<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12889
LONG BEACH FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0739843
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
1100 TOWN & COUNTRY ROAD, SUITE 900, ORANGE, CALIFORNIA 92868
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(714) 541-5378 EXTENSION 7408
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X].
As of May 31, 1997, registrant had outstanding 25,000,000 shares of Common
Stock.
================================================================================
<PAGE> 2
LONG BEACH FINANCIAL CORPORATION
TABLE OF CONTENTS
TO FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition as of March 31, 1997 (Unaudited)
and as of February 14, 1997..................................................... 2
Notes to Consolidated Statements of Financial Condition as of March 31, 1997
(Unaudited)..................................................................... 3
Wholesale Division of AMC Statements of Financial Condition as of March 31, 1997
(Unaudited) and December 31, 1996............................................... 5
Wholesale Division of AMC Statements of Operations for the Three Months Ended
March 31, 1997 and 1996 (Unaudited)............................................. 6
Wholesale Division of AMC Statements of Divisional Equity (Deficit) for the Three
Months Ended March 31, 1997 and 1996 (Unaudited)................................ 7
Wholesale Division of AMC Statements of Cash flows for the Three Months Ended
March 31, 1997 and 1996 (Unaudited)............................................. 8
Notes to the Wholesale Division of AMC Financial Statements (Unaudited).......... 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS OF
OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES.............................. 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................. 15
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings.......................................................... 16
ITEM 2. Changes in Securities...................................................... 16
ITEM 3. Defaults upon Senior Securities............................................ 16
ITEM 4. Submission of Matters to a Vote of Securities Holders...................... 16
ITEM 5. Other Information.......................................................... 16
ITEM 6. Exhibits and Reports on Form 8-K........................................... 17
(a) Exhibits............................................................ 17
(b) Reports on Form 8-K................................................. 17
</TABLE>
1
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LONG BEACH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, FEBRUARY 14,
1997 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash.................................................................. $ 520,000 $520,000
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Stockholder's equity:
Preferred stock, $.001 par value; 25,000,000 shares authorized; no
shares issued or outstanding..................................... $ -- $ --
Common stock, $.001 par value; 150,000,000 shares authorized; one
share issued and outstanding..................................... -- --
Additional paid in capital.......................................... 520,000 520,000
-------- --------
Total liabilities and stockholder's equity.................. $ 520,000 $520,000
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 4
LONG BEACH FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 1997
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Long Beach Financial Corporation ("LBFC"), through its subsidiary, Long
Beach Mortgage Company, (collectively the "Company") is currently engaged in the
business of originating, purchasing and selling sub-prime residential mortgage
loans secured by one-to-four family residences. The Company originates loans
primarily through independent mortgage loan brokers. The Company's core borrower
base consists of individuals who do not qualify for traditional "A" credit
because their credit history, income or other factors cause them not to conform
to standard agency lending criteria.
The Company follows a strategy of selling substantially all of its loan
originations (while retaining the related servicing rights in most cases) in the
secondary market through loan sales. Prior to each fiscal quarter, the Company
generally obtains a purchase commitment for the volume of loans expected to be
originated during such quarter from a loan purchaser. As a result, the Company
generally expects to have a buyer for each loan at the time it is funded.
LBFC was incorporated in January 1997. At the time of incorporation, LBFC
was a wholly-owned subsidiary of a company now known as Ameriquest Mortgage
Company ("AMC"). AMC conducted its mortgage lending business through four
divisions: (i) the direct-sourced lending division, (ii) the broker-sourced
lending division, (iii) the loan sales division, and (iv) the loan servicing
division. LBFC was formed to facilitate the public sale of AMC's broker-sourced
lending business. All references to the "Wholesale Division" herein shall be
deemed to include the operations of the broker-sourced lending division of AMC
prior to the Reorganization (defined below).
On April 28, 1997, LBFC's Registration Statement (No. 333-22013) on Form
S-1 under the Securities Act of 1933, as amended (the "Registration Statement"),
relating to the initial public offering of its common stock was declared
effective. The initial public offering of 22,504,000 shares of common stock
closed at a price of $6.50 per share on May 2, 1997. On May 14, 1997, the
underwriters purchased an additional 2,496,000 shares of common stock at a price
of $6.50 per share following their exercise of the overallotment option,
resulting in a total of 25,000,000 shares sold in the initial public offering
(the "Offering").
On May 2, 1997, immediately prior to the closing of the initial public sale
of LBFC's common stock, AMC reorganized its business operations (the
"Reorganization") by transferring certain assets (including: furniture,
leasehold improvements and equipment) and personnel relating to the
broker-sourced lending and the loan sales divisions and approximately $40
million in cash to the Company in exchange for 24,999,999 shares of common
stock. The assets transferred to the Company included loans in process as of May
2, 1997, but did not include loans funded or servicing rights with respect to
loans funded prior to May 2, 1997. The Reorganization is being accounted for in
a manner similar to a pooling of interests. Therefore, the historical cost basis
of the assets and liabilities transferred to the Company will be carried over
from the Wholesale Division of AMC. Additionally, the Company acquired a listing
of independent brokers and the right to the "Long Beach Mortgage Company" name.
The Company did not assume any liabilities of AMC arising from lending or loan
servicing activities, other than certain liabilities associated with equipment
and property leases acquired by the Company and accrued vacation and other
employee benefits for personnel transferred to the Company.
The Company had no operations for the three months ended March 31, 1997 on
a stand alone basis. Accordingly, this Quarterly Report on Form 10-Q includes
the Company's unaudited consolidated financial condition at March 31, 1997 and
its audited consolidated financial condition at February 14, 1997. The statement
of financial condition at February 14, 1997 represents the first audited
statement of financial condition of the Company and was included in the
Registration Statement. No statement of operations or cash flows is presented
for the three months ended March 31, 1997.
Because the Reorganization has been accounted for in a manner similar to a
pooling of interests, this Quarterly Report on Form 10-Q also includes the
financial information of the Wholesale Division of AMC for the fiscal quarters
ended March 31, 1997 and 1996, and the financial position of the Wholesale
Division of AMC at March 31, 1997 and December 31, 1996. The historical
financial statements of the Wholesale Division of AMC have been prepared from
records maintained by AMC and provided to the Company by
3
<PAGE> 5
LONG BEACH FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION -- (CONTINUED)
AMC. The Company did not have any operations through March 31, 1997, and all
rights, benefits and obligations relating to the operations and net earnings of
the Wholesale Division up to the date of the Reorganization remained with AMC.
The historical financial statements of the Wholesale Division of AMC may not
necessarily be indicative of the financial condition, results of operations, or
cash flows that would have existed if the Wholesale Division had operated as an
independent entity.
Both the Company's and the Wholesale Division's financial statements have
been prepared in conformity with the instructions to Form 10-Q and on a
consistent basis with the Company's Registration Statement. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of the Company, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. The Company's consolidated financial statements, notes to the
consolidated financial statements, Wholesale Division financial statements and
accompanying notes, along with management's discussion and analysis of financial
condition, results of operations, liquidity and capital resources should be read
in conjunction with the Company's Registration Statement and the Prospectus
dated April 28, 1997.
NOTE 2. AGREEMENTS WITH RELATED PARTIES
Administrative Services Agreements -- On April 28, 1997, the Company and
AMC entered into an administrative services agreement under which AMC agreed to
provide various services to the Company, including certain employee benefits
administration services, information services and data processing functions and
mail services. The agreement has a one-year term from the effective date of the
Reorganization unless earlier terminated by the Company upon 30 days written
notice. The Company is being charged a fixed fee of approximately $142,000 per
month for these services. Any failure by AMC to provide such administrative
services to the Company during the term of the administrative services agreement
could have a material adverse effect on the Company's results of operations and
financial condition.
In addition, on April 28, 1997, the Company and AMC entered into a second
administrative services agreement pursuant to which the Company will assist AMC
in selling the mortgage loans originated by AMC and provide investor
coordination and information for the existing loan portfolio as well as new loan
originations. The agreement has a one-year term from the effective date of the
Reorganization, unless earlier terminated by AMC upon 30 days' written notice.
The Company is receiving a fixed monthly fee of approximately $55,000 for
providing such services. Once AMC develops internal capability to perform these
functions, it is anticipated that AMC will terminate the second administrative
services agreement.
Loan Sub-servicing Agreement -- On April 28, 1997, the Company and AMC
entered into a three-year loan sub-servicing agreement pursuant to which AMC
agreed to sub-service mortgage loans originated or purchased by the Company
after the Reorganization. Sub-servicing activities include collecting and
remitting loan payments, accounting for principal and interest, holding escrow
or impound funds for payment of taxes and insurance, if applicable, making
required inspections of the mortgaged property, contacting delinquent borrowers
and supervising foreclosures and property dispositions. The agreement provides
that either party has the right to terminate the agreement effective at any time
after 18 months, upon six months prior written notice to the other party. The
Company has agreed to pay AMC a 45 basis points annual servicing fee on the
declining balance of each loan serviced.
Income Taxes -- In connection with the Reorganization, AMC agreed to
indemnify and hold the Company harmless from any tax liability attributable to
periods ending on or before the Reorganization. For periods ending after the
Reorganization, the Company will pay its tax liability directly to the
appropriate taxing authorities.
The agreements between the Company and AMC were developed in the context of
a related party relationship and therefore may not necessarily reflect the same
business terms as might have been obtained in arm's length negotiations between
independent parties.
4
<PAGE> 6
LONG BEACH FINANCIAL CORPORATION
WHOLESALE DIVISION OF AMC
STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Loans held for sale.............................................. $ 57,752,000 $ 49,580,000
Receivable from the sales of loans............................... 39,553,000 25,103,000
Premises and equipment........................................... 2,050,000 2,033,000
Deferred income taxes............................................ 2,120,000 2,120,000
Prepaid expenses and other assets................................ 640,000 914,000
------------ -----------
Total assets........................................... $102,115,000 $ 79,750,000
============ ===========
LIABILITIES AND DIVISIONAL EQUITY
Liabilities
Warehouse financing facility..................................... $ 97,818,000 $ 72,829,000
Accounts payable and accrued liabilities......................... 5,593,000 5,784,000
------------ -----------
Total liabilities...................................... 103,411,000 78,613,000
============ ===========
Commitments and contingencies
Divisional (deficit) equity...................................... (1,296,000) 1,137,000
------------ -----------
Total liabilities and divisional (deficit) equity...... $102,115,000 $ 79,750,000
============ ===========
</TABLE>
See accompanying notes to the Wholesale Division of AMC financial statements.
5
<PAGE> 7
LONG BEACH FINANCIAL CORPORATION
WHOLESALE DIVISION OF AMC
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
1997 1996
----------- --------------
<S> <C> <C>
REVENUES:
Gain on sales of loans.......................................... $16,800,000 $ 10,101,000
Interest income................................................. 2,035,000 796,000
Interest expense................................................ (1,563,000) (684,000)
----------- -----------
Net interest income............................................. 472,000 112,000
----------- -----------
Net operating income............................................ 17,272,000 10,213,000
EXPENSES:
Compensation expense............................................ 6,181,000 3,648,000
Premises and equipment expenses................................. 759,000 625,000
Other general and administrative expenses....................... 1,015,000 459,000
Corporate administrative charges................................ 1,684,000 2,027,000
----------- -----------
9,639,000 6,759,000
Earnings before income taxes.................................... 7,633,000 3,454,000
Provision for income taxes...................................... 3,065,000 1,423,000
----------- -----------
Net earnings.................................................... $ 4,568,000 $ 2,031,000
=========== ===========
Pro forma net earnings per share................................ $ 0.18 not applicable
===========
</TABLE>
See accompanying notes to the Wholesale Division of AMC financial statements.
6
<PAGE> 8
LONG BEACH FINANCIAL CORPORATION
WHOLESALE DIVISION OF AMC
STATEMENTS OF DIVISIONAL (DEFICIT) EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Balance, January 1,............................................... $ 1,137,000 $ 1,732,000
Net earnings for the three months ended March 31,................. 4,568,000 2,031,000
Net change in divisional equity arising from intracompany
transactions.................................................... (7,001,000) (3,016,000)
----------- -----------
Balance, March 31,................................................ $(1,296,000) $ 747,000
=========== ===========
</TABLE>
See accompanying notes to the Wholesale Division of AMC financial statements.
7
<PAGE> 9
LONG BEACH FINANCIAL CORPORATION
WHOLESALE DIVISION OF AMC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings................................................ $ 4,568,000 $ 2,031,000
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization............................. 178,000 262,000
Loans originated and purchased for sale................... (326,160,000) (186,627,000)
Proceeds from sales of loans held for sale................ 319,445,000 185,842,000
Changes in receivable from sales of loans................. (14,450,000) --
Other..................................................... (1,374,000) (1,318,000)
------------- -------------
Net cash provided by (used in) operating
activities...................................... (17,793,000) 2,826,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of premises and equipment....................... (125,000) (122,000)
------------- -------------
Net cash used in investing activities............. (125,000) (122,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in warehouse financing facility................ 24,919,000 312,000
Cash provided to AMC...................................... (7,001,000) (3,016,000)
------------- -------------
Net cash provided by (used in) financing
activities...................................... 17,918,000 (2,704,000)
NET INCREASE (DECREASE) IN CASH
Cash, beginning of the period............................. -- --
------------- -------------
Cash, end of the period................................... -- --
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest on warehouse
financing facility..................................... $ 1,460,000 $ 481,000
============ ============
</TABLE>
See accompanying notes to the Wholesale Division of AMC financial statements.
8
<PAGE> 10
LONG BEACH FINANCIAL CORPORATION
WHOLESALE DIVISION OF AMC
NOTES TO THE WHOLESALE DIVISION FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
NOTE 1. BASIS OF PRESENTATION
As disclosed in Note 1 to the Company's Consolidated Statements of
Financial Condition, the Wholesale Division did not exist as a separate legal
entity during the period ended March 31, 1997 and operated as a division of AMC.
The financial statements of the Wholesale Division of AMC should be read in
conjunction with the Company's consolidated financial statements of condition
and accompanying notes. The Wholesale Division's financial statements have been
prepared in conformity with the instructions to Form 10-Q and on a consistent
basis with the Registration Statement. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying financial statements of the Wholesale Division of AMC have
been prepared from records maintained by AMC and provided to the Company. In the
normal course of business, the Wholesale Division had various transactions with
other divisions of AMC that are material in amount. These financial statements
also reflect key assumptions regarding the allocation of certain revenue and
expense items and certain balance sheet accounts, many of which could be
material. The Company did not have any operations through March 31, 1997, and
all rights, benefits and obligations relating to the operations and net earnings
of the Wholesale Division up to the date of the Reorganization remained with
AMC. The accompanying historical financial statements of the Wholesale Division
of AMC may not necessarily be indicative of the financial condition, the results
of operations or cash flows that would have existed if the Wholesale Division
had operated as an independent entity.
The accompanying financial statements of the Wholesale Division of AMC
reflect the assets, liabilities, revenues and expenses that were directly
related to the operations of the Wholesale Division as they were operated by
AMC. In cases involving assets, liabilities, revenues and expenses not
specifically identifiable to any particular division of AMC, certain allocations
were made by AMC to reflect the operations of the Wholesale Division.
Allocations have been made for, among other things, accounting, information
services, legal, compliance, and other executive and administrative services.
The accompanying financial statements are also based on the following
assumptions:
1. No cash balances are recorded as part of these historical financial
statements as it was the practice of AMC not to maintain separate cash
balances for the various divisions.
2. The net change in divisional equity arising from intracompany
transactions, as reflected in the statements of divisional equity,
includes: (i) the aggregate intracompany allocations of costs and expenses
incurred by the Wholesale Division and paid by AMC, (ii) cash generated by
the Wholesale Division and collected by AMC during the periods presented,
and (iii) cash advanced by AMC on behalf of the Wholesale Division. The net
change in divisional equity arising from intracompany transactions also
includes all liabilities of the Wholesale Division, such as income taxes
payable, that are not separate legal obligations of the Wholesale Division
but have been charged to the Wholesale Division.
NOTE 2. CORPORATE ALLOCATION OF GENERAL AND ADMINISTRATIVE EXPENSES
The Wholesale Division was charged for certain corporate expenses incurred
by AMC on behalf of the Wholesale Division. These charges included, among other
items, information services, accounting, legal, compliance, and other executive
and administrative services. These allocations were prepared by AMC, and AMC
informed the Company that these allocations were based upon a variety of
factors, which include: loan origination volume, employee headcount, and
historical ratios of expenses incurred by the various divisions to total direct
expenses. There can be no assurance that future expenses incurred by the
Company, as an independent entity, will be comparable to the historical levels
allocated by AMC to the Wholesale Division.
9
<PAGE> 11
LONG BEACH FINANCIAL CORPORATION
WHOLESALE DIVISION OF AMC
NOTES TO THE WHOLESALE DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. PRO FORMA NET EARNINGS PER SHARE
The Company did not have any operations through March 31, 1997, and all
rights, benefits and obligations relating to the net earnings of the Wholesale
Division up to the date of the Reorganization remained with AMC. Additionally,
only one share of LBFC's common stock was issued and outstanding during the
three months ended March 31, 1997 and no shares were issued or outstanding at
any time during 1996. However, on the assumption that the Company's 25,000,000
shares of common stock were issued and outstanding during the entire period from
January 1, 1997 through March 31, 1997, the Wholesale Division's net earnings
per share would have been $.18 per share on a proforma basis for the three
months ended March 31, 1997.
10
<PAGE> 12
LONG BEACH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
ITEM 2. OVERVIEW
The Company is a specialty finance company engaged in the business of
originating, purchasing and selling sub-prime residential mortgage loans secured
by one-to-four family residences. The Company's core borrower base consists of
individuals who do not qualify for traditional "A" credit because their credit
history, income or other factors cause them not to conform to standard agency
lending criteria. The Company originates loans through independent mortgage
brokers and, to a lesser extent, purchases loans from smaller mortgage companies
and commercial banks. Substantially all of the Company's loan originations and
purchases are sold in the secondary market through loan sales in which the
Company disposes of its entire economic interest in the loans for cash, except
for the related servicing rights which it retains in most cases.
Prior to the Reorganization, the Company had no operations on a stand-alone
basis. The Wholesale Division, from which the Company obtained certain assets
(including: independent broker lists, office leases, furniture, leasehold
improvements and equipment) and personnel, operated as a division of AMC.
Because the Company had no operations during the three months ended March
31, 1997 or 1996, the discussion and analysis that follows relates to the
Wholesale Division of AMC for the quarters ended March 31, 1997 and 1996. In the
normal course of business, the Wholesale Division had various transactions with
AMC that are material in amount. The financial statements and accounting data of
the Wholesale Division have been prepared from records maintained by AMC and
provided to the Company.
