<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
1100 TOWN & COUNTRY ROAD, SUITE 1650, ORANGE, CALIFORNIA 92868
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(714) 835-5743
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of November 12, 1998, registrant had outstanding 22,607,218 shares of
Common Stock.
================================================================================
<PAGE> 2
LONG BEACH FINANCIAL CORPORATION
TABLE OF CONTENTS
TO FORM 10-Q
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 1998 (Unaudited) and December 31, 1997........ 2
Consolidated Statements of Operations for the Three Months
and Nine Months Ended September 30, 1998 and 1997
(Unaudited)................................................. 3
Consolidated Statements of Stockholder's Equity for the
Three Months and Nine Months Ended September 30, 1998
(Unaudited)................................................. 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 (Unaudited)............... 5
Notes to the Consolidated Financial Statements for the Three
Months and Nine Months Ended September 30, 1998 and 1997
(Unaudited)................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations, Liquidity and Capital Resources...... 13
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 23
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 24
Item 2. Changes in Securities....................................... 24
Item 3. Defaults Upon Senior Securities............................. 24
Item 4. Submission of Matters to a Vote of Securities Holders....... 24
Item 5. Other Information........................................... 24
Item 6. Exhibits and Reports on Form 8-K............................ 25
(a) Exhibits................................................ 25
(b) Reports on Form 8-K..................................... 26
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LONG BEACH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 34,448 $ 38,782
Investment securities available for sale.................... 32 3,793
Loans held for sale......................................... 52,888 17,241
Receivable from the sales of loans.......................... 320,517 143,088
Premises and equipment, net................................. 4,361 3,620
Deferred income taxes....................................... 32,600 34,400
Originated mortgage servicing rights........................ 5,048 3,054
Prepaid expenses and other assets........................... 4,519 4,110
-------- --------
Total assets...................................... $454,413 $248,088
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse financing facility................................ $255,553 $146,271
Reverse repurchase agreement................................ 95,073 --
Accounts payable and accrued liabilities.................... 13,036 8,280
Accrued income taxes payable................................ 69 2,792
-------- --------
Total liabilities................................. 363,731 157,343
Stockholders' equity:
Common stock, $.001 par value; 150 million shares
authorized; 25 million shares issued; 22.6 million and
24.7 million shares outstanding for 1998 and 1997,
respectively.............................................. 25 25
Additional paid-in capital.................................. 75,360 75,307
Retained earnings........................................... 39,772 18,697
Treasury stock, at cost: 2,400,682 and 300,000 shares for
1998 and 1997, respectively............................... (24,475) (3,284)
-------- --------
Total stockholders' equity........................ 90,682 90,745
-------- --------
Total liabilities and stockholders' equity........ $454,413 $248,088
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 4
LONG BEACH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of loans............................. $31,098 $24,829 $86,653 $62,008
Net interest income............................... 1,996 1,151 5,032 1,768
Loan servicing and other fees on loans............ 1,532 289 3,372 307
Amortization of mortgage servicing rights......... (328) (69) (796) (69)
------- ------- ------- -------
Net operating income.............................. 34,298 26,200 94,261 64,014
EXPENSES:
Compensation expense.............................. 12,100 8,957 35,797 21,941
Premises and equipment expenses................... 3,119 1,020 8,288 2,625
Other general and administrative expenses......... 3,207 1,970 8,015 4,307
Corporate administrative charges.................. -- -- -- 2,294
Provision for losses.............................. 1,100 500 3,500 3,428
Sub-servicing costs............................... 1,542 294 3,326 340
------- ------- ------- -------
Total expenses.................................... 21,068 12,741 58,926 34,935
------- ------- ------- -------
Earnings before income taxes...................... 13,230 13,459 35,335 29,079
Provision for income taxes........................ 4,973 5,600 14,260 11,780
------- ------- ------- -------
Net earnings...................................... $ 8,257 $ 7,859 $21,075 $17,299
======= ======= ======= =======
Basic earnings per share.......................... $ 0.35 $ 0.31 $ 0.88 $ 0.69
======= ======= ======= =======
Diluted earnings per share........................ $ 0.34 $ 0.30 $ 0.84 $ 0.68
======= ======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 5
LONG BEACH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------ ---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1998:
Balance, July 1, 1998.......................... $25 $75,354 $31,515 $(10,086) $ 96,808
Net earnings................................... -- -- 8,257 -- 8,257
Exercise of stock options...................... -- 6 -- -- 6
Purchase of treasury stock..................... -- -- -- (14,389) (14,389)
--- ------- ------- -------- --------
Balance, September 30, 1998.................... $25 $75,360 $39,772 $(24,475) $ 90,682
=== ======= ======= ======== ========
NINE MONTHS ENDED SEPTEMBER 30, 1998:
Balance, January 1, 1998....................... $25 $75,307 $18,697 $ (3,284) $ 90,745
Net earnings................................... -- -- 21,075 -- 21,075
Exercise of stock options...................... -- 53 -- -- 53
Purchase of treasury stock..................... -- -- -- (21,191) (21,191)
--- ------- ------- -------- --------
Balance, September 30, 1998.................... $25 $75,360 $39,772 $(24,475) $ 90,682
=== ======= ======= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 6
LONG BEACH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings................................................ $ 21,075 $ 17,299
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization of premises, equipment and
warehouse financing facility issuance costs............ 1,833 550
Loans originated and purchased for sale................... (1,817,060) (1,157,111)
Proceeds from sales of loans held for sale................ 1,774,981 1,154,145
Noncash gain recognized on originated mortgage servicing
rights................................................. (2,790) (7,290)
Amortization of originated mortgage servicing rights...... 796 88
Changes in:
Receivable from the sales of loans..................... (177,429) (83,685)
Accounts payable and accrued liabilities............... 4,756 6,816
Accrued income taxes payable........................... (923) 6,796
Other....................................................... 5,384 (2,380)
----------- -----------
Net cash used in operating activities.................. (189,377) (64,772)
Cash Flows from Investing Activities:
Purchases of premises and equipment....................... (1,934) (820)
Purchases of investment securities available for sale..... (26,810) (76,120)
Maturities of investment securities available for sale.... 30,570 66,864
----------- -----------
Net cash provided by (used in) investing activities.... 1,826 (10,076)
Cash Flows from Financing Activities:
Net change in warehouse facility.......................... 204,355 76,802
Cash provided to AMC prior to the Reorganization.......... -- (3,852)
Proceeds from mortgage servicing rights transferred to
AMC.................................................... -- 3,974
Reorganization and capitalization of LBFC................. -- 38,000
Purchase of treasury stock................................ (21,191) --
Proceeds from exercise of stock options................... 53 --
----------- -----------
Net cash provided by financing activities.............. 183,217 114,924
Net increase (decrease) in cash............................. (4,334) 40,076
Cash, beginning of the period............................... 38,782 --
----------- -----------
Cash, end of the period..................................... $ 34,448 $ 40,076
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest on warehouse
financing facility..................................... $ 9,130 $ 4,205
Cash paid during the period for federal and state income
taxes.................................................. 15,045 --
Supplemental Schedule of Non-Cash Activities:
Deferred tax asset........................................ -- 36,000
Amortization of deferred tax asset........................ 1,800 1,000
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE> 7
LONG BEACH FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
NOTE 1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF THE BUSINESS
Long Beach Financial Corporation ("LBFC"), through its wholly-owned
subsidiary, Long Beach Mortgage Company ("LBMC"), (collectively, the "Company"),
is a specialty finance company engaged in the business of originating,
purchasing and selling subprime residential mortgage loans secured by one- to
four-unit family residences. The Company's core borrower base consists of
individuals who do not qualify for traditional "A" credit because their credit
histories, debt to income ratios or other factors do not conform to standard
agency lending criteria. The Company originates loans primarily through
independent mortgage loan brokers.
The Company generally follows a strategy of selling substantially all of
its loan originations in the secondary market through loan sales for a cash
price that represents a premium over the principal balance of the loans sold.
Prior to the expiration and fulfillment of its outstanding loan purchase
commitment, the Company generally obtains a new purchase commitment from one or
more loan purchasers for the volume of loans expected to be originated during
the next several months. As a result, the Company endeavors to have a buyer for
each loan at the time it is funded and, therefore, can deliver loans and receive
the purchase price shortly after funding.
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 division. All references to the "Wholesale Division" herein shall be
deemed to include the operations of the broker-sourced lending division and the
loan sales division of AMC prior to the Reorganization (defined below).
On April 28, 1997, LBFC's Registration Statement 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 closed on May 2, 1997. Immediately prior to the closing
of the initial public offering, AMC reorganized its business operations (the
"Reorganization") by transferring certain assets and personnel relating to the
broker-sourced lending and loan sales divisions to the Company in exchange for
shares of common stock. The Reorganization has been 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 was carried over from the
Wholesale Division and the loan sales division of AMC.
BASIS OF PRESENTATION
The Company had no operations through the date of the Reorganization and
all rights, benefits and obligations relating to the operations and net earnings
of the Wholesale Division of AMC, up to the date of the Reorganization, remained
with AMC. However, because the Reorganization has been accounted for in a manner
similar to a pooling of interests, the results of operations reported for the
nine months ended September 30, 1997 include: (i) the results of operations of
the Wholesale Division of AMC from January 1, 1997 through May 1, 1997 (the
"1997 Operating Results of the Wholesale Division of AMC"), and (ii) the
Company's results of operations from May 2, 1997 through September 30, 1997 (the
"Company's Results of Operations"). Collectively, the combination of the 1997
Operating Results of the Wholesale Division of AMC and the Company's Results of
Operations represent the "Combined Results of Operations for the Nine Months
Ended September 30, 1997".
6
<PAGE> 8
LONG BEACH FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
(UNAUDITED)
NOTE 1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Cash flows for the nine months ended September 30, 1997 include: (i) cash
flows of the Wholesale Division of AMC from January 1, 1997 through May 1, 1997
(the "1997 Cash Flows of the Wholesale Division of AMC"), and (ii) the Company's
cash flows from May 2, 1997 through September 30, 1997 (the "Company's Cash
Flows"). Collectively, the combination of the 1997 Cash Flows of the Wholesale
Division of AMC and the Company's Cash Flows represent the "Combined Cash Flows
for the Nine Months Ended September 30, 1997."
All information relating to the Wholesale Division of AMC included or used
in the preparation of this report has been prepared from records maintained by
AMC and provided to the Company by AMC.
In the normal course of business prior to the Reorganization on May 2,
1997, the Wholesale Division had various transactions with other divisions of
AMC that are material in amount. The financial statements and financial data of
the Wholesale Division of AMC included in this report on Form 10-Q reflect key
assumptions regarding the allocation of certain revenue and expense items and
certain balance sheet accounts, many of which could be material. The financial
data of the Wholesale Division of AMC included in this report on Form 10-Q may
not necessarily be indicative of the conditions that would have existed if the
Wholesale Division of AMC had operated as an independent entity.
The accompanying consolidated financial statements include financial data
of the Wholesale Division of AMC and 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. In cases involving assets,
liabilities, revenues and expenses not specifically identifiable to any
particular division of AMC, certain allocations were made 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. These allocations were based on a variety
of factors which take into consideration the loan origination volume, employee
head count, and historical ratios of direct expenses incurred by the divisions
to total direct expenses. Management believes these allocations provide a
reliable basis for the accompanying consolidated financial statements, which are
also based on the following assumptions:
1. No cash balances were 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 combined statements of stockholders'
equity and 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.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and include all
information and footnotes required for interim financial statement presentation.
In the opinion of the Company, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ materially from those estimated. All significant
7
<PAGE> 9
LONG BEACH FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
(UNAUDITED)
NOTE 1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
intercompany transactions and balances have been eliminated and certain
reclassifications have been made to prior periods' consolidated financial
statements to conform to current period presentation. The results of operations
for the three and nine months ended September 30, 1998 are not necessarily
indicative of the results of operations to be expected for the year ending
December 31, 1998.
The consolidated financial statements and notes to the consolidated
financial statements, 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 recent filing on Form 10-K,
which contains the latest available audited consolidated financial statements
and notes thereto, as of and for the period ended December 31, 1997.
NOTE 2. STATEMENT OF OPERATIONS, PRESENTATION AND ANALYSIS OF PRO FORMA
OPERATIONS
The statements of operations for the three months and nine months ended
September 30, 1997, presented in this report on Form 10-Q include the 1997
Operating Results of the Wholesale Division of AMC and the Company's Results of
Operations. All rights, benefits and obligations relating to the 1997 Operating
Results of the Wholesale Division of AMC up to the time of the Reorganization
remain with AMC.
The rights to loans which were originated by the Wholesale Division but
remained unsold at May 2, 1997 were retained by AMC (the "Retained Loans"). The
costs relating to the production of these loans were incurred and recorded by
the Wholesale Division of AMC and these loans were included as part of the loan
production for the month of April 1997. Subsequent to the Reorganization, the
Company purchased the Retained Loans from AMC at the same price and at the same
time that the Company sold these loans to an independent third party purchaser.
Because the gain from the sale of the Retained Loans was recorded after the
Reorganization, and because the Company's stockholders did not receive any of
the benefit of this gain, the Company did not include the gain from the sale of
the Retained Loans as part of the Company's Results of Operations. The principal
amount of the Retained Loans was approximately $33.8 million and the after tax
gain from the sale of these loans was approximately $807,000. The gains from the
sale of the Retained Loans are not reflected either as income from the Wholesale
Division of AMC or as income from the Company.
8
<PAGE> 10
LONG BEACH FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
(UNAUDITED)
NOTE 2. STATEMENT OF OPERATIONS, PRESENTATION AND ANALYSIS OF PRO FORMA
OPERATIONS (CONTINUED)
The following table presents separately the operations of the Wholesale
Division of AMC and the Company, and the combined effect of their results for
each respective period. Additionally, the gain from the sale of the Retained
Loans is presented for informational purposes, with corresponding earnings and
per share data presented on a pro forma basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
-------------------------------- --------------------------------
WHOLESALE WHOLESALE
DIVISION OF THE DIVISION OF THE
AMC COMPANY COMBINED AMC COMPANY COMBINED
----------- ------- -------- ----------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Gain on sale of loans................. $-- $24,829 $24,829 $25,604 $36,404 $62,008
Net interest income................... -- 1,151 1,151 168 1,600 1,768
Loan servicing and other fees on
loan................................ -- 289 289 -- 307 307
Amortization of mortgage servicing
rights.............................. -- (69) (69) -- (69) (69)
--- ------- ------- ------- ------- -------
Net operating income.................. -- 26,200 26,200 25,772 38,242 64,014
EXPENSES:
Compensation expense.................. -- 8,957 8,957 8,242 13,699 21,941
Premises and equipment expenses....... -- 1,020 1,020 1,106 1,519 2,625
Other general and administrative
expenses............................ -- 1,970 1,970 1,391 2,916 4,307
Corporate administrative charges...... -- -- -- 2,294 -- 2,294
Provision for losses.................. -- 500 500 2,808 620 3,428
Sub-servicing costs................... -- 294 294 -- 340 340
--- ------- ------- ------- ------- -------
Total expenses.............. -- 12,741 12,741 15,841 19,094 34,935
--- ------- ------- ------- ------- -------
Earnings before income taxes.......... -- 13,459 13,459 9,931 19,148 29,079
Provision for income taxes............ -- 5,600 5,600 3,984 7,796 11,780
--- ------- ------- ------- ------- -------
Net earnings.......................... $-- $ 7,859 $ 7,859 $ 5,947 $11,352 $17,299
=== ======= ======= ======= ======= =======
Pro forma net gain from sale of
Retained Loans net of taxes......... -- -- -- 807 -- 807
=== ======= ======= ======= ======= =======
Pro forma net earnings inclusive of
gain from Retained Loans............ $-- $ 7,859 $ 7,859 $ 6,754 $11,352 $18,106
=== ======= ======= ======= ======= =======
Basic earnings per share.............. $-- $ 0.31 $ 0.31 $ 0.24 $ 0.45 $ 0.69
=== ======= ======= ======= ======= =======
Diluted earnings per share............ $-- $ 0.30 $ 0.30 $ 0.24 $ 0.44 $ 0.68
=== ======= ======= ======= ======= =======
Pro forma Basic earnings per share
inclusive of gain from Retained
Loans............................... $-- $ 0.31 $ 0.31 $ 0.27 $ 0.45 $ 0.72
=== ======= ======= ======= ======= =======
Pro forma Diluted earnings per share
inclusive of gain from Retained
Loans............................... $-- $ 0.30 $ 0.30 $ 0.27 $ 0.44 $ 0.71
=== ======= ======= ======= ======= =======
</TABLE>
NOTE 3. 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
9
<PAGE> 11
LONG BEACH FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
(UNAUDITED)
NOTE 3. AGREEMENTS WITH RELATED PARTIES (CONTINUED)
and, through August 1997, mail room services. The agreement had a one year term
from the effective date of the Reorganization unless earlier terminated by the
Company upon 30 days written notice. The Company has paid $250,000 and $284,000
to AMC for such services during the nine months ended September 30, 1998 and
1997, respectively. In February 1998, the Company terminated this agreement,
effective March 1, 1998.
In addition, on April 28, 1997, the Company and AMC entered into a second
administrative services agreement pursuant to which the Company agreed to 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 had a one-year term from the effective date of the
Reorganization, unless earlier terminated by AMC upon 30 days written notice.
The Company has received $110,000 from AMC for such services during the nine
months ended September 30, 1998 and $275,000 for the same period in 1997. AMC
terminated the services pursuant to the second administrative agreement,
effective March 1, 1998.
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
outstanding principal balance of each loan sub-serviced. Such sub-servicing
costs for the three months ended September 30, 1998 and 1997 amounted to $1.5
million and $294,000 respectively, and $3.3 million and $340,000 for the nine
months ended September 30, 1998 and 1997, respectively. During the third quarter
of 1998, the Company and AMC modified the sub-servicing agreement to accommodate
the establishment of the Company's independent servicing operations. Under the
modified sub-servicing agreement AMC no longer is required to sub-service loans
originated by the Company on or after November 2, 1998, and the Company is no
longer required to engage AMC to sub-service such loans.
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.
NOTE 4. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income," which is effective for annual periods beginning after
December 15, 1997. This statement defines comprehensive income as the total of
all components of comprehensive income, including net income and other
comprehensive income. The term "other comprehensive income' refers to revenues,
expenses, gains and losses that under generally accepted accounting principles
are included in comprehensive income but excluded from net income. Other
comprehensive income items are classified separately into foreign currency
items, minimum pension liability adjustments, and unrealized gains and losses on
certain investments in debt and equity securities. All components of
comprehensive income shall be reported in the financial statements in the period
in which they
10
<PAGE> 12
LONG BEACH FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
(UNAUDITED)
NOTE 4. COMPREHENSIVE INCOME (CONTINUED)
are recognized; however, if there are no items of other comprehensive income in
any period presented, then comprehensive income is not required to be reported
for that period. During the three months and nine months ended September 30,
1998 and 1997, there were no items of other comprehensive income recognized.
NOTE 5. EARNINGS PER SHARE
The Company did not have any independent operations through the date of the
Reorganization, 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 until the Reorganization and no shares were issued or outstanding at
any time prior to 1997. Earnings per share ("EPS") data for 1997 was prepared
under the assumption that 25,000,000 shares of the Company's common stock were
issued and outstanding as of January 1, 1997 through September 30, 1997, and by
using common stock equivalents for all stock options issued by the Company from
the Reorganization through September 30, 1997.
