAIMS, LIABILITIES, LOSSES, ACTIONS, SUITS, OR
PROCEEDINGS, OR OTHER EXPENSES, FEES, OR CHARGES OF ANY CHARACTER OR NATURE,
WHICH IT MAY INCUR OR WITH WHICH IT MAY BE THREATENED BY REASON OF ITS ACTING AS
ESCROW AGENT UNDER THIS ESCROW AGREEMENT; AND SHALL INDEMNIFY THE ESCROW AGENT
AGAINST ANY AND ALL EXPENSES INCLUDING REASONABLE ATTORNEYS' FEES AND THE COST
OF DEFENDING ANY ACTION, SUIT, OR PROCEEDING OR RESISTING ANY CLAIM IN SUCH
CAPACITY.
12. DISCRETION OF ESCROW AGENT TO FILE AN INTERGLEADER ACTION-OR OTHER SUIT. IF
THE PARTIES, INCLUDING ANY SUBSCRIBER, SHALL BE IN DISAGREEMENT ABOUT THE
INTERPRETATION OF THIS ESCROW AGREEMENT, OR ABOUT THEIR RESPECTIVE RIGHTS AND
OBLIGATIONS, OR THE PROPRIETY OF ANY ACTION CONTEMPLATED BY THE ESCROW AGENT
UNDER THIS ESCROW AGREEMENT, THE ESCROW AGENT MAY, BUT SHALL NOT BE REQUIRED TO,
FILE AN ACTION IN INTERPLEADER OR OTHER SUIT TO RESOLVE SUCH DISAGREEMENT. THE
ESCROW AGENT SHALL BE INDEMNIFIED BY THE COMPANY FOR ALL COSTS AND REASONABLE
ATTORNEYS' FEES IN ITS CAPACITY AS ESCROW AGENT IN CONNECTION WITH ANY SUCH
INTERPLEADER ACTION OR OTHER SUIT AND SHALL BE FULLY PROTECTED IN SUSPENDING ALL
OR PART OF ITS ACTIVITIES UNDER THIS AGREEMENT UNTIL A JUDGMENT IN THE
INTERPLEADER ACTION OR OTHER SUIT IS ENTERED AND BECOMES FINAL.
13. CONSULTATION WITH COUNSEL . THE ESCROW AGENT MAY CONSULT WITH COUNSEL OF ITS
OWN CHOICE AND SHALL HAVE FULL AND COMPLETE AUTHORIZATION AND PROTECTION IN
ACCORDANCE WITH THE OPINION OF SUCH COUNSEL.
14. RESIGNATION OF ESCROW AGENT. THE ESCROW AGENT MAY RESIGN BY NOTICE TO THE
COMPANY GIVEN AT LEAST 30 DAYS PRIOR TO THE EFFECTIVE DATE OF RESIGNATION. IF A
SUCCESSOR ESCROW AGENT IS NOT APPOINTED BY THE COMPANY WITHIN THE 30-DAY OR
GREATER PERIOD, THE ESCROW AGENT MAY PETITION A COURT OF COMPETENT JURISDICTION
TO NAME A SUCCESSOR.
<PAGE>
15. NOTICES. ALL NOTICES OR OTHER COMMUNICATION TO THE COMPANY, THE PLACEMENT
AGENT OR THE ESCROW AGENT SHALL BE IN WRITING AND SHALL BE DEEMED TO HAVE BEEN
PROPERLY GIVEN IF TRANSMITTED BY REGISTERED OR CERTIFIED MAIL OR HAND DELIVERY.
ALL NOTICES AND COMMUNICATION SHALL BE EFFECTIVE UPON RECEIPTS NOTICES SHALL BE
ADDRESSED AS FOLLOWS:
ESCROW AGENT:
SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA
1800 SECOND STREET, SUITE 770
SARASOTA, FLORIDA 34236
ATTN: CRAIG MORRISON, VICE PRESIDENT
THE COMPANY:
FEDERAL MORTGAGE MANAGEMENT II, INC.
1800 SECOND STREET, SUITE 780
SARASOTA, FL 34236
ATTN: GUY S. DELLA PENNA, PRESIDENT
THE PLACEMENT AGENT:
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
1800 SECOND STREET, SUITE 780
SARASOTA, FL 34236
ATTN: GUY S. DELLA PENNA, PRESIDENT
16. COMPENSATION OF THE ESCROW AGENT. THE ESCROW AGENT SHALL BE COMPENSATED BY
THE COMPANY FOR ITS SERVICES UNDER THIS ESCROW AGREEMENT IN ACCORDANCE WITH THE
FEES SCHEDULED ON ANNEX I HERETO.