The financial statements of the Wholesale Division of AMC reflect the
assets, liabilities, revenues and expenses that were directly related to the
continuing operations of the Wholesale Division as they were operated by AMC
prior to the Reorganization. Historical cost basis of the assets and liabilities
has been carried over to the Wholesale Division. The financial statements
reflect key assumptions made by AMC regarding the allocation of certain revenue
and expense items and certain balance sheet accounts, many of which could be
material. In particular, in cases involving assets, liabilities, revenues and
expenses not specifically identifiable to any particular division of AMC,
certain allocations were made by AMC to reflect the operations of the Wholesale
Division.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
REVENUE
Revenue is derived primarily from gain on sales of loans and net interest
income from loans held for sale in excess of the cost of funding such loans. The
key factors that affect the Company's revenue are (i) the volume of loans
originated and purchased, (ii) the premium over principal amount received in
loan sales, (iii) origination points received or paid, (iv) origination fees
received, and (v) the differential between the interest rate on borrowings under
the revolving warehouse credit facility and the interest rate of loans held for
sale. Loan sales premium is affected by, among other things, the interest rate
and/or margin of the loans sold.
Expenses are incurred for, among other things, compensation and employee
benefits, rent and other occupancy costs, office supplies and courier service,
depreciation, legal and professional services, and interest.
11
<PAGE> 13
LONG BEACH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
The Wholesale Division recorded net earnings of $4.6 million for the three
months ended March 31, 1997, which represented an increase of $2.5 million or
125% over net earnings for the same period of 1996. The increase in net earnings
is primarily the result of an increase in loan production and loan sales. As
presented in the table below, loan production increased dramatically during the
first quarter of 1997 as compared to 1996.
LOAN PRODUCTION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
INTEREST INTEREST
AMOUNT UNITS RATE(A) AMOUNT UNITS RATE(A)
------------ ----- -------- ------------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate.............. $ 91,554,000 1,018 10.25% $ 49,627,000 505 10.22%
Adjustable rate......... 234,606,000 1,898 9.34% 137,000,000 1,369 10.02%
------------ ----- ------------ -----
Total loan production... $326,160,000 2,916 $186,627,000 1,874
============ ===== ============ =====
</TABLE>
- ---------------
(A) The interest rate for adjustable rate loans represents the initial start
rate.
As indicated by the table above, loan production increased by 74.8% or
$139.5 million during the three months ended March 31, 1997 as compared to the
same period in 1996.
The increase in loan production during the first quarter of 1997 as
compared to 1996 is the result of increased production in existing markets and
expansion into new markets. At March 31, 1997, the Wholesale Division had
relationships with approximately 8,000 independent approved mortgage brokers
located in 43 states. The Wholesale Division utilized 190 account executives
located in 62 offices to provide service to these brokers. Comparatively, as of
March 31, 1996, the Wholesale Division had relationships with approximately
5,800 independent mortgage brokers located in 38 states and utilized 123 account
executives located in 50 offices to provide service to these brokers.
The increase in loan production during the first quarter of 1997 as
compared to 1996 contributed to an increase in loan sales. As indicated by the
following table, the Wholesale Division experienced a substantial increase in
loan sales.
LOAN SALES
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
INTEREST INTEREST
AMOUNT UNITS RATE(A) AMOUNT UNITS RATE(A)
------------ ----- -------- ------------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate.................. $ 92,520,000 1,019 10.28% $ 47,379,000 478 10.33%
Adjustable rate............. 226,925,000 1,850 9.40% 138,463,000 1,357 10.01%
------------ ----- ------------ -----
Total loan sales............ $319,445,000 2,869 $185,842,000 1,835
============ ===== ============ =====
</TABLE>
- ---------------
(A) The interest rate for adjustable rate loans represents the initial start
rate.
Loan sales are made on a non-recourse basis pursuant to a purchase
agreement containing customary representations and warranties regarding
underwriting criteria and the origination process. In the event of a breach of a
representation or warranty, repurchase or substitution may be required.
Additionally, loans may be
12
<PAGE> 14
LONG BEACH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
repurchased or substituted if a payment default occurs within the first month
following the date that the loan is funded, or if the loan documentation is
alleged to contain fraudulent misrepresentations made by the borrower.
Gains from the sale of loans are determined by the differential between the
price paid for the loan by the purchaser and the Company's recorded investment
in the loan ("net premium") less any accruals for loss contingencies. In
addition to the principal amount of the loan, the Company's recorded investment
in the loan includes (i) points and fees paid to the independent broker, (ii)
incremental direct costs associated with producing the loan, offset by, (iii)
origination and other fees received by the Company from the borrower. Loan sales
increased by $133.6 million or 72% during the first quarter of 1997 as compared
to 1996. Likewise, gains from the sale of loans increased by $6.7 million or
66.3% during the first quarter of 1997, to $16.8 million as compared to $10.1
million during the first quarter of 1996. During the first three months of 1997,
the Wholesale Division realized a net premium on sale of 5.40%. During the first
three months of 1996, the net premium totaled 5.44%. In addition to the $13.9
million and the $8.4 million cash gains realized during the first quarter of
1997 and 1996, respectively, the Wholesale Division recorded gains of $2.9
million and $1.7 million during the first quarter of 1997 and 1996,
respectively, from recording the value of mortgage servicing rights which arose
at the time of the loan sale.
Net interest income is the difference between the interest that is earned
on loans and other interest earning assets over the interest that is paid under
the revolving warehouse credit facility. Net interest income can be affected by
the volatility of interest rates, the level of interest earned on interest
earning assets, the cost of interest on the revolving warehouse credit facility,
the average amount of interest earning assets outstanding, and the average
amount of borrowings outstanding. During the first quarter of 1997, the
Wholesale Division recorded $472,000 of net interest income as compared to
$112,000 during the same period of 1996. The increase in net interest income is
the result of the Wholesale Division holding a higher level of loans held for
sale during the first quarter of 1997 as compared to the first quarter of 1996.
EXPENSES
Expenses of the Wholesale Division include general and administrative
expenses and income tax expense. The Wholesale Division incurred certain
expenses that were directly related to its operations. Additionally, certain
expenses, not specifically identifiable to any particular division of AMC were
allocated by AMC to its various divisions, including the Wholesale Division.
These allocations were prepared by AMC and AMC informed the Company that these
allocations were based on a variety of factors which take into consideration the
loan origination volume, employee headcount, and historical ratios of direct
expenses incurred by the divisions to total direct expenses.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Compensation expense................................ $6,181,000 $3,648,000
Premises and equipment expenses..................... 759,000 625,000
Other general and administrative expenses........... 1,015,000 459,000
---------- ----------
Total Direct Expenses............................... 7,955,000 4,732,000
Allocated expenses from AMC......................... 1,684,000 2,027,000
---------- ----------
Total general and administrative expenses........... $9,639,000 $6,759,000
========== ==========
</TABLE>
The 42.6% increase in general and administrative expenses between the first
quarter of 1997 and the first quarter of 1996 is primarily due to increases in
direct compensation expense and other direct operating expenses, partially
offset by a decline in allocated expenses from AMC.
13
<PAGE> 15
LONG BEACH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
Compensation expense increased 69.4% or $2.5 million during the quarter
ended March 31, 1997 as compared to the same period of 1996. The increased level
of compensation expense represents 88% of the total increase in general and
administrative expenses between the first quarter of 1997 and 1996. The primary
reason for the increase is the expansion of the number of employees in support
of the Wholesale Division's expansion of its loan production capabilities.
Additionally, compensation expense increased because of increases in commissions
paid to employees. The growth of the employee base and the additional commission
expense is directly related to the increase in loan production during the
quarter ended March 31, 1997 as compared to 1996.
Other general and administrative expenses increased by $556,000 primarily
as a result of an increase in overhead costs related to the 74.8% increase in
loan production.
During the first quarter of 1997, allocated expenses from AMC declined by
$343,000 from the same period of 1996. This decrease resulted primarily from a
reduction in the allocation of expenses related to corporate personnel who
devoted a greater portion of their time towards corporate activities of AMC, as
opposed to divisional operations.
INCOME TAXES
The Wholesale Division was not a separate legal entity and had no separate
legal status or existence through March 31, 1997. Accordingly, the Wholesale
Division was not a legal entity which is subject to tax. The Wholesale Division
was part of AMC until the Reorganization and its income is subject to federal
and state income tax as part of a division of AMC.
LIQUIDITY AND CAPITAL RESOURCES
The Wholesale Division has historically generated positive cash flow from
its operating activities. The Wholesale Division's sources of cash flow included
loan sales at a premium, net interest income and borrowings. The Wholesale
Division entered into forward loan sales contracts under which it commits to
deliver loans to be originated or purchased by the Wholesale Division at a
future date. The Wholesale Division sold loans at a premium several times a
quarter pursuant to such contracts. The Wholesale Division's uses of cash
included the funding of loan originations and purchases, payment of interest
expenses, repayment of its borrowings, operating and administrative expenses,
income taxes and capital expenditures.
The Company funds its business through cash reserves and a revolving
warehouse credit facility under which it borrows money to finance the
origination and purchase of loans. The Company repays borrowings with the
proceeds of its loan sales. Prior to the Reorganization, the Wholesale Division
funded loans by borrowing under AMC's revolving warehouse credit facility. The
Company has in place a $200 million warehouse financing facility provided by a
syndicate of banks led by Texas Commerce Bank National Association. Borrowings
under the warehouse financing facility for a particular loan may remain
outstanding for no more than 120 days, except for an aggregate amount not to
exceed $10 million, which may remain outstanding for up to 180 days. Borrowings
under the warehouse financing facility are permitted up to 98% of the principal
balance of the originated and purchased loans and bear interest at rates ranging
from 1.375% to 1.625% over the 30-day reserve-adjusted London Inter-Bank Offered
Rate ("LIBOR"), depending on the level of loan documentation the Company has
delivered to the agent for the syndicate of banks providing credit under the
warehouse financing facility. The warehouse financing facility also includes a
$60 million subline for loans not covered by a forward purchase commitment, a
$15 million subline for principal and interest advances, a $10 million subline
for other servicing advances made primarily to security holders in connection
with securitizations by purchasers of the Company's loans in which the Company
serves as the master servicer, and a $5 million subline which may be used to
finance mortgage loans owned by the Company that are in the process of
collection or resale to investors. The sublines bear interest at rates ranging
from
14
<PAGE> 16
LONG BEACH FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
1.875% to 2.0% over the 30-day reserve-adjusted LIBOR. The warehouse financing
facility will expire on March 31, 1999, unless earlier terminated or extended in
accordance with its terms. The warehouse financing facility contains a number of
financial covenants including the requirements that: (i) Long Beach Mortgage
Company maintains tangible net worth equal to at least $25 million, plus 25% of
cumulative positive net earnings, (ii) delinquencies on Long Beach Mortgage
Company's mortgage servicing portfolio not exceed 12%, and (iii) the ratio of
total liabilities to adjusted tangible net worth not exceed 9:1. The warehouse
financing facility also contains other affirmative, negative and financial
covenants typical of similar credit facilities.
The Company believes that it will generate sufficient cash from its
operations and borrowings to fund its operations through 1997. However, the
Company's ability to continue to originate and purchase loans is dependent in
large part upon its ability to sell the loans at a premium in the secondary
market in order to generate cash proceeds to repay borrowings under the
warehouse financing facility, thereby creating borrowing capacity to fund new
originations and purchases. The value of and market for the Company's loans are
dependent upon a number of factors, including the loan-to-value ratios and
interest rates on the loans, general economic conditions, interest rates and
governmental regulations. Adverse changes in such factors may affect the
Company's ability to sell loans for acceptable prices within a reasonable period
of time. A prolonged, substantial reduction in the size of the secondary market
for loans of the type originated or purchased by the Company may adversely
affect the Company's ability to sell loans in the secondary market with a
consequent adverse impact on the Company's results of operations, financial
condition and ability to fund future originations and purchases.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
15
<PAGE> 17
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
(a) On June 10, 1997, the Company announced that it has elected Richard A.
Kraemer to its board of directors, filling the remaining vacancy to the
five-member board. Mr. Kraemer has more than 30 years of experience in the
banking and thrift industry and is vice chairman of Republic New York
Corporation and Republic National Bank.
Prior to joining Republic in 1992, Mr. Kraemer (53), was Chairman of the
Board and CEO of Crossland Federal Savings Bank. From 1984 to 1992, he was a
senior executive of Home Savings of America and its wholly-owned subsidiaries,
The Home Savings Bank and Bowery Savings Bank. He most recently served as
Chairman of the Board and CEO of Bowery Savings Bank and The Home Savings Bank,
and was a director of Home Savings of America.
(b) On June 5, 1997, the Company announced that it has named William K.
Komperda (37) to the new position of managing director, capital markets and
strategic planning. For the past ten years, Mr. Komperda was with the investment
banking firm of Greenwich Capital Markets, Inc., Greenwich, Connecticut, most
recently as senior vice president.
Mr. Komperda was a co-founder of Greenwich's mortgage and asset-backed
finance group. He managed the structured finance group for more than seven
years, and he was responsible for most of the firm's relationships with major B
and C mortgage origination clients, including Long Beach Mortgage Company, The
Money Store, Cityscape, Equicredit and Alliance Funding.
Prior to joining Greenwich, Mr. Komperda was manager of structured finance
for Citicorp Homeowners, Inc., and an accountant at Citicorp Acceptance Company.
Mr. Komperda began his career with Deloitte, Haskins and Sells, and is a
Certified Public Accountant. He has served on the board of directors of the
National Home Equity Mortgage Association. He holds a bachelor of science in
accountancy from Southern Illinois University at Edwardsville.
16
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
*3.1 Amended and Restated Certificate of Incorporation of Long Beach Financial
Corporation
*3.2 Bylaws of Long Beach Financial Corporation
*4.1 Specimen of the Common Stock of Long Beach Financial Corporation
10.1 Administrative Services Agreement among Long Beach Mortgage Company, Long Beach
Financial Corporation and Ameriquest Mortgage Corporation
*10.2 Form of Master Sub-Servicing Agreement, between Long Beach Mortgage Company and
Ameriquest Mortgage Corporation
*10.3 4/97 Senior Secured Credit Agreement, among Ameriquest Mortgage Corporation and
Texas Commerce Bank National Association, as Lender and Agent
*10.4 Form of Director/Officer Indemnification Agreement
10.5 Contribution Agreement, between Ameriquest Capital Corporation, Long Beach
Mortgage Company, Long Beach Financial Corporation and Ameriquest Mortgage
Corporation
*10.6 1997 Stock Incentive Plan
*10.7 Employment Agreement, between Long Beach Financial Corporation, Ameriquest
Mortgage Corporation and M. Jack Mayesh
*10.8 Employment Agreement, between Long Beach Financial Corporation, Ameriquest
Mortgage Corporation and Edward Resendez
*10.9 Employment Agreement, between Long Beach Financial Corporation, Ameriquest
Mortgage Corporation and Frank J. Curry
*10.10 Employment Agreement, between Long Beach Financial Corporation, Ameriquest
Mortgage Corporation and James H. Leonetti
*10.11 Employment Agreement, between Long Beach Financial Corporation, Ameriquest
Mortgage Corporation and James J. Sullivan
*10.12 Department of Justice Settlement Agreement
10.13 Employment Agreement, between Long Beach Financial Corporation, Long Beach
Mortgage Company and William K. Komperda.
27.1 Financial Data Schedule of the Wholesale Division of AMC
</TABLE>
- ---------------
* Previously filed.
(b) Reports on Form 8-K
None.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized, in the City of Orange, State of California.
LONG BEACH FINANCIAL CORPORATION
(Registrant)
<TABLE>
<CAPTION>
DATE
---------------------------------------------------
<S> <C> <C>
By: /s/ M. JACK MAYESH June 10, 1997
--------------------------------------
M. Jack Mayesh
Chairman and Chief Executive Officer
/s/ JAMES H. LEONETTI
-------------------------------------- June 10, 1997
James H. Leonetti
Senior Vice President and
Chief Financial Officer
</TABLE>
18
<PAGE> 20
EXHIBITS INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
*3.1 Amended and Restated Certificate of Incorporation of Long Beach
Financial Corporation...................................................
*3.2 Bylaws of Long Beach Financial Corporation..............................
*4.1 Specimen of the Common Stock of Long Beach Financial Corporation........
10.1 Administrative Services Agreement among Long Beach Mortgage Company,
Long Beach Financial Corporation and Ameriquest Mortgage Corporation....
*10.2 Form of Master Sub-Servicing Agreement, between Long Beach Mortgage
Company and Ameriquest Mortgage Corporation.............................
*10.3 4/97 Senior Secured Credit Agreement, among Ameriquest Mortgage
Corporation and Texas Commerce Bank National Association, as Lender and
Agent...................................................................
*10.4 Form of Director/Officer Indemnification Agreement......................
10.5 Contribution Agreement, between Ameriquest Capital Corporation, Long
Beach Mortgage Company, Long Beach Financial Corporation and Ameriquest
Mortgage Corporation....................................................
*10.6 1997 Stock Incentive Plan...............................................
*10.7 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and M. Jack Mayesh......................
*10.8 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and Edward Resendez.....................
*10.9 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and Frank J. Curry......................
*10.10 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and James H. Leonetti...................
*10.11 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and James J. Sullivan...................
*10.12 Department of Justice Settlement Agreement..............................
10.13 Employment Agreement, between Long Beach Financial Corporation, Long
Beach Mortgage Company and William K. Komperda..........................
27.1 Financial Data Schedule of the Wholesale Division of AMC................
</TABLE>
- ---------------
* Previously filed.
19
<PAGE> 1
EXHIBIT 10.1
AMC ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT, is entered into on April 28,
1997 (this "Agreement"), is made and entered into by and among Long Beach
Mortgage Company, a Delaware corporation to be renamed Ameriquest Mortgage
Company ("Old Long Beach"), Long Beach Financial Corporation, a Delaware
corporation ("LBFC") and Ameriquest Mortgage Corporation, a Delaware corporation
to be renamed Long Beach Mortgage Company ("New Long Beach"). LBFC and New Long
Beach are sometimes hereinafter referred to collectively as the "Company".
A. The Company desires to obtain from Old Long Beach certain
administrative services; and
B. Old Long Beach is willing to provide such management and
administrative services on the terms and conditions described below.
NOW, THEREFORE, Old Long Beach, LBFC and New Long Beach agree
as follows:
1. TERM. This Agreement shall commence as of the "Effective Time"
determined pursuant to the Contribution Agreement (as defined below) and shall
continue for one year or such other term as may be expressly provided herein
with respect to any category of services, unless terminated by LBFC as provided
herein. This Agreement may be terminated by LBFC in whole, or with respect to
any one or more of the services described in Paragraph 2 below, at any time in
its sole discretion upon giving written notice to Old Long Beach at least thirty
(30) days' prior to the date on which such termination is proposed to become
effective; provided, however, that the Company shall be bound by and responsible
for any transaction or expense properly agreed to or incurred by Old Long Beach
in connection with services performed hereunder but not settled, paid or
reimbursed prior to the date of any such termination. Upon termination of this
Agreement in whole or part, the fee referred to in Paragraph 3 below will be
prorated for the relevant period, but the due date thereof as described in
Paragraph 4 below shall not be changed.
2. SERVICES PROVIDED. The Company hereby engages Old Long Beach to
provide, and Old Long Beach agrees to provide, the following management and
administrative services (the "Services") to the Company as LBFC or New Long
Beach may request from time to time:
a. The human resources and employee benefits administration
services described in Schedule 2(a);
b. The information services and data processing functions
described in Schedule 2(b);
c. The Mailroom services described in Schedule 2(c); and
<PAGE> 2
d. Such additional services as Old Long Beach and the Company
may agree from time to time. Unless otherwise expressly agreed by Old Long Beach
and the Company, such additional services shall be governed by the terms and
conditions of this Agreement and the additional services, and the fees therefor,
shall be added hereto by a written addendum executed by both parties.