A reconciliation of the numerators and denominators used in basic and
diluted EPS computations for the periods indicated follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
COMPUTATION OF BASIC EARNINGS PER SHARE
Net Earnings available to common
shareholder............................... $ 8,257,000 $ 7,859,000 $21,075,000 $17,299,000
=========== =========== =========== ===========
Average common shares outstanding........... 23,506,455 25,000,000 24,076,762 25,000,000
----------- ----------- ----------- -----------
Basic earnings per share.................... $ 0.35 $ 0.31 $ 0.88 $ 0.69
=========== =========== =========== ===========
COMPUTATION OF DILUTED EARNINGS PER SHARE
Net Earnings available to common
shareholder............................... $ 8,257,000 $ 7,859,000 $21,075,000 $17,299,000
=========== =========== =========== ===========
Average common shares outstanding........... 23,506,455 25,000,000 24,076,762 25,000,000
Common stock equivalents -- stock options... 926,862 1,068,765 1,150,537 473,288
----------- ----------- ----------- -----------
Average diluted common shares............... 24,433,317 26,068,765 25,227,299 25,473,288
=========== =========== =========== ===========
Diluted earnings per share.................. $ 0.34 $ 0.30 $ 0.84 $ 0.68
=========== =========== =========== ===========
</TABLE>
NOTE 6. NET INTEREST INCOME
The components of net interest income for the periods indicated are
presented in the table that follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1998 1997 1998 1997
-------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest on loans........................................ $ 6,072 $ 2,579 $ 14,835 $ 5,763
Interest on investments.................................. 199 320 735 638
------- ------- -------- -------
Subtotal interest income............................ 6,271 2,899 15,570 6,401
------- ------- -------- -------
Interest expense......................................... (4,275) (1,748) (10,538) (4,633)
------- ------- -------- -------
Net interest income...................................... $ 1,996 $ 1,151 $ 5,032 $ 1,768
======= ======= ======== =======
</TABLE>
11
<PAGE> 13
LONG BEACH FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
(UNAUDITED)
NOTE 7. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which is effective for annual periods
beginning after December 15, 1997. This statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. In the initial year of application, comparative
information for earlier years is to be restated. This statement need not be
applied to interim financial statements in the initial year of its application,
but comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim periods in the
second year of application. The Company has not yet adopted SFAS 131 and does
not anticipate that the impact of this statement will have a material impact on
the Company's financial condition, results of operation and cash flows.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for annual periods
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
is currently evaluating the effect this standard may have on the Company's
financial condition, results of operations and cash flows.
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
ITEM 2. OVERVIEW
Management's discussion and analysis of financial condition, results of
operations, liquidity and capital resources contained within this report on Form
10-Q is more clearly understood when read in conjunction with the Notes to the
Consolidated Financial Statements. The Notes to the Consolidated Financial
Statements define certain terms that are used throughout this discussion and
provide information on the Company and the basis of presentation used in this
report on Form 10-Q.
The Company is a specialty finance company engaged in the business of
originating, purchasing and selling subprime residential mortgage loans secured
by one- to four-unit family residences. The Company's core borrower base
consists of individuals who do not qualify as traditional "A" credit borrowers
because their credit history, debt to income ratio or other factors do not
conform to standard agency lending criteria. The Company's primary loan
origination channel is through independent mortgage brokers and, to a lesser
extent, it purchases loans from 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
economic interest in the loans for cash, except for the related servicing
rights, which it may retain. The Company has also sold loans on a serviced
released basis. As a result of this overall strategy, the Company's revenue is
primarily generated though cash loan sales, rather than non-cash revenue
attributable to residual interests in future payments on the loans, as is the
case with some securitization structured transactions that require the retention
of a residual economic interest.
Prior to May 1997, the Company operated as the Wholesale Division of a
company now known as Ameriquest Mortgage Company ("AMC"). In May of 1997, AMC
reorganized (the "Reorganization") its business operations by transferring
certain assets, liabilities and personnel relating to the Company in exchange
for shares of common stock. Immediately after the Reorganization, the initial
public offering of the Company's common stock was completed. The Reorganization
has been accounted for in a manner similar to a pooling of interests and
therefore, the historical cost basis of the assets and liabilities transferred
to the Company was carried over from AMC.
The Company's operations for the three months and nine months ended
September 30, 1997 have two components:
1. Operations as a division of AMC for the period January 1, 1997 through
May 1, 1997; and
2. Operations as an independent company for the period May 2, 1997 through
September 30, 1997.
Because the Reorganization was accounted for in a manner similar to a
pooling of interests, the information contained within this report presents the
combined results of operations for the three months and nine months ended
September 30, 1997 and the combined cash flows for the nine months ended
September 30, 1997. All of the benefits, rights and obligations relating to the
operations and net earnings of the Wholesale Division of AMC, up to the date of
the Reorganization, remained with AMC.
The financial statements of the Company, up to the date of the
Reorganization, have been prepared in part from records maintained by AMC. The
historical financial statements of the Company, up to the date of the
Reorganization, may not necessarily be indicative of the conditions that would
have existed if the Company had operated as an independent entity. The financial
statements, up to the date of the Reorganization, reflect key assumptions
regarding the allocations 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 to
reflect the operations of the Company. These allocations were based on a variety
of factors which management believes provide a reliable basis for the financial
statements.
The primary components of the Company's revenues are gain on sales of loans
and net interest income. Gain on sales of loans, or the "Net Premium", consists
of: (i) the excess of the cash selling price over the
13
<PAGE> 15
outstanding principal balance of the loan (the "Gross Cash Premium"), plus (ii)
capitalized mortgage servicing rights, minus (iii) the fees and other
compensation paid to independent mortgage brokers, minus (iv) purchase premiums
paid to correspondent lenders, and plus (v) points and fees received from the
borrower, offset by incremental direct loan origination costs. The Gross Cash
Premium plus capitalized mortgage servicing rights equals the "Gross Sales
Premium". Gross Cash Premiums are affected by market conditions, loan type,
credit quality, interest rate and other factors as negotiated between the
Company and independent purchasers.
Net interest income represents 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. The Company has adopted an investment
policy which limits its investment activities to high-quality, short-term
investments.
Expenses include general and administrative expenses, provisions for
losses, sub-servicing costs and income tax expense. Prior to the Reorganization,
certain expenses, not specifically identifiable to any particular division of
AMC, were allocated to AMC's various divisions, including the Wholesale
Division. These allocations were prepared by AMC and, according to AMC, were
based on a variety of factors which took into consideration loan origination
volume, employee headcount, and historical ratios of direct expenses incurred by
the divisions to total direct expenses. No assurance can be provided 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.
The following table presents the Company's loan originations and purchases
and loan sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loan originations and purchases:
Broker-sourced........................... $562,022 $401,060 $1,568,748 $1,065,122
Correspondent............................ 93,168 44,704 204,077 91,989
Retail-sourced........................... 19,121 -- 44,235 --
-------- -------- ---------- ----------
Total loan originations and
purchases...................... $674,311 $445,764 $1,817,060 $1,157,111
======== ======== ========== ==========
Loan sales................................. $646,481 $465,458 $1,774,981 $1,154,145
</TABLE>
The Company's primary channel of loan production is through its
relationship with a network of approved independent mortgage brokers. The
Company has established a sales force ("Account Executives") to serve as the
principal contact between the Company and the independent mortgage brokers.
Financing USA, the Company's retail division, offers loan products directly to
borrowers, which are identical to those offered to independent brokers. These
products are marketed through direct mail, telemarketing and media advertising.
The Company offers a variety of loan programs and products, however,
substantially all loans originated by the Company are secured by first-lien
mortgages on residential properties consisting of one- to four-unit family
residences.
14
<PAGE> 16
The following table presents the Company's loan production, weighted
average interest rate ("WAIR"), and margin for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
1998 1997
-------------------------- ---------------------------
LOAN LOAN
PRODUCTION WAIR MARGIN PRODUCTION WAIR MARGIN
---------- ---- ------ ---------- ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed rate loans.................. $ 154,110 9.92% n/a $ 111,941 10.06% n/a
Fixed/adjustable rate loans....... 415,220 9.65% 6.67% 206,550 9.71% 6.33%
Six-month adjustable rate loans... 104,981 8.92% 6.60% 127,273 8.91% 6.46%
---------- ----------
Total loan production... $ 674,311 9.60% 6.65% $ 445,764 9.59% 6.38%
========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
1998 1997
-------------------------- ---------------------------
LOAN LOAN
PRODUCTION WAIR MARGIN PRODUCTION WAIR MARGIN
---------- ---- ------ ---------- ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed rate loans.................. $ 420,433 9.98% n/a $ 315,901 10.14% n/a
Fixed-adjustable rate loans....... 1,065,933 9.67% 6.62% 465,788 9.71% 6.20%
Six-month adjustable rate loans... 330,694 8.96% 6.47% 375,422 8.94% 6.32%
---------- ----------
Total loan production... $1,817,060 9.61% 6.58% $1,157,111 9.58% 6.25%
========== ==========
</TABLE>
During the third quarter of 1998, approximately $409.5 million or 60.7% of
the Company's loan production was made for the purpose of providing funds for
refinancing, and for $293.1 million of these refinancings, the respective
borrowers received cash to pay-off other debts. The average loan-to-value ratio
was 76.6% on loans originated and purchased during the third quarter of 1998 and
was 75.9% for loans produced during the nine months ended September 30, 1998.
The Company's geographic markets are divided into various regions. Once the
Company determines that the level of current and projected business from a
region warrants creation of a local presence, the Company establishes a regional
processing center in or near the region. During the first nine months of 1998,
the Company opened additional centers in Chicago, Denver, and Dallas. At
September 30, 1998, the Company had ten regional processing centers serving its
eighteen regional teams.
The following table presents loan production by state for the five highest
states and all others for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- ---------------------------------------
1998 1997 1998 1997
---------------- ---------------- ------------------ ------------------
% OF % OF % OF % OF
STATE AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
----- -------- ----- -------- ----- ---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California............ $219,991 32.6% $151,910 34.1% $ 610,750 33.6% $ 404,236 34.9%
Colorado.............. 49,833 7.4% 38,683 8.7% 133,090 7.3% 100,615 8.7%
Michigan.............. 33,035 4.9% 29,287 6.6% 98,293 5.4% 69,157 6.0%
Texas................. 33,542 5.0% 14,622 3.3% 87,209 4.8% 43,579 3.8%
Florida............... 27,214 4.0% 23,954 5.3% 83,075 4.6% 59,330 5.1%
All others............ 310,696 46.1% 187,208 42.0% 804,643 44.3% 480,194 41.5%
-------- ----- -------- ----- ---------- ----- ---------- -----
$674,311 100.0% $445,664 100.0% $1,817,060 100.0% $1,157,111 100.0%
======== ===== ======== ===== ========== ===== ========== =====
</TABLE>
The Company follows the practice of entering into forward commitments to
sell its production. These forward commitments are typically made for a
substantial amount of the loans that the Company anticipates that it will
originate over the subsequent 90 to 180 days. Prior to entering into a forward
commitment, the Company evaluates prospective purchasers in order to assess
their ability to fulfill the terms of the agreement.
15
<PAGE> 17
In the event that the volume of loans produced or the coupon rate or margin of
the loans originated and delivered to the purchaser are materially different
from the terms of the forward commitment, the sales price of the loans will be
adjusted accordingly. In the event the Company does not deliver the contract
volume of loans, a pair-off fee may be required to be paid to the purchaser.
Loan sales are made to institutional purchasers on a non-recourse basis
pursuant to a purchase agreement containing customary representations and
warranties regarding underwriting criteria and the origination process. The
Company has not retained residual interests in the loans that it sells other
than servicing rights. Loans which, in the opinion of the Company, meet the
conditions of the forward sales commitment are recorded as sold at the trade
date. In the event that such loans are subsequently determined to be in
noncompliance with the terms of the forward sales commitment or breach of a
representation or a warranty, the Company may be required to repurchase the loan
or substitute a new loan. The Company may also be required to repurchase or
substitute a loan if the borrower defaults on the first payment due after the
loan is funded or if the loan documentation contains fraudulent
misrepresentations made by the borrower. The Company realizes that such
repurchases are inherent in its operations and that the Company may realize a
reduction in the previously recognized gain on sale or sustain a loss from such
repurchases. The Company provides allowances for losses in anticipation of such
events that arise in connection with originating loans and subsequently selling
them to investors.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997
The Company achieved record earnings for the three and nine months ended
September 30, 1998 as a result of selling its increased loan originations and
purchases. During the three months ended September 30, 1998, net earnings
increased to $8.3 million an increase of $398,000 or 5.1% over $7.9 million of
net earnings for the same period in 1997. During the nine months ended September
30, 1998, net earnings increased by $3.8 million or 21.8% to $21.1 million from
$17.3 million during the same period in 1997. The Company's net earnings per
diluted share was $0.34 for the quarter ended September 30, 1998, an increase of
13.3% over net earnings per diluted share of $0.30 for the third quarter of
1997. Net earnings per diluted share totaled $0.84 for the nine months ended
September 30, 1998, an increase of 23.5% over net earnings per diluted share of
$0.68 for the same period of 1997.
The primary factors that led to the improvement in net earnings and net
earnings per share recorded during the three and nine months ended September 30,
1998 as compared to the same periods in 1997 include:
- Increased loan production. Loan production increased by $228.5 million
or 51.3% to $674.3 million during the three months ended September 30,
1998 as compared to the same period of 1997. During the nine months
ended September 30, 1998, loan production increased by $659.9 million or
57.0% to $1.8 billion as compared to the same period of 1997.
- Increased loan sales. Loans sold during the three months ended September
30, 1998 totaled $646.5 million, an increase of $181.0 million or 38.9%
over the same period of 1997. During the nine months ended September 30,
1998, loan sales totaled $1.8 billion, an increase of $620.8 million or
53.8% over loan sales of $1.2 billion for the same period of 1997.
- Lower effective income tax rate. The Company's provision for income
taxes declined to 38% as a percentage of earnings before income taxes
during the third quarter of 1998 as compared to 42% during the same
period of 1998. The income tax rate was 40% during the nine months ended
September 30, 1998 as compared to 41% during the nine months ended
September 30, 1997. (See page 20 "Income Taxes").
- Lower level of shares outstanding. The decline in the average number of
shares outstanding positively impacted net earnings per share. The
average number of diluted shares outstanding declined to 24.4 million
for third quarter of 1998, a decline of 1.6 million shares from the same
period of 1997. Average diluted shares declined to 25.2 million for the
nine months ended September 30, 1998, a decline from 25.5 million
average shares outstanding during the comparable period of 1997. The
16
<PAGE> 18
primary reason for the decline in the average number of shares is due to
the Company repurchasing 2.4 million shares of its common stock,
pursuant to its stock repurchase program.
Revenues. The following table sets forth the components of the Company's
revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1998 1997 1998 1997
-------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Gain on sale of loans............................. $31,098 $24,829 $86,653 $62,008
Net interest income............................... 1,996 1,151 5,032 1,768
Loan servicing and other fees on loans............ 1,532 289 3,372 307
Amortization of mortgage servicing rights......... (328) (69) (796) (69)
------- ------- ------- -------
Total revenues.......................... $34,298 $26,200 $94,261 $64,014
======= ======= ======= =======
</TABLE>
Total revenues during the three months ended September 30, 1998, increased
by $8.1 million or 30.9%, compared to same period in 1997, primarily as a result
of an increase in gain on sales of loans of $6.3 million or 25.3% during the
same comparative periods. The primary factor contributing to this increase was
an increase in the amount of loans sold of 38.9% to $646.5 million during the
three months ended September 30, 1998, as compared to the same period in 1997.
Such increase was partially offset by a decrease in Net Premiums on the sale of
loans to 4.81% during the three months ended September 30, 1998, from 5.33%
during the same period in 1997.
During the nine months ended September 30, 1998, total revenues increased
by $30.2 million or 47.3%, compared to the same period in 1997, primarily as a
result of an increase in gain on sales of loans of $24.6 million or 39.7% during
the same comparative periods. The primary factor contributing to this increase
was an increase in the amount of loans sold of 53.8% to $1,775.0 million during
the nine months ended September 30, 1998, as compared to the same period in
1997. Such increase was partially offset by a decrease in the Net Premiums on
the sale of loans to 4.88% during the nine months ended September 30, 1998, from
5.37% during the same period in 1997.
The increase in the amount of loans sold resulted from an increase in loan
originations and purchases to $674.3 million during the three months ended
September 30, 1998, from $445.8 million during the same period in 1997, and $1.8
billion during the nine months ended September 30, 1998, from $1.2 billion
during the same period in 1997. This trend reflects the Company's continued
growth of its broker-sourced business through penetration in existing markets
and expansion into new geographic markets. During the nine months ended
September 30, 1998, the Company originated loans in all 50 states compared to 48
states during the same period in 1997. Additionally, the Company expanded its
sales force to 322 at September 30, 1998, an increase of 46% over the level at
September 30, 1997.
Gain on sale of loans increased to $31.1 million during the third quarter
of 1998, an increase of $6.3 million over gain on sale of $24.8 million during
the same period of 1997. Gain on sale of loans totaled $86.7 million during the
nine months ended September 30, 1998, an increase of $24.7 over gain on sale of
loans during the comparable period of 1997. The increase in gain on sale during
1998 is due to an increase in the amount of loans sold, partially offset by a
decline in Gross Sales Premiums. Net Premiums on the sale of loans decreased to
4.81% during the third quarter of 1998, as compared to 5.33% during the same
period in 1997. For the nine months ended September 30, 1998, Net Premiums on
the sale of loans decreased to 4.88%
17
<PAGE> 19
as compared to 5.37% during the same period in 1997. The table below presents
the premiums received/paid by the Company expressed as a percentage of loans
sold during the respective period.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Gross Sales Premiums as a % of loan sales............. 6.18% 6.54% 6.16% 6.45%
Fees paid to brokers as a % of loan sales............. (1.17) (1.09) (1.16) (1.03)
Fees paid to correspondents as a % of loan sales...... (0.44) (0.28) (0.33) (0.23)
Points, fees and other as a % of loan sales........... 0.24 0.16 0.21 0.18
----- ----- ----- -----
Net Premiums as a % of loan sales..................... 4.81% 5.33% 4.88% 5.37%
===== ===== ===== =====
</TABLE>
The decline in Net Premiums is primarily the result of the Company selling
a higher amount of loans generated from the Correspondent channel. The Company
normally pays a higher fee to its correspondents than it does to brokers. During
the third quarter of 1998, purchase premiums relating to correspondent loans
averaged 3.21% of correspondent loans sold, while fees paid to brokers averaged
1.40% of broker loans sold.
Loan servicing and other fees totaled $1.2 million during the three months
ended September 30, 1998, net of amortization of mortgage servicing rights
totaling $328,000. During the nine months ended September 30, 1998, loan
servicing and other fees totaled $2.6 million, net of amortization of mortgage
servicing rights totaling $796,000. The Company generally earns an annual 50
basis points on the outstanding principal balance of each loan it services, and
retains the right to receive late fees and other charges in connection with the
servicing of such loans. At September 30, 1998, the outstanding balance of the
servicing portfolio totaled $1.2 billion. Prior to the Reorganization, all
related loan servicing revenues were recognized by an affiliated division of
AMC. During the third quarter, the Company and AMC modified the existing loan
sub-servicing agreement, which provides the Company the right to begin servicing
its loans. The Company began its independent servicing operations on November 2,
1998.
Net interest income totaled $2.0 million during the third quarter of 1998,
an increase of $845,000 compared to the same period in 1997. During the nine
months ended September 30, 1998, net interest income totaled $5.0 million, an
increase of $3.3 million compared to the same period in 1997. Such increases
resulted from a higher level of average loans held for sale during the period,
partially offset by a higher level of average advances under the revolving
warehouse financing facility. Subsequent to the Reorganization, the Company
began utilizing its excess liquidity to fund a portion of its loan originations.