17. ENTIRE AGREEMENT. THIS ESCROW AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE MODIFIED OR AMENDED IN ANY MANNER OTHER THAN
BY WRITTEN AGREEMENTS EXECUTED BY THE PARTIES.
18. GOVERNING LAW. THIS ESCROW AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA, EXCLUDING THE LAWS OF THE
STATE OF FLORIDA RELATING TO CONFLICT OF LAWS OF DIFFERENT JURISDICTIONS.
19. SEVERABILITY. IN CASE ANY ONE OR MORE PROVISIONS OF THIS ESCROW AGREEMENT
SHALL BE INVALID, ILLEGAL OR UNENFORCEABLE IN ANY RESPECT, THE VALIDITY OF THE
REMAINING PROVISIONS SHALL BE IN NO WAY AFFECTED.
<PAGE>
20. CAPTIONS. CAPTIONS ARE USED ONLY FOR CONVENIENCE OF REFERENCE AND HAVE NO
OTHER SIGNIFICANCE OR EFFECT.
EXECUTED AS OF THE _________ DAY OF________________, 1996.
FEDERAL MORTGAGE MANAGEMENT II, INC.
BY __________________________
GUY S. DELLA PENNA, PRESIDENT
SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA
BY______________________________
CRAIG MORRISON, VICE PRESIDENT
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
BY______________________________
GUY S. DELLA PENNA, PRESIDENT
<PAGE>
ANNEX I
TO ESCROW AGREEMENT EXISTING BETWEEN
FEDERAL MORTGAGE MANAGEMENT II, INC. (THE
"COMPANY"), SOUTHTRUST ASSET MANAGEMENT COMPANY
OF FLORIDA (THE "ESCROW AGENT") AND
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC. (THE
"PLACEMENT AGENT")
AS INDICATED IN THE ABOVE TITLE, A CERTAIN ESCROW AGREEMENT EXISTS BETWEEN THE
COMPANY, THE PLACEMENT AGENT AND THE ESCROW AGENT. THE PURPOSE OF THIS ANNEX I
IS TO SET FORTH THE INITIAL, RENEWAL AND CERTAIN FEES WHICH WILL BE CHARGED BY
THE ESCROW AGENT FOR ITS SERVICES UNDER THE ESCROW AGREEMENT.
BASE FEE $2,500
PER CHECK CHARGE FOR DISBURSEMENTS 40
RENEWAL CHARGE 1,000
THE ESCROW AGENT WILL NOT BE RESPONSIBLE FOR THE PREPARATION OF INTERNAL REVENUE
SERVICE FORMS 1099.
EXHIBIT 23.2
Bobbitt, Pittenger & Company, P.a.
Certified Public Accountants
October 1, 1996
The financial statement of Federal Mortgage Management II, Inc. (the "Company")
reflecting its financial condition for the period November 13, 1995 (inception)
through June 30, 1996, and our report dated August 8, 1996, may be included in
the Company's Form SB-2 Registration Statement. We also consent to Bobbitt,
Pittenger & Co., P.A. being named experts in accounting and auditing.
/s/ BOBBITT, PITTENGER & COMPANY, P.A.
----------------------------------
Certified Public Accountants
EXHIBIT 23.3
CONSENT OF QUALIFIED INDEPENDENT UNDERWRITER
The undersigned is named in the Prospectus which is a part of this
Registration Statement on Form SB-2 as the qualified independent underwriter
which shall perform certain functions in connection with the preparation of this
Registration Statement and which firm shall also render its opinion as to the
fairness of the offering of the Series 1996A Promissory Notes in aggregate
principal amount of $5,000,000. The undersigned consents to the use of its name
in such capacity in the referenced Prospectus.
KASHNER DAVIDSON SECURITIES CORPORATION
By /s/ ILLEGIBLE
-----------------------------
Its President
-----------------------------
Sarasota, Florida
August 2, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND DEFICIT ACCUMULATED DURING THE DEVELOPMENT
STAGE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> NOV-13-1995
<PERIOD-END> JUN-30-1996
<CASH> 832
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 832
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,292
<CURRENT-LIABILITIES> 48,557
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 734
<TOTAL-LIABILITY-AND-EQUITY> 49,292
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (265)
<INCOME-TAX> 0
<INCOME-CONTINUING> (265)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (265)
<EPS-PRIMARY> (2.65)
<EPS-DILUTED> 0
</TABLE>