3. CONSIDERATION. As consideration for the Services to be performed by
Old Long Beach for the Company pursuant to this Agreement, the Company hereby
agrees to pay Old Long Beach a fee for each Service as set forth in Schedules
2(a) through 2(c). Services identified to a specified fee may not be terminated
unless all Services identified to that fee are terminated. The prices set forth
on Schedules 2(a) through 2(c) contemplate that the only LBFC subsidiary that
will obtain Services hereunder is New Long Beach. In the event other LBFC
subsidiaries require Services, the prices set forth in Schedules 2(a) through
2(c) will be adjusted appropriately to reflect the increase in demand for
Services from Old Long Beach. In the event the parties are unable to agree on an
appropriate adjustment, Old Long Beach shall have no obligation to perform
Services for the additional subsidiary.
4. PAYMENT. Payment for Services rendered hereunder shall be due and
payable in advance on the first business day of the month in which the Services
are to be rendered. With respect to any costs or expenses incurred by Old Long
Beach that are reimbursable by the Company hereunder, the Company shall
reimburse all such costs and expenses on demand.
5. OWNERSHIP OF SYSTEMS AND SOFTWARE.
a. Except as otherwise set forth in the Contribution Agreement
dated as of the date hereof by and among Old Long Beach, LBFC, New Long Beach
and Ameriquest Capital Corporation (the "Contribution Agreement"), the Company
agrees that Old Long Beach's current and future corporate systems and the
programs, operating instructions and software therefor that Old Long Beach
utilizes to perform the services specified by this Agreement are and will remain
Old Long Beach's property. Any additions, changes, modifications, upgrades or
enhancements to such systems, programs, operating instructions or software, even
if made at the Company's suggestion, shall be and remain Old Long Beach's
property and proprietary information and title to the same shall remain vested
in Old Long Beach.
b. Except as otherwise set forth in the Contribution
Agreement, Old Long Beach agrees that all data and data source documents, books,
records, reports, files, forms, invoices and documentation, whether stored in
hard copy or electronic medium of the Company (collectively, the "Company
Records"), whether provided by the Company or generated in the course of Old
Long Beach providing its services hereunder, are and shall remain the sole and
exclusive property of the Company. The Company shall be responsible for the
Company Records while the same are in transit to or from Old Long Beach. The
Company shall be provided reasonable access to the Company Records at all times.
6. LIABILITY AND INDEMNITY. This Agreement shall create no right,
benefit or privilege in favor of any person other than Old Long Beach and the
Company. LBFC and New Long Beach shall indemnify, defend and hold harmless Old
Long Beach and its subsidiaries and
2
<PAGE> 3
affiliates and their respective officers, directors, employees, representatives,
agents, successors and assigns from and against any and all damages, losses,
expenses and liabilities, including reasonable attorneys' fees and costs
(collectively, "Losses"), incurred by Old Long Beach arising or resulting from
or related to Old Long Beach's performance of (or omission to perform) its
obligations under this Agreement, including without limitation Old Long Beach's
own negligence (but excluding gross negligence, willful misconduct or
intentional tort). Old Long Beach shall indemnify, defend and hold harmless LBFC
and New Long Beach and their respective subsidiaries, affiliates, officers,
directors, employees, representatives, agents, successors and assigns from and
against any and all losses incurred by LBFC and/or New Long Beach arising or
resulting from or related to Old Long Beach's gross negligence, willful
misconduct or intentional tort.
7. TERMINATION.
a. Upon any termination of this Agreement, Old Long Beach
shall take all such actions as are reasonably requested by the Company to
transition the services provided hereunder to a third party or to the Company,
including without limitation (i) transferring the Company Records to the Company
in one or more installments as appropriate and necessary to timely transfer all
of such records, (ii) transferring the Company Records to a third party
designated by the Company in writing, and (iii) providing the Company with the
names of all computer software vendors and programs used by the Company to
provide its services hereunder. Old Long Beach shall be entitled to retain a
copy of the Company Records for its files to the extent reasonably necessary to
protect its interests.
b. The termination services described above shall be performed
by Old Long Beach at commercially reasonable hourly rates plus reimbursement of
actual expenses.
c. The provision of Sections 1, 5, 6, 11 and 13 hereof shall
survive any termination of this Agreement, regardless of the reason for the
termination.
8. ASSIGNMENT. No party shall assign this Agreement without the prior
written consent of the other parties, which consent shall not unreasonably be
withheld.
9. APPLICABLE LAW. This Agreement shall be construed and enforced, and
all provisions hereof shall be administered, in accordance with the internal
laws of the State of California.
10. NOTICES. All notices and payments under this Agreement shall be
personally delivered or sent by first-class mail, postage prepaid, addressed to
the other party at the address set forth below or as otherwise designated in
writing to the other party. All notices shall be in writing. Notices shall be
deemed given when received and shall be deemed received when personally
delivered or 48 hours after they are postmarked, if sent by mail.
If to Old Long Beach, to:
3
<PAGE> 4
Ameriquest Mortgage Company
1100 Town & Country Road
Suite 1100
Orange, CA 92868
Attn.: General Counsel
If to the Company, to:
Long Beach Financial Corporation
1100 Town & Country Road
Suite 900
Orange, CA 92868
Attn.: General Counsel
11. ATTORNEYS' FEES. In the event of an action by either party to
enforce the terms hereof, the prevailing Party shall be entitled to recover its
expenses, including reasonable attorney's fees.
12. SEVERABILITY. If in any judicial proceeding a court shall refuse to
enforce all the provisions of this Agreement, the scope of any unenforceable
provision shall be deemed modified and diminished to the extent necessary to
render such provision valid and enforceable. In any event, the validity or
enforceability of any such provision shall not affect any other provisions of
this Agreement, and this Agreement shall be construed and enforced as if such
provision had not been included.
13. CONFIDENTIAL INFORMATION. Old Long Beach and the Company
acknowledge and agree that all tangible and intangible information of the other
party revealed, obtained, or developed in the course of or in connection with
the performance of this Agreement or otherwise shall be considered as
confidential and proprietary information of such other party. Such information
shall not be disclosed to (i) any Old Long Beach or Company employee except as
strictly necessary on a need-to-know basis and furtherance of the party's
obligations hereunder, or (ii) any third party except as required by law and
only to the extent so required. Upon being so required, the party required to
disclose confidential information of the other party shall immediately advise
the other party so as to give such other party the opportunity to prevent such
disclosure or take such other measures as are appropriate to maintain the strict
confidentiality. All of such confidential information shall be used strictly for
the purpose of this Agreement and for no other purpose, and shall not be
commingled or otherwise integrated with data from any other source or entity.
14. COUNTERPARTS. The parties may execute this Agreement by signing
one or more counterparts, each of which shall be deemed an original, and all of
which together shall be deemed to be one and the same instruments.
15. ENTIRE AGREEMENT; AMENDMENTS; HEADINGS. The parties expressly
understand and agree that this Agreement sets forth all promises, agreements,
conditions and understandings between Old Long Beach and the Company with
respect to the subject matter
4
<PAGE> 5
hereof. This Agreement shall not be modified or amended in any manner, except by
an instrument in writing executed by Old Long Beach and the Company. The
headings are for information only, are not part of this Agreement, and are not
to be considered in the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Agreement as of the date first above
written.
LONG BEACH FINANCIAL
CORPORATION, a Delaware corporation,
/s/ James J. Sullivan
-----------------------------------
By: James J. Sullivan
Title: Senior Vice President
AMERIQUEST MORTGAGE
CORPORATION, a Delaware corporation
/s/ James J. Sullivan
----------------------------------
By: James J. Sullivan
Title: Senior Vice President
LONG BEACH MORTGAGE COMPANY,
a Delaware corporation
/s/ Norman R. Gritsch
------------------------------------
By: Norman R. Gritsch
Title: Executive Vice President
5
<PAGE> 6
Schedule 2(a) to
AMC Administrative Services Agreement
1. HUMAN RESOURCES FUNCTIONS
Old Long Beach shall provide services consistent with the type and
level of services provided to the Company when it was part of Old Long Beach.
Such services shall be limited to the following:
A. Recruitment. The following specific services related to
supporting managers in the recruitment process:
o interface directly with New Long Beach HR to communicate status of open
positions and related recruitment strategy;
o interface with vendors, including TRW;
coordinate with New Long Beach HR and hiring manager to implement terms of
employment offer as specified by New Long Beach;
o process requisitions for replacements and additions to staff;
o process and track transfer requests to assure full consideration of
internal candidates and adherence to Company policy;
o administration of Company Associate Referral Program;
o maintenance of Temporary Agency relationships.
B. New Hire Processing. Prepare the following documentation
relating to New Long Beach new hires and rehires:
o audit of Offer Worksheets to ensure open requisition, signature
authorization, completeness of application and employment references, TRW &
Criminal check, when applicable, adherence to New Long Beach internal
compensation guidelines;
o preparation of Offer Letters with attachments: Welcome letter, HR
Directory, Sex Harassment notification, Workers Compensation notification,
Code of Business Ethics, Payroll information, Direct Deposit Authorization,
End User Computing Guide, Voluntary Self-Identification EEO/AAP
Questionnaire, COBRA notification form, tax forms, Handbook, Employee
Proprietary Information and Inventions Agreement, Arbitration Agreement,
I-9 form and information relating to employee benefits. New Long Beach may
instruct Old Long Beach to revise, modify, add or delete attachments;
o ensure execution of appropriate new hire paperwork in an accurate and
complete manner, while providing customer service to employees by answering
and researching inquiries, together with required interfaces with Human
Resources Information Systems ("HRIS") and payroll systems;
C. New Associate Orientation. The following services related to
enrolling new Associates and conducting New Associate Orientation:
6
<PAGE> 7
o scheduling New Associates for Orientation, as appropriate;
o conduct Orientation programs, including subject areas related to Company
History, Sexual Harassment, Associate Handbook, Code of Ethics, Payroll,
Benefits and Legal Compliance;
o prepare and distribute New Associate Guides.
D. Personnel Files. The following services related to creating and
maintaining personnel files:
o set up file in systematic/designated order;
o maintenance of critical documents in fireproof cabinet for disaster
recovery;
o maintenance of personnel retrieval and filing;
o provide copies of personnel file in response to subpoenas and Associate
request after discussing with New Long Beach HR;
o provide separate storage for terminated Associate files;
o ensure adherence to records retention requirements for both state and
federal laws, including separate filing for I-9 and EEO/AA
Questionnaires.
E. Exit Interviews. The following services relating to Exit
Interviews:
o preparation of appropriate Exit Interview documentation;
o provide feedback to New Long Beach HR regarding significant trends or
concerns identified during Exit Interviews;
o delivery of Exit Interview documentation to New Long Beach HR on a
monthly basis.
F. Termination Processing. The following services related to
ensuring accurate and timely termination processing:
o notification to New Long Beach HR of all resignations;
o coordination with New Long Beach HR prior to approval of involuntary
o terminations; processing of appropriate paperwork and related HRIS input;
o final pay calculations, including providing final check within legal
timing requirements;
o provide EDD booklet and form 1089 to CA Associates in
accordance with state laws;
o archiving of personnel file.
G. Unemployment Claims. The following services,
documentation and management of unemployment claims:
o coordinate unemployment claims by acting as liaison with unemployment
vendor, Gibbens or, outside of California, with the employee's direct
supervisor;
o provide Gibbens with documentation to defend claims for unemployment
benefits;
o coordinate with New Long Beach HR and act as Company representative at
Unemployment Appeal hearings as required.
7
<PAGE> 8
H. COBRA Notification. The following services related to providing
COBRA benefits on behalf of New Long Beach:
o notification to eligible Associates of New Long Beach in accordance with
all applicable legal requirements;
o set-up on COBRA system and mail premium coupons;
o receive and post payments; remain up to date on COBRA regulatory
requirements;
o answer Associate inquiries.
I. Workers Compensation. The following services related to Workers
Compensation administration:
o maintain appropriate filing system for all claims
o act as liaison with carrier, ITT Hartford;
o provide claims administration and ensure legal compliance;
o provide Associate with an Employee Claim Form within 24 hours of
notification of work related injury or illness;
o ensure completion of Employer's First Report of Industrial Injury;
o coordinate with New Long Beach HR to investigate claims and report
findings to carrier; maintain relationship with local industrial medical
facility; maintain OSHA 200 Log;
o post OSHA 200 Log, as appropriate.
J. State and Federal Regulations. The following services related to
meeting state and federal regulations:
o completion of VETS-100;
o completion of EEO-1.
K. Payroll. The following payroll services:
o processing and distribution of payroll for New Long Beach Associates;
o review, audit and input timecards, processing of manual checks in a
timely manner,
o processing payments for New Long Beach Associate Referral Program
o posting of monthly insurance allocation costs and manual check register;
o processing garnishments and notification to New Long Beach HR;
o providing pay period reports to New Long Beach HR;
o providing information regarding verification of employment requests;
o coordination with New Long Beach HR regarding conversion to new payroll
vendor effective 7/1/97;
o posting of vacation, sick time and other absences;
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o adherence to applicable state and federal laws regarding payment
of wages and coordination with New Long Beach HR where issues or concerns
are identified;
o providing state and federal quarterly and year end reporting, as required
and providing copies of filings to New Long Beach;
o process Verification of Employment requests.
L. HRIS. The following services relating to administration and
maintenance for Human Resources Information Systems:
o maintenance of Spectrum System, including processing and updating of
system relating to new hires, personnel data changes and terminations;
o generation of reports as specified in attached Exhibit A;
o coordination with New Long Beach HR to gain access to Spectrum system,
including Associate training on same;
o coordination with New Long Beach HR to manage project relating to
selection of new HRIS system for Old Long Beach and New Long Beach;
o coordination with New Long Beach HR to ensure accurate, efficient and
effective conversion to New Long Beach's new HRIS system.
M. Employee Relations. Gain direction from New Long Beach HR
while providing the following services in coordination with employee relations
issues:
o assist supervisory/management staff in handling employee performance and
behavioral problems in a manner that will minimize liability to the
Company;
o provide bi-monthly report of status of employee relations issues;
o review potential terminations to insure proper documentation and minimize
potential liability;
o gain approval from New Long Beach HR prior to approving any termination;
o refer Associates to New Long Beach HR to discuss concerns in the workplace;
o alert New Long Beach HR regarding any matters which may create liability.
N. Coordination of changes in HR functions. Closely coordinate with
New Long Beach for informational purposes any changes of relevant procedures,
practices and/or vendors to facilitate transition of New Long Beach to
freestanding HR function; facilitate establishment of new vendor contracts,
provide schedule of vendors, including contact names, as outlined in the
attached schedule; provide training to New Long Beach HR personnel, as needed.
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2. EMPLOYEE BENEFIT ADMINISTRATION FUNCTIONS
Old Long Beach will provide the following administrative services
consistent with the type and level of services provided to the Company when it
was part of Old Long Beach for plans and programs maintained by New Long Beach
(including handling of New Long Beach forms and supplies to the extent different
from Old Long Beach forms):
A. Enrollment. Management of recurring and open enrollment for plans
requiring enrollment, including distribution , follow-up, verification and
processing of enrollments (including entry on data base system), establish
employee payroll deductions, as required through interface with payroll,
generate enrollment reports; process enrollment changes and terminations.
B. Medical Plans. Maintain relationship with vendors to facilitate
smooth transition of New Long Beach to freestanding plan sponsor, negotiate,
with New Long Beach participation, contracts for plan year July 1, 1997 through
June 30, 1998, and handle participant inquiries.
C. Dental. Same as Medical.
D. Vision. Same as Medical.
E. Disability. Monitor STD/LTD status and eligibility, process
claims, interface with participants, payroll and carrier.
F. 401(K). Provide enrollment and distribution of forms, quarterly
statements, semi-annual discrimination testing, company match, process requests
for loans, administer rollovers, terminations and withdrawals; provide for
transfer of accounts following establishment of New Long Beach plan, interface
with CIGNA to facilitate establishment of New Long Beach plan.
G. Basic Life, Voluntary Life, AD&D, Voluntary AD&D and Business
Travel Accident Insurance. Process enrollments and provide interface with
payroll system as reasonably requested by New Long Beach, assist in procuring
appropriate replacement contracts, where applicable.
H. Premium Conversion. Manage documentation, including enrollments and
"change in family status" changes to elections, interface with payroll as
required.
I. Flexible Spending Accounts (Dependent Care and Health Care).
Manage documentation, including enrollments and "change in family status"
changes to election, interface with payroll as required, provide initial
documentation and accounting regarding split in usage of contributions by
participants and continue contract relationships with vendors.
J. COBRA. Provide notices and process responses, COBRA payments
and inquiries.
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K. Regulatory Requirements. Ensure administration of all plans in
accordance with all regulatory requirements of EPOCH, ERAS, IRS, DOL and
applicable state and federal regulations.
L. Billing and Claims Processing. Provide monthly reconciliation
and processing of statements for each plan including claims processing.
M. Miscellaneous Functions.
Administer Associate leaves of absence pursuant to Old Long
Beach policies and procedures in effect from time to time.
Process Tuition Reimbursement forms.
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EXHIBIT A
REPORTS
Employee Status Change, including Pay Cycle Entrances and Pay Cycle Exists -
hired, rehired, changed employment status (i.e. inactive), changed location or
cost center; terminations with reason for termination; new hires and rehires
added to payroll during that pay cycle
Alpha List for Compensation - employee number, birth date, hire-rehire date,
race, sex, home address, phone, job code, title, exception hours(i.e. vacation
hours, sick hours), monthly, hourly and biweekly salary, and the compa-ratio
position of the person's salary within their rate range.
Corporate Officer Listing
Salaries by Job Code - employee name, monthly rate of pay, hire date, pay rate
and status, depart number, salary range for job, job date into the
classification and compa-ratio position within the salary range.
Cost Center Profile - employee name, social, race, hire date, pay status, job
date, job code, current position title, last salary increase, current monthly
salary and weekly hours.
Benefits - includes home address and phone.
Emergency Contact - sort by region and cost center, employee name, job title,
home address and phone.
Access to Data - Provide access to all data and HR information for all New Long
Beach employees.
Other Reports - Ad hoc reports will be provided on a negotiated basis.
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ADMINISTRATIVE CHARGES
Monthly Charges $15,000
Plus actual out-of-pocket expenses as reasonably approved by the Company.
The following functional areas have been specified in order to identify
"clusters" of services which Old Long Beach will initially provide to New Long
Beach. These services are more specifically detailed in Schedule 2(a). However,
as New Long Beach takes responsibility for performing the services represented
in each of the Function areas, New Long Beach will not require Old Long Beach to
perform these services. Upon notification by New Long Beach that certain
"clusters" of services will no longer be necessary, the monthly administration
charge will be reduced by the percentage identified below.