This strategy has resulted in higher levels of return on its excess liquidity
and has allowed the Company the flexibility to transfer such loans to its
warehouse line on a same-day basis.
Expenses. The following table sets forth the components of the Company's
expenses for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1998 1997 1998 1997
-------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Compensation expense.............................. $12,100 $ 8,957 $35,797 $21,941
Premises and equipment expenses................... 3,119 1,020 8,288 2,625
Other general and administrative expenses......... 3,207 1,970 8,015 4,307
------- ------- ------- -------
Total direct expenses................... 18,426 11,947 52,100 28,873
Allocated expenses from AMC....................... -- -- -- 2,294
------- ------- ------- -------
Total general and administrative
expenses.............................. 18,426 11,947 52,100 31,167
Provision for losses.............................. 1,100 500 3,500 3,428
Sub-servicing costs............................... 1,542 294 3,326 340
------- ------- ------- -------
Total expenses.......................... $21,068 $12,741 $58,926 $34,935
======= ======= ======= =======
</TABLE>
18
<PAGE> 20
The total dollar amount of general and administrative expenses increased
during the three and nine months ended September 30, 1998, compared to the same
periods in 1997. Additionally, the percentage of total general and
administrative expense to loan production increased to 2.73% and 2.87%, during
the three and nine months ended September 30, 1998, respectively, compared to
2.68% and 2.69%, during the three and nine months ended September 30, 1997,
respectively. The increase in general and administrative expenses is due to: (i)
costs relating to the increase in volume of loan production, (ii) an increase in
corporate infrastructure, (iii) the costs of initiating a retail production
channel, and (iv) the costs of initiating a loan servicing function. During 1998
the Company added regional processing centers in Denver, Dallas and Chicago in
order to support loan production.
Compensation expense increased by 35.1% during the third quarter of 1998,
compared to the same period in 1997. During the nine months ended September 30,
1998, compensation expense increased by 63.2% compared to the same period in
1997. The primary reason for such increase is attributable to increases in
commissions paid to production employees. Additionally, compensation expenses
increased during 1998 as a result of the increase in corporate staff to support
the infrastructure of the Company as an independent entity. The number of
employees totaled 788 at September 30, 1998, up from 497 at September 30, 1997.
During the third quarter of 1998 the Company determined that no additional
accruals were necessary for anticipated bonuses for certain corporate officers
for the calendar year 1998.
Premises and equipment expenses increased by 205.8% during the third
quarter of 1998, compared to the same period in 1997. During the nine months
ended September 30, 1998, premises and equipment expenses increased by 215.7%
compared to the same period in 1997. Such increases reflect an increase in
occupancy costs related to growth in personnel to support the increased volume
of loan production, initiating a loan servicing function as well as an increase
in headquarters space to support the Company's infrastructure as an independent
entity since the Reorganization.
Other general and administrative expenses increased by 62.8% during the
third quarter of 1998, compared to the same period in 1997. During the nine
months ended September 30, 1998, other general and administrative expenses
increased by 86.1% compared to the same period in 1997. The increase in other
general and administrative expenses is primarily the result of increased
infrastructure and costs incurred in support of the Company's loan production.
Prior to the Reorganization, the Wholesale Division received an allocation
of expenses from AMC, as detailed in Note 1 to the Company's Consolidated
Financial Statements. Following the Reorganization, such allocations ceased when
the Company began its operations as an independent entity. During the nine
months ended September 30, 1997, such allocated expenses from AMC totaled $2.3
million.
Provision for losses increased to $1.1 million for the three months ended
September 30, 1998, as compared to $500,000 in 1997. During the nine months
ended September 30, 1998, provision for losses increased to $3.5 million
compared to $3.4 million for the same period in 1997. The provision recorded
during 1998 represents estimated losses from:(i) breaches of representations and
warranties, (ii) first payment defaults, (iii) repurchases of loans recorded as
sold, and (iv) loans held for sale. At September 30, 1998, the Company had $1.9
million of allowances for these potential losses. Prior to the Reorganization,
AMC allocated $2.4 million of provision for losses to the Wholesale Division.
This allocation related to losses sustained by the Wholesale Division during
April 1997 from the repurchase and sale of certain loans which were originated
by the Wholesale Division in previous years.
As more fully discussed in Note 3 to the Company's Consolidated Financial
Statements, since the Reorganization, the Company has entered into an agreement
with AMC pursuant to which AMC agreed to sub-service mortgage loans originated
or purchased by the Company after the Reorganization. The Company has agreed to
pay AMC a 45 basis point annual servicing fee on the outstanding principal
balance of each loan sub-serviced. Such sub-servicing costs for the three and
nine months ended September 30, 1998 totaled $1.5 million and $3.3 million,
respectively, compared to $294,000 and $340,000 for the three and nine months
ended September 30, 1997. The Company and AMC modified the sub-servicing
agreement during the third quarter of 1998. The Company anticipates that its
future sub-servicing cost will decline commensurate with
19
<PAGE> 21
the decline in the volume of loans serviced by the sub-servicer. The Company's
cost of servicing will be reported as part of its general and administrative
expenses in the future.
Income Taxes. During the first quarter of 1998, the Company engaged its
independent external accountants to perform a study on its state income tax
filing methodologies to assist with the filing of its initial state income tax
returns in those states where the Company had significant operations. Prior to
the completion of this analysis, the Company estimated its combined income tax
rate to be 42%. The study was completed during the third quarter of 1998 and
indicated that the Company's actual income tax expense for 1998 should be
approximately 40%-41%. Applying the lower effective annual tax rate to the
Companys's 1998 operations resulted in the Company's income tax expense
declining to 38% of pre-tax earnings during the third quarter and to 40% for the
nine months ended September 30, 1998. Comparatively, the income tax rate for the
third quarter of 1997 was 42% and 41% for the nine months ended September 30,
1997. The Company anticipates that its ongoing combined tax rate to continue to
approximate 40-41% of pre-tax earnings. Because the Wholesale Division was part
of AMC until the Reorganization, AMC is responsible for the payment of all
federal and state income taxes owed by the Wholesale Division of AMC prior to
the Reorganization.
FINANCIAL CONDITION
A substantial portion of the Company's cash and cash equivalents are
maintained in accounts with its warehouse lender. The Company earns interest on
these funds at a yield that approximates the 30 day reserve adjusted London
Inter-Bank Offered Rate ("LIBOR"). At September 30, 1998, cash and cash
equivalents included $25.8 million in funds which were borrowed from its
warehouse lender for the funding of loans. Such advances were not utilized to
fund loans and were repaid to the warehouse lender the following business day.
As discussed in more detail in Liquidity and Capital Resources, the
Company's investment securities consists of high-quality, short-term securities.
At September 30, 1998, the largest component of the Company's investment
securities consisted of a money market mutual fund, which limits it holdings to
government securities. These securities are available for sale, and their market
value approximated their historical cost basis at September 30, 1998.
Loans held for sale increased by $35.6 million as of September 30, 1998, as
compared to December 31, 1997, reflecting the continuing increase in loan
origination activity from month to month, partially offset by an increase in the
receivable from the sale of loans. Loans held for sale are valued at the lower
of their historical cost basis or market value, determined on an aggregate
basis. At September 30, 1998, the Company's allowance for losses on loans held
for sale totaled $1.4 million.
Receivable from the sales of loans represents the proceeds from the sales
of loans that have not been received by the Company from the purchaser. At
September 30, 1998, receivable from the sales of loans totaled $320.5 million
compared to $143.1 million at December 31, 1997. Such balances normally are
collected within a 30-day period from month-end. As of October 31, 1998,
substantially all of the proceeds related to the receivable from the sales of
loans at September 30, 1998 had been collect
At September 30, 1998, the Company had recorded $5.0 million of capitalized
servicing rights, net of amortization which totaled $796,000 during the nine
months ended September 30, 1998. Capitalized servicing rights are subject to
downward valuation in the event that the market value of the servicing is lower
than the recorded amounts, which typically occurs when the related loans have
higher ratios of loss (charge-offs) and/or rates of prepayment than had been
predicted at the time of sale.
The warehouse financing facility and reverse repurchase agreement increased
$204.4 million over the 1997 year-end level as a result of an increase in the
receivable from the sales of loans over the same comparative period and
increased origination volume. As a percentage of total capitalization, warehouse
financing facility and reverse repurchase agreement reflects an increase, to 79%
at September 30, 1998 compared to 62% at December 31, 1997.
20
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company had $34.4 million in cash and cash equivalents at September 30,
1998 reflecting continued positive cash flows generated since the
Reorganization. Prior to the Reorganization, all cash generated by the Wholesale
Division of AMC was collected by AMC, and as such, cash and cash equivalents for
the Company at any point prior to the Reorganization reflects a zero balance.
Nonetheless, the Company has historically generated positive cash flow. Sources
of cash flow include loan sales, net interest income and borrowings. Uses of
cash include the funding of loan originations and purchases, repayment of
borrowings and related interest expenses, operating and administrative expenses,
income taxes, purchases of treasury stock , and capital expenditures.
The Company funds its operations through its loan sales, revolving
warehouse credit facility under which it borrows money to finance the
origination and purchase of loans, cash reserves, and net earnings.
Additionally, the Company may utilize cash reserves to fund loan production in
order to maximize the return on excess liquidity. The Company repays borrowings
with the proceeds from loan sales. During the three months ended September 30,
1998 and 1997, the Company used cash in the amount of $674.3 million and $445.8
million, respectively, for new loan originations and purchases. During the same
periods, the Company received cash proceeds from the sale of loans of $646.3
million and $465.5 million, respectively, representing the principal balance of
loans sold. The Company received cash proceeds from the premiums on such loans
sales of $34.9 million and $28.2 million, respectively, for the three months
ended September 30, 1998 and 1997. During the nine months ended September 30,
1998 and 1997, the Company used cash in the amount of $1.8 billion and $1.2
billion, respectively, for new loan originations and purchases. During the same
periods, the Company received cash proceeds from the sale of loans of $1.8
billion and $1.2 billion, respectively, representing the principal balance of
loans sold. The Company received cash proceeds from the premiums on such loans
sales of $100.7 million and $67.2 million, respectively, for the nine months
ended September 30, 1998 and 1997.
The Company has three primary sources of funding its loans:(i) a committed
$300 million revolving warehouse facility provided by a syndicate of banks, led
by Chase Bank of Texas, (ii) an uncommitted $100 million repurchase facility,
and (iii) the Company's excess liquidity. Those borrowing facilities have a
variety of financial and compliance covenants and the Company exceeded all of
these covenants at September 30, 1998. These facilities bear interest at a
specified margin over one month LIBOR. The weighted average cost of funds for
these facilities was 6.81% at September 30, 1998. At September 30, 1998, the
Company had borrowed $25.8 million on loans which had not yet funded. These
borrowings were repaid the following business day. At September 30, 1998, the
Company had utilized $35.4 million of its excess liquidity to fund loans.
The Company has adopted an investment program for available liquidity. The
objectives of this program are to preserve the capital of the Company while
maintaining flexibility for strategic opportunities. The Company's investment
strategy seeks to maximize returns within the policy's objectives. The weighted-
average yield on the Company's investment portfolio at September 30, 1998 was
5.35%.
The Company has utilized its available liquidity to repurchase shares of
its stock on the open market. Pursuant to a stock repurchase plan adopted by the
Board of Directors in October 1997, the Company is authorized to repurchase up
to 2.5 million shares of the Company's common stock through the end of September
1999. During the third quarter of 1998 the Company repurchased 1.5 million
shares of stock at a cost of $14.4 million. During the nine months ended
September 30, 1998, the Company used $21.2 million of available liquidity to
purchase an additional 2.1 million shares of its common stock. The Company has
spent $24.5 million and has repurchased 2.4 million shares since the plan's
inception.
The Company believes that sufficient cash from operations and borrowings
will be generated to fund operations. 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 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
21
<PAGE> 23
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.
The Company has entered into a forward sales contract with an investment
banking firm to sell $1.3 billion of its future loan production to be delivered
to the purchaser on or before March 31, 1999. The Gross Sales Premium that the
Company will realize from this commitment is dependent upon the type, quality,
interest rate and other terms of the loans delivered to the purchaser. While the
Company does not currently anticipate that the Gross Sales Premium generated
from this forward sale commitment will vary substantially from recent levels,
there can be no assurance that the Company will be able to generate the
sufficient level of production to fulfill this commitment or that the interest
rates, loan to value ratios and/or other key terms of the loans delivered under
the forward sale agreement will generate a Gross Sales Premium comparable to the
level realized during the third quarter of 1998. Additionally the prices in
secondary market for subprime mortgage have recently constricted. Widening
spreads in the asset-backed capital markets has caused pricing for loans,
similar to those originated by the Company, to substantially decline. There can
be no assurance provided that after the expiration of its forward sales
commitment, that the Company will be able to sell its loans in the secondary
market at a price near recent levels. A material decline in such prices could
have a material adverse impact on the Company's profitability and liquidity.
Year 2000
The Company is aware of ensuing issues involving the upcoming date change
from December 31, 1999 to January 1, 2000 ("Year 2000") and the effect of such
change on the Company's information systems. The Company established a task
force to evaluate the internal information technology (IT) and non-IT systems
that could be affected by such date change and also identified the external
systems that are critical to the Company's operations. An assessment of the
readiness of the Company's suppliers is ongoing.
During 1998, the Company has implemented and upgraded several of its core
systems in its effort to establish fully independent operations from its
predecessor company. The discontinuation of the Administrative Services
Agreements was made possible by building an in-house IT infrastructure. This
infrastructure was designed to be fully compliant with the Year 2000 date
change. The software packages selected by the Company as part of establishing
independent operations was chosen in part based on being Year 2000 compliant.
This software includes the Company's accounting, treasury, human resources,
payroll, loan servicing, and network management software. The total expenditures
during 1998 related to establishing independent IT systems approximate $2.5
million, of which $1.0 million has been capitalized.
The Company's plan for Year 2000 readiness has three phases. Phase one
involves identifying and remediating the internal systems and processes that
must be Year 2000 compliant. The Company estimates that it is 70% complete, with
a planned completion date at the end of 1998. Phase two consists of developing a
contingency plan for those external systems or suppliers that are critical for
the Company to operate, but are not yet Year 2000 compliant. The Company
estimates that it will have developed and begun to implement these contingency
plans during the first quarter of 1999. Phase three consists of testing both the
internal and external systems as a whole, and has been scheduled to be completed
by the end of first quarter 1999.
The Company does not anticipate the cost of addressing all the issues
associated with becoming Year 2000 compliant will have a material impact on its
financial condition, results of operations or liquidity in any single year. The
Company's estimates are based upon the assumption that its major third party
suppliers are or become Year 2000 compliant within the time frame outlined
above. The Company has requested that its major third party suppliers provide
details of their Year 2000 compliance program and schedule of testing. In the
event any of these vendors are unable to become compliant the Company may incur
additional costs.
Although the Company has taken steps to identify, evaluate and remediate
its Year 2000 compliance issues, it is possible that certain of its suppliers
and/or systems may not be Year 2000 compliant by January 1, 2000. These
suppliers provide the Company with computer processing systems, banking and
financial systems,
22
<PAGE> 24
and utility infrastructure. In the event that any of these suppliers and/or
systems are not Year 2000 compliant as of January 1, 2000, the Company may be
exposed to an impairment in its: (i) operations, (ii) business processes, (iii)
ability to meet its financial obligations. The impairment in any of these areas
could have a material adverse effect on the Company's financial condition,
results of operations and liquidity. The Company is assessing these risks and is
creating contingency plans intended to address such risks, and expects to have
such plans in place by the end of the first quarter of 1999.
Forward looking information: Certain disclosures made by the Company in
this report and in other reports and statements released by the Company,
including the Company's recent filing on Form 10-K as of and for the period
ended December 31, 1997, are forward-looking in nature, such as comments which
express the Company's opinion about trends and factors which may impact future
operating results. Disclosures which use words such as the Company "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from
expectations. Any forward-looking statements, whether made in this report or
elsewhere, should be considered in context with the various disclosures made by
the Company about its business.
ACCOUNTING CONSIDERATIONS
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which is effective for annual periods
beginning after December 15, 1997. This statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. In the initial year of application, comparative
information for earlier years is to be restated. This statement need not be
applied to interim financial statements in the initial year of its application,
but comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim periods in the
second year of application. The Company has not yet adopted SFAS 131 and does
not anticipate that the impact of this statement will have a material impact on
the Company's financial condition, results of operation and cash flows.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for annual periods
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
is currently evaluating the effect this standard may have on the Company's
financial condition, results of operations and cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
23
<PAGE> 25
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
Not Applicable.
24
<PAGE> 26
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.
*10.14 Form of Amendment to Employment Agreement, among Long Beach
Financial Corporation, Long Beach Mortgage Company and each
of M. Jack Mayesh, Edward Resendez, Frank J. Curry, James H.
Leonetti, and James J. Sullivan.
*10.15 4/98 Amended and Restated Senior Secured Credit Agreement,
among Long Beach Mortgage Company and Chase Bank of Texas,
as Lender and Agent.
10.16 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
M. Jack Mayesh
10.17 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
Edward Resendez
10.18 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
Frank J. Curry
10.19 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
William K. Komperda
10.20 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
James H. Leonetti
10.21 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
James J. Sullivan
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.22 Employment Agreement, between Long Beach Financial
Corporation, Long Beach Mortgage Company and Elizabeth A.
Wood
10.23 Supplemental Agreement to Master Sub-Servicing Agreement
between Long Beach Mortgage Company and Ameriquest Mortgage
Company
10.24 Master Repurchase Agreement between Merrill Lynch Mortgage
Capital Inc., Merrill Lynch Credit Corporation and Long
Beach Mortgage Company
27 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
(b) Reports on Form 8-K
None.
26
<PAGE> 28
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>
<S> <C> <C>
By: /s/ M. JACK MAYESH November 12, 1998
------------------------------------------------------------ -----------------
M. Jack Mayesh Date
Chairman and Chief Executive Officer
By: /s/ JAMES H. LEONETTI November 12, 1998
------------------------------------------------------------ -----------------
James H. Leonetti Date
Senior Vice President and Chief Financial Officer
</TABLE>
27
<PAGE> 29
EXHIBIT 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.
*10.14 Form of Amendment to Employment Agreement, among Long Beach
Financial Corporation, Long Beach Mortgage Company and each
of M. Jack Mayesh, Edward Resendez, Frank J. Curry, James H.
Leonetti, and James J. Sullivan.
*10.15 4/98 Amended and Restated Senior Secured Credit Agreement
among Long Beach Mortgage Company and Chase Bank of Texas,
as Lender and Agent.
10.16 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
M. Jack Mayesh
10.17 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
Edward Resendez
10.18 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
Frank J. Curry
10.19 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
William K. Komperda
10.20 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
James H. Leonetti
10.21 Amended and Restated Employment Agreement, between Long
Beach Financial Corporation, Long Beach Mortgage Company and
James J. Sullivan
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.22 Employment Agreement, between Long Beach Financial
Corporation, Long Beach Mortgage Company and Elizabeth A.
Wood
10.23 Supplemental Agreement to Master Sub-Servicing Agreement
between Long Beach Mortgage Company and Ameriquest Mortgage
Company
10.24 Master Repurchase Agreement between Merrill Lynch Mortgage
Capital Inc., Merrill Lynch Credit Corporation and Long
Beach Mortgage Company
27 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
EXHIBIT 10.16
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "AGREEMENT") is
made and entered into effective as of January 1, 1998, by and among LONG BEACH
FINANCIAL CORPORATION, a Delaware corporation ("LBFC"), and LONG BEACH MORTGAGE
COMPANY, a Delaware corporation ("LBMC") (collectively, the "COMPANY"), and M.
JACK MAYESH ("EXECUTIVE").
RECITALS
WHEREAS, the Company and Executive have entered into an Employment
Agreement dated April 15, 1997 (the "ORIGINAL EMPLOYMENT AGREEMENT"), which
provides the terms and conditions of Executive's employment with the Company.
WHEREAS, the Company and Executive desire to amend and restate the terms
of the Original Employment Agreement effective as of January 1, 1998 (the
"EFFECTIVE DATE").
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereto agree that the Original Employment Agreement shall be
amended and restated in its entirety to read as follows, effective as of the
Effective Date:
I.
EMPLOYMENT
1.1 POSITION AND DUTIES. The Company hereby engages and employs
Executive in the following capacities at LBFC and LBMC:
LBFC: Chairman of the Board and
Chief Executive Officer
LBMC: Chairman of the Board and
Chief Executive Officer
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 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
<PAGE> 2
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) 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 $350,000 (subject to adjustment upward as recommended by the
Compensation Committees of the Boards), less deductions required by law, payable
in accordance with the normal payroll practices of the Company.
2.2 ANNUAL PERFORMANCE BONUS.
(a) PAYMENT OF PERFORMANCE BONUS. On or before April 15 each
year, the Company shall pay to Executive a cash bonus ("BONUS") of up to 175% 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. Except as provided in
Section 2.2(b), the Company shall not be obligated to pay Executive any Bonus
for his or the Company's performance in any year, unless Executive is employed
through December 31 of such year. All bonus calculations shall be based upon the
Company's audited financial statements through the end of the applicable
calendar year.
(b) PRO-RATED BONUS UPON CHANGE IN CONTROL OR DEATH. Within 15
days following the consummation of a Change in Control (as defined below) or
Executive's death, the Company shall pay to Executive or to his estate or heirs
a pro-rated cash bonus ("PRO-RATED BONUS") equal to 100% of Executive's annual
Base Salary, pro-rated from January 1 through and including the date of such
Change in Control or death.
2.3 OTHER BENEFITS. The Company has or will 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;
2
<PAGE> 3
(d) An annual executive physical examination conducted by
Corporate Health Services at the University of California, Irvine, or such
comparable program approved by the Compensation Committee of the Board, with the
cost of such examination to be borne by the Company;
(e) Stock options ("OPTIONS") for 500,000 shares of LBFC Common
Stock, which are incentive stock options to the extent permissible and which
have been granted as of April 28, 1997 by the Compensation Committee of the LBFC
Board pursuant to the terms of the LBFC 1997 Stock Incentive Plan dated February
18, 1997 (the "INCENTIVE PLAN"). The Options have an exercise price equal to
$6.50 and shall vest 20% on April 28, 1998 and 20% on each anniversary
thereafter until April 28, 2002, unless the vesting of such Options accelerate
pursuant to Sections 3.2(b) or 3.3(a) hereof or such Options expire or
accelerate pursuant to the Incentive Plan or action of the Compensation
Committee of the LBFC Board. 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. Executive acknowledges that such option grant is
intended to cover the three year period beginning on April 15, 1997 and that the
Company has no commitment to issue additional options to Executive during such
three year period or thereafter; and
(f) Reimbursement for the cost of personal financial and estate
planning services by a financial planner or other professional of Executive's
choice of up to $5,000 for calendar year 1998 and $2,500 for each calendar year
thereafter.
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 (i) such expenditures are of a nature
qualifying them as legitimate business expenses and (ii) 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, SEVERANCE PAY AND CHANGE IN CONTROL
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).
3
<PAGE> 4
3.2 INVOLUNTARY TERMINATION.
(a) SEVERANCE PAY. In the event that Executive's employment with
the Company is terminated by the Company for Cause (as defined below), Executive
shall not be entitled to any Severance Pay or employee benefits (including Other
Benefits); provided, however, that, notwithstanding any provision of the
Incentive Plan, any Options that are vested as of the date of such termination
shall expire and become unexercisable as of the earlier of (i) the date such
Options would expire in accordance with their terms had the Executive remained
employed and (ii) 10 calendar days after the date of such termination. In the
event that Executive's employment with the Company is terminated by the Company
other than for Cause, then, subject to Section 3.6 and 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 monthly payments to Executive in an amount equal to 1/12th of the
sum of Executive's annual Base Salary plus 50% of Executive's maximum Bonus
potential for the year of termination, payable in accordance with customary
payroll practices, for twelve (12) months following such termination. 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.
(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) 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.
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
4
<PAGE> 5
entitled, subject to Section 3.6, 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 in 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 to a location that is more than a 50 mile radius from the
Company's existing executive offices located at 1100 Town & Country Road,
Orange, 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 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). Notwithstanding the termination of this Agreement, the Company
shall be obligated to pay Executive's estate or heirs the Pro-Rated Bonus
pursuant to the terms of Section 2.2(b).
3.5 DISABILITY. In the event of Executive's Disability (as defined
below) during Executive's employment with 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.
3.6 CHANGE IN CONTROL. Within 15 days following the consummation of a
Change in Control, the Company shall pay to Executive a cash payment ("CHANGE IN
CONTROL PAYMENT")
5
<PAGE> 6
equal to the sum of (i) Executive's annual Base Salary then in effect, plus (ii)
175% of such annual Base Salary. Following the consummation of a Change in
Control, Executive shall not be entitled to receive, and hereby waives all right
to Severance Pay pursuant to Section 3.2(a) or 3.3(a) in the event Executive's
employment with the Company is later terminated for any reason. For purposes of
this Section 3.6, "CHANGE IN CONTROL" shall have the meaning ascribed to such
term in Article VIII of the Incentive Plan. If Executive's employment with the
Company is terminated by the Company other than for Cause at any time following
the public announcement of a prospective Change in Control, then,
notwithstanding such termination, the Company shall pay to Executive, within 15
days following the consummation of such Change in Control, the Change in Control
Payment based on Executive's Base Salary in effect on the date of such
termination; provided, however, that such Change in Control Payment shall be
reduced by the total amount of any Severance Pay received by Executive, and
Executive thereafter shall not be entitled to any further payments of Severance
Pay.
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.
6
<PAGE> 7
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
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
geographic areas in which the Company 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.
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
7
<PAGE> 8
and to the same extent that the Company would be required to perform 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
subsequent breach thereof.
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 and legal representative.
6.6 SEVERABILITY. In the event that any provision of this Agreement,
including without limitation any provision of Article IV or 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. Executive acknowledges that all compensation and benefits of any nature
due to Executive from the Company's predecessor, Ameriquest Mortgage Company,
and its affiliates (collectively "Old Long Beach"), have been paid in full and
Executive waives any and all claims relating thereto for the benefit of Old Long
Beach and the Company.
8
<PAGE> 9
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/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ EDWARD RESENDEZ
-----------------------------------
Its: President
LONG BEACH MORTGAGE COMPANY,
a Delaware corporation
By: /s/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ EDWARD RESENDEZ
-----------------------------------
Its: President
"Executive":
/s/ M. JACK MAYESH
-----------------------------------------
Name: M. Jack Mayesh
9
<PAGE> 10
EXHIBIT A
MUTUAL AGREEMENT TO ARBITRATE CLAIMS
Executive recognizes that differences may arise between the Company and
Executive during or following Executive's employment with the Company, and that
those differences may or may not be related to Executive's employment. Executive
understands and agrees that by entering into the Employment Agreement (the
"EMPLOYMENT AGREEMENT") with the Company into which this Mutual Agreement to
Arbitrate Claims is incorporated by reference ("ARBITRATION AGREEMENT"),
Executive 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 will also be a reference to all subsidiary and affiliated
entities; all benefit plans; the benefit plans' sponsors, fiduciaries,
administrators, affiliates; and all successors and assigns of any of them.
Claims Covered by the Agreement
The Company and Executive mutually consent to the resolution by
arbitration of all claims ("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. The 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 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 administrative charge of discrimination)
in any way related to any claim covered by this Arbitration Agreement.
Claims Not Covered by this Arbitration Agreement
Claims Executive may have for workers' compensation or unemployment
compensation benefits are not covered by this Arbitration Agreement.
10
<PAGE> 11
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, as to which Executive understands and agrees
that the Company may seek and obtain relief from a court of competent
jurisdiction.
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 General Counsel 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.
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 Agreement so orders, upon a showing of substantial need.
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.
Subpoenas
Each party shall have the right to subpoena witnesses and documents for
the arbitration.
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
11
<PAGE> 12
Executive is or was employed in the State of California. If Executive is or was
employed outside the State of California, then at the Company's headquarters in
Orange, 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.
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 Agreement,
including but not limited to any claim that all or any part of this 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.
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. However, if any party prevails on a
statutory claim which affords the prevailing party attorneys' fees, or if there
is a written agreement providing for fees, the Arbitrator may award reasonable
fees to the prevailing party.
12
<PAGE> 13
Judicial Review
Either party may bring an action in any court of competent jurisdiction
to compel arbitration under this 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.
Interstate Commerce
Executive understands and agrees that the Company is engaged in
transactions involving interstate commerce and that Executive's employment
involves such commerce.
Requirements for Modification or Revocation
This Arbitration Agreement shall survive the termination of Executive's
employment. 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.
Sole and Entire Agreement
This 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 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.
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 this Arbitration Agreement.
Consideration
The promises by the Company and by Executive to arbitrate differences,
rather than litigate them before courts or other bodies, provide consideration
for each other.
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.
13
<PAGE> 14
Voluntary Agreement
EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS CAREFULLY READ THIS
ARBITRATION AGREEMENT, THAT EXECUTIVE UNDERSTANDS ITS TERMS, THAT ALL
UNDERSTANDINGS AND AGREEMENTS BETWEEN THE COMPANY AND EXECUTIVE RELATING TO THE
SUBJECTS COVERED IN THIS ARBITRATION AGREEMENT ARE CONTAINED IN IT, AND THAT
EXECUTIVE HAS ENTERED INTO THIS 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 EXECUTIVE HAS BEEN GIVEN THE
OPPORTUNITY TO DISCUSS THIS ARBITRATION AGREEMENT WITH EXECUTIVE'S PRIVATE LEGAL
COUNSEL AND HAS AVAILED HIM/HERSELF OF THAT OPPORTUNITY TO THE EXTENT EXECUTIVE
WISHES TO DO SO.
14
<PAGE> 1
EXHIBIT 10.17
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "AGREEMENT") is
made and entered into effective as of January 1, 1998, by and among LONG BEACH
FINANCIAL CORPORATION, a Delaware corporation ("LBFC"), and LONG BEACH MORTGAGE
COMPANY, a Delaware corporation ("LBMC") (collectively, the "COMPANY"), and
EDWARD RESENDEZ ("EXECUTIVE").
RECITALS
WHEREAS, the Company and Executive have entered into an Employment
Agreement dated April 15, 1997 (the "ORIGINAL EMPLOYMENT AGREEMENT"), which
provides the terms and conditions of Executive's employment with the Company.
WHEREAS, the Company and Executive desire to amend and restate the terms
of the Original Employment Agreement effective as of January 1, 1998 (the
"EFFECTIVE DATE").
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereto agree that the Original Employment Agreement shall be
amended and restated in its entirety to read as follows, effective as of the
Effective Date:
I.
EMPLOYMENT
1.1 POSITION AND DUTIES. The Company hereby engages and employs
Executive in the following capacities at LBFC and LBMC:
LBFC: President, Director
LBMC: President, Director
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 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
<PAGE> 2
responsibilities under this Agreement; or (ii) 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 $350,000 (subject to adjustment upward as recommended by the
Compensation Committees of the Boards), less deductions required by law, payable
in accordance with the normal payroll practices of the Company.
2.2 ANNUAL PERFORMANCE BONUS.
(a) PAYMENT OF PERFORMANCE BONUS. On or before April 15 each
year, the Company shall pay to Executive a cash bonus ("BONUS") of up to 175% 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. Except as provided in
Section 2.2(b), the Company shall not be obligated to pay Executive any Bonus
for his or the Company's performance in any year, unless Executive is employed
through December 31 of such year. All bonus calculations shall be based upon the
Company's audited financial statements through the end of the applicable
calendar year.
(b) PRO-RATED BONUS UPON CHANGE IN CONTROL OR DEATH. Within 15
days following the consummation of a Change in Control (as defined below) or
Executive's death, the Company shall pay to Executive or to his estate or heirs
a pro-rated cash bonus ("PRO-RATED BONUS") equal to 100% of Executive's annual
Base Salary, pro-rated from January 1 through and including the date of such
Change in Control or death.
2.3 OTHER BENEFITS. The Company has or will 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) An annual executive physical examination conducted by
Corporate Health Services at the University of California, Irvine, or such
comparable program approved by the
2
<PAGE> 3
Compensation Committee of the Board, with the cost of such examination to be
borne by the Company;
(e) Stock options ("OPTIONS") for 500,000 shares of LBFC Common
Stock, which are incentive stock options to the extent permissible and which
have been granted as of April 28, 1997 by the Compensation Committee of the LBFC
Board pursuant to the terms of the LBFC 1997 Stock Incentive Plan dated February
18, 1997 (the "INCENTIVE PLAN"). The Options have an exercise price equal to
$6.50 and shall vest 20% on April 28, 1998 and 20% on each anniversary
thereafter until April 28, 2002, unless the vesting of such Options accelerate
pursuant to Sections 3.2(b) or 3.3(a) hereof or such Options expire or
accelerate pursuant to the Incentive Plan or action of the Compensation
Committee of the LBFC Board. 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. Executive acknowledges that such option grant is
intended to cover the three year period beginning on April 15, 1997 and that the
Company has no commitment to issue additional options to Executive during such
three year period or thereafter; and
(f) Reimbursement for the cost of personal financial and estate
planning services by a financial planner or other professional of Executive's
choice of up to $5,000 for calendar year 1998 and $2,500 for each calendar year
thereafter.
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 (i) such expenditures are of a nature
qualifying them as legitimate business expenses and (ii) 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, SEVERANCE PAY AND CHANGE IN CONTROL
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).
3.2 INVOLUNTARY TERMINATION.
(a) SEVERANCE PAY. In the event that Executive's employment with
the Company is terminated by the Company for Cause (as defined below), Executive
shall not be entitled to any Severance Pay or employee benefits (including Other
Benefits); provided,
3
<PAGE> 4
however, that, notwithstanding any provision of the Incentive Plan, any Options
that are vested as of the date of such termination shall expire and become
unexercisable as of the earlier of (i) the date such Options would expire in
accordance with their terms had the Executive remained employed and (ii) 10
calendar days after the date of such termination. In the event that Executive's
employment with the Company is terminated by the Company other than for Cause,
then, subject to Section 3.6 and 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 monthly payments to
Executive in an amount equal to 1/12th of the sum of Executive's annual Base
Salary plus 50% of Executive's maximum Bonus potential for the year of
termination, payable in accordance with customary payroll practices, for twelve
(12) months following such termination. 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.
(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) 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.
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, subject to Section 3.6, 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
in Sections 3.2(a) and 3.2(b), provided that (i) Executive gives written notice
of his resignation within ninety
4
<PAGE> 5
(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 to a location that is more than a 50 mile radius from the
Company's existing executive offices located at 1100 Town & Country Road,
Orange, 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 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). Notwithstanding the termination of this Agreement, the Company
shall be obligated to pay Executive's estate or heirs the Pro-Rated Bonus
pursuant to the terms of Section 2.2(b).
3.5 DISABILITY. In the event of Executive's Disability (as defined
below) during Executive's employment with 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.
3.6 CHANGE IN CONTROL. Within 15 days following the consummation of a
Change in Control, the Company shall pay to Executive a cash payment ("CHANGE IN
CONTROL PAYMENT") equal to the sum of (i) Executive's annual Base Salary then in
effect, plus (ii) 175% of such annual Base Salary. Following the consummation of
a Change in Control, Executive shall not be entitled to receive, and hereby
waives all right to Severance Pay pursuant to Section 3.2(a) or 3.3(a) in the
event Executive's employment with the Company is later terminated for any
reason.
5
<PAGE> 6
For purposes of this Section 3.6, "CHANGE IN CONTROL" shall have the meaning
ascribed to such term in Article VIII of the Incentive Plan. If Executive's
employment with the Company is terminated by the Company other than for Cause at
any time following the public announcement of a prospective Change in Control,
then, notwithstanding such termination, the Company shall pay to Executive,
within 15 days following the consummation of such Change in Control, the Change
in Control Payment based on Executive's Base Salary in effect on the date of
such termination; provided, however, that such Change in Control Payment shall
be reduced by the total amount of any Severance Pay received by Executive, and
Executive thereafter shall not be entitled to any further payments of Severance
Pay.
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.
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.
6
<PAGE> 7
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
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
geographic areas in which the Company 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.
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 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
7
<PAGE> 8
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
subsequent breach thereof.
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 and legal representative.
6.6 SEVERABILITY. In the event that any provision of this Agreement,
including without limitation any provision of Article IV or 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. Executive acknowledges that all compensation and benefits of any nature
due to Executive from the Company's predecessor, Ameriquest Mortgage Company,
and its affiliates (collectively "Old Long Beach"), have been paid in full and
Executive waives any and all claims relating thereto for the benefit of Old Long
Beach and the Company.
8
<PAGE> 9
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/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
LONG BEACH MORTGAGE COMPANY,
a Delaware corporation
By: /s/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
"Executive":
/s/ EDWARD RESENDEZ
-----------------------------------------
Name: Edward Resendez
9
<PAGE> 10
EXHIBIT A
MUTUAL AGREEMENT TO ARBITRATE CLAIMS
Executive recognizes that differences may arise between the Company and
Executive during or following Executive's employment with the Company, and that
those differences may or may not be related to Executive's employment. Executive
understands and agrees that by entering into the Employment Agreement (the
"EMPLOYMENT AGREEMENT") with the Company into which this Mutual Agreement to
Arbitrate Claims is incorporated by reference ("ARBITRATION AGREEMENT"),
Executive 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 will also be a reference to all subsidiary and affiliated
entities; all benefit plans; the benefit plans' sponsors, fiduciaries,
administrators, affiliates; and all successors and assigns of any of them.
Claims Covered by the Agreement
The Company and Executive mutually consent to the resolution by
arbitration of all claims ("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. The 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 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 administrative charge of discrimination)
in any way related to any claim covered by this Arbitration Agreement.
Claims Not Covered by this Arbitration Agreement
Claims Executive may have for workers' compensation or unemployment
compensation benefits are not covered by this Arbitration Agreement.
10
<PAGE> 11
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, as to which Executive understands and agrees
that the Company may seek and obtain relief from a court of competent
jurisdiction.
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.
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 Agreement so orders, upon a showing of substantial need.
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.
Subpoenas
Each party shall have the right to subpoena witnesses and documents for
the arbitration.
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
11
<PAGE> 12
Executive is or was employed in the State of California. If Executive is or was
employed outside the State of California, then at the Company's headquarters in
Orange, 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.
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 Agreement,
including but not limited to any claim that all or any part of this 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.
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. However, if any party prevails on a
statutory claim which affords the prevailing party attorneys' fees, or if there
is a written agreement providing for fees, the Arbitrator may award reasonable
fees to the prevailing party.
12
<PAGE> 13
Judicial Review
Either party may bring an action in any court of competent jurisdiction
to compel arbitration under this 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.