Percentage Functional Areas/"Clusters"
of Time
- --------------------------------------------------------------------------------
10 Recruitment, New Associate Orientation and related functions
20 Benefits Administration, Reporting, Billing and Claims Processing
40 Payroll, HRIS, New Hire Processing, Compensation, Personnel Files
10 Coordination of Changes in HR Functions
15 Exit Interviews, Termination Processing, COBRA, Employee Relations
5 State and Federal Regulations/Compliance
Actual Costs/Separate Contracts
Unemployment Claims
Workers Compensation
Medical
Dental
Vision
Disability
401(k)
Basic Life, Voluntary Life, AD&D, Voluntary AD&D and Business Travel & Accident
Flexible Spending Accounts
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Schedule 2(b) to
AMC Administrative Services Agreement
Information Systems Services
The following services shall be provided to New Long Beach for
operating and maintaining on-going services for the current operation (including
reasonable growth) of New Long Beach, and does not include the design,
acquisition, installation, operation and maintenance of any new hardware or
software of any kind. The information systems services to be provided by Old
Long Beach to the Company (i) shall be consistent with the level of such
services provided by Old Long Beach prior to the date of this Agreement, (ii)
shall be provided with at least the same level of care, diligence and expertise
as such services are rendered on behalf of Old Long Beach, (iii) shall be
substantially consistent with the amount and types of services as have been
rendered to the Wholesale Lending Business, and (iv) shall include the following
services to be rendered in accordance with Old Long Beach's policies and
procedures in existence at the time such services are rendered:
1. Network Security Administration: Old Long Beach will provide user setups and
changes upon receipt of a completed service request from the Company, containing
the associate ID and other necessary information. These requests will be
processed in accordance with the then existing policies and procedures of Old
Long Beach. The Company will be provided with access to the Auditware software
system to enable it to audit and verify the effectiveness of Network Security
Administration. The Company will designate in writing the individuals who are
authorized to submit requests for user setups and changes. In no case will
access to the Company's data or systems be denied by Old Long Beach once an
appropriate written request is presented.
2. Computer Operations: Old Long Beach will provide day-to-day production
support, including, but not limited to, backups, restores, scheduled nightly
batch work and off-site tape management. No sharing of on-line or stored data
between Old Long Beach and the Company will be allowed. Problems will be handled
and processed in accordance with Old Long Beach policies and procedures in
effect from time to time. Problems not resolved at this level will be escalated
and resolved based upon Old Long Beach's existing escalation procedures. Once a
problem is identified, Old Long Beach will provide the Company with an estimated
time for resolving the problem.
3. Helpdesk Operations: The existing Old Long Beach Helpdesk will handle all
problem calls received from Company personnel during normally scheduled hours,
establish problem tickets and escalate items not resolved to the next support
level. Problems not capable of being resolved by the Helpdesk will be escalated
and resolved based upon Old Long Beach's existing escalation procedures. All
requests for service will be logged into the tracking system by the Helpdesk,
which will provide status reporting to the Company on a weekly basis. The
Company shall have access, on a "view only basis," to the problem tracking
system for review purposes.
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4. Network Operations: Old Long Beach will provide network support coverage
during normally scheduled hours of the Operations Center. Problems not resolved
at this level will be escalated and resolved based upon Old Long Beach's
existing escalation procedures. The Network Operations group is responsible for
assignment of unresolved problems to either LAN/WAN support staff or to outside
service providers. Once a problem is identified, Old Long Beach will provide the
Company with an estimated time for resolution of the problem.
5. LAN & WAN Technical Support: The LAN & WAN Technical Support team of Old Long
Beach will be responsible for problem resolution of all issues not handled by
Network Operations or the Helpdesk as well as providing installation, planning,
certification and support services for all LAN/WAN environments. Once a problem
is identified or a request for service is made, Old Long Beach will provide the
Company with an estimated time of resolution of the problem.
6. JDE Maintenance: Old Long Beach will provide problem resolution, maintenance
and support for the JDEdwards accounting software products. For any minor
operating change to the JDE software or operating procedures required by the
Company, a service request shall be submitted by the Company. Old Long Beach
will provide a written estimate of the effort and time necessary to complete
such minor change.
7. CIR and Capital Markets Maintenance: Old Long Beach will provide problem
resolution, maintenance and support for all software products related to the CIR
and capital marketing functions. Service requests for all changes necessitated
as part of the normal course of business shall be submitted by the Company, and
written estimates of the effort and time to complete such requests will be
provided by Old Long Beach.
8. Acquisition Support: Old Long Beach will only purchase or lease new personal
computers, related hardware and related software for the Company at its request
and direction and provided that New Long Beach obtains ownership of such
hardware or software. Hardware and software acquired for the Company will be
installed by Old Long Beach pursuant to Old Long Beach's IS policy and
procedures in effect from time to time. Old Long Beach will be responsible for
resolution of problems encountered with installation and/or setup. Old Long
Beach will provide the Company will an estimate time of arrival for all orders.
Old Long Beach will be responsible for the cost associated with any upgrades
made at the discretion of Old Long Beach to its existing systems and
architecture, but is not obligated to upgrade New Long Beach's systems unless
these systems will not operate without such upgrades. Old Long Beach will also
provide leasing and contract review support for new personal computer equipment
purchased or leased by the Company. Old Long Beach does not have the authority
to act as agent for the Company in connection with the acquisition of equipment,
software or services and will not acquire (whether by purchase or lease) any
equipment or software or contract for any outside services without the prior
written approval of the Company, except for emergencies in which case the
Company shall reimburse Old Long Beach for the reasonable costs incurred on
behalf of the Company.
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9. Telephone Support & Administration: Old Long Beach will provide
telecommunication support services for all voice, data circuits and/or
connections (i.e. modem, fax, voice, data circuits, frame relay, etc.). Old Long
Beach will provide purchasing and installation support required in the normal
course of business for all telecommunications equipment and services and
programming support for phone switches, provided that Old Long Beach will not
acquire any equipment or software or contract for any outside services without
the prior written approval of the Company.
10. Change Control Administration: With the exception of emergencies which
impair the ability of the Company to operate its important business functions,
no changes to the services provided under this Agreement will be implemented
without the prior approval of the Company. Changes that affect Old Long Beach's
or New Long Beach's operating ability or cost shall be approved in writing prior
to any such implementation by the other party.
11. Separation of System: Old Long Beach and the Company agree to use their best
efforts to effect the separation of the data processing complex of Old Long
Beach to enable the Company to operate, on an independent basis within the term
of this Agreement, substantially all of the information processing applications,
functions and processes provided or supported by Old Long Beach under this
Agreement. To effect this separation, Old Long Beach and the Company will
mutually agree on an implementation plan to transfer the systems being operated
by Old Long Beach to the Company's new system, and Old Long Beach will implement
and support such plan at the reasonable direction of the Company. Such
implementation plan shall provide for the move of the Company's data processing
equipment to, a new data center physically separate from Old Long Beach's data
center at a location to be determined by the Company. To the extent possible,
this system will follow the Old Long Beach architecture, consistent with the
projected business activities of the Company. As specified above, Old Long Beach
will not acquire any hardware, software or services to build the Company's new
system or to create the new data center without the Company's prior written
approval.
Fee for Items 1 through 10 above.
For each month during the term of this Agreement or until earlier terminated,
New Long Beach shall pay Old Long Beach a monthly fee equal to $125,000 payable
in advance on the first day of each month. Any out-of-pocket expenses relating
to repairs of equipment owned or leased by New Long Beach, other than normal
day-to-day maintenance, shall be borne by New Long Beach. All third-party costs
shall be paid for directly by New Long Beach to the extent such costs can be
billed directly or reimbursed on a pro rata basis.
Fee for Item 11.
Old Long Beach shall be reimbursed for all in-house staff costs and expenses,
reimbursable expenses, and third-party costs for services in connection with the
separation of the Old and New Long Beach data processing complex and the
transfer of that portion relating to New Long Beach to New Long Beach, all as
reasonably approved by the Company.
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Fee for Items 1 through 11.
All direct salaries and benefits for Aseem Mital, John James and Terry Henderson
shall not be paid for by New Long Beach.
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Schedule 2(c) to
AMC Administrative Services Agreement
Description of Services
For a period of up to four (4) months, Old Long Beach will provide the services
required to receive, sort, deliver, pick up and process for mailing the
Company's in-house and external mail received at or being sent from 1100 Town &
Country Road, Orange, consistent with services provided while the Company
operated as a division of Old Long Beach.
Fees for Services:
The fees for the services set forth above shall be $1,905.57 per month,
plus direct out-of-pocket expenses incurred as reasonable approved by the
Company. Any courier, mailing, delivery, supplies or other costs shall be paid
directly by the Company.
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EXHIBIT 10.5
CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement") is entered into on April
28, 1997 by and among Ameriquest Capital Corporation, a Delaware corporation
("Old Long Beach Holdings"), Long Beach Mortgage Company, a Delaware corporation
and a wholly-owned subsidiary of Old Long Beach Holdings to be renamed
Ameriquest Mortgage Company as contemplated herein ("Old Long Beach"), Long
Beach Financial Corporation, a Delaware corporation ("LBFC"), and Ameriquest
Mortgage Corporation, a Delaware corporation and a wholly-owned subsidiary of
LBFC to be renamed Long Beach Mortgage Company as contemplated herein ("New Long
Beach"). LBFC and New Long Beach are sometimes hereinafter referred to
collectively as the "Company."
R E C I T A L S
A. Old Long Beach's business operations currently include wholesale and
retail mortgage lending and loan servicing activities and other business
activities. LBFC, which is a wholly-owned subsidiary of Old Long Beach,
currently does not conduct, and in the past has not conducted, any business
operations.
B. Old Long Beach is reorganizing its business operations (the
"Reorganization") by transferring to LBFC assets and personnel related to Old
Long Beach's broker-sourced mortgage lending and loan sales operations (the
"Wholesale Lending Business") in exchange for shares of the common stock of
LBFC. Immediately following such transfer, LBFC will transfer substantially all
of the assets and personnel received from Old Long Beach to New Long Beach.
C. LBFC has filed a registration statement on Form S-1 (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended, pursuant to which Old Long
Beach intends to sell to the public the common stock of LBFC that it will
receive in the Reorganization.
A G R E E M E N T
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and conditions contained herein, the parties agree as follows:
ARTICLE I
CONTRIBUTION OF ASSETS
1.1 TRANSFER OF ASSETS. Effective as of the Effective Time (as defined
in Section 1.7 below):
(a) Transfer of Tangible Assets. Old Long Beach hereby sells,
conveys, transfers, assigns and grants to LBFC and LBFC hereby acknowledges
receipt of all of Old
<PAGE> 2
Long Beach's legal, beneficial and other right, title and interest in and to the
furniture, fixtures and equipment, computer equipment, office supplies,
maintenance supplies and other fixed assets and similar items and the books,
records, materials and other assets described on Schedule 1.1(a)(i)
(collectively, the "Transferred Tangible Assets"). The books, records and other
materials and information not used exclusively by the Wholesale Lending Business
as described on Schedule 1.1(a)(ii) (the "Shared Information") are hereby
provided to and received by LBFC in the form of copies thereof and LBFC shall
have the perpetual, royalty-free and non-exclusive right to use all such
information in any form or medium. LBFC hereby assumes and agrees to perform and
pay when due all liabilities and obligations of Old Long Beach that relate to
the Transferred Tangible Assets to the extent such obligations or duties are
applicable to and accrue with respect to, or are to be performed in, periods
after the Effective Time. Except as set forth in Section 3.2, the Transferred
Tangible Assets are hereby transferred to LBFC as is, where is, without any
representation or warranty by Old Long Beach and Old Long Beach specifically
disclaims any and all express and implied warranties with respect to the
Transferred Tangible Assets, including without limitation the implied warranties
of merchantability and fitness for a particular purpose;
(b) Transfer of Real Property Leases. Old Long Beach hereby
sells, conveys, transfers, assigns and grants to LBFC all and LBFC hereby
acknowledges receipt of Old Long Beach's legal, beneficial and other right,
title and interest in and to those certain real property leases listed on
Schedule 1.1(b) (the "Transferred Real Property Leases"), and LBFC hereby
assumes and agrees to observe, perform, discharge and be bound by the terms and
conditions thereof to the extent such obligations or duties are applicable to
and accrue with respect to, or are to be performed in, periods after the
Effective Time. Except as set forth in Section 3.2, the Transferred Real
Property Leases are hereby transferred to LBFC without any representation or
warranty by Old Long Beach and Old Long Beach specifically disclaims any and all
express and implied warranties with respect to the Transferred Real Property
Leases, including without limitation the implied warranties of merchantability
and fitness for a particular purpose. On or prior to the Effective Time, Old
Long Beach shall arrange for, and the Company shall execute, a new lease for the
9th Floor of 1100 Town & Country Road, Orange, California on substantially
similar economic terms as the lease for such space by Old Long Beach. Any
expansion/future space lease rights included in any Old Long Beach lease at 1100
Town & Country Road, Orange, California, are expressly retained by Old Long
Beach. Any expansion/future space lease rights included in any lease of the
Company at 1100 Town & Country Road, Orange, California, are expressly retained
by the Company;
(c) Transfer of Certain Contracts. Old Long Beach hereby
sells, conveys, transfers, assigns and grants to LBFC and LBFC hereby
acknowledges receipt of all of Old Long Beach's legal, beneficial and other
right, title and interest in and to those certain contracts, leases and
agreements listed on Schedule 1.1(c) (the "Transferred Contracts"), and LBFC
hereby assumes and agrees to observe, perform, discharge and be bound by the
terms and conditions thereof to the extent such obligations or duties are
applicable to and accrue with respect to, or are to be performed in, periods
after the Effective Time. Except as set forth in Section 3.2, the Transferred
Contracts (and any related assets) are hereby transferred to LBFC without any
representation or warranty by Old Long Beach and Old Long Beach specifically
disclaims any and all express and implied warranties with respect to the
Transferred
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Contracts, including without limitation the implied warranties of
merchantability and fitness for a particular purpose;
(d) Transfer of Pipeline Loans. Old Long Beach hereby sells,
conveys, transfers, assigns and grants to LBFC and LBFC hereby acknowledges
receipt of all of Old Long Beach's legal, beneficial and other right, title and
interest in the unfunded loans and loans in process at the Wholesale Lending
Business at the Effective Time (the "Pipeline Loans"). The Company agrees to
process the Pipeline Loans in compliance with the policies and procedures of the
Wholesale Lending Business and further agrees to fund all such loans in
accordance with its current practices and as required by applicable law. Loans
which were funded by the Wholesale Lending Business prior to the Effective Time,
but which are unfunded after the Effective Time, shall be included within the
definition of Pipeline Loans and Old Long Beach shall receive the proceeds of
such unfunding; and
(e) Transfer of Intangible Assets. Old Long Beach hereby
sells, conveys, transfers, assigns and grants to LBFC and LBFC hereby
acknowledges receipt of all of Old Long Beach's legal, beneficial and other
right, title and interest in and to the following assets:
(i) All information regarding the approved independent
mortgage brokers with whom the Wholesale Lending Business does business;
(ii) All trade names, trademarks and service marks (in
any such case, whether registered or to be registered in the United States of
America or elsewhere and including any derivations thereof) applied for, issued
to or owned by Old Long Beach for the name "Long Beach Mortgage Company,"
including without limitation the stylized "seagull" logo and all related
goodwill, and the "B-xtreme" name;
(iii) All goodwill and going concern value attributable
to the Wholesale Lending Business;
(iv) All prepaid charges and expenses relating to the
Wholesale Lending Business as described on Schedule 1.1(e)(iv); and
(v) The right to use the phrase "Experience the
Difference -- Experience the Best;"
(collectively, the "Transferred Intangible Assets"). The Transferred Intangible
Assets are hereby transferred to LBFC without any express or implied
representation or warranty of any kind by Old Long Beach.
The Transferred Tangible Assets, the Transferred Real Property
Leases, the Transferred Contracts, the Pipeline Loans and the Transferred
Intangible Assets are hereinafter referred to as the "Wholesale Lending Assets".
1.2 CASH CONTRIBUTION. At the Effective Time, Old Long Beach shall
contribute to LBFC the sum of Forty Million Dollars ($40,000,000) less (i) the
$520,000 previously contributed to and retained by LBFC or New Long Beach and
(ii) $2,000,000 for the costs,
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fees and expenses incurred by Old Long Beach in connection with the
Reorganization, which fees and expenses Old Long Beach agrees to pay. All costs
of the Reorganization and the public offering of the Shares shall be paid by Old
Long Beach.
1.3 ISSUANCE OF SHARES. At the Effective Time, as consideration for the
transfers and cash contribution described above, LBFC shall issue to Old Long
Beach Twenty Four Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety
Nine (24,999,999) newly issued shares of LBFC's common stock (the "Shares").
1.4 EXCLUDED ASSETS. Any and all businesses, properties, assets and
other rights and liabilities of Old Long Beach of whatever kind and nature, real
or personal, tangible or intangible, existing or contingent, liquidated or
unliquidated, that are not specifically transferred pursuant to the terms of
this Agreement shall be retained by Old Long Beach.
1.5 EMPLOYEES.
(a) Employment of Employees by the Company. As of the
Effective Time, each of the employees identified on Schedule 1.5(a) who are
employed by Old Long Beach at the Effective Time shall become employees of the
Company (the "Subject Employees"), and Old Long Beach and the Company shall take
all steps necessary or appropriate to accomplish the transfer of such employees
from Old Long Beach to the Company. The Company hereby agrees to employ the
Subject Employees for not less than sixty (60) days following the Effective Time
on terms and conditions no less favorable to each Subject Employee than those
provided by Old Long Beach immediately prior to the Effective Time.
As of the Effective Time, Old Long Beach agrees to transfer to
the Company and the Company agrees to assume each Subject Employee's respective
benefits, seniority, vacation, sick or other leave, holidays, and floating
personal days accrued by such Subject Employees under Old Long Beach policies,
practices and programs as of the Effective Time, and from and after the
Effective Time neither Old Long Beach nor any employee benefit plan of Old Long
Beach shall have any further liability or responsibility in respect of such
items with respect to the Subject Employees, except as may otherwise be provided
herein. All payroll withholding and tax reporting by Old Long Beach with respect
to Subject Employees are hereby terminated as of the Effective Time and Old Long
Beach agrees to pay over to federal, state and local governments, in accordance
with and at the times required by applicable law, all amounts withheld prior to
the Effective Time. Old Long Beach also will issue, at Old Long Beach's expense,
by the date prescribed under applicable law, Forms W-2 for wages paid through
the Effective Time. Old Long Beach shall be responsible for all salaries, normal
monthly or quarterly bonuses to production personnel, commissions, benefits,
tax-related and other responsibilities and liabilities (collectively, "Employee
Payments") with respect to Subject Employees earned from operations prior to the
Effective Time and the Company shall be responsible with respect to Subject
Employees for all Employee Payments earned from operations after the Effective
Time and for all bonuses payable to non-production personnel for periods in 1997
either before or after the Effective Time.