Interstate Commerce
Executive understands and agrees that the Company is engaged in
transactions involving interstate commerce and that Executive's employment
involves such commerce.
Requirements for Modification or Revocation
This Arbitration Agreement shall survive the termination of Executive's
employment. 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.
Sole and Entire Agreement
This 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 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.
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 this Arbitration Agreement.
Consideration
The promises by the Company and by Executive to arbitrate differences,
rather than litigate them before courts or other bodies, provide consideration
for each other.
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.
13
<PAGE> 14
Voluntary Agreement
EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS CAREFULLY READ THIS
ARBITRATION AGREEMENT, THAT EXECUTIVE UNDERSTANDS ITS TERMS, THAT ALL
UNDERSTANDINGS AND AGREEMENTS BETWEEN THE COMPANY AND EXECUTIVE RELATING TO THE
SUBJECTS COVERED IN THIS ARBITRATION AGREEMENT ARE CONTAINED IN IT, AND THAT
EXECUTIVE HAS ENTERED INTO THIS 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 EXECUTIVE HAS BEEN GIVEN THE
OPPORTUNITY TO DISCUSS THIS ARBITRATION AGREEMENT WITH EXECUTIVE'S PRIVATE LEGAL
COUNSEL AND HAS AVAILED HIM/HERSELF OF THAT OPPORTUNITY TO THE EXTENT EXECUTIVE
WISHES TO DO SO.
14
<PAGE> 1
EXHIBIT 10.18
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "AGREEMENT") is
made and entered into effective as of January 1, 1998, by and among LONG BEACH
FINANCIAL CORPORATION, a Delaware corporation ("LBFC"), and LONG BEACH MORTGAGE
COMPANY, a Delaware corporation ("LBMC") (collectively, the "COMPANY"), and
FRANK J. CURRY ("EXECUTIVE").
RECITALS
WHEREAS, the Company and Executive have entered into an Employment
Agreement dated April 15, 1997 (the "ORIGINAL EMPLOYMENT AGREEMENT"), which
provides the terms and conditions of Executive's employment with the Company.
WHEREAS, the Company and Executive desire to amend and restate the terms
of the Original Employment Agreement effective as of January 1, 1998 (the
"EFFECTIVE DATE").
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereto agree that the Original Employment Agreement shall be
amended and restated in its entirety to read as follows, effective as of the
Effective Date:
I.
EMPLOYMENT
1.1 POSITION AND DUTIES. The Company hereby engages and employs
Executive in the following capacities at LBFC and LBMC:
LBFC: Executive Vice President
LBMC: Executive Vice President and
Chief Operating Officer
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 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
<PAGE> 2
activities do not materially interfere with the proper performance of
his duties and responsibilities under this Agreement; or (ii) 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 $350,000 (subject to adjustment upward as recommended by the
Compensation Committees of the Boards), less deductions required by law, payable
in accordance with the normal payroll practices of the Company.
2.2 ANNUAL PERFORMANCE BONUS.
(a) PAYMENT OF PERFORMANCE BONUS. On or before April 15 each
year, the Company shall pay to Executive a cash bonus ("BONUS") of up to 175% 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. Except as provided in
Section 2.2(b), the Company shall not be obligated to pay Executive any Bonus
for his or the Company's performance in any year, unless Executive is employed
through December 31 of such year. All bonus calculations shall be based upon the
Company's audited financial statements through the end of the applicable
calendar year.
(b) PRO-RATED BONUS UPON CHANGE IN CONTROL OR DEATH. Within 15
days following the consummation of a Change in Control (as defined below) or
Executive's death, the Company shall pay to Executive or to his estate or heirs
a pro-rated cash bonus ("PRO-RATED BONUS") equal to 100% of Executive's annual
Base Salary, pro-rated from January 1 through and including the date of such
Change in Control or death.
2.3 OTHER BENEFITS. The Company has or will 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) An annual executive physical examination conducted by
Corporate Health Services at the University of California, Irvine, or such
comparable program approved by the
2
<PAGE> 3
Compensation Committee of the Board, with the cost of such examination to be
borne by the Company;
(e) Stock options ("OPTIONS") for 500,000 shares of LBFC Common
Stock, which are incentive stock options to the extent permissible and which
have been granted as of April 28, 1997 by the Compensation Committee of the LBFC
Board pursuant to the terms of the LBFC 1997 Stock Incentive Plan dated February
18, 1997 (the "INCENTIVE PLAN"). The Options have an exercise price equal to
$6.50 and shall vest 20% on April 28, 1998 and 20% on each anniversary
thereafter until April 28, 2002, unless the vesting of such Options accelerate
pursuant to Sections 3.2(b) or 3.3(a) hereof or such Options expire or
accelerate pursuant to the Incentive Plan or action of the Compensation
Committee of the LBFC Board. 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. Executive acknowledges that such option grant is
intended to cover the three year period beginning on April 15, 1997 and that the
Company has no commitment to issue additional options to Executive during such
three year period or thereafter; and
(f) Reimbursement for the cost of personal financial and estate
planning services by a financial planner or other professional of Executive's
choice of up to $5,000 for calendar year 1998 and $2,500 for each calendar year
thereafter.
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 (i) such expenditures are of a nature
qualifying them as legitimate business expenses and (ii) 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, SEVERANCE PAY AND CHANGE IN CONTROL
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).
3.2 INVOLUNTARY TERMINATION.
(a) SEVERANCE PAY. In the event that Executive's employment with
the Company is terminated by the Company for Cause (as defined below), Executive
shall not be entitled to any Severance Pay or employee benefits (including Other
Benefits); provided,
3
<PAGE> 4
however, that, notwithstanding any provision of the Incentive Plan, any Options
that are vested as of the date of such termination shall expire and become
unexercisable as of the earlier of (i) the date such Options would expire in
accordance with their terms had the Executive remained employed and (ii) 10
calendar days after the date of such termination. In the event that Executive's
employment with the Company is terminated by the Company other than for Cause,
then, subject to Section 3.6 and 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 monthly payments to
Executive in an amount equal to 1/12th of the sum of Executive's annual Base
Salary plus 50% of Executive's maximum Bonus potential for the year of
termination, payable in accordance with customary payroll practices, for twelve
(12) months following such termination. 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.
(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) 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.
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, subject to Section 3.6, 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
in Sections 3.2(a) and 3.2(b), provided that (i) Executive gives written notice
of his resignation within ninety
4
<PAGE> 5
(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 to a location that is more than a 50 mile radius from the
Company's existing executive offices located at 1100 Town & Country Road,
Orange, 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 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). Notwithstanding the termination of this Agreement, the Company
shall be obligated to pay Executive's estate or heirs the Pro-Rated Bonus
pursuant to the terms of Section 2.2(b).
3.5 DISABILITY. In the event of Executive's Disability (as defined
below) during Executive's employment with 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.
3.6 CHANGE IN CONTROL. Within 15 days following the consummation of a
Change in Control, the Company shall pay to Executive a cash payment ("CHANGE IN
CONTROL PAYMENT") equal to the sum of (i) Executive's annual Base Salary then in
effect, plus (ii) 175% of such annual Base Salary. Following the consummation of
a Change in Control, Executive shall not be entitled to receive, and hereby
waives all right to Severance Pay pursuant to Section 3.2(a) or 3.3(a) in the
event Executive's employment with the Company is later terminated for any
reason.
5
<PAGE> 6
For purposes of this Section 3.6, "CHANGE IN CONTROL" shall have the meaning
ascribed to such term in Article VIII of the Incentive Plan. If Executive's
employment with the Company is terminated by the Company other than for Cause at
any time following the public announcement of a prospective Change in Control,
then, notwithstanding such termination, the Company shall pay to Executive,
within 15 days following the consummation of such Change in Control, the Change
in Control Payment based on Executive's Base Salary in effect on the date of
such termination; provided, however, that such Change in Control Payment shall
be reduced by the total amount of any Severance Pay received by Executive, and
Executive thereafter shall not be entitled to any further payments of Severance
Pay.
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.
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.
6
<PAGE> 7
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
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
geographic areas in which the Company 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.
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 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
7
<PAGE> 8
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
subsequent breach thereof.
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 and legal representative.
6.6 SEVERABILITY. In the event that any provision of this Agreement,
including without limitation any provision of Article IV or 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. Executive acknowledges that all compensation and benefits of any nature
due to Executive from the Company's predecessor, Ameriquest Mortgage Company,
and its affiliates (collectively "Old Long Beach"), have been paid in full and
Executive waives any and all claims relating thereto for the benefit of Old Long
Beach and the Company.
8
<PAGE> 9
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/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
LONG BEACH MORTGAGE COMPANY,
a Delaware corporation
By: /s/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
"Executive":
/s/ FRANK J. CURRY
-----------------------------------------
Name: Frank J. Curry
9
<PAGE> 10
EXHIBIT A
MUTUAL AGREEMENT TO ARBITRATE CLAIMS
Executive recognizes that differences may arise between the Company and
Executive during or following Executive's employment with the Company, and that
those differences may or may not be related to Executive's employment. Executive
understands and agrees that by entering into the Employment Agreement (the
"EMPLOYMENT AGREEMENT") with the Company into which this Mutual Agreement to
Arbitrate Claims is incorporated by reference ("ARBITRATION AGREEMENT"),
Executive 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 will also be a reference to all subsidiary and affiliated
entities; all benefit plans; the benefit plans' sponsors, fiduciaries,
administrators, affiliates; and all successors and assigns of any of them.
Claims Covered by the Agreement
The Company and Executive mutually consent to the resolution by
arbitration of all claims ("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. The 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 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 administrative charge of discrimination)
in any way related to any claim covered by this Arbitration Agreement.
Claims Not Covered by this Arbitration Agreement
Claims Executive may have for workers' compensation or unemployment
compensation benefits are not covered by this Arbitration Agreement.
10
<PAGE> 11
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, as to which Executive
understands and agrees that the Company may seek and obtain relief from a court
of competent jurisdiction.
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.
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 Agreement so orders, upon a showing of substantial need.
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.
Subpoenas
Each party shall have the right to subpoena witnesses and documents for
the arbitration.
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
11
<PAGE> 12
Executive is or was employed in the State of California. If Executive is or was
employed outside the State of California, then at the Company's headquarters in
Orange, 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.
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 Agreement,
including but not limited to any claim that all or any part of this 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.
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. However, if any party prevails on a
statutory claim which affords the prevailing party attorneys' fees, or if there
is a written agreement providing for fees, the Arbitrator may award reasonable
fees to the prevailing party.
12
<PAGE> 13
Judicial Review
Either party may bring an action in any court of competent jurisdiction
to compel arbitration under this 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.
Interstate Commerce
Executive understands and agrees that the Company is engaged in
transactions involving interstate commerce and that Executive's employment
involves such commerce.
Requirements for Modification or Revocation
This Arbitration Agreement shall survive the termination of Executive's
employment. 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.
Sole and Entire Agreement
This 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 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.
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 this Arbitration Agreement.
Consideration
The promises by the Company and by Executive to arbitrate differences,
rather than litigate them before courts or other bodies, provide consideration
for each other.
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.
13
<PAGE> 14
Voluntary Agreement
EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS CAREFULLY READ THIS
ARBITRATION AGREEMENT, THAT EXECUTIVE UNDERSTANDS ITS TERMS, THAT ALL
UNDERSTANDINGS AND AGREEMENTS BETWEEN THE COMPANY AND EXECUTIVE RELATING TO THE
SUBJECTS COVERED IN THIS ARBITRATION AGREEMENT ARE CONTAINED IN IT, AND THAT
EXECUTIVE HAS ENTERED INTO THIS 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 EXECUTIVE HAS BEEN GIVEN THE
OPPORTUNITY TO DISCUSS THIS ARBITRATION AGREEMENT WITH EXECUTIVE'S PRIVATE LEGAL
COUNSEL AND HAS AVAILED HIM/HERSELF OF THAT OPPORTUNITY TO THE EXTENT EXECUTIVE
WISHES TO DO SO.
14
<PAGE> 1
EXHIBIT 10.19
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "AGREEMENT") is
made and entered into effective as of January 1, 1998, by and among 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").
RECITALS
WHEREAS, the Company and Executive have entered into an Employment
Agreement dated May 27, 1997 (the "ORIGINAL EMPLOYMENT AGREEMENT"), which
provides the terms and conditions of Executive's employment with the Company.
WHEREAS, the Company and Executive desire to amend and restate the terms
of the Original Employment Agreement effective as of January 1, 1998 (the
"EFFECTIVE DATE").
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereto agree that the Original Employment Agreement shall be
amended and restated in its entirety to read as follows, effective as of the
Effective Date:
I.
EMPLOYMENT
1.1 POSITION AND DUTIES. The Company hereby engages and employs
Executive in the following capacities at LBFC and LBMC:
LBFC: Executive Vice President, Managing Director
of Capital Markets and Strategic Planning
LBMC: Executive 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 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
<PAGE> 2
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) 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 $350,000 (subject to adjustment upward as recommended by the
Compensation Committees of the Boards), less deductions required by law, payable
in accordance with the normal payroll practices of the Company.
2.2 ANNUAL PERFORMANCE BONUS.
(a) PAYMENT OF PERFORMANCE BONUS. On or before April 15 each
year, the Company shall pay to Executive a cash bonus ("BONUS") of up to 175% 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. Except as provided in
Section 2.2(b), the Company shall not be obligated to pay Executive any Bonus
for his or the Company's performance in any year, unless Executive is employed
through December 31 of such year. All bonus calculations shall be based upon the
Company's audited financial statements through the end of the applicable
calendar year.
(b) PRO-RATED BONUS UPON CHANGE IN CONTROL OR DEATH. Within 15
days following the consummation of a Change in Control (as defined below) or
Executive's death, the Company shall pay to Executive or to his estate or heirs
a pro-rated cash bonus ("PRO-RATED BONUS") equal to 100% of Executive's annual
Base Salary, pro-rated from January 1 through and including the date of such
Change in Control or death.
2.3 OTHER BENEFITS. The Company has or will 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;
2
<PAGE> 3
(d) An annual executive physical examination conducted by
Corporate Health Services at the University of California, Irvine, or such
comparable program approved by the Compensation Committee of the Board, with the
cost of such examination to be borne by the Company;
(e) Stock options ("OPTIONS") for 475,000 shares of LBFC Common
Stock, which are incentive stock options to the extent permissible and which
have been granted as of May 27, 1997 by the Compensation Committee of the LBFC
Board pursuant to the terms of the LBFC 1997 Stock Incentive Plan dated February
18, 1997 (the "INCENTIVE PLAN"). The Options have an exercise price equal to
$7.94 and shall vest 20% on May 27, 1998 and 20% on each anniversary thereafter
until May 27, 2002, unless the vesting of such Options accelerate pursuant to
Sections 3.2(b) or 3.3(a) hereof or such Options expire or accelerate pursuant
to the Incentive Plan or action of the Compensation Committee of the LBFC Board.
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.
Executive acknowledges that such option grant is intended to cover the three
year period beginning on April 15, 1997 and that the Company has no commitment
to issue additional options to Executive during such three year period or
thereafter; and
(f) Reimbursement for the cost of personal financial and estate
planning services by a financial planner or other professional of Executive's
choice of up to $5,000 for calendar year 1998 and $2,500 for each calendar year
thereafter.
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 (i) such expenditures are of a nature
qualifying them as legitimate business expenses and (ii) 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, SEVERANCE PAY AND CHANGE IN CONTROL
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).
3
<PAGE> 4
3.2 INVOLUNTARY TERMINATION.
(a) SEVERANCE PAY. In the event that Executive's employment with
the Company is terminated by the Company for Cause (as defined below), Executive
shall not be entitled to any Severance Pay or employee benefits (including Other
Benefits); provided, however, that, notwithstanding any provision of the
Incentive Plan, any Options that are vested as of the date of such termination
shall expire and become unexercisable as of the earlier of (i) the date such
Options would expire in accordance with their terms had the Executive remained
employed and (ii) 10 calendar days after the date of such termination. In the
event that Executive's employment with the Company is terminated by the Company
other than for Cause, then, subject to Section 3.6 and 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 monthly payments to Executive in an amount equal to 1/12th of the
sum of Executive's annual Base Salary plus 50% of Executive's maximum Bonus
potential for the year of termination, payable in accordance with customary
payroll practices, for twelve (12) months following such termination. 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.
(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) 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.
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
4
<PAGE> 5
entitled, subject to Section 3.6, 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 in 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 to a location that is more than a 50 mile radius from the
Company's existing executive offices located at 1100 Town & Country Road,
Orange, 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 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). Notwithstanding the termination of this Agreement, the Company
shall be obligated to pay Executive's estate or heirs the Pro-Rated Bonus
pursuant to the terms of Section 2.2(b).
3.5 DISABILITY. In the event of Executive's Disability (as defined
below) during Executive's employment with 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.
3.6 CHANGE IN CONTROL. Within 15 days following the consummation of a
Change in Control, the Company shall pay to Executive a cash payment ("CHANGE IN
CONTROL PAYMENT")
5
<PAGE> 6
equal to the sum of (i) Executive's annual Base Salary then in effect, plus (ii)
175% of such annual Base Salary. Following the consummation of a Change in
Control, Executive shall not be entitled to receive, and hereby waives all right
to Severance Pay pursuant to Section 3.2(a) or 3.3(a) in the event Executive's
employment with the Company is later terminated for any reason. For purposes of
this Section 3.6, "CHANGE IN CONTROL" shall have the meaning ascribed to such
term in Article VIII of the Incentive Plan. If Executive's employment with the
Company is terminated by the Company other than for Cause at any time following
the public announcement of a prospective Change in Control, then,
notwithstanding such termination, the Company shall pay to Executive, within 15
days following the consummation of such Change in Control, the Change in Control
Payment based on Executive's Base Salary in effect on the date of such
termination; provided, however, that such Change in Control Payment shall be
reduced by the total amount of any Severance Pay received by Executive, and
Executive thereafter shall not be entitled to any further payments of Severance
Pay.
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.
6
<PAGE> 7
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
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
geographic areas in which the Company 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.
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
7
<PAGE> 8
and to the same extent that the Company would be required to perform 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
subsequent breach thereof.
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 and legal representative.
6.6 SEVERABILITY. In the event that any provision of this Agreement,
including without limitation any provision of Article IV or 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.
8
<PAGE> 9
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/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
LONG BEACH MORTGAGE COMPANY,
a Delaware corporation
By: /s/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
"Executive":
/s/ WILLIAM K. KOMPERDA
-----------------------------------------
Name: William K. Komperda
9
<PAGE> 10
EXHIBIT A
MUTUAL AGREEMENT TO ARBITRATE CLAIMS
Executive recognizes that differences may arise between the Company and
Executive during or following Executive's employment with the Company, and that
those differences may or may not be related to Executive's employment. Executive
understands and agrees that by entering into the Employment Agreement (the
"EMPLOYMENT AGREEMENT") with the Company into which this Mutual Agreement to
Arbitrate Claims is incorporated by reference ("ARBITRATION AGREEMENT"),
Executive 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 will also be a reference to all subsidiary and affiliated
entities; all benefit plans; the benefit plans' sponsors, fiduciaries,
administrators, affiliates; and all successors and assigns of any of them.
Claims Covered by the Agreement
The Company and Executive mutually consent to the resolution by
arbitration of all claims ("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. The 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 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 administrative charge of discrimination)
in any way related to any claim covered by this Arbitration Agreement.
Claims Not Covered by this Arbitration Agreement
Claims Executive may have for workers' compensation or unemployment
compensation benefits are not covered by this Arbitration Agreement.
10
<PAGE> 11
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, as to which Executive
understands and agrees that the Company may seek and obtain relief from a court
of competent jurisdiction.