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(b) Retirement Benefits. As of the Effective Time, all Subject
Employees shall cease actively to accrue further benefits under the Old Long
Beach 401(k) Plan. As soon as practicable following the Effective Time, the
Company shall establish or designate an individual account plan for the benefit
of Subject Employees (the "Successor Individual Account Plan"), shall take all
necessary action, if any, to qualify such plan under the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code") and shall make any
and all filings and submissions to the appropriate governmental agencies
required to be made by it in connection with the transfer of assets described
below. As soon as practicable following the earlier of the delivery to Old Long
Beach of a favorable determination letter from the Internal Revenue Service
regarding the qualified status of the Successor Individual Account Plan as
amended to the date of transfer, or the issuance of assurances satisfactory to
Old Long Beach, Old Long Beach shall cause the trustee of the Old Long Beach
401(k) Plan to transfer in the form of cash (or such other form as may be agreed
by Old Long Beach and the Company) the full account balances of the Subject
Employees under the Old Long Beach 401(k) Plan (which account balances shall be
valued for purposes of such transfer in a manner consistent with the approach to
valuation generally applicable at the time of such transfer to distributions
under the Old Long Beach 401(k) Plan or in such other manner as Old Long Beach
and the Company may agree in writing), reduced to the extent necessary to
reflect any necessary benefit or withdrawal payments to or in respect of Subject
Employees, to the appropriate trustee as designated by the Company under the
trust agreement forming a part of the Successor Individual Account Plan.
Notwithstanding the preceding sentence, no transfer shall be made of any
insurance or similar investment contract which is not divisible between the Old
Long Beach 401(k) Plan and the Successor Individual Account Plan.
(c) Other Benefits. The Subject Employees are, as of the
Effective Time, immediately eligible for all such benefits provided by the
Company on the same basis as if service for Old Long Beach were recognized as
service for the Company, and without application of any waiting period or any
limitation with respect to preexisting conditions that would not have been
applicable under Old Long Beach policies, practices or plans (subject to the
terms and conditions of each policy). Old Long Beach shall remain responsible
for COBRA coverage for "qualifying events" (as defined in COBRA) occurring prior
to the Effective Time. With respect to the Flexible Spending Account Plan of Old
Long Beach, there shall be transferred to the Company as of or immediately
following the Effective Time the current unused balances in Flexible Spending
Accounts and an accounting of contributions to the Effective Time made by
Subject Employees. To the extent that any account of a Subject Employee under
the health care portion of the Flexible Spending Account shows disbursements in
excess of receipts as of the Effective Time, New Long Beach shall reimburse Old
Long Beach to the extent of future contributions during the remainder of the
plan year by such Subject Employee.
(d) Accrued Incentive Compensation. Notwithstanding anything
herein to the contrary and in addition to Employee Payments payable by Old Long
Beach pursuant to Section 1.5(a), all incentive compensation amounts or awards
which have been accrued for on the Company's books and due to Subject Employees
who are production personnel pursuant to existing Old Long Beach policy on loans
closed and funded (including closed and funded loans transferred to the Company
pursuant to Section 2.8 below but excluding unfundings in
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accordance with Old Long Beach's existing policy for such unfundings) will be
paid to such employees by Old Long Beach in accordance with Old Long Beach's
normal payment schedule for such compensation; subject to a maximum amount not
to exceed the lesser of the actual cost of such payments or the amounts accrued
on the books of the Wholesale Lending Business for such payments as set forth on
Schedule 1.5(d). The Company will be responsible for all incentive compensation
amounts and awards on transferred Pipeline Loans.
(e) Deferred Transfer Employees. Old Long Beach and the
Company acknowledge and agree that the employees of Old Long Beach set forth on
Schedule 1.5(e) (the "Deferred Transfer Employees") shall become employees of
the Company, and Old Long Beach and the Company shall take all steps necessary
or appropriate to accomplish the transfer of such employees from Old Long Beach
to the Company effective on or before the dates set forth in Schedule 1.5(e),
subject to the condition that such employee is employed by Old Long Beach at the
scheduled time of transfer. The Company hereby agrees to employ the Deferred
Transfer Employees for not less than sixty (60) days following their date of
transfer on terms and conditions no less favorable to each Deferred Transfer
Employee than those provided by Old Long Beach immediately prior to the
Effective Time. Old Long Beach and the Company agree that the other provisions
of this Section 1.5 shall apply to each such Deferred Transfer Employee and such
employees shall be treated as "Subject Employees" at and as of the date on which
such Employee is actually transferred to the Company.
1.6 ASSUMPTION OF LIABILITIES AND OBLIGATIONS. The liabilities and
obligations expressly assumed by the Company pursuant to this Agreement are
hereinafter referred to as the "Assumed Liabilities". The Company is not
assuming and shall not be liable for any liabilities, indebtedness or
obligations of Old Long Beach other than the Assumed Liabilities.
1.7 EFFECTIVE TIME. The "Effective Time" shall mean the time that is
immediately prior to the consummation of the sale of the Shares by Old Long
Beach pursuant to that certain Underwriting Agreement, dated as of April 28,
1997, by and among LBFC, Old Long Beach and Friedman, Billings, Ramsey & Co.,
Inc. (the "Underwriting Agreement"). In the event the Effective Time has not
occurred on or prior to June 30, 1997, this Agreement shall terminate and become
null and void.
1.8 DELAYED TRANSFERS. To the extent that any required consent with
respect to the assignment, transfer or bifurcation of a contract, agreement,
lease or other instrument included in the Wholesale Lending Assets has not been
obtained on or prior to the Effective Time and Old Long Beach is unable (by
sublease or otherwise) to transfer the legal benefit thereof to LBFC, such
contract, assignment, lease or instrument (a "Delayed Asset") shall not be
transferred as a Wholesale Lending Asset hereunder and any related liability (a
"Delayed Liability") shall not be assumed by LBFC as an Assumed Liability
hereunder, unless and until such required consent has been obtained or Old Long
Beach is otherwise able to transfer the legal benefit thereof to LBFC.
Notwithstanding the foregoing, if such a required consent to transfer is not
obtained, Old Long Beach will use its best efforts to attempt to provide to the
Company the benefits of any such Delayed Assets. At such time and on each
occasion after the Effective Time that a required consent shall be obtained with
respect to a Delayed Asset, such Delayed Asset shall forthwith be deemed
transferred and assigned to LBFC hereunder,
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and all related Delayed Liabilities shall be simultaneously assumed by LBFC
hereunder, whereupon (i) such delayed asset shall constitute a Wholesale Lending
Asset for all purposes hereunder, and (ii) such delayed liability shall
constitute an Assumed Liability for all purposes hereunder.
1.9 FURTHER TRANSFERS. Old Long Beach acknowledges that certain of the
Wholesale Lending Assets and certain of LBFC's obligations hereunder are
concurrently herewith being transferred and assigned to New Long Beach. Old Long
Beach hereby consents to such transfer; provided, however, that:
(i) such transfer and Old Long Beach's consent thereto
shall not constitute in any manner a release of LBFC from its obligations
hereunder; and
(ii) New Long Beach hereby acknowledges and agrees to
be bound by all of the provisions of this Agreement to the extent such
provisions relate or are applicable to the Wholesale Lending Assets or LBFC
obligations transferred to New Long Beach.
Such further transfers shall be made pursuant to an Assignment and Assumption
Agreement reasonably acceptable to the parties to this Agreement.
ARTICLE II
OTHER AGREEMENTS
2.1 EXECUTION AND DELIVERY OF OTHER AGREEMENTS. At the Effective Time,
the parties shall execute and deliver the following documents:
(a) Administrative Services Agreement among Old Long Beach,
New Long Beach and LBFC pursuant to which Old Long Beach will provide certain
services to the Company for a period of time after the Effective Time;
(b) Administrative Services Agreement between New Long Beach
and Old Long Beach pursuant to which New Long Beach will provide secondary
marketing services to Old Long Beach for a period of time after the Effective
Time;
(c) Loan Sub-Servicing Agreement between Old Long Beach and
New Long Beach; and
(d) Such other documents as may be necessary for Old Long
Beach to convey the assets in accordance with this Agreement.
2.2 DOJ SETTLEMENT.
(a) Each of LBFC and New Long Beach agrees that it shall, and
it shall cause its subsidiaries and affiliates to, comply in all respects with
the terms and conditions set forth in Old Long Beach's settlement agreement with
the United States Department of Justice, dated September 6, 1996 (the "DOJ
Settlement") (excluding Sections 12 and 17 through 23 of the DOJ Settlement).
The parties agree to cooperate with each other in good faith with
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respect to any issues related to the DOJ Settlement; provided, however, that the
parties will not make, and each will cause its employees, officers, directors
and agents not to make, any public statement regarding the DOJ Settlement other
than to describe and discuss how the DOJ Settlement specifically applies to and
affects such party.
(b) To the extent of its rights therein, effective as of the
Effective Time, Old Long Beach hereby grants to LBFC, New Long Beach and their
respective subsidiaries a non-transferable (other than by operation of law),
perpetual, royalty-free and nonexclusive license to use the statistical model
(the "DOJ Model") that Old Long Beach has developed to monitor direct-sourced
mortgage loan prices as part of the DOJ Settlement. Old Long Beach will provide
LBFC with a copy of the DOJ Model as it exists at the Effective Time. Old Long
Beach shall have no obligation (a) to provide LBFC with updates of the DOJ
Model, (b) to make modifications to the DOJ Model or (c) to otherwise correct
any deficiencies in the DOJ Model that may exist or that Old Long Beach may
later discover. Old Long Beach specifically disclaims any and all express and
implied warranties with respect to the DOJ Model, including without limitation
the implied warranties of merchantability and fitness for a particular purpose.
Each of LBFC and New Long Beach acknowledges and agrees that Old Long Beach has
not made any representation or warranty or provided any other assurance that the
DOJ Model complies with the terms of the DOJ Settlement. The Company shall not
be required to use the DOJ Model, but may instead develop its own statistical
functions for the purpose of complying with the DOJ Settlement. The Company
shall not be required to provide to Old Long Beach copies of or a license to use
any such statistical function that is independently developed by the Company.
2.3 Name Change.
(a) At or prior to the Effective Time, Old Long Beach shall
file with the Secretary of State of the State of Delaware a certificate of
amendment to its certificate of incorporation to change Old Long Beach's name to
"Ameriquest Mortgage Company" or any other name that it chooses that does not
include the words "Long Beach." As soon as practicable after the Effective Time,
Old Long Beach shall take all action necessary to change its name in each state
in which it is qualified to conduct business.
(b) At or prior to the Effective Time, New Long Beach shall
file with the Secretary of State of the State of Delaware a certificate of
amendment to its certificate of incorporation to change New Long Beach's name to
"Long Beach Mortgage Company." As soon as practicable after the Effective Time,
New Long Beach shall take all action necessary to change its name in each state
in which it is qualified to conduct business.
(c) After the Effective Time, (i) Old Long Beach Holdings and
Old Long Beach shall not, and shall cause their respective subsidiaries and
affiliates (such affiliates determined as of the Effective Time) not to, conduct
business under a name including the words "Long Beach" in connection with
originating, purchasing, servicing or selling residential mortgage loans and
(ii) LBFC and New Long Beach shall not, and shall cause their respective
subsidiaries not to, conduct business under a name including the words "Long
Beach" in connection with the automobile loan business. Other than as set forth
above, the parties shall
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each be free to utilize the name "Long Beach" in connection with any business
activities. Each party agrees to cooperate with the other with respect to the
use of the name "Long Beach" as set forth above, including providing any and all
necessary consents, without cost.
2.4 No Solicitation or Hiring of Employees. For a period of sixty (60)
months after the Effective Time:
(a) Old Long Beach Holdings and Old Long Beach shall not, and
shall cause their respective subsidiaries not to, hire, or solicit to hire, any
employee of LBFC or New Long Beach or their respective subsidiaries without the
written consent of LBFC or New Long Beach; and
(b) LBFC and New Long Beach shall not, and shall cause their
respective subsidiaries not to, hire, or solicit to hire, any employee of Old
Long Beach Holdings or Old Long Beach or their respective subsidiaries without
the written consent of Old Long Beach Holdings or Old Long Beach, other than the
Subject Employees or Deferred Transfer Employees.
2.5 Further Assurances. Each party shall execute and deliver such
further instruments and take such further actions as the other party may
reasonably request in order to carry out the intent of this Agreement and to
consummate the transactions contemplated hereby.
2.6 Proprietary Information. Old Long Beach Holdings and Old Long Beach
acknowledge and agree that all documents listed or described in Schedule
1.1(a)(i) as proprietary documents, information or data is the sole property of
the Company, and Old Long Beach Holdings and Old Long Beach may not make use of
such proprietary information at any time or in any way without the express
written consent of LBFC or New Long Beach. The Company agrees that the pro-
prietary nature of such information extends only to the physical or electronic
reproduction of such information and is not intended to and shall not preclude
Old Long Beach from developing such information on its own or from doing
business with any broker or other contact listed as part of such proprietary
information The Company acknowledges and agrees that, other than information
identified on Schedules 1.1(a)(i) or 1.1(a)(ii), all other documents,
information or data of Old Long Beach or its affiliates (including, without
limitation, retail mortgage source lists and other written/data information
relating to retail mortgage lending and mortgage servicing, automobile lending
and Old Long Beach's other businesses or affiliated businesses; but excluding
therefrom publicly available information) is proprietary information that is the
sole property of Old Long Beach and/or its affiliates, and the Company may not
make use of such proprietary information at any time or in any way without the
express written consent of Old Long Beach or as otherwise specifically permitted
by the terms of this Agreement. Each party agrees to make its employees,
officers and agents aware of this restriction and to the extent any party learns
of a violation of this section by its employees, officers or agents, such party
agrees to use its best efforts to cause such employees, officers and agents to
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comply with the terms hereof; it being understood that no liability shall be
attributable to any party for a violation of the proprietary nature of such
information if such party has used its best efforts to cause its employees,
officers and agents to comply with such terms and such party discontinues use of
any such information promptly after the executive officers learn of the
violation. If any party discovers that an employee, officer or agent of such
party is in possession of any such proprietary information of the other party,
such information shall immediately be returned to such other party. The parties
hereto acknowledge that the personal knowledge of any person with respect to
general know-how or processes of conducting a broker-sourced or direct-sourced
mortgage lending business shall not be construed as proprietary information of
any party and the use of such knowledge by such person for the benefit of a
party to this Agreement shall not constitute an unfair trade practice, a breach
of this or any other agreement among the parties.
2.7 Cooperation. Each of Old Long Beach, Old Long Beach Holdings, LBFC
and New Long Beach acknowledge and agree that because of the relationship
between the parties prior to the Effective Time, a very high degree of
cooperation between the parties will be necessary subsequent to the Effective
Time in order to ensure a smooth and efficient transition. Each party therefore
agrees to cooperate in good faith with the other party for the purpose of
ensuring a smooth transition and to ensure that neither party is unfairly
disadvantaged by virtue of the Reorganization. Such cooperation shall be without
charge (other than reimbursement of expenses) and shall include, but shall not
be limited to, cooperation by each party in preparing, reviewing, analyzing and
responding to inquiries, claims, requests, threats of litigation or actual
litigation involving the business or the assets of the other party (such
cooperation to be not less than the level of cooperation that either party would
have provided to the other prior to the Reorganization). Old Long Beach, Old
Long Beach Holdings, LBFC and New Long Beach further agree that because of their
knowledge of each other's respective businesses, any disparaging comments by one
party against the other would place the party making the disparaging remarks at
an unfair competitive advantage. Each party therefore agrees to avoid making any
disparaging remarks about the other party. Old Long Beach, Old Long Beach
Holdings, LBFC and New Long Beach agree that given the nature of their
respective businesses, this Agreement to cooperate shall continue for a period
of five (5) years.
2.8 Transfer of Loans.
(a) Effective as of the Effective Time, Old Long Beach hereby
transfers and assigns to the Company (i) all mortgage loans funded by the
broker-sourced mortgage lending division of Old Long Beach on or after April 1,
1997 and prior to the Effective Time (the "April Window Loans") and (ii) all
rights and obligations under commitments of Old Long Beach to sell the April
Window Loans to third parties (the "Sale Commitments"). The Company hereby
agrees to purchase from Old Long Beach all April Window Loans that comply with
the representations and warranties described in Section 2.8(c) below and further
agrees to assume the obligations set forth in the Sale Commitments. To the
extent any April Window Loans are delivered by Old Long Beach in partial
fulfillment of the Sales Commitments, Old Long Beach shall indemnify the Company
with respect to the representations and warranties in connection with such loan
deliveries to the same extent as if Old Long Beach had sold such loans to the
Company for delivery pursuant to the Sale Commitments.
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(b) The purchase price the Company shall pay for each April
Window Loan shall be equal to the purchase price to be paid by the purchaser for
such loan under the related Sale Commitment. Such purchase price will be payable
to Old Long Beach upon the closing of the purchase and sale of such April Window
Loan under the respective Sale Commitment.
(c) Old Long Beach agrees to make representations, warranties
and indemnities in respect of each April Window Loan as of the sale date thereof
pursuant to a Sale Commitment, which representations, warranties and indemnities
shall be the same as those the Company is required to make to the purchaser
under the sale commitment.
(d) Old Long Beach agrees that from time to time on and after
the Effective Time, it shall provide to the Company historical loan data with
respect to mortgage loans originated or purchased by the broker-sourced lending
division of Old Long Beach prior to April 1, 1997 as (i) reasonably requested by
the Company in connection with the Company's ongoing secondary marketing
activities, including any securitizations and (ii) in such form and scope as is
necessary for inclusion in disclosure documents to be provided to investors in
the secondary mortgage market; provided that such information is used solely in
connection with the sale or securitization of loans originated or purchased by
the Company or its investor relations. Such information will not include
borrower name, property address or other borrower or property level data (other
than zip code and state of location) that could facilitate the solicitation of
such borrowers by the Company or other recipients of such information. Fees for
the provision of such information shall be as reasonably agreed between the
parties from time to time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 By LBFC. LBFC hereby represents and warrants to Old Long Beach as
of the Effective Time that the Shares have been duly and validly authorized and,
when issued in accordance with the terms hereof, will be (a) duly and validly
issued, fully paid and nonassessable, and (b) free and clear of all liens,
encumbrances, mortgages, pledges, security interests, restrictions, prior
assignments and claims of any kind or nature whatsoever, except as otherwise
provided in the Underwriting Agreement.
3.2 By Old Long Beach. Old Long Beach hereby represents and warrants
to LBFC as of the Effective Time as follows:
(a) the Transferred Tangible Assets transferred hereunder are
transferred free and clear of all liens, encumbrances, mortgages, pledges,
security interests and prior assignments and claims of any kind or nature
whatsoever;
(b) all consents to assignment or transfer of Wholesale
Lending Assets as set forth on Schedules 1.1(b) and 1.1(c) have been validly
obtained; and
(c) all employee benefit plans covering Subject Employees
are set forth on Schedule 3.2(c).
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ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions Precedent to the Obligations of the Parties. The
obligations of each of the parties to effect the transactions contemplated
hereby are subject to the satisfaction, at or prior to the Effective Time, of
each of the following conditions:
(a) There being, at the Effective Time, no (i) threatened,
instituted or pending action, proceeding, application, claim or counterclaim by
or before any court or governmental authority or agency seeking to restrain or
prohibit the consummation of the transactions contemplated hereby or by the
Underwriting Agreement or (ii) statute, rule, regulation, decree, order or
injunction promulgated, enacted, entered or enforced by any court or
governmental agency or authority restraining or prohibiting the consummation of
such transactions;
(b) The Registration Statement shall have been declared
effective by the SEC and, at the Effective Time, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall be pending before the SEC or any state
securities or "blue sky" commissioner or authority; and
(c) All conditions precedent to the obligations of the
Underwriters to consummate the purchase of the Shares from Old Long Beach
pursuant to the Underwriting Agreement (except the consummation of the
Reorganization) shall have been satisfied or waived and each of the parties to
Underwriting Agreement shall be prepared to consummate the transactions
contemplated thereby.