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.
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 Agreement so orders, upon a showing of substantial need.
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.
Subpoenas
Each party shall have the right to subpoena witnesses and documents for
the arbitration.
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
11
<PAGE> 12
Executive is or was employed in the State of California. If Executive is or was
employed outside the State of California, then at the Company's headquarters in
Orange, 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.
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 Agreement,
including but not limited to any claim that all or any part of this 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.
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. However, if any party prevails on a
statutory claim which affords the prevailing party attorneys' fees, or if there
is a written agreement providing for fees, the Arbitrator may award reasonable
fees to the prevailing party.
12
<PAGE> 13
Judicial Review
Either party may bring an action in any court of competent jurisdiction
to compel arbitration under this 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.
Interstate Commerce
Executive understands and agrees that the Company is engaged in
transactions involving interstate commerce and that Executive's employment
involves such commerce.
Requirements for Modification or Revocation
This Arbitration Agreement shall survive the termination of Executive's
employment. 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.
Sole and Entire Agreement
This 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 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.
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 this Arbitration Agreement.
Consideration
The promises by the Company and by Executive to arbitrate differences,
rather than litigate them before courts or other bodies, provide consideration
for each other.
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.
13
<PAGE> 14
Voluntary Agreement
EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS CAREFULLY READ THIS
ARBITRATION AGREEMENT, THAT EXECUTIVE UNDERSTANDS ITS TERMS, THAT ALL
UNDERSTANDINGS AND AGREEMENTS BETWEEN THE COMPANY AND EXECUTIVE RELATING TO THE
SUBJECTS COVERED IN THIS ARBITRATION AGREEMENT ARE CONTAINED IN IT, AND THAT
EXECUTIVE HAS ENTERED INTO THIS 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 EXECUTIVE HAS BEEN GIVEN THE
OPPORTUNITY TO DISCUSS THIS ARBITRATION AGREEMENT WITH EXECUTIVE'S PRIVATE LEGAL
COUNSEL AND HAS AVAILED HIM/HERSELF OF THAT OPPORTUNITY TO THE EXTENT EXECUTIVE
WISHES TO DO SO.
14
<PAGE> 1
EXHIBIT 10.20
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "AGREEMENT") is
made and entered into effective as of January 1, 1998, by and among LONG BEACH
FINANCIAL CORPORATION, a Delaware corporation ("LBFC"), and LONG BEACH MORTGAGE
COMPANY, a Delaware corporation ("LBMC") (collectively, the "COMPANY"), and
JAMES H. LEONETTI ("EXECUTIVE").
RECITALS
WHEREAS, the Company and Executive have entered into an Employment
Agreement dated April 15, 1997 (the "ORIGINAL EMPLOYMENT AGREEMENT"), which
provides the terms and conditions of Executive's employment with the Company.
WHEREAS, the Company and Executive desire to amend and restate the terms
of the Original Employment Agreement effective as of January 1, 1998 (the
"EFFECTIVE DATE").
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereto agree that the Original Employment Agreement shall be
amended and restated in its entirety to read as follows, effective as of the
Effective Date:
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 and
Chief Financial Officer
LBMC: Senior Vice President and
Chief Financial Officer
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 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
<PAGE> 2
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) 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 $182,000 (subject to adjustment upward as recommended by the
Compensation Committees of the Boards), less deductions required by law, payable
in accordance with the normal payroll practices of the Company.
2.2 ANNUAL PERFORMANCE BONUS.
(a) PAYMENT OF PERFORMANCE BONUS. On or before April 15 each
year, the Company shall pay to Executive a cash bonus ("BONUS") of up to 75% 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. Except as provided in
Section 2.2(b), the Company shall not be obligated to pay Executive any Bonus
for his or the Company's performance in any year, unless Executive is employed
through December 31 of such year. All bonus calculations shall be based upon the
Company's audited financial statements through the end of the applicable
calendar year.
(b) PRO-RATED BONUS UPON CHANGE IN CONTROL OR DEATH. Within 15
days following the consummation of a Change in Control (as defined below) or
Executive's death, the Company shall pay to Executive or to his estate or heirs
a pro-rated cash bonus ("PRO-RATED BONUS") equal to 75% of Executive's annual
Base Salary, pro-rated from January 1 through and including the date of such
Change in Control or death.
2.3 OTHER BENEFITS. The Company has or will 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 $50,000, 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;
2
<PAGE> 3
(d) An annual executive physical examination conducted by
Corporate Health Services at the University of California, Irvine, or such
comparable program approved by the Compensation Committee of the Board, with the
cost of such examination to be borne by the Company; and
(e) Stock options ("OPTIONS") for 100,000 shares of LBFC Common
Stock, which are incentive stock options to the extent permissible and which
have been granted as of April 28, 1997 by the Compensation Committee of the LBFC
Board pursuant to the terms of the LBFC 1997 Stock Incentive Plan dated February
18, 1997 (the "INCENTIVE PLAN"). The Options have an exercise price equal to
$6.50 and shall vest 20% on April 28, 1998 and 20% on each anniversary
thereafter until April 28, 2002, unless the vesting of such Options accelerate
pursuant to Sections 3.2(b) or 3.3(a) hereof or such Options expire or
accelerate pursuant to the Incentive Plan or action of the Compensation
Committee of the LBFC Board. 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. Executive acknowledges that such option grant is
intended to cover the three year period beginning on April 15, 1997 and that the
Company has no commitment to issue additional options to Executive during such
three year period or thereafter.
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 (i) such expenditures are of a nature
qualifying them as legitimate business expenses and (ii) 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, SEVERANCE PAY AND CHANGE IN CONTROL
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).
3.2 INVOLUNTARY TERMINATION.
(a) SEVERANCE PAY. In the event that Executive's employment with
the Company is terminated by the Company for Cause (as defined below), Executive
shall not be entitled to any Severance Pay or employee benefits (including Other
Benefits); provided, however, that, notwithstanding any provision of the
Incentive Plan, any Options that are vested as of the date of such termination
shall expire and become unexercisable as of the earlier of (i)
3
<PAGE> 4
the date such Options would expire in accordance with their terms had the
Executive remained employed and (ii) 10 calendar days after the date of such
termination. In the event that Executive's employment with the Company is
terminated by the Company other than for Cause, then, subject to Section 3.6 and
in consideration of Executive's compliance with his obligations under Article IV
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 monthly payments to Executive in an amount equal to 1/12th of the
sum of Executive's annual Base Salary plus 50% of Executive's maximum Bonus
potential for the year of termination, payable in accordance with customary
payroll practices, for twelve (12) months following such termination. Executive
acknowledges and agrees that in the event Executive breaches any provision of
Article IV 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 which
would vest within twelve (12) months of the date of termination shall vest as of
the date of termination.
(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) 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 of this Agreement.
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, subject to Section 3.6, to
Severance Pay and 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
in 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.
4
<PAGE> 5
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 to a location that is more than a 50 mile radius from the
Company's existing executive offices located at 1100 Town & Country Road,
Orange, 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 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). Notwithstanding the termination of this Agreement, the Company
shall be obligated to pay Executive's estate or heirs the Pro-Rated Bonus
pursuant to the terms of Section 2.2(b).
3.5 DISABILITY. In the event of Executive's Disability (as defined
below) during Executive's employment with 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.
3.6 CHANGE IN CONTROL. Within 15 days following the consummation of a
Change in Control, the Company shall pay to Executive a cash payment ("CHANGE IN
CONTROL PAYMENT") equal to the sum of (i) Executive's annual Base Salary then in
effect, plus (ii) 75% of such annual Base Salary. Following the consummation of
a Change in Control, Executive shall not be entitled to receive, and hereby
waives all right to Severance Pay pursuant to Section 3.2(a) or 3.3(a) in the
event Executive's employment with the Company is later terminated for any
reason. For purposes of this Section 3.6, "CHANGE IN CONTROL" shall have the
meaning ascribed to such term in Article VIII of the Incentive Plan. If
Executive's employment with the Company is terminated by the Company other than
for Cause at any time following the public announcement
5
<PAGE> 6
of a prospective Change in Control, then, notwithstanding such termination, the
Company shall pay to Executive, within 15 days following the consummation of
such Change in Control, the Change in Control Payment based on Executive's Base
Salary in effect on the date of such termination; provided, however, that such
Change in Control Payment shall be reduced by the total amount of any Severance
Pay received by Executive, and Executive thereafter shall not be entitled to any
further payments of Severance Pay.
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.
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
6
<PAGE> 7
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.
MISCELLANEOUS
5.1 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 it if no such succession had taken place.
5.2 ARBITRATION. Other than with respect to Article IV 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.
5.3 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
subsequent breach thereof.
5.4 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws and decisions of the State of California.
5.5 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 and legal representative.
5.6 SEVERABILITY. In the event that any provision of this Agreement,
including without limitation any provision of Article IV, 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
7
<PAGE> 8
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.
5.7 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. Executive acknowledges that all compensation and benefits of any nature
due to Executive from the Company's predecessor, Ameriquest Mortgage Company,
and its affiliates (collectively "Old Long Beach"), have been paid in full and
Executive waives any and all claims relating thereto for the benefit of Old Long
Beach and the Company.
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/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
LONG BEACH MORTGAGE COMPANY,
a Delaware corporation
By: /s/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
"Executive":
/s/ JAMES H. LEONETTI
-----------------------------------------
Name: James H. Leonetti
8
<PAGE> 9
EXHIBIT A
MUTUAL AGREEMENT TO ARBITRATE CLAIMS
Executive recognizes that differences may arise between the Company and
Executive during or following Executive's employment with the Company, and that
those differences may or may not be related to Executive's employment. Executive
understands and agrees that by entering into the Employment Agreement (the
"EMPLOYMENT AGREEMENT") with the Company into which this Mutual Agreement to
Arbitrate Claims is incorporated by reference ("ARBITRATION AGREEMENT"),
Executive 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 will also be a reference to all subsidiary and affiliated
entities; all benefit plans; the benefit plans' sponsors, fiduciaries,
administrators, affiliates; and all successors and assigns of any of them.
Claims Covered by the Agreement
The Company and Executive mutually consent to the resolution by
arbitration of all claims ("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. The 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 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 administrative charge of discrimination)
in any way related to any claim covered by this Arbitration Agreement.
Claims Not Covered by this Arbitration Agreement
Claims Executive may have for workers' compensation or unemployment
compensation benefits are not covered by this Arbitration Agreement.
9
<PAGE> 10
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, as to which Executive understands and agrees
that the Company may seek and obtain relief from a court of competent
jurisdiction.
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.
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 Agreement so orders, upon a showing of substantial need.
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.
Subpoenas
Each party shall have the right to subpoena witnesses and documents for
the arbitration.
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
10
<PAGE> 11
Executive is or was employed in the State of California. If Executive is or was
employed outside the State of California, then at the Company's headquarters in
Orange, 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.
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 Agreement,
including but not limited to any claim that all or any part of this 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.
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. However, if any party prevails on a
statutory claim which affords the prevailing party attorneys' fees, or if there
is a written agreement providing for fees, the Arbitrator may award reasonable
fees to the prevailing party.
11
<PAGE> 12
Judicial Review
Either party may bring an action in any court of competent jurisdiction
to compel arbitration under this 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.
Interstate Commerce
Executive understands and agrees that the Company is engaged in
transactions involving interstate commerce and that Executive's employment
involves such commerce.
Requirements for Modification or Revocation
This Arbitration Agreement shall survive the termination of Executive's
employment. 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.
Sole and Entire Agreement
This 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 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.
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 this Arbitration Agreement.
Consideration
The promises by the Company and by Executive to arbitrate differences,
rather than litigate them before courts or other bodies, provide consideration
for each other.
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.
12
<PAGE> 13
Voluntary Agreement
EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS CAREFULLY READ THIS
ARBITRATION AGREEMENT, THAT EXECUTIVE UNDERSTANDS ITS TERMS, THAT ALL
UNDERSTANDINGS AND AGREEMENTS BETWEEN THE COMPANY AND EXECUTIVE RELATING TO THE
SUBJECTS COVERED IN THIS ARBITRATION AGREEMENT ARE CONTAINED IN IT, AND THAT
EXECUTIVE HAS ENTERED INTO THIS 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 EXECUTIVE HAS BEEN GIVEN THE
OPPORTUNITY TO DISCUSS THIS ARBITRATION AGREEMENT WITH EXECUTIVE'S PRIVATE LEGAL
COUNSEL AND HAS AVAILED HIM/HERSELF OF THAT OPPORTUNITY TO THE EXTENT EXECUTIVE
WISHES TO DO SO.
13
<PAGE> 1
EXHIBIT 10.21
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "AGREEMENT") is
made and entered into effective as of January 1, 1998, by and among LONG BEACH
FINANCIAL CORPORATION, a Delaware corporation ("LBFC"), and LONG BEACH MORTGAGE
COMPANY, a Delaware corporation ("LBMC") (collectively, the "COMPANY"), and
JAMES J. SULLIVAN ("EXECUTIVE").
RECITALS
WHEREAS, the Company and Executive have entered into an Employment
Agreement dated April 15, 1997 (the "ORIGINAL EMPLOYMENT AGREEMENT"), which
provides the terms and conditions of Executive's employment with the Company.
WHEREAS, the Company and Executive desire to amend and restate the terms
of the Original Employment Agreement effective as of January 1, 1998 (the
"EFFECTIVE DATE").
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereto agree that the Original Employment Agreement shall be
amended and restated in its entirety to read as follows, effective as of the
Effective Date:
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,
General Counsel and Secretary
LBMC: Senior Vice President, General
Counsel and Secretary
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 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
<PAGE> 2
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) 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 $180,000 (subject to adjustment upward as recommended by the
Compensation Committees of the Boards), less deductions required by law, payable
in accordance with the normal payroll practices of the Company.
2.2 ANNUAL PERFORMANCE BONUS.
(a) PAYMENT OF PERFORMANCE BONUS. On or before April 15 each
year, the Company shall pay to Executive a cash bonus ("BONUS") of up to 50% 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. Except as provided in
Section 2.2(b), the Company shall not be obligated to pay Executive any Bonus
for his or the Company's performance in any year, unless Executive is employed
through December 31 of such year. All bonus calculations shall be based upon the
Company's audited financial statements through the end of the applicable
calendar year.
(b) PRO-RATED BONUS UPON CHANGE IN CONTROL OR DEATH. Within 15
days following the consummation of a Change in Control (as defined below) or
Executive's death, the Company shall pay to Executive or to his estate or heirs
a pro-rated cash bonus ("PRO-RATED BONUS") equal to 50% of Executive's annual
Base Salary, pro-rated from January 1 through and including the date of such
Change in Control or death.
2.3 OTHER BENEFITS. The Company has or will 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 $50,000, 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;
2
<PAGE> 3
(d) An annual executive physical examination conducted by
Corporate Health Services at the University of California, Irvine, or such
comparable program approved by the Compensation Committee of the Board, with the
cost of such examination to be borne by the Company; and
(e) Stock options ("OPTIONS") for 100,000 shares of LBFC Common
Stock, which are incentive stock options to the extent permissible and which
have been granted as of April 28, 1997 by the Compensation Committee of the LBFC
Board pursuant to the terms of the LBFC 1997 Stock Incentive Plan dated February
18, 1997 (the "INCENTIVE PLAN"). The Options have an exercise price equal to
$6.50 and shall vest 20% on April 28, 1998 and 20% on each anniversary
thereafter until April 28, 2002, unless the vesting of such Options accelerate
pursuant to Sections 3.2(b) or 3.3(a) hereof or such Options expire or
accelerate pursuant to the Incentive Plan or action of the Compensation
Committee of the LBFC Board. 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. Executive acknowledges that such option grant is
intended to cover the three year period beginning on April 15, 1997 and that the
Company has no commitment to issue additional options to Executive during such
three year period or thereafter.
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 (i) such expenditures are of a nature
qualifying them as legitimate business expenses and (ii) 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, SEVERANCE PAY AND CHANGE IN CONTROL
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).
3.2 INVOLUNTARY TERMINATION.
(a) SEVERANCE PAY. In the event that Executive's employment with
the Company is terminated by the Company for Cause (as defined below), Executive
shall not be entitled to any Severance Pay or employee benefits (including Other
Benefits); provided, however, that, notwithstanding any provision of the
Incentive Plan, any Options that are vested as of the date of such termination
shall expire and become unexercisable as of the earlier of (i)
3
<PAGE> 4
the date such Options would expire in accordance with their terms had the
Executive remained employed and (ii) 10 calendar days after the date of such
termination. In the event that Executive's employment with the Company is
terminated by the Company other than for Cause, then, subject to Section 3.6 and
in consideration of Executive's compliance with his obligations under Article IV
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 monthly payments to Executive in an amount equal to 1/12th of the
sum of Executive's annual Base Salary plus 50% of Executive's maximum Bonus
potential for the year of termination, payable in accordance with customary
payroll practices, for twelve (12) months following such termination. Executive
acknowledges and agrees that in the event Executive breaches any provision of
Article IV 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 which
would vest within twelve (12) months of the date of termination shall vest as of
the date of termination.
(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) 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 of this Agreement.
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, subject to Section 3.6, to
Severance Pay and 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
in 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.
4
<PAGE> 5
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 to a location that is more than a 50 mile radius from the
Company's existing executive offices located at 1100 Town & Country Road,
Orange, 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 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). Notwithstanding the termination of this Agreement, the Company
shall be obligated to pay Executive's estate or heirs the Pro-Rated Bonus
pursuant to the terms of Section 2.2(b).
3.5 DISABILITY. In the event of Executive's Disability (as defined
below) during Executive's employment with 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.
3.6 CHANGE IN CONTROL. Within 15 days following the consummation of a
Change in Control, the Company shall pay to Executive a cash payment ("CHANGE IN
CONTROL PAYMENT") equal to the sum of (i) Executive's annual Base Salary then in
effect, plus (ii) 50% of such annual Base Salary. Following the consummation of
a Change in Control, Executive shall not be entitled to receive, and hereby
waives all right to Severance Pay pursuant to Section 3.2(a) or 3.3(a) in the
event Executive's employment with the Company is later terminated for any
reason. For purposes of this Section 3.6, "CHANGE IN CONTROL" shall have the
meaning ascribed to such term in Article VIII of the Incentive Plan. If
Executive's employment with the Company is terminated by the Company other than
for Cause at any time following the public announcement
5
<PAGE> 6
of a prospective Change in Control, then, notwithstanding such termination, the
Company shall pay to Executive, within 15 days following the consummation of
such Change in Control, the Change in Control Payment based on Executive's Base
Salary in effect on the date of such termination; provided, however, that such
Change in Control Payment shall be reduced by the total amount of any Severance
Pay received by Executive, and Executive thereafter shall not be entitled to any
further payments of Severance Pay.
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.
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
6
<PAGE> 7
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.
MISCELLANEOUS
5.1 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 it if no such succession had taken place.
5.2 ARBITRATION. Other than with respect to Article IV 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.
5.3 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
subsequent breach thereof.
5.4 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws and decisions of the State of California.
5.5 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 and legal representative.
5.6 SEVERABILITY. In the event that any provision of this Agreement,
including without limitation any provision of Article IV, 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
7
<PAGE> 8
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.
5.7 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. Executive acknowledges that all compensation and benefits of any nature
due to Executive from the Company's predecessor, Ameriquest Mortgage Company,
and its affiliates (collectively "Old Long Beach"), have been paid in full and
Executive waives any and all claims relating thereto for the benefit of Old Long
Beach and the Company.