4.2 Conditions Precedent to the Obligations of LBFC. The obligations of
LBFC to effect the transactions contemplated hereby are subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
(a) The representations and warranties of Old Long Beach
contained in this Agreement shall be true, correct and complete in all material
respects as of the Effective Time; and
(b) Old Long Beach shall have performed all obligations and
agreements and complied with all covenants contained in this Agreement or in any
document delivered in connection herewith required to be performed or complied
with at or prior to the Effective Time.
4.3 Conditions Precedent to the Obligations of Old Long Beach. The
obligations of Old Long Beach to effect the transactions contemplated hereby are
subject to the satisfaction, at or prior to the Effective Time, of each of the
following conditions:
(a) The representations and warranties of LBFC contained in
this Agreement shall be true, correct and complete in all material respects as
of the Effective Time; and
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(b) LBFC shall have performed all obligations and agreements
and complied with all covenants contained in this Agreement or in any document
delivered in connection herewith required to be performed or complied with at or
prior to the Effective Time.
ARTICLE V
INDEMNIFICATION
5.1 Indemnification.
(a) Old Long Beach shall indemnify and hold harmless LBFC and
New Long Beach, each of their subsidiaries and their respective officers,
directors, employees, representatives, agents, successors and assigns
(collectively, the "New Long Beach Indemnitees") against and in respect of any
and all damages, claims, liabilities, expenses as incurred (including reasonable
attorneys' fees) and losses (collectively "Damages") incurred by the New Long
Beach Indemnitees that arise out of or relate to (i) any breach or violation of
this Agreement by Old Long Beach, (ii) any breach of any of the representations
or warranties made in this Agreement by Old Long Beach, (iii) the conduct of Old
Long Beach's business (including the Wholesale Lending Business) or corporate
transactions occurring prior to the Effective Time, (iv) the DOJ Settlement, or
(v) the conduct of Old Long Beach's business after the Effective Time; excluding
therefrom any Damages relating to (x) the Company's failure after the Effective
Time to comply with Sections 12 and 17 through 23 of the DOJ Settlement or (y)
any Assumed Liabilities.
(b) LBFC and New Long Beach shall indemnify and hold harmless
Old Long Beach and its subsidiaries and affiliates and their respective
officers, directors, employees, representatives, agents, successors and assigns
(collectively, the "Old Long Beach Indemnitees") against and in respect of any
and all Damages incurred by the Old Long Beach Indemnitees that arise out of or
relate to (i) any breach or violation of this Agreement by LBFC, New Long Beach
or their respective subsidiaries, (ii) any breach of any of the representations
or warranties made in this Agreement by LBFC, (iii) the conduct of the Company's
business (including the Wholesale Lending Business) after the Effective Time or
(iv) the Pipeline Loans, (v) the Sale Commitments, (vi) the Company's failure
after the Effective Time to comply with Sections 12 and 17 through 23 of the DOJ
Settlement, or (vii) the Assumed Liabilities.
(c) In the event of a claim by a Subject Employee relating to
periods including such Subject Employee's employment with both Old Long Beach
and the Company, Old Long Beach and the Company shall cooperate in good faith
with respect to defending any such claim and shall, to the extent possible,
apportion responsibility with respect to such claim based upon a comparison of
the relative fault of each party using objective factors, such as length of time
the complained-of acts occurred while the Subject Employee was the employee of
each party and the events precipitating the claim. In the event that the claim
cannot be apportioned on the basis of objective factors, the parties shall meet
and shall attempt in good faith to determine reasonably an appropriate
apportionment. In the event Old Long Beach and the Company are unable to make
such determination, the matter of apportionment shall be referred to
arbitration. Such arbitration shall determine the relative fault of the parties
and
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such determination shall be binding on the parties, notwithstanding a different
result regarding relative fault in the underlying action.
5.2 Tax Indemnification.
(a) Old Long Beach and Old Long Beach Holdings jointly and
severally shall indemnify the Company and each of its respective officers,
directors, employees and agents and hold them harmless from (i) all liability
for Taxes (as defined in Section 5.2(g)) of the Old Long Beach Group (as defined
in Section 5.2(h)) incurred during the Pre-Closing Tax Period (as defined in
Section 5.2(b)) and (ii) all liability for reasonable legal fees and expenses
incurred with respect to any item indemnified pursuant to clause (i).
(b) For purposes of this Agreement, "Pre-Closing Tax Period"
shall mean (i) any Tax period ending prior to or on the Effective Time,
including, as defined below, any Short Period, and (ii) any Apportioned Short
Period, as defined below, that is deemed to end on the Effective Time. In order
to appropriately apportion any Taxes relating to a period that includes (but
that would not, but for this Section, close on) the Effective Time, the Old Long
Beach Group and the Company will, to the extent permitted by applicable law,
elect with the relevant governmental authority to treat for all purposes the
Effective Time as the last day of a Tax period in which the business operations
of the Wholesale Lending Business are reflected on the Tax returns of Old Long
Beach or the Old Long Beach Group, and such period shall be treated as a "Short
Period." In any case where applicable law does not permit Old Long Beach or the
Old Long Beach Group to treat the Effective Time as the last day of a Short
Period, then for purposes of this Agreement, the portion of Taxes attributable
to the business operations of the Wholesale Lending Business for an Apportioned
Short Period (as defined below) shall be (i) in the case of Taxes that are not
based on income or gross receipts, the total amount of such Taxes for the period
in question multiplied by a fraction, the numerator of which is the number of
days in the Apportioned Short Period, and the denominator of which is the total
number of days in the entire period in question, and (ii) in the case of Taxes
that are based on income or gross receipts, the Taxes that would be due with
respect to the Apportioned Short Period, if such Period were a Short Period.
"Apportioned Short Period" means with respect to any Taxes imposed on the
Wholesale Lending Business on a periodic basis for which the Effective Time is
not the last day of a Short Period, the period of time beginning on the first
day of the actual Tax period in question that includes (but does not end on) the
Effective Time and ending on and including the Effective Time. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with the prior practice of Old Long Beach and its
operation of the Wholesale Lending Business.
(c) Except as provided in Section 5.2(d), the Company shall be
solely responsible for the payment of Taxes imposed upon the Company
attributable to Tax periods of the Company beginning (or deemed to begin under
Section 5.2(b)) after the Effective Time, and the Company shall indemnify and
hold harmless the Old Long Beach Group for or against any and all liability for
such Taxes.
(d) Notwithstanding anything herein to the contrary, Old Long
Beach and Old Long Beach Holdings jointly and severally shall indemnify and hold
the Company harmless
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from any and all liability for Taxes imposed by any taxing authority with
respect to any period up to and including the Effective Time (i) in connection
with the transfer by Old Long Beach of the Wholesale Lending Business to LBFC,
or (ii) by reason of the Company being severally liable for the entire tax of
the Old Long Beach Group pursuant to Treasury Regulations Section 1.1502-6(a) or
any analogous state or local provision.
(e) Old Long Beach or the Old Long Beach Group shall cause to
be prepared and filed all required Tax returns of the Company that reflect the
business operations of the Wholesale Lending Business for the Pre-Closing Tax
Periods that end (but that are not deemed to end under Section 5.2(b)) prior to
or on the Effective Time and shall be responsible for including on the
consolidated or combined returns of the Old Long Beach Group members any taxable
items for pre-closing periods of Apportioned Short Periods. The Company shall
cooperate with Old Long Beach or the Old Long Beach Group in preparing such Tax
returns, and shall take no position on any tax return filed by the Company that
would be inconsistent with any position taken by Old Long Beach or the Old Long
Beach Group with respect to such Tax returns. Old Long Beach and the Old Long
Beach Group shall submit copies of any Tax returns in which the business
operations of the Wholesale Lending Business are included to the Company for the
Company's approval prior to the filing of such Tax returns, which approval shall
not be unreasonably withheld. The Company shall be solely responsible for
preparation and filing of all returns of the Company for Tax periods of the
Company ending (including Tax returns for Tax periods deemed to end on the
Effective Time under Section 5.2(b)) after the Effective Time.
(f) Old Long Beach or the Old Long Beach Group shall promptly
notify the Company in writing upon receipt by them of any notice of (i) any
pending or threatened federal, state or local income or franchise tax audits or
assessments of the Company, and (ii) any pending or threatened federal, state or
local income or franchise tax audits or assessments of Old Long Beach or the Old
Long Beach Group which may affect the liabilities of the Company for Taxes. The
Old Long Beach Group (or any successor group) shall have the right to represent
the Company's interests in any tax audit or administrative or judicial
proceeding relating to any Pre-Closing Tax Period return ending (but that are
not deemed to end under Section 5.2(b)) prior to or on the Effective Time, and
to employ counsel of its choice at its expense. The Old Long Beach Group agrees
to consult with the Company and to keep the Company informed on a regular basis
regarding the status of any such audit or proceeding that may affect the
liabilities of the Company for Taxes. The Company shall have the right to
represent the Company's interest in any tax audit or administrative or judicial
proceeding relating to any Tax return for Tax periods ending after the Effective
Time (including Tax returns for Tax periods deemed to end on the Effective Time
under Section 5.2(b)), and to employ counsel of its choice at its expense. The
Company agrees to keep the Old Long Beach Group (or any successor group)
informed on a regular basis regarding any such audit or proceeding that may
affect the liabilities of the Old Long Beach Group for Taxes and to consult with
the Old Long Beach Group (or any successor group) on such matters with a view to
maintaining positions reasonably consistent with those that may be urged by the
Old Long Beach Group; provided, however, that the Company shall have ultimate
control of any such audit or proceeding.
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(g) For purposes of this Section 5.2, "Taxes" means any and
all taxes (including, without limitation, gross receipts, sales, use, property,
income, franchise, capital, occupational, license, value added, excise and stamp
taxes and customs duties), assessments, fees (including, without limitation,
documentation, license, filing and registration fees) and charges, of any nature
or kind whatsoever, together with any penalties, fines, additions to tax or
interest thereon, however imposed, withheld, levied, or assessed by any taxing
authority.
(h) For purposes of this Section 5.2, "Old Long Beach Group"
means (i) Old Long Beach Holdings, (ii) Old Long Beach, and (iii) any other
entity as to which the Company is liable for Taxes incurred pursuant to Treasury
Regulations Section 1.1502-6 or pursuant to any other provision of federal,
state, local or foreign law or regulation.
5.3 Indemnification Procedure.
(a) Claims for Indemnification. Whenever any claim shall arise
for indemnification hereunder, the party entitled to indemnification (the
"indemnified party") shall promptly notify the other party or parties (the
"indemnifying party") of the claim and, when known, the facts constituting the
basis for such claim; provided that the indemnified party's failure to give such
notice shall not affect any rights or remedies of an indemnified party hereunder
with respect to indemnification for damages except to the extent that the
indemnifying party is materially prejudiced thereby. In the event of any claim
for indemnification hereunder resulting from or in connection with any claim or
legal proceedings by a third party, the notice to the indemnifying party shall
specify, if known, the amount or an estimate of the amount of the liability
arising therefrom. The indemnified party shall not settle or compromise any
claim by a third party for which it is entitled to indemnification hereunder
without the prior written consent of the indemnifying party (which shall not be
unreasonably withheld) unless suit shall have been instituted against it and the
indemnifying party shall not have taken control of such suit after notification
thereof as provided in Section 5.3(b) of this Agreement.
(b) Defense by Indemnifying Party. In connection with any
claim giving rise to indemnity hereunder or resulting from or arising out of any
claim or legal proceeding by a person who is not a party to this Agreement, the
indemnifying party at its sole cost and expense may, upon written notice to the
indemnified party, assume the defense of any such claim or legal proceeding if
it acknowledges to the indemnified party in writing its obligations to indemnify
the indemnified party with respect to such claim, and thereafter diligently
conducts the defense thereof with counsel reasonably acceptable to the
indemnified party. The indemnified party shall be entitled to participate in
(but not control) the defense of any such action, with its counsel and at its
own expense. If the indemnifying party does not assume or fails to conduct in a
diligent manner the defense of any such claim or litigation resulting therefrom,
(a) the indemnified party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling such
claim or litigation, after giving notice of the same to the indemnifying party,
on such terms as the indemnified party may deem appropriate, and (b) the
indemnifying party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
indemnifying party thereafter seeks to question the manner in which the
16
<PAGE> 17
indemnified party defended such third party claim or the amount or nature of any
such settlement, the indemnifying party shall have the burden to prove by a
preponderance of the evidence that the indemnified party did not defend or
settle such third party claim in a reasonably prudent manner. Each party agrees
to cooperate fully with the other, such cooperation to include, without
limitation, attendance at depositions and the provision of relevant documents as
may be reasonably requested by the indemnifying party, provided that the
indemnifying party will hold the indemnified party harmless from all of its
expenses, including reasonable attorney's fees, incurred in connection with such
cooperation by the indemnified party.
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices, requests, demands and other communications
provided for hereunder shall be in writing (including telegraphic or facsimile
communications) and shall be mailed (return receipt requested), telegraphed,
sent by facsimile or hand delivered to each party at the address set forth as
follows, or at such other address as either party may designate by notice to the
others, and any such notice, request, demand or other communication shall be
effective upon receipt:
If to Old Long Beach Holdings or Old Long Beach:
AMERIQUEST CAPITAL CORPORATION
AMERIQUEST MORTGAGE COMPANY
1100 Town & Country Road
Suite 1100
Orange, California 92868
Telephone: (714) 564-0600
Attention: General Counsel
If to the Company:
LONG BEACH FINANCIAL CORPORATION
1100 Town & Country Road
Suite 900
Orange, California 92868
Telephone: (714) 541-5378
Attention: General Counsel
6.2 Amendments. This Agreement shall not be amended, changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by all parties, or their respective successors or assigns, or otherwise
as provided herein.
6.3 Attorneys' Fees. In the event of any dispute arising out of or in
connection with this Agreement, and any documents executed pursuant, the
prevailing party, in addition to
17
<PAGE> 18
any other amounts which it may be entitled to, shall be entitled to recover from
the other party reasonable attorneys' fees and court costs as shall be awarded
in the resolution of such dispute.
6.4 Successors and Assigns. Except as otherwise set forth in Section
1.9 hereof, this Agreement shall not be assignable by any party without the
express written consent of all other parties.
6.5 Entire Agreement. This Agreement contains the entire agreement
between the parties pertaining to the subject matter hereof. This Agreement
supersedes all prior written agreements and all prior or contemporaneous verbal
agreements with respect to the subject matter hereof.
6.6 Waiver. Any forbearance by a party to this Agreement in exercising
any right or remedy under this Agreement or otherwise afforded by applicable law
shall not be a waiver of or preclude the exercise of that or any other right or
remedy.
6.7 Headings. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
6.8 Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity of any other provision, and all
other provisions shall remain in full force and effect.
6.9 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and performed in such State, without regard to conflicts of laws principles.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original, and
all of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement is executed on behalf of the parties
by duly authorized representatives as of the date first above written.
AMERIQUEST CAPITAL CORPORATION,
a Delaware corporation
By: /s/ Norman R. Gritsch
_______________________________
Name: Norman R. Gritsch
Title: Senior Vice President
18
<PAGE> 19
LONG BEACH MORTGAGE COMPANY, a
Delaware corporation
By: /s/ Norman R. Gritsch
-------------------------------
Name: Norman R. Gritsch
Title: Executive Vice President
LONG BEACH FINANCIAL CORPORATION, a
Delaware corporation
By: /s/ James J. Sullivan
--------------------------------
Name: James J. Sullivan
Title: Senior Vice President
AMERIQUEST MORTGAGE
CORPORATION, a Delaware corporation
By: /s/ James J. Sullivan
-------------------------------
Name: James J. Sullivan
Title: Senior Vice President
19
<PAGE> 20
Schedule 1.1(a)(i)
(Transferred Tangible Assets)
The assets set forth below are delivered to LBFC subject to the rights
of Old Long Beach Holdings and Old Long Beach to obtain originals or copies, as
necessary, in order (i) to defend or prosecute any claim arising out of the
Reorganization, the related public offering or in any way related to such
assets, or (ii) to respond to the request of Old Long Beach Holdings' or Old
Long Beach's auditors or to comply with the request or demand of any
governmental agency, entity or official.
A. The furniture, fixtures and equipment owned by Old Long Beach located on
the 9th Floor of 1100 Town & Country Road, Orange, California or at the
Wholesale Lending Business offices set forth on Schedule 1.1(b), and all
equipment owned by Old Long Beach identified on Schedules 1.1(a)(i)(A) or
1.1(a)(i)(B) attached hereto.
B. The booths used exclusively by the Wholesale Lending Business at trade
shows and any related furniture, fixtures or equipment used in the assembly
or display of such booths.
C. All key chains, mugs, pens, golf balls, knives, tool kits, clocks and golf
bags, and any other promotional items relating exclusively to the Wholesale
Lending Business' marketing and/or advertising.
D. All prepaid subscriptions to newspapers and magazines and other
periodicals, which are sent to any Transferred Employee.
E. All Post Office Boxes relating exclusively to the Wholesale Lending
Business.
F. All listings of approved Mortgage Brokers used exclusively by the Wholesale
Lending Business and the current contracts or agreements in effect with
respect to such Mortgage Brokers (this information to be treated as
proprietary information of the Company for purposes of Section 2.6).
G. The Wholesale Lending Business and Strategic Plans (this information to be
treated as proprietary information of the Company for purposes of Section
2.6).
H. All minor office equipment properly issued to and used exclusively by
Transferred Employees in the course of their employment by Old Long Beach,
including, without limitation, desk or pocket calculators, overhead
projectors, plants and similar miscellaneous office supplies. All fire
extinguishers and related safety equipment, disaster recovery/emergency
kits and telephone switch and related equipment owned by Old Long Beach
located on or exclusively serving the ninth floor of 1100 Town and
20
<PAGE> 21
Country Road, Orange, California or any branch office of the Wholesale
Lending Business as set forth on Schedule 1.1(b).
I. The membership of Old Long Beach in the Mortgage Brokers Association of
America and the National Association of Mortgage Brokers, provided that
the Company shall reimburse Old Long Beach for the greater of the pro
rated cost of (i) such membership paid by Old Long Beach or (ii) a new
membership for Old Long Beach.
21
<PAGE> 22
Schedule 1.1(a)(ii)
(Shared Information)
With respect to the information listed below each party shall have the right to
obtain copies or originals as necessary notwithstanding the fact that the
originals may be in the possession of the other party. Each party further agrees
to maintain all of the information set forth below in the form existing as of
the Effective Time. Notwithstanding the shared nature of such information, no
party to this Agreement shall use such information to gain access to or use any
proprietary information of another party. Old Long Beach further agrees that
such information may not be and will not be used to recreate, in whole or in
part, the approved broker list of the Wholesale Lending Business.
A. All "closing protection letters" issued to Old Long Beach with respect
to the Wholesale Lending Business in order to protect Old Long Beach
from, and/or indemnify Old Long Beach against claims and liability
arising in connection with, the acts or omissions of closing agent(s)
designated within such "closing protection letters".