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/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
LONG BEACH MORTGAGE COMPANY,
a Delaware corporation
By: /s/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
"Executive":
/s/ JAMES J. SULLIVAN
-----------------------------------------
Name: James J. Sullivan
8
<PAGE> 9
EXHIBIT A
MUTUAL AGREEMENT TO ARBITRATE CLAIMS
Executive recognizes that differences may arise between the Company and
Executive during or following Executive's employment with the Company, and that
those differences may or may not be related to Executive's employment. Executive
understands and agrees that by entering into the Employment Agreement (the
"EMPLOYMENT AGREEMENT") with the Company into which this Mutual Agreement to
Arbitrate Claims is incorporated by reference ("ARBITRATION AGREEMENT"),
Executive 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 will also be a reference to all subsidiary and affiliated
entities; all benefit plans; the benefit plans' sponsors, fiduciaries,
administrators, affiliates; and all successors and assigns of any of them.
Claims Covered by the Agreement
The Company and Executive mutually consent to the resolution by
arbitration of all claims ("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. The 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 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 administrative charge of discrimination)
in any way related to any claim covered by this Arbitration Agreement.
Claims Not Covered by this Arbitration Agreement
Claims Executive may have for workers' compensation or unemployment
compensation benefits are not covered by this Arbitration Agreement.
9
<PAGE> 10
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, as to which Executive understands and agrees
that the Company may seek and obtain relief from a court of competent
jurisdiction.
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.
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 Agreement so orders, upon a showing of substantial need.
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.
Subpoenas
Each party shall have the right to subpoena witnesses and documents for
the arbitration.
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
10
<PAGE> 11
Executive is or was employed in the State of California. If Executive is or was
employed outside the State of California, then at the Company's headquarters in
Orange, 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.
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 Agreement,
including but not limited to any claim that all or any part of this 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.
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. However, if any party prevails on a
statutory claim which affords the prevailing party attorneys' fees, or if there
is a written agreement providing for fees, the Arbitrator may award reasonable
fees to the prevailing party.
11
<PAGE> 12
Judicial Review
Either party may bring an action in any court of competent jurisdiction
to compel arbitration under this 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.
Interstate Commerce
Executive understands and agrees that the Company is engaged in
transactions involving interstate commerce and that Executive's employment
involves such commerce.
Requirements for Modification or Revocation
This Arbitration Agreement shall survive the termination of Executive's
employment. 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.
Sole and Entire Agreement
This 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 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.
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 this Arbitration Agreement.
Consideration
The promises by the Company and by Executive to arbitrate differences,
rather than litigate them before courts or other bodies, provide consideration
for each other.
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.
12
<PAGE> 13
Voluntary Agreement
EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS CAREFULLY READ THIS
ARBITRATION AGREEMENT, THAT EXECUTIVE UNDERSTANDS ITS TERMS, THAT ALL
UNDERSTANDINGS AND AGREEMENTS BETWEEN THE COMPANY AND EXECUTIVE RELATING TO THE
SUBJECTS COVERED IN THIS ARBITRATION AGREEMENT ARE CONTAINED IN IT, AND THAT
EXECUTIVE HAS ENTERED INTO THIS 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 EXECUTIVE HAS BEEN GIVEN THE
OPPORTUNITY TO DISCUSS THIS ARBITRATION AGREEMENT WITH EXECUTIVE'S PRIVATE LEGAL
COUNSEL AND HAS AVAILED HIM/HERSELF OF THAT OPPORTUNITY TO THE EXTENT EXECUTIVE
WISHES TO DO SO.
13
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into
effective as of January 1, 1998, by and among LONG BEACH FINANCIAL CORPORATION,
a Delaware corporation ("LBFC"), and LONG BEACH MORTGAGE COMPANY, a Delaware
corporation ("LBMC") (collectively, the "COMPANY"), and ELIZABETH A. WOOD
("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, Organizational
Development and Human Resources
LBMC: Senior Vice President, Organizational
Development and Human Resources
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 set forth from time to time in any resolution of the Boards or
applicable law.
1.2 BEST EFFORTS. Executive agrees to devote her full time and attention
to the Company, to use her best efforts to advance the business and welfare of
the Company, to render her services under this Agreement fully, faithfully,
diligently, competently and to the best of her 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 her personal investments and affairs, provided
that such activities do not materially interfere with the proper performance of
her duties and responsibilities under this Agreement; or (ii) 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 $135,200 (subject to adjustment upward as recommended by the
Compensation Committees of the Boards), less deductions required by law, payable
in accordance with the normal payroll practices of the Company.
<PAGE> 2
2.2 ANNUAL PERFORMANCE BONUS.
(a) PAYMENT OF PERFORMANCE BONUS. On or before April 15 each
year, the Company shall pay to Executive a cash bonus ("BONUS") of up to 60% 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. Except as provided in
Section 2.2(b), the Company shall not be obligated to pay Executive any Bonus
for her or the Company's performance in any year, unless Executive is employed
through December 31 of such year. All bonus calculations shall be based upon the
Company's audited financial statements through the end of the applicable
calendar year.
(b) PRO-RATED BONUS UPON CHANGE IN CONTROL OR DEATH. Within 15
days following the consummation of a Change in Control (as defined below) or
Executive's death, the Company shall pay to Executive or to her estate or heirs
a pro-rated cash bonus ("PRO-RATED BONUS") equal to 60% of Executive's annual
Base Salary, pro-rated from January 1 through and including the date of such
Change in Control or death.
2.3 OTHER BENEFITS. The Company has or will further provide to
Executive, at the Company's expense, the following other benefits ("OTHER
BENEFITS"):
(a) An automobile allowance of $500 per month;
(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 her 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) An annual executive physical examination conducted by
Corporate Health Services at the University of California, Irvine, or such
comparable program approved by the Compensation Committee of the Board, with the
cost of such examination to be borne by the Company; and
(e) Stock options ("OPTIONS") for 75,000 shares of LBFC Common
Stock which have been granted as of April 28, 1997 by the Compensation Committee
of the LBFC Board pursuant to the terms of the LBFC 1997 Stock Incentive Plan
dated February 18, 1997 (the "INCENTIVE PLAN"). The Options have an exercise
price equal to $6.50 and shall vest 20% on April 28, 1998 and 20% on each
anniversary thereafter until April 28, 2002, unless the vesting of such Options
accelerate pursuant to Sections 3.2(b) or 3.3(a) hereof or such Options expire
or accelerate pursuant to the Incentive Plan or action of the Compensation
Committee of the LBFC Board. 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. Executive acknowledges that such option grant is
intended to cover the three year
2
<PAGE> 3
period beginning on April 15, 1997 and that the Company has no commitment to
issue additional options to Executive during such three year period or
thereafter.
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 (i) such expenditures are of a nature
qualifying them as legitimate business expenses and (ii) 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, SEVERANCE PAY AND CHANGE IN CONTROL
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).
3.2 INVOLUNTARY TERMINATION.
(a) SEVERANCE PAY. In the event that Executive's employment with
the Company is terminated by the Company for Cause (as defined below), Executive
shall not be entitled to any Severance Pay or employee benefits (including Other
Benefits); provided, however, that, notwithstanding any provision of the
Incentive Plan, any Options that are vested as of the date of such termination
shall expire and become unexercisable as of the earlier of (i) the date such
Options would expire in accordance with their terms had the Executive remained
employed and (ii) 10 calendar days after the date of such termination. In the
event that Executive's employment with the Company is terminated by the Company
other than for Cause, then, subject to Section 3.6 and in consideration of
Executive's compliance with her obligations under Article IV 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
monthly payments to Executive in an amount equal to 1/12th of the sum of
Executive's annual Base Salary plus 50% of Executive's maximum Bonus potential
for the year of termination, payable in accordance with customary payroll
practices, for twelve (12) months following such termination. Executive
acknowledges and agrees that in the event Executive breaches any provision of
Article IV or the general release, her 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 her rights
under COBRA to pay for the continuation of benefits previously provided by the
3
<PAGE> 4
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 her employment for Good Reason (as defined below)), all Options which
would vest within twelve (12) months of the date of termination shall vest as of
the date of termination.
(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) 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 of this Agreement.
3.3 VOLUNTARY TERMINATION.
(a) SEVERANCE PAY. In the event Executive voluntarily terminates
her 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 her employment with the Company
for Good Reason, Executive shall be entitled, subject to Section 3.6, to
Severance Pay and 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
in Sections 3.2(a) and 3.2(b), provided that (i) Executive gives written notice
of her resignation within ninety (90) days of the occurrence of such Good Reason
and advises, as part of such resignation, that she 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 to a location that is more than a 50 mile radius from the
Company's existing executive offices located at 1100 Town & Country Road,
Orange, 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 her 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
4
<PAGE> 5
benefits (including Other Benefits). Notwithstanding the termination of this
Agreement, the Company shall be obligated to pay Executive's estate or heirs the
Pro-Rated Bonus pursuant to the terms of Section 2.2(b).
3.5 DISABILITY. In the event of Executive's Disability (as defined
below) during Executive's employment with 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 her 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 her legal representative.
3.6 CHANGE IN CONTROL. Within 15 days following the consummation of a
Change in Control, the Company shall pay to Executive a cash payment ("CHANGE IN
CONTROL PAYMENT") equal to the sum of (i) Executive's annual Base Salary then in
effect, plus (ii) 60% of such annual Base Salary. Following the consummation of
a Change in Control, Executive shall not be entitled to receive, and hereby
waives all right to Severance Pay pursuant to Section 3.2(a) or 3.3(a) in the
event Executive's employment with the Company is later terminated for any
reason. For purposes of this Section 3.6, "CHANGE IN CONTROL" shall have the
meaning ascribed to such term in Article VIII of the Incentive Plan. If
Executive's employment with the Company is terminated by the Company other than
for Cause at any time following the public announcement of a prospective Change
in Control, then, notwithstanding such termination, the Company shall pay to
Executive, within 15 days following the consummation of such Change in Control,
the Change in Control Payment based on Executive's Base Salary in effect on the
date of such termination; provided, however, that such Change in Control Payment
shall be reduced by the total amount of any Severance Pay received by Executive,
and Executive thereafter shall not be entitled to any further payments of
Severance Pay.
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
5
<PAGE> 6
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.
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 she is employed
by the Company and for a period of one (1) year after termination of her
employment for any reason, she 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 her 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.
MISCELLANEOUS
5.1 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
6
<PAGE> 7
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 it if no
such succession had taken place.
5.2 ARBITRATION. Other than with respect to Article IV 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.
5.3 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
subsequent breach thereof.
5.4 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws and decisions of the State of California.
5.5 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 and legal representative.
5.6 SEVERABILITY. In the event that any provision of this Agreement,
including without limitation any provision of Article IV, 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.
5.7 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. Executive acknowledges that all compensation and benefits of any nature
due to Executive from the Company's predecessor, Ameriquest Mortgage Company,
and its affiliates (collectively "Old Long Beach"), have been paid in full and
Executive waives any and all claims relating thereto for the benefit of Old Long
Beach and the Company.
7
<PAGE> 8
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/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
LONG BEACH MORTGAGE COMPANY,
a Delaware corporation
By: /s/ DAVID S. ENGELMAN
-----------------------------------
Its: Chairman of Compensation Committee
By: /s/ M. JACK MAYESH
-----------------------------------
Its: Chairman of the Board
"Executive":
/s/ ELIZABETH A. WOOD
-----------------------------------------
Name: Elizabeth A. Wood
8
<PAGE> 9
EXHIBIT A
MUTUAL AGREEMENT TO ARBITRATE CLAIMS
Executive recognizes that differences may arise between the Company and
Executive during or following Executive's employment with the Company, and that
those differences may or may not be related to Executive's employment. Executive
understands and agrees that by entering into the Employment Agreement (the
"EMPLOYMENT AGREEMENT") with the Company into which this Mutual Agreement to
Arbitrate Claims is incorporated by reference ("ARBITRATION AGREEMENT"),
Executive 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 will also be a reference to all subsidiary and affiliated
entities; all benefit plans; the benefit plans' sponsors, fiduciaries,
administrators, affiliates; and all successors and assigns of any of them.
Claims Covered by the Agreement
The Company and Executive mutually consent to the resolution by
arbitration of all claims ("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. The 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 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 administrative charge of discrimination)
in any way related to any claim covered by this Arbitration Agreement.
Claims Not Covered by this Arbitration Agreement
Claims Executive may have for workers' compensation or unemployment
compensation benefits are not covered by this Arbitration Agreement.
9
<PAGE> 10
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, as to which Executive understands and agrees
that the Company may seek and obtain relief from a court of competent
jurisdiction.
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.
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 Agreement so orders, upon a showing of substantial need.
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.
Subpoenas
Each party shall have the right to subpoena witnesses and documents for
the arbitration.
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
10
<PAGE> 11
Executive is or was employed in the State of California. If Executive is or was
employed outside the State of California, then at the Company's headquarters in
Orange, 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.
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 Agreement,
including but not limited to any claim that all or any part of this 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.
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. However, if any party prevails on a
statutory claim which affords the prevailing party attorneys' fees, or if there
is a written agreement providing for fees, the Arbitrator may award reasonable
fees to the prevailing party.
11
<PAGE> 12
Judicial Review
Either party may bring an action in any court of competent jurisdiction
to compel arbitration under this 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.
Interstate Commerce
Executive understands and agrees that the Company is engaged in
transactions involving interstate commerce and that Executive's employment
involves such commerce.
Requirements for Modification or Revocation
This Arbitration Agreement shall survive the termination of Executive's
employment. 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.
Sole and Entire Agreement
This 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 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.
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 this Arbitration Agreement.
Consideration
The promises by the Company and by Executive to arbitrate differences,
rather than litigate them before courts or other bodies, provide consideration
for each other.
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.
12
<PAGE> 13
Voluntary Agreement
EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS CAREFULLY READ THIS
ARBITRATION AGREEMENT, THAT EXECUTIVE UNDERSTANDS ITS TERMS, THAT ALL
UNDERSTANDINGS AND AGREEMENTS BETWEEN THE COMPANY AND EXECUTIVE RELATING TO THE
SUBJECTS COVERED IN THIS ARBITRATION AGREEMENT ARE CONTAINED IN IT, AND THAT
EXECUTIVE HAS ENTERED INTO THIS 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 EXECUTIVE HAS BEEN GIVEN THE
OPPORTUNITY TO DISCUSS THIS ARBITRATION AGREEMENT WITH EXECUTIVE'S PRIVATE LEGAL
COUNSEL AND HAS AVAILED HIM/HERSELF OF THAT OPPORTUNITY TO THE EXTENT EXECUTIVE
WISHES TO DO SO.
13
<PAGE> 1
EXHIBIT 10.23
SUPPLEMENTAL AGREEMENT
TO MASTER SUB-SERVICING AGREEMENT
This agreement, dated as of September 1, 1998, is a Supplement
("Supplement") to that certain Master Sub-Servicing Agreement ("Sub-Servicing
Agreement") dated as of April 28, 1997, and is entered into with reference to
the following facts:
A. Ameriquest Mortgage Company, ("AMC" or "Subservicer"), formerly known
as Long Beach Mortgage Company, and Long Beach Mortgage Company ("LBMC" or
"Master Servicer") formerly known as Ameriquest Mortgage Corporation, entered
into the Sub-Servicing Agreement pursuant to which AMC agreed to act as
subservicer for certain Mortgage Loans originated by LBMC and for which LBMC
acts as master servicer.
B. AMC and LBMC now desire to modify and supplement certain terms and
conditions of the Sub-Servicing Agreement as set forth in this Supplement.
In reliance on the foregoing facts, and in consideration of the mutual
covenants and agreements contained in this Supplement, LBMC and AMC have agreed
as follows:
1. Use of Defined Terms. Unless specifically defined in the body of this
Supplement, or the context otherwise requires, all capitalized terms used in
this Supplement shall have the meanings ascribed to them in the Sub-Servicing
Agreement.
2. Transfer of Mortgage Loan Servicing. Prior to the date of this
Supplement LBMC has transferred the servicing of certain Mortgage Loans that had
been delivered to AMC for servicing pursuant to the terms of the Sub-Servicing
Agreement. These prior servicing transfers are hereby ratified and confirmed.
AMC and LBMC further agree that the servicing for any of the following Mortgage
Loans (including any Mortgaged Property acquired in connection with the
foreclosure or deed in lieu of foreclosure of any Mortgage Loan) may also be
transferred by LBMC to itself or another servicer in accordance with the
provisions of subsections 2.1 through 2.4 below:
(i) Mortgage Loans are owned by LBMC to Lehman Brothers (or its
affiliates) on a servicing released basis;
(ii) Mortgage Loans that have been sold by LBMC to Credit Suisse
First Boston Mortgage Capital, LLC (or its affiliates); and
(iii) Mortgage Loans that are owned by LBMC on or after the date
of this Supplement.
2.1 Notice. The Master Servicer shall have provided the
Subservicer written notice of the Master Servicer's intention to transfer
servicing of Mortgage Loans as provided for in this Section 2 at least 25 days
prior to the proposed transfer of such Mortgage Loans. Such notice shall
identify with specificity the loans to be transferred and the date of transfer.
2.2 Consents. The Master Servicer shall have provided to the
Subservicer copies of any consents or approvals required by investors,
regulatory bodies, credit insurers, Rating Agencies and any other parties which
may have the right to object to the transfer of the servicing or subservicing
rights to any Mortgage Loan.
2.3 Payment of Accrued Fees. Prior to the transfer of any
servicing hereunder, the Subservicer shall receive (i) reimbursement for any
Servicing Advance or P & I Advance which it may have made in connection with the
Mortgage Loans to be transferred, regardless of the timing for such
1
<PAGE> 2
reimbursement as provided for in the Sub-Servicing Agreement; and (ii) a
servicing release fee in an amount equal to $25.00 for each Mortgage Loan
transferred. In addition, if the date of transfer is after November 1, 1998,
LBMC shall pay to AMC all unpaid Servicing Fees accruing after November 1, 1998.
AMC shall earn a full month's servicing fee for any partial month of servicing
after November 1, 1998; provided, however, if the servicing transfer date is on
the first or second business day of any month, no servicing fee shall be due for
the one or two business days of servicing during which no servicing activities
by AMC will be required.
2.4 Goodbye Letters. The Subservicer shall provide, or cause to
be provided, a "good-bye" notice to the related borrowers regarding the transfer
of the servicing as well as any notices required to be given to insurance
carriers and tax services.
3. Payment of Unpaid Servicing Fees. Concurrently with the execution of
this Supplement, the Master Servicer shall pay, and the Subservicer shall
accept, the sum of $200,000.00 as payment in full and complete satisfaction of
all unpaid Servicing Fees accrued or yet to accrue through November 1, 1998 with
respect to Mortgage Loans for which the servicing was or is to be transferred by
the Master Servicer prior to November 1, 1998. Notwithstanding the foregoing,
the Subservicer shall continue to earn and shall retain the Sub-Servicing Fee
related to each Mortgage Loan from payments of interest collected by the
Subservicer with respect to such loan.
4. Termination of Sub-Servicing Agreement. Effective as of November 1,
1998 ("Acceptance Termination Date") the Subservicer shall have no obligation to
accept for subservicing any Mortgage Loans originated, purchased or otherwise
acquired by the Master Servicer, except as otherwise agreed to pursuant to the
terms of the Standby Servicing Agreement between the parties dated as of
September 1, 1998. Neither shall the Master Servicer have any right or
obligation to submit any Mortgage Loan to the Subservicer for subservicing from
or after the Acceptance Termination Date.