B. Any lists providing any information used by the Wholesale Lending
Business, including without limitation, names, addresses, telephone and
telefacsimile numbers and any historical information, concerning
appraisers, attorneys, closing agents, mortgage brokers or title
companies.
C. All policies and procedures, including without limitation, any desk
instructions, loan origination manual, disaster recovery plans, "state
specific" policies and procedures, training manuals, training forms or
similar items used for the Wholesale Lending Business.
D. All information, including without limitation, any charts and/or forms,
relating to regulatory compliance used by the Wholesale Lending
Business.
E. All forms of loan or disclosure documents, and all forms and worksheets
used exclusively by the Wholesale Lending Business, including without
limitation, all forms that relate to any loan document, disclosure,
informational document or instructional document, which may or may not
be used in connection with an early disclosure package or a closing
package of documents.
F. All lease files related to the Real Property Leases set forth in
Schedule 1.1(b).
G. All information contained in a "home directory", contained in "LBMCW"
which is the "log in server" for the Wholesale Lending Business or any
other "home directory" for any Transferred Employee. All information
contained "Database 299," which Database is contained in the server
designated LBMCW which serves the Wholesale Lending Business
exclusively.
23
<PAGE> 23
H. All information and any items relating exclusively to the Wholesale
Lending Business' marketing and/or advertising activities, including
without limitation, any current and/or historical documents sent to any
mortgage broker, or employee or agent of Old Long Beach, including
without limitation, any "price sheets."
I. All logs used exclusively in connection with the Wholesale Lending
Business, including without limitation, the "Submission Log".
J. A copy of the Loan Tracker and CAR/Filmdex (Microfiche Tracking System)
developed by Old Long Beach.
24
<PAGE> 24
Schedule 1.1(b)
(Transferred Real Property Leases)
Leased Space
<TABLE>
<S> <C>
5345 Wyoming NE, Ste. 107, Alburquerque, NM 87109 Consent obtained
5887 Glenridge Drive, Suite 410, Atlanta, GA 30328 Consent obtained
Two Bala Plaza, Ste. 300, Bala Cynwyd, PA 19004 Consent not obtained
11100 NE 8th St., Ste. 600, Bellevue, WA 98004 Consent obtained
404 S. 8th St., Ste. 310, Boise, ID 93702 Consent obtained
222 W. Coleman Blvd., Mt. Pleasant, Charleston, SC 29464 New lease to be executed
6201 Fairview Rd., Ste. 200, Charlotte, NC 28210 Consent obtained
8044 Montgomery Rd., Ste. 700, Cincinnati, OH 45236 Consent obtained
8850 Standford Blvd., Ste. 1700, Columbia, MD 21045 Consent obtained
5000 Thurmond Mall, Ste. 337 Columbia, SC 29201 Consent obtained
1105 Schrock, Ste. 503, Columbus, OH 43229 Consent obtained
800 N. Shoreline Blvd., Ste. 700A, Corpus Christi, TX 78401 Consent obtained
4099 McEwen Rd., Ste. 225, Dallas, TX 75244 Consent obtained
355 Gellert Blvd., Ste. 241, Daly City, CA 94015 Consent not obtained
6905 Vista Dr., Des Moines, IA 50266 Consent not obtained
444 Executive Center Blvd., Ste. 138, El Paso, TX 79902 Consent obtained
2295 Coburg Rd., Eugene, OR 97401 Consent obtained
2525 E. Paris, Ste. 100, Grand Rapids, MI 93710 Consent obtained
6143 S. Willow Dr., Ste. 103, Greenwood Village, CO 80111 Consent obtained
99 Derby St., Ste. 201, Hingham, MA 02043 Consent not obtained
841 Bishop St., Ste. 1622, Honolulu, HI 96813 Consent obtained
3050 Post Oak Rd., Ste. 430, Houston, TX 77056 Consent obtained
1 Summit Park Dr., Ste. 425, Independence, OH 44131 Consent obtained
500 Market Tower, 10 W. Market, Ste. 100, Indianapolis, IN 46204 Consent obtained
405 Briarwood Dr., Ste. 103A, Jackson, MS 39206 Consent not obtained
9040 Executive Park Dr., Ste. 219, Knoxville, TN 37923 Consent obtained
9171 Towne Centre Drive, Ste. 140, San Diego, CA 92122 Consent obtained
</TABLE>
25
<PAGE> 25
<TABLE>
<S> <C>
2980 S. Rainbow Blvd., Ste. 1105, Las Vegas, NV 89102 Consent obtained
295 W. Louise, Manteca, CA 95336 Consent not obtained
One Greentree Centre, Ste. 201, Marlton, NJ 08053 Consent obtained
5100 Poplar Ave., Ste. 2700, Memphis, TN 38317 Consent obtained
1225 E. Fort Union Blvd., Ste. 120, Midvale, UT 84047 Consent obtained
7701 Normandale Rd., Ste. 111, Edina, Minneapolis, MN 55435 Consent obtained
5400 N. Grand Blvd., Ste. 100, Oklahoma City, OK 73112 Consent obtained
5850 T.G. Lee Blvd., Ste. 470, Orlando, FL 32822 Consent not obtained
Penn Center West One, Ste. 221, Pittsburgh, PA 15276 Consent obtained
80-02 Kew Gardens Rd., Ste. 1020, Queens, NY 11415 Consent not obtained
4601 Six Forks Rd., Ste. 500, Raleigh, NC 27609 Consent obtained
1701 Golf Rd., Tower II, Ste. 1006, Rolling Meadows, IL 60008 Consent not obtained
1451 River Park Dr., Ste. 128, Sacramento, CA 95815 Consent obtained
1190 S. Bascom Ave., Ste. 129, San Jose, CA 95128 Consent not obtained
3220 S. Higuera St., 2nd Floor, San Luis Obispo, CA 93405 Consent obtained
910 Pierremont, Ste. 410, Shreveport, LA 71106 Consent obtained
231 Bemiston Ave., Ste. 220, St. Louis, MO 63105 Consent obtained
3600 Port of Tacoma Rd., Ste. 507, Tacoma, WA 98424 Consent obtained
1438 W. Broadway, Ste. B-220, Tempe, Phoenix, AZ 85282 Consent obtained
113 N. Church St., Ste. 505, Visalia, CA 93291 Consent obtained
1850 Mt. Diablo, Stes. 345 and 350, Walnut Creek, CA 94596 Consent obtained
7125 Orchard Lake Rd., Ste. 304, West Bloomfield, MI 48322 Consent obtained
1000 E. Garvey Ave. S., Ste. 240, West Covina, CA 91790 Consent obtained
21800 Burbank Blvd., Ste. 350, Woodland Hills, CA 91367 Consent obtained
</TABLE>
26
<PAGE> 26
Month to Month Space
535 N. Pleasantburg Drive, Suite 202, Greenville, South Carolina 29607
2955 Ridgelake Drive, Suite 105, Metairie, Louisiana 70002
4800 SW Macadam, Suite 150, Portland, Oregon 97201
1100 NW Loop 410, Suite 556, San Antonio, Texas 78213
1190 S. Bascom Avenue, Suite 111, San Jose, California 95128
3022 S. National Avenue, Springfield, Missouri 65804
550 N. Reo Street, Suite 300, Tampa, Florida 33609
Home Offices
40 Los Felis Drive, Phillips Ranch, California 91766
13142 Crestline Drive, Santa Ana, California
2600 Ponderosa, #46, Camarillo, California 93010
1085 Larue, La Verne, California 91750
13935 Lemoli Street, #24, Hawthorne, California 91710
4735 Roosevelt Street, Chino, California 91710
San Pedro, California
5063 Inaglen Way, Los Angeles, California 90043
760 John Street, Pinole, California 94564
5010 Underwood Drive, Santa Rosa, California 95409
Rolling Meadows, Illinois
Chicago, Illinois
9235 Reeder, Overland Park, Kansas 66214
17647 SW 20th Street, Mirimar, Florida 33029
Ft. Lauderdale, Florida
2501 McGregor Boulevard, #8, Ft. Myers, Florida 33919
309 Sweet Birer Ranch Lane, Jacksonville, Florida 32259
2885 Toni Street, Pensacola, Florida 32504
2336 SW 53rd, #F, Boca Ratan, Florida 33433
407 Greyford Lane, Casselberry, Florida 32707
21079 Escondido Way, Boca Raton, Florida 33433
8887 Fontainbleau Blvd., #404, Miami, Florida 33172
21 Gloria Drive, Woodbury, New York 11797
12605 Twisted Briar Lane, Austin, Texas 78729
27
<PAGE> 27
Schedule 1.1(c)
(Transferred Contracts)
A. The following agreements and licenses entered into by Old Long Beach
with respect to computer software:
a. FiTech users licenses (175)
b. FiTech to Bat Tag Interfaces for Files (1)
c. FiTech to Iron Mountain Bat Tag Interface (1)
d. Saber (9 servers)
e. McAffe (9 servers)
f. Wordperfect (5)
g. Lotus 1-2-3 v3.1 (5)
h. Lotus 1-2-3 v5 (4)
i. Office Pro 95 (4)
j. Windows 95 (4)
k. Backup exec client/enterprise/single server (14 servers)
l. Novell for each existing server (18 servers, 400 users)
m. Microsoft Office Pro for each branch server (9)
n. Procom Plus for each branch server (9)
o. Lotus CC:Mail (200)
p. Microsoft NT Server (3)
q. Microsoft NT Client (15)
r. Microsoft SQL Server (1)
s. Microsoft SQL Client (15)
u. Windows license for each personal computer set forth on
Schedule 1.1(a)(i)(A).
B. The contract, agreement or understanding between Old Long Beach and
Mediatel as it relates to the Wholesale Lending Business.
C. That certain agreement between Old Long Beach and CBF Systems relating
to residential lending documents used in connection with the Wholesale
Lending Business' correspondent lending activities.
D. All lease or similar contracts with respect to the furniture, fixtures
and equipment leased by Old Long Beach located on the 9th Floor of
1100 Town & Country Road, Orange, California or at the Wholesale
Lending Business offices set forth on Schedule 1.1(b), and all
equipment leased by Old Long Beach identified on Schedules 1.1(c)(i)
or 1.1(c)(ii) attached hereto.
E. That certain agreement with Lion Incorporated relating to internet web
sites, including all of Old Long Beach's rights to internet web sites
used exclusively by the Wholesale Lending Division and the sites
"longbeachmortgage.com" and "lbmortgage.com."
28
<PAGE> 28
Schedule 3.2(c)
(Employee Benefit Plans)
MEDICAL INSURANCE:
o Health Net
o CIGNA
o QualMed
o US HealthCare
o Tufts Health Plan
DENTAL INSURANCE:
o CIGNA Dental Health
SHORT/LONG TERM DISABILITY:
o ITT Hartford
LIFE AND AD&D INSURANCE and VOLUNTARY LIFE INSURANCE:
o Phoenix Home Life Insurance Company
VOLUNTARY AD&D INSURANCE AND BUSINESS TRAVEL ACCIDENT:
o Commercial Life Insurance Company (A UNUM Company)
VISION DISCOUNT PLAN:
o Cole Vision
35
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into
effective as of May 27, 1997, by and between LONG BEACH FINANCIAL CORPORATION, a
Delaware corporation ("LBFC"), and LONG BEACH MORTGAGE COMPANY, a Delaware
corporation ("LBMC") (collectively, the "COMPANY"), and WILLIAM K. KOMPERDA
("EXECUTIVE").
I.
EMPLOYMENT
1.1 POSITION AND DUTIES. The Company hereby engages and employs
Executive in the following capacities at LBFC and LBMC:
LBFC: Senior Vice President, Managing Director of
Capital Markets and Strategic Planning
LBMC: Senior Vice President, Managing Director of
Capital Markets and Strategic Planning
The Company's Boards of Directors (collectively, the "BOARDS") may
provide such additional designations of title to Executive as the Boards, in
their discretion, may deem appropriate. Executive shall perform the executive
duties and functions related to the above positions, subject to the limitations
of authority reasonably set forth from time to time in any resolution of the
Boards or applicable law.
1.2 BEST EFFORTS. Executive agrees to devote his full time and
attention to the Company, to use his best efforts to advance the business and
welfare of the Company, to render his services under this Agreement fully,
faithfully, diligently, competently and to the best of his ability, and not to
engage in any other employment activities. Notwithstanding anything herein to
the contrary, Executive shall not be precluded from (i) engaging in charitable
activities and community affairs and managing his personal investments and
affairs, provided that such activities do not materially interfere with the
proper performance of his duties and responsibilities under this Agreement; or
(ii)
1
<PAGE> 2
owning up to 1% of a publicly-held company engaged in the same or similar
business as the Company.
II.
COMPENSATION AND BENEFITS
2.1 BASE SALARY. For all services to be rendered by Executive under
this Agreement, the Company agrees to pay Executive an annual base salary ("BASE
SALARY") of $200,000 (subject to adjustment upward as recommended by the
Compensation Committees of the Board), less deductions required by law, payable
in accordance with the normal payroll practices of the Company.
2.2 ANNUAL PERFORMANCE BONUS. On or before April 15 each year beginning
April 15, 1998, the Company shall pay to Executive a cash bonus ("BONUS") of up
to 100% of Executive's Base Salary, as determined by the Boards, or the
respective Compensation Committees thereof, based on Executive's performance and
the performance of the Company during the prior calendar year. All Bonus
calculations shall be based upon the Company's audited financial statements
through the end of the applicable calendar year.
2.3 OTHER BENEFITS. The Company shall further provide to Executive, at
the Company's expense, the following other benefits ("OTHER BENEFITS"):
(a) An automobile (to be owned or leased by the Company at
its option and expense) of Executive's choice with a negotiated purchase price
of no more than $60,000, and reimbursement of all reasonable operating costs,
insurance and repairs;
(b) An annual vacation leave of a minimum of three (3) weeks
per calendar year at full pay;
(c) Full participation, on a basis commensurate with his
position with the Company, in all plans of life, accident, disability and health
insurance that generally are made available to senior executives of the Company;
(d) A complete annual physical examination by the doctor of
Executive's choice;
(e) Stock options ("OPTIONS") for 475,000 shares of LBFC
Common Stock which have been granted as of the date hereof by the Compensation
Committee of the LBFC Board
2
<PAGE> 3
pursuant to the terms of the LBFC 1997 Stock Incentive Plan dated February 18,
1997 (the "INCENTIVE PLAN"). The Options shall have an exercise price equal to
$7.94 and shall vest 20% on the first anniversary of this Agreement and 20% on
each anniversary thereafter until May 27, 2002, unless the vesting of such
Options is accelerated in accordance with Sections 3.2(b) or 3.3(a) hereof or
such Options expire or accelerate pursuant to the Incentive Plan. The Options
shall be "Stock Options" as defined in the Incentive Plan and shall be
exercisable in accordance with the terms thereof; provided, however, that to the
extent any terms of the Incentive Plan are inconsistent with the terms of this
Agreement (including, but not limited to, the provisions regarding the vesting
or exercise of any Options), the terms of this Agreement shall govern; and
(f) Reimbursement of expenses and other benefits related to
the relocation of Executive as mutually agreed upon by the Company and
Executive.
2.4 EXPENSE REIMBURSEMENT. The Company shall promptly reimburse
Executive for all reasonable business expenses incurred by Executive in
promoting the business of the Company, including expenditures for entertainment,
travel, or other expenses, provided that (a) such expenditures are of a nature
qualifying them as legitimate business expenses and (b) Executive furnishes to
the Company adequate records and other documentary evidence reasonably required
by the Company to substantiate such expenditures in accordance with the
Company's policies and procedures.
III.
TERMINATION AND SEVERANCE PAY
3.1 AT WILL. Executive and the Company acknowledge and agree that
Executive's employment with the Company is expressly "at will." This means that
either party may terminate Executive's employment for any reason with or without
cause. Any termination of Executive's employment is, however, subject to the
terms and provisions of this Agreement as to Severance Pay (as defined below)
and Option vesting in accordance with Sections 3.2(a), 3.2(b) and 3.3(a). In
addition, the Company agrees to inform Executive in writing three business days
before terminating his employment for Cause (as defined below) and to inform
Executive in writing 30 calendar days before terminating his employment other
than for Cause.
3
<PAGE> 4
3.2 INVOLUNTARY TERMINATION.
(a) SEVERANCE PAYMENTS. In the event that Executive's
employment with the Company is terminated by the Company for Cause, Executive
shall not be entitled to any Severance Pay or employee benefits (including Other
Benefits). In the event that Executive's employment with the Company is
terminated by the Company other than for Cause and Executive has not elected to
waive his right to Severance Pay pursuant to the second paragraph of Article V,
then in consideration of Executive's compliance with his obligations under
Article IV and Article V and Executive's execution of a general release in favor
of the Company and its affiliates, Executive shall be entitled to severance pay
("SEVERANCE PAY") in the form of (i) monthly payments to Executive in the amount
of Executive's monthly Base Salary as in effect on the date of termination,
payable in accordance with customary payroll practices, for twelve (12) months
following such termination; plus (ii) for each full calendar month Executive was
employed during the calendar year of termination of employment, 1/12th of the
Bonus to which Executive would have been entitled pursuant to Section 2.2 had he
been employed the entire year, payable at the time specified in Section 2.2
hereof. Executive acknowledges and agrees that in the event Executive breaches
any provision of Article IV or Article V or the general release, his right to
receive Severance Pay under this Section 3.2(a) shall automatically terminate
and Executive shall repay all Severance Pay received.
(b) BENEFITS. Following the effective date of termination,
Executive shall cease to be a Company employee and shall not be entitled to any
employee benefits (including Other Benefits), except as set forth in the
following two sentences. Notwithstanding anything herein to the contrary,
Executive's termination shall not preclude Executive from exercising his rights
under COBRA to pay for the continuation of benefits previously provided by the
Company. In the event that the Company terminates Executive's employment other
than for Cause (or, as provided in Section 3.3(a), Executive voluntarily
terminates his employment for Good Reason (as defined below)), all Options
granted pursuant to Section 2.3(e) shall vest as of the effective date of
termination, provided that Executive has not elected previously to waive this
right pursuant to the second paragraph of Article V.
(c) CAUSE. For purposes of this Agreement, "CAUSE" shall mean
(i) an act or acts of personal dishonesty by Executive that were intended to
result in substantial personal enrichment of Executive at the expense of the
Company; (ii) Executive's conviction of any felony; or (iii)
4
<PAGE> 5
Executive's gross negligence, gross incompetence, willful insubordination or
misconduct, intentional or persistent failure to perform stated duties or abide
by the Company's policies, or material breach of any provision of this
Agreement, including without limitation any representation or covenant contained
in Article IV or Article V of this Agreement; provided, however, that "Cause"
shall not include any material breach of this Agreement if Executive has cured
such breach within a three business day period following Company's notification
thereof.
3.3 VOLUNTARY TERMINATION.
(a) SEVERANCE PAY. In the event Executive voluntarily
terminates his employment with the Company without Good Reason, Executive shall
not be entitled to any Severance Pay or employee benefits (including Other
Benefits). In the event Executive voluntarily terminates his employment with the
Company for Good Reason, Executive shall be entitled to Severance Pay and all
Options granted pursuant to Section 2.3(e) shall vest as of the effective date
of such termination to the same extent as if Executive's employment with the
Company had been terminated other than for Cause as provided by Sections 3.2(a)
and 3.2(b), provided that (i) Executive gives written notice of his resignation
within ninety (90) days of the occurrence of such Good Reason and advises, as
part of such resignation, that he is resigning because of the Good Reason, and
(ii) the Good Reason was other than for Cause.
For purposes of this Agreement, a resignation tendered by
Executive pursuant to a direct request of the Boards (or either of them) or
another officer with higher executive status shall, for purposes of this
Agreement, be treated as an involuntary termination, entitling Executive to
Severance Pay and Option vesting in accordance with the provisions of Sections
3.2(a) and 3.2(b) so long as the request was not based on Cause.
(b) GOOD REASON. For purposes of this Agreement, "GOOD REASON"
shall include (i) the material reduction or material adverse modification of
Executive's authority or duties (i.e., the substantial diminution or adverse
modification in Executive's title, status, overall position, responsibilities,
reporting relationship or general working environment); (ii) any reduction in
Executive's Base Salary or Bonus calculation or any material reduction in
employee benefits; or (iii) any requirement to move Executive's principal place
of employment from Orange County, California, in each case without Executive's
prior written consent.
3.4 DEATH. In the event of Executive's death, this Agreement shall
automatically terminate and shall be of no further force and effect. Termination
of Executive's employment as a result of his
5
<PAGE> 6
death shall not accelerate the vesting of Executive's Options or result in any
obligation by the Company to pay to Executive's estate or heirs any Severance
Pay or employee benefits (including Other Benefits), but Executive's estate or
heirs shall be entitled to a pro-rata Bonus through the date of termination at
the time specified in Section 2.2.
3.5 DISABILITY. In the event of Executive's Disability (as defined
below) during Executive's employment by the Company for any period of at least
three (3) consecutive months, the Company shall have the right, which may be
exercised in its sole discretion, to terminate this Agreement. In the event the
Company elects to terminate this Agreement due to Executive's Disability, the
vesting of Executive's Options shall not accelerate and Executive shall not be
entitled to any Severance Pay or employee benefits (including Other Benefits) at
any time, but Executive shall be entitled to normal disability benefits in
accordance with the policies established from time to time by the Company. For
purposes of this Agreement, "EXECUTIVE'S DISABILITY" shall mean the inability of
Executive to perform his employment services hereunder by reason of physical or
mental illness or incapacity as determined by a physician chosen by the Company
and reasonably satisfactory to Executive or his legal representative.
6
<PAGE> 7
IV.
NONDISCLOSURE OF INFORMATION
AND NON-SOLICITATION OF EMPLOYEES
4.1 NONDISCLOSURE OF PROPRIETARY INFORMATION. At all times during and
after Executive's employment with the Company (whether or not such termination
is voluntary or involuntary, with or without Cause or Good Reason or by
disability), Executive agrees to keep in strict confidence and trust all
Proprietary Information (as defined below) and not to use or disclose (or induce
or assist in the use or disclosure of) any Proprietary Information without the
prior express written consent of the Company, except as may be necessary in the
ordinary course of performing Executive's duties as an officer of the Company.
Executive acknowledges that irreparable injury will result to the Company from
Executive's violation or continued violation of the terms of this Article IV,
and Executive expressly agrees that the Company shall be entitled, in addition
to damages and any other remedies provided by law, to an injunction or other
equitable remedy respecting such violation or continued violation. For purposes
of this Agreement, "PROPRIETARY INFORMATION" shall mean information generally
unavailable to the public that has been created, discovered, developed, or
otherwise become known to the Company or in which property rights have been
assigned or otherwise conveyed to the Company, including any modifications or
enhancements thereto, which information has material economic value or potential
material economic value to the Company or the business in which the Company is
or will be engaged. Proprietary Information shall include, but not be limited
to, financial, sales and distribution information; business plans, strategies
and forecasts; lists of employees, contractors, customers, agents and
independent brokers; trade secrets; processes; formulas; data; know-how;
negative know-how; improvements; discoveries; developments; designs; inventions;
techniques; proposals; reports; client information; and software programs and
information (whether or not expressed in written form). Such restrictions on the
use or disclosure of Proprietary Information do not extend to any item of
information which (i) is publicly known immediately prior to the time of its
disclosure, (ii) is lawfully received from a third party not bound in a
confidential relationship to the Company, (iii) is published or otherwise made
known to the public by the Company or (iv) was already known to Executive prior
to the date hereof.
7
<PAGE> 8
4.2 RETURN OF PROPRIETARY INFORMATION AND PROPERTY. Upon termination of
Executive's employment, Executive will deliver to the Company all Proprietary
Information and any equipment, supplies, facilities and other tangible property
owned, leased or contracted for by the Company which property is in Executive's
possession as of the date of such termination.
4.3 NON-SOLICITATION. Executive agrees that, so long as he is employed
by the Company and for a period of one (1) year after termination of his
employment for any reason, he shall not (i) directly or indirectly solicit,
induce or attempt to solicit or induce any Company employee to discontinue his
or her employment with the Company, (ii) usurp any opportunity of the Company
that Executive became aware of during his tenure at the Company or which is made
available to him on the basis of the belief that Executive is still employed by
the Company, or (iii) directly or indirectly solicit or induce or attempt to
influence any person or business that is an account, customer or client of the
Company to restrict or cancel the business of any such account, customer or
client with the Company.
V.
NON-COMPETITION
Except as set forth in the following paragraph, so long as Executive is
employed by the Company and for a period of one (1) year after termination of
his employment for any reason, Executive shall not, without the prior written
consent of the Company, either directly or indirectly, including without
limitation through a partnership, joint venture, corporation or other entity or
as a consultant, director or employee, engage in any activity which the Company
shall determine in good faith to be in competition with the Company, including,
without limitation, any business activities conducted by the Company as of the
date hereof within those geographical areas in which the Company currently
conducts active business operations. The parties hereto agree that both the
scope and nature of the covenant and the duration and area for which the
covenant not to compete set forth in this Article V is to be effective are
reasonable in light of all facts and circumstances.
Notwithstanding the foregoing, the restrictions on competition set
forth in the previous paragraph shall not apply to Executive on and after the
effective date of (i) his involuntary termination by the Company other than for
Cause or (ii) his voluntary termination
8
<PAGE> 9
for Good Reason if, in either case, prior to such effective date, Executive has
agreed in writing to waive all of his rights to Severance Pay and Option vesting
under Sections 3.2(a), 3.2(b) and 3.3(a) (but excluding the vesting of Options
that has occurred prior to such effective date other than pursuant to Sections
3.2(b) or 3.3(a)). In addition, the restrictions on competition set forth in the
previous paragraph shall not apply to Executive on and after the effective date
of his voluntary termination if such termination is other than for Good Reason.
VI.
MISCELLANEOUS
6.1 SUCCESSORS AND ASSIGNS; BINDING AGREEMENT. This Agreement shall
inure to the benefit of and shall be binding upon the Company, its successors
and assigns. The obligations and duties of the Executive hereunder are personal
and otherwise not assignable. This Agreement shall inure to the benefit of and
be enforceable by the Executive's legal representatives. This Agreement shall
not be terminated by the voluntary or involuntary dissolution of the Company or
by any merger or consolidation, whether or not the Company is the surviving or
resulting corporation, or upon any transfer of all or substantially all of the
assets of the Company. In the event of any such dissolution, merger,
consolidation or transfer of assets, the provisions of this Agreement shall bind
and inure to the benefit of the surviving or resulting corporation, or the
corporation to which such assets shall have been transferred, as the case may
be; provided, however, that the Company will require any successor to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to Executive, to expressly assume and agree to
perform under this Agreement in the same manner and to the same extent that the
Company would be required to perform under it if no such succession had taken
place.
6.2 ARBITRATION. Other than with respect to Article IV and Article V
hereof, any and all disputes arising out of the interpretation, application or
breach of this Agreement shall be subject to arbitration pursuant to the
Company's Mutual Agreement to Arbitrate Claims, a copy of which is attached
hereto as Exhibit A and incorporated herein by this reference.
6.3 NO WAIVER. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any other
breach thereof.
9
<PAGE> 10
6.4 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws and decisions of the State of California.
6.5 AMENDMENTS. No amendment or modification of the terms of this
Agreement shall be valid unless made by written agreement executed by the
parties hereto or their respective successors or legal representatives.
6.6 SEVERABILITY. In the event that any provision of this Agreement,
including without limitation any provision of Article V, shall to any extent be
held invalid, unreasonable or unenforceable, in any circumstances, the parties
hereto agree that the remainder of this Agreement and the application of such
provision of this Agreement to other circumstances shall be valid and
enforceable to the fullest extent permitted by law. If any provision, or any
part thereof, is held to be unenforceable because of the scope or duration of,
or the area covered by such provision, the parties hereto agree that the court
making such determination shall have the power, and is hereby asked by the
parties, to reduce the scope, duration and/or area of such provisions (and to
substitute appropriate provisions for any such unenforceable provisions) in
order to make such provisions enforceable to the fullest extent permitted by
law, and/or to delete specific words and phrases, and such modified provisions
shall then be enforceable and shall be enforced.
6.7 ENTIRE AGREEMENT; NO OTHER CLAIMS. This Agreement constitutes the
entire agreement between the parties regarding the subject matter hereof, and
supersedes all prior or contemporaneous negotiations, understandings or
agreements of the parties, whether written or oral, with respect to such subject
matter.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
The Company:
LONG BEACH FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ M. Jack Mayesh
---------------------------------
Its: Chief Executive Officer
---------------------------------
LONG BEACH MORTGAGE COMPANY,
a Delaware corporation
By: /s/ M. Jack Mayesh
---------------------------------
Its: Chief Exective Officer
---------------------------------
Executive: /s/ William K. Komperda
--------------------------
William K. Komperda
11
<PAGE> 12
EXHIBIT A
MUTUAL AGREEMENT TO ARBITRATE CLAIMS
Executive recognizes that differences may arise between the Company and him
during or following his employment with the Company, and that those differences
may or may not be related to his employment. Executive understands and agrees
that by entering into the Employment Agreement (the "EMPLOYMENT AGREEMENT") with
the Company dated as of May 27, 1997 into which this Mutual Agreement to
Arbitrate Claims ("ARBITRATION AGREEMENT") is incorporated by reference, he
anticipates gaining the benefits of a speedy, impartial dispute-resolution
procedure.
Executive understands that any capitalized terms used but not defined in this
Arbitration Agreement shall have the meanings ascribed thereto in the Employment
Agreement, provided that any reference in this Arbitration Agreement to the
Company shall also be deemed to be a reference to all subsidiary and affiliated
entities; all benefit plans; the benefit plans' sponsors, fiduciaries,
administrators, and affiliates; and all successors and assigns of any of them.
1. Claims Covered by the Arbitration Agreement
-------------------------------------------
The Company and Executive mutually consent to the resolution by arbitration of
all claims (collectively, "CLAIMS"), whether or not arising out of Executive's
employment (or its termination), that the Company may have against Executive or
that Executive may have against the Company or against its officers, directors,
employees or agents in their capacity as such or otherwise. Claims covered by
this Arbitration Agreement include, but are not limited to, claims for wages or
other compensation due; claims for breach of any contract or covenant (express
or implied); tort claims; claims for discrimination (including, but not limited
to, race, sex, religion, national origin, age, marital status, medical
condition, or disability); claims for benefits (except where an employee benefit
or pension plan specifies that its claims procedure shall culminate in an
arbitration procedure different from this one); and claims for violation of any
federal, state, or other governmental law, statute, regulation, or ordinance,
except claims excluded in the Claims Not Covered by the Arbitration Agreement
section below.
Except as otherwise provided in this Arbitration Agreement, both the Company and
Executive agree that neither shall initiate or prosecute any lawsuit or
administrative action (other than an
12
<PAGE> 13
administrative charge of discrimination) in any way related to any Claim covered
by this Arbitration Agreement.
2. Claims Not Covered by the Arbitration Agreement
-----------------------------------------------
Claims Executive may have for workers' compensation or unemployment compensation
benefits are not covered by this Arbitration Agreement.
Also not covered are Claims by the Company for injunctive and/or other equitable
relief for unfair competition and/or the use and/or unauthorized disclosure of
trade secrets or confidential information (including, without limitation, Claims
by the Company that Executive breached his obligations under Article IV and
Article V of the Employment Agreement), as to which Executive understands and
agrees that the Company may seek and obtain relief from a court of competent
jurisdiction.
3. Required Notice of All Claims and Statute of Limitations
--------------------------------------------------------
The Company and Executive agree that the aggrieved party must give written
notice of any Claim to the other party within one (1) year of the date the
aggrieved party first has knowledge of the event giving rise to the Claim;
otherwise the Claim shall be void and deemed waived even if there is a federal
or state statute of limitations which would have given more time to pursue the
Claim.
Written notice to the Company, or its officers, directors, employees or agents,
shall be sent to its Chief Executive Officer at the Company's then-current
address. Executive will be given written notice at the last address recorded in
Executive's personnel file.
The written notice shall identify and describe the nature of all Claims asserted
and the facts upon which such Claims are based. The notice shall be sent to the
other party by certified or registered mail, return receipt requested.
13
<PAGE> 14
4. Discovery
---------
Each party shall have the right to take the deposition of one individual and any
expert witness designated by another party. Each party also shall have the right
to propound requests for production of documents to any party. The subpoena
right specified below shall be applicable to discovery pursuant to this
paragraph. Additional discovery may be had only where the Arbitrator selected
pursuant to this Arbitration Agreement so orders, upon a showing of substantial
need.
5. Designation of Witnesses
------------------------
At least 30 days before the arbitration, the parties must exchange lists of
witnesses, including any expert, and copies of all exhibits intended to be used
at the arbitration.
6. Subpoenas
---------
Each party shall have the right to subpoena witnesses and documents for the
arbitration.
7. Arbitration Procedures
----------------------
The Company and Executive agree that, except as provided in this Arbitration
Agreement, any arbitration shall be in accordance with the then-current Model
Employment Arbitration Procedures of the American Arbitration Association
("AAA") before an Arbitrator who is licensed to practice law in the State of
California ("Arbitrator"). The arbitration shall take place in or near the city
in which Executive is or was last employed by the Company, if Executive is or
was employed in the State of California.
The Arbitrator shall be selected as follows: The AAA shall give each party a
list of 11 arbitrators drawn from its panel of labor-management dispute
arbitrators. Each party may strike all names on the list it deems unacceptable.
If only one common name remains on the lists of all parties, that individual
shall be designated as the Arbitrator. If more than one common name remains on
the lists of all parties, the parties shall strike names alternately until only
one remains. The party who did not initiate the Claim shall strike first. If no
common name remains on the lists of all parties, the AAA shall furnish an
additional list or lists until the Arbitrator is selected.
14
<PAGE> 15
The Arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the state in which the Claim arose, or federal law, or both, as
applicable to the Claim(s) asserted. The Federal Rules of Evidence shall apply.
The Arbitrator, and not any federal, state, or local court or agency, shall have
exclusive authority to resolve any dispute relating to the interpretation,
applicability, enforceability or formation of this Arbitration Agreement,
including but not limited to any Claim that all or any part of this Arbitration
Agreement is void or voidable. The arbitration shall be final and binding upon
the parties.
The Arbitrator shall have jurisdiction to hear and rule on pre-hearing disputes
and is authorized to hold pre-hearing conferences by telephone or in person as
the Arbitrator deems necessary. The Arbitrator shall have the authority to
entertain a motion to dismiss and/or a motion for summary judgment by any party
and shall apply the standards governing such motions under the Federal Rules of
Civil Procedure.
Either party, at its expense, may arrange for and pay the cost of a court
reporter to provide a stenographic record of proceedings.
Either party, upon request at the close of hearing, shall be given leave to file
a post-hearing brief. The time for filing such a brief shall be set by the
Arbitrator.
The Arbitrator shall render an award and opinion in the form typically rendered
in labor arbitrations.
8. Arbitration Fees and Costs
--------------------------
The Company and Executive shall equally share the fees and costs of the
Arbitrator. Each party will deposit funds or post other appropriate security for
its share of the Arbitrator's fee, in an amount and manner determined by the
Arbitrator, 10 days before the first day of hearing. Each party shall pay for
its own costs and attorneys' fees, if any. Notwithstanding the foregoing,
however, the Arbitrator may award to the party prevailing in the arbitration its
share of the Arbitrator's fees and costs and its reasonable attorneys' fees and
costs.
15
<PAGE> 16
9. Judicial Review
---------------
Either party may bring an action in any court of competent jurisdiction to
compel arbitration under this Arbitration Agreement and to enforce an
arbitration award. A party opposing enforcement of an award may not do so in an
enforcement proceeding, but must bring a separate action in any court of
competent jurisdiction to set aside the award, where the standard of review will
be the same as that applied by an appellate court reviewing a decision of a
trial court sitting without a jury.
10. Interstate Commerce
-------------------
Executive understands and agrees that the Company is engaged in transactions
involving interstate commerce and that his employment involves such commerce.
11. Requirements for Modification or Revocation
-------------------------------------------
This Arbitration Agreement to arbitrate shall survive the termination of the
Employment Agreement and Executive's employment with the Company. It can only be
revoked or modified by a writing signed by the parties which specifically states
an intent to revoke or modify this Arbitration Agreement.
12. Sole and Entire Arbitration Agreement
-------------------------------------
This Arbitration Agreement is the complete agreement of the parties on the
subject of arbitration of disputes, except for any arbitration agreement in
connection with any pension or benefit plan. This Arbitration Agreement
supersedes any prior or contemporaneous oral or written understanding on the
subject. No party is relying on any representations, oral or written, on the
subject of the effect, enforceability or meaning of this Arbitration Agreement,
except as specifically set forth in this Arbitration Agreement.
16
<PAGE> 17
13. Construction
------------
If any provision of this Arbitration Agreement is adjudged to be void or
otherwise unenforceable, in whole or in part, such adjudication shall not affect
the validity of the remainder of the Arbitration Agreement.
14. Consideration
-------------
The promises by the Company and Executive to arbitrate differences, rather than
litigate them before courts or other bodies, provide consideration for each
other.
15. No Employment Agreement
-----------------------
This Arbitration Agreement is not, and shall not be construed to create, any
contract of employment, express or implied. Nor does this Arbitration Agreement
in any way alter the "at-will" status of Executive's employment.
16. Voluntary Agreement
-------------------
EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS ARBITRATION AGREEMENT,
THAT HE UNDERSTANDS ITS TERMS, THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN
THE COMPANY AND EXECUTIVE RELATING TO THE SUBJECTS COVERED IN THE ARBITRATION
AGREEMENT ARE CONTAINED IN IT, AND THAT HE HAS ENTERED INTO THE ARBITRATION
AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY
THE COMPANY OTHER THAN THOSE CONTAINED IN THIS ARBITRATION AGREEMENT ITSELF.
EXECUTIVE FURTHER ACKNOWLEDGES THAT HE HAS BEEN GIVEN THE OPPORTUNITY TO DISCUSS
THIS ARBITRATION AGREEMENT WITH HIS PRIVATE LEGAL COUNSEL AND HAS AVAILED
HIMSELF OF THAT OPPORTUNITY TO THE EXTENT HE WISHES TO DO SO.
17
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