5. Amendment to Sub-Servicing Agreement. Pursuant to the provisions of
Section 7.01 of the Sub-Servicing Agreement, this Supplement is intended to be
an amendment to the Sub-Servicing Agreement, such that, in the event of any
conflict between the provisions of this Supplement and those of the
Sub-Servicing Agreement, the provisions of this Supplement shall prevail.
Otherwise, unless specifically modified, amended or deleted by this Supplement,
the provisions of the Sub-Servicing Agreement shall remain in full force and
effect. Nothing in this Supplement is intended to amend or modify in any way
Section 5.04 of the Sub-Servicing Agreement, including, without limitation,
either party's right to terminate such agreement.
IN WITNESS WHEREOF, the parties have executed this Sub-Servicing
Agreement as of the 1st day of September, 1998.
LONG BEACH MORTGAGE COMPANY AMERIQUEST MORTGAGE COMPANY
By: /s/ M. JACK MAYESH By: /s/ NORMAN R. GRITSCH
------------------------------- -----------------------------
M. Jack Mayesh, Norman R. Gritsch,
Chief Executive Officer Executive Vice President and
General Counsel
2
<PAGE> 1
EXHIBIT 10.24
Master Repurchase
Agreement
September 1996 Version
Dated as of September 23, 1998
Between:
MERRILL LYNCH MORTGAGE CAPITAL INC.,
MERRILL LYNCH CREDIT CORPORATION
and
LONG BEACH MORTGAGE COMPANY
1. APPLICABILITY
From time to time the parties hereto may enter into transactions in which
one party ("Seller") agrees to transfer to the other ("Buyer") securities or
other assets ("Securities") against the transfer of funds by Buyer, with a
simultaneous agreement by Buyer to transfer to Seller such Securities at a
date certain or on demand, against the transfer of funds by Seller. Each
such transaction shall be referred to herein as a "Transaction" and, unless
otherwise agreed in writing, shall be governed by this Agreement, including
any supplemental terms or conditions contained in Annex I hereto and in any
other annexes identified herein or therein as applicable hereunder.
2. DEFINITIONS
(a) "Act of Insolvency", with respect to any party, (i) the commencement by such
party as debtor of any case or proceeding under any bankruptcy, insolvency,
reorganization, liquidation, moratorium, dissolution, delinquency or similar
law, or such party seeking the appointment or election of a receiver,
conservator, trustee, custodian or similar official for such party or any
substantial part of its property, or the convening of any meeting of
creditors for purposes of commencing any such case or proceeding or seeking
such an appointment or election, (ii) the commencement of any such case or
proceeding against such party, or another seeking such an appointment or
election, or the filing against a party of an application for a protective
decree under the provisions of the Securities Investor Protection Act of
1970, which (A) is consented to or not timely contested by such party, (B)
results in the entry of an order for relief, such an appointment or
election, the issuance of
<PAGE> 2
such a protective decree or the entry of an order
having a similar effect, or (C) is not dismissed within 15 days, (iii) the
making by such party of a general assignment for the benefit of creditors,
or (iv) the admission in writing by such party of such party's inability to
pay such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided by Seller to Buyer
pursuant to Paragraph 4 (a) hereof;
(c) "Buyer"s Margin Amount", with respect to any Transaction as of any date, the
amount obtained by application of the Buyer's Margin Percentage to the
Repurchase Price for such Transaction as of such date;
(d) "Buyer's Margin Percentage', with respect to any Transaction as of any date,
a percentage (which may be equal to the Seller's Margin Percentage) agreed
to by Buyer and Seller or, in the absence of any such agreement, the
percentage obtained by dividing the Market Value of the Purchased Securities
on the Purchase Date by the Purchase Price on the Purchase Date for such
Transaction;
(e) "Confirmation", the meaning specified in Paragraph 3 (b) hereof,
(f) "Income", with respect to any Security at any time, any principal thereof
and all interest, dividends or other distributions thereon;
(g) "Margin Deficit", the meaning specified in Paragraph 4 (a) hereof;
(h) "Margin Excess", the meaning specified in Paragraph 4(b) hereof;
(i) "Margin Notice Deadline", the time agreed to by the parties in the relevant
Confirmation, Annex I hereto or otherwise as the deadline for giving notice
requiring same-day satisfaction of margin maintenance obligations as
provided in Paragraph 4 hereof (or, in the absence of any such agreement,
the deadline for such purposes established in accordance with market
practice);
(j) "Market Value", with respect to any Securities as of any date, the price for
such Securities on such date obtained from a generally recognized source
agreed to by the parties or the most recent closing bid quotation from such
a source, plus accrued Income to the extent not included therein (other than
any Income credited or transferred to, or applied to the obligations of,
Seller pursuant to Paragraph 5 hereof) as of such date (unless contrary to
market practice for such Securities);
(k) "Price Differential", with respect to any Transaction as of any date, the
aggregate amount obtained by daily application of the Pricing Rate for such
Transaction to the Purchase Price for such Transaction on a 360 day per year
basis for the actual number of days during the period commencing on (and
including) the Purchase Date for such Transaction and ending on (but
excluding) the date of determination
2
<PAGE> 3
(reduced by any amount of such Price Differential previously paid by Seller
to Buyer with respect to such Transaction);
(l) "Pricing Rate", the per annum percentage rate for determination of the Price
Differential;
(m) "Prime Rate", the prime rate of U.S. commercial banks as published in The
Wall Street Journal (or, if more than one such rate is published, the
average of such rates);
(n) "Purchase Date", the date on which Purchased Securities are to be
transferred by Seller to Buyer;
(o) "Purchase Price", (i) on the Purchase Date, the price at which Purchased
Securities are transferred by Seller to Buyer, and (ii) thereafter, except
where Buyer and Seller agree otherwise, such price increased by the amount
of any cash transferred by Buyer to Seller pursuant to Paragraph 4 (b)
hereof and decreased by the amount of any cash transferred by Seller to
Buyer pursuant to Paragraph 4 (a) hereof or applied to reduce Seller's
obligations under clause (ii) of Paragraph 5 hereof;
(p) "Purchased Securities", the Securities transferred by Seller to Buyer in a
Transaction hereunder, and any Securities substituted therefor in accordance
with Paragraph 9 hereof. The term "Purchased Securities" with respect to any
Transaction at any time also shall include Additional Purchased Securities
delivered pursuant to Paragraph 4 (a) hereof and shall exclude Securities
returned pursuant to Paragraph 4(b) hereof;
(q) "Repurchase Date", the date on which Seller is to repurchase the Purchased
Securities from Buyer, including any date determined by application of the
provisions of Paragraph 3 (c) or 11 hereof;
(r) "Repurchase Price", the price at which Purchased Securities are to be
transferred from Buyer to Seller upon termination of a Transaction, which
will be determined in each case (including Transactions terminable upon
demand) as the sum of the Purchase Price and the Price Differential as of
the date of such determination;
(s) "Seller's Margin Amount", with respect to any Transaction as of any date,
the amount obtained by application of the Seller's Margin Percentage to the
Repurchase Price for such Transaction as of such date;
(t) "Seller's Margin Percentage", with respect to any Transaction as of any
date, a percentage (which may be equal to the Buyer's Margin Percentage)
agreed to by Buyer and Seller or, in the absence of any such agreement, the
percentage obtained by dividing the Market Value of the Purchased Securities
on the Purchase Date by the Purchase Price on the Purchase Date for such
Transaction.
3
<PAGE> 4
3. INITIATION; CONFIRMATION; TERMINATION
(a) An agreement to enter into a Transaction may be made orally or in writing at
the initiation of either Buyer or Seller. On the Purchase Date for the
Transaction, the Purchased Securities shall be transferred to Buyer or its
agent against the transfer of the Purchase Price to an account of Seller.
(b) Upon agreeing to enter into a Transaction hereunder, Buyer or Seller (or
both), as shall be agreed, shall promptly deliver to the other party a
written confirmation of each Transaction (a "Confirmation"). The
Confirmation shall describe the Purchased Securities (including CUSIP
number, if any), identify Buyer and Seller and set forth (i) the Purchase
Date, (ii) the Purchase Price, (iii) the Repurchase Date, unless the
Transaction is to be terminable on demand, (iv) the Pricing Rate or
Repurchase Price applicable to the Transaction, and (v) any additional terms
or conditions of the Transaction not inconsistent with this Agreement. The
Confirmation, together with this Agreement, shall constitute conclusive
evidence of the terms agreed between Buyer and Seller with respect to the
Transaction to which the Confirmation relates, unless with respect to the
Confirmation specific objection is made promptly after receipt thereof. In
the event of any conflict between the terms of such Confirmation and this
Agreement, this Agreement shall prevail.
(c) In the case of Transactions terminable upon demand, such demand shall be
made by Buyer or Seller, no later than such time as is customary in
accordance with market practice, by telephone or otherwise on or prior to
the business day on which such termination will be effective. On the date
specified in such demand, or on the date fixed for termination in the case
of Transactions having a fixed term, termination of the Transaction will be
effected by transfer to Seller or its agent of the Purchased Securities and
any Income in respect thereof received by Buyer (and not previously credited
or transferred to, or applied to the obligations of, Seller pursuant to
Paragraph 5 hereof) against the transfer of the Repurchase Price to an
account of Buyer.
4. MARGIN MAINTENANCE
(a) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is acting as
Buyer is less than the aggregate Buyer's Margin Amount for all such
Transactions (a "Margin Deficit"), then Buyer may by notice to Seller
require Seller in such Transactions, at Seller's option, to transfer to
Buyer cash or additional Securities reasonably acceptable to Buyer
("Additional Purchased Securities"), so that the cash and aggregate Market
Value of the Purchased Securities, including any such Additional Purchased
Securities, will thereupon equal or exceed such aggregate Buyer's Margin
Amount (decreased by the amount of any Margin Deficit as of such date
arising from any Transactions in which such Buyer is acting as Seller).
4
<PAGE> 5
(b) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is acting as
Seller exceeds the aggregate Seller's Margin Amount for all such
Transactions at such time (a "Margin Excess"), then Seller may by notice to
Buyer require Buyer in such Transactions, at Buyer's option, to transfer
cash or Purchased Securities to Seller, so that the aggregate Market Value
of the Purchased Securities, after deduction of any such cash or any
Purchased Securities so transferred, will thereupon not exceed such
aggregate Seller's Margin Amount (increased by the amount of any Margin
Excess as of such date arising from any Transactions in which such Seller is
acting as Buyer).
(c) If any notice is given by Buyer or Seller under subparagraph (a) or (b) of
this Paragraph at or before the Margin Notice Deadline on any business day,
the party receiving such notice shall transfer cash or Additional Purchased
Securities as provided in such subparagraph no later than the close of
business in the relevant market on such day. If any such notice is given
after the Margin Notice Deadline, the party receiving such notice shall
transfer such cash or Securities no later than the close of business in the
relevant market on the next business day following such notice.
(d) Any cash transferred pursuant to this Paragraph shall be attributed to such
Transactions as shall be agreed upon by Buyer and Seller.
(e) Seller and Buyer may agree, with respect to any or all Transactions
hereunder, that the respective rights of Buyer or Seller (or both) under
subparagraphs (a) and (b) of this Paragraph may be exercised only where a
Margin Deficit or Margin Excess, as the case may be, exceeds a specified
dollar amount or a specified percentage of the Repurchase Prices for such
Transactions (which amount or percentage shall be agreed to by Buyer and
Seller prior to entering into any such Transactions).
(f) Seller and Buyer may agree, with respect to any or all Transactions
hereunder, that the respective rights of Buyer and Seller under
subparagraphs (a) and (b) of this Paragraph to require the elimination of a
Margin Deficit or a Margin Excess, as the case may be, may be exercised
whenever such a Margin Deficit or Margin Excess exists with respect to any
single Transaction hereunder (calculated without regard to any other
Transaction outstanding under this Agreement).
5. INCOME PAYMENTS
Seller shall be entitled to receive an amount equal to all Income paid or
distributed on or in respect of the Securities that is not otherwise
received by Seller, to the full extent it would be so entitled if the
Securities had not been sold to Buyer. Buyer shall, as the parties may agree
with respect to any Transaction (or, in the absence of any such agreement,
as Buyer shall reasonably determine in its discretion), on the date such
Income is paid or distributed either (i) transfer to or credit to the
account of Seller such Income with respect to any Purchased Securities
subject to such Transaction or (ii) with
5
<PAGE> 6
respect to Income paid in cash, apply the Income payment or payments to
reduce the amount, if any, to be transferred to Buyer by Seller upon
termination of such Transaction. Buyer shall not be obligated to take any
action pursuant to the preceding sentence (A) to the extent that such action
would result in the creation of a Margin Deficit, unless prior thereto or
simultaneously therewith Seller transfers to Buyer cash or Additional
Purchased Securities sufficient to eliminate such Margin Deficit, or (B) if
an Event of Default with respect to Seller has occurred and is then
continuing at the time such Income is paid or distributed.
6. SECURITY INTEREST
Although the parties intend that all Transactions hereunder be sales and
purchases and not loans, in the event any such Transactions are deemed to be
loans, Seller shall be deemed to have pledged to Buyer as security for the
performance by Seller of its obligations under each such Transaction, and
shall be deemed to have granted to Buyer a security interest in, all of the
Purchased Securities with respect to all Transactions hereunder and all
Income thereon and other proceeds thereof.
7. PAYMENT AND TRANSFER
Unless otherwise mutually agreed, all transfers of funds hereunder shall be
in immediately available funds. All Securities transferred by one party
hereto to the other party (i) shall be in suitable form for transfer or
shall be accompanied by duly executed instruments of transfer or assignment
in blank and such other documentation as the party receiving possession may
reasonably request, (ii) shall be transferred on the book-entry system of a
Federal Reserve Bank, or (iii) shall be transferred by any other method
mutually acceptable to Seller and Buyer.
8. SEGREGATION OF PURCHASED SECURITIES
To the extent required by applicable law, all Purchased Securities in the
possession of Seller shall be segregated from other securities in its
possession and shall be identified as subject to this Agreement. Segregation
may be accomplished by appropriate identification on the books and records
of the holder, including a financial or securities intermediary or a
clearing corporation. All of Seller's interest in the Purchased Securities
shall pass to Buyer on the Purchase Date and, unless otherwise agreed by
Buyer and Seller, nothing in this Agreement shall preclude Buyer from
engaging in repurchase transactions with the Purchased Securities or
otherwise selling, transferring, pledging or hypothecating the Purchased
Securities, but no such transaction shall relieve Buyer of its obligations
to transfer Purchased Securities to Seller pursuant to Paragraph 3, 4 or 11
hereof, or of Buyer's obligation to credit or pay Income to, or apply Income
to the obligations of, Seller pursuant to Paragraph 5 hereof.
6
<PAGE> 7
- -------------------------------------------------------------------------------
REQUIRED DISCLOSURE FOR TRANSACTIONS IN WHICH THE SELLER
RETAINS CUSTODY OF THE PURCHASED SECURITIES
Seller is not permitted to substitute other securities for those subject
to this Agreement and therefore must keep Buyer's securities segregated at
all times, unless in this Agreement Buyer grants Seller the right to
substitute other securities. If Buyer grants the right to substitute, this
means that Buyer's securities will likely be commingled with Seller's own
securities during the trading day. Buyer is advised that, during any
trading day that Buyer's securities are commingled with Seller's
securities, they [will] * [may] ** be subject to liens granted by Seller
to [its clearing bank] * [third parties] ** and may be used by Seller for
deliveries on other securities transactions. Whenever the securities are
commingled, Seller's ability to resegregate substitute securities for
Buyer will be subject to Seller's ability to satisfy [the clearing] *
[any]** lien or to obtain substitute securities.
* Language to be used under 17 C.F.R. (beta)403.4 (e) if Seller is a
government securities broker or dealer other than a financial
institution.
** Language to be used under 17 C.F.R. (beta)403.5(d) if Seller is a
financial institution.
- --------------------------------------------------------------------------------
1. SUBSTITUTION
(a) Seller may, subject to agreement with and acceptance by Buyer, substitute
other Securities for any Purchased Securities. Such substitution shall be
made by transfer to Buyer of such other Securities and transfer to Seller of
such Purchased Securities. After substitution, the substituted Securities
shall be deemed to be Purchased Securities.
(b) In Transactions in which Seller retains custody of Purchased Securities, the
parties expressly agree that Buyer shall be deemed, for purposes of
subparagraph (a) of this Paragraph, to have agreed to and accepted in this
Agreement substitution by Seller of other Securities for Purchased
Securities; provided, however, that such other Securities shall have a
Market Value at least equal to the Market Value of the Purchased Securities
for which they are substituted.
2. REPRESENTATIONS
Each of Buyer and Seller represents and warrants to the other that (i) it is
duly authorized to execute and deliver this Agreement, to enter into
Transactions contemplated hereunder and to perform its obligations hereunder
and has taken all necessary action to authorize such execution, delivery and
performance, (ii) it will engage in such Transactions as principal (or, if
agreed in writing, in the form of an annex hereto or otherwise, in advance
of any Transaction by the other party hereto, as agent for a disclosed
principal), (iii) the person signing this Agreement on its behalf is duly
authorized to do so on its behalf (or on behalf of any such disclosed
principal), (iv) it has obtained all authorizations of any governmental body
required in connection with this Agreement and the Transactions hereunder
and such authorizations are in full force and effect and (v) the execution,
delivery and performance of this Agreement and the Transactions hereunder
will not violate any law, ordinance, charter, by-law or rule applicable to
it or any agreement by which it is bound or by which any of its assets are
affected. On the Purchase Date for any Transaction Buyer and Seller shall
each be deemed to repeat all the foregoing representations made by it.
7
<PAGE> 8
3. EVENTS OF DEFAULT
In the event that (i) Seller fails to transfer or Buyer fails to purchase
Purchased Securities upon the applicable Purchase Date, (ii) Seller fails to
repurchase or Buyer fails to transfer Purchased Securities upon the
applicable Repurchase Date, (iii) Seller or Buyer fails to comply with
Paragraph 4 hereof, (iv) Buyer fails, after one business day's notice, to
comply with Paragraph 5 hereof, (v) an Act of Insolvency occurs with respect
to Seller or Buyer, (vi) any representation made by Seller or Buyer shall
have been incorrect or untrue in any material respect when made or repeated
or deemed to have been made or repeated, or (vii) Seller or Buyer shall
admit to the other its inability to, or its intention not to, perform any of
its obligations hereunder (each an "Event of Default"):
(a) The nondefaulting party may, at its option (which option shall be deemed
to have been exercised immediately upon the occurrence of an Act of
Insolvency), declare an Event of Default to have occurred hereunder and,
upon the exercise or deemed exercise of such option, the Repurchase Date
for each Transaction hereunder shall, if it has not already occurred, be
deemed immediately to occur (except that, in the event that the Purchase
Date for any Transaction has not yet occurred as of the date of such
exercise or deemed exercise, such Transaction shall be deemed
immediately canceled). The nondefaulting party shall (except upon the
occurrence of an Act of Insolvency) give notice to the defaulting party
of the exercise of such option as promptly as practicable.
(b) In all Transactions in which the defaulting party is acting as Seller,
if the nondefaulting party exercises or is deemed to have exercised the
option referred to in subparagraph (a) of this Paragraph, (i) the
defaulting party's obligations in such Transactions to repurchase all
Purchased Securities, at the Repurchase Price therefor on the Repurchase
Date determined in accordance with subparagraph (a) of this Paragraph,
shall thereupon become immediately due and payable, (ii) all Income paid
after such exercise or deemed exercise shall be retained by the
nondefaulting party and applied to the aggregate unpaid Repurchase
Prices and any other amounts owing by the defaulting party hereunder,
and (iii) the defaulting party shall immediately deliver to the
nondefaulting party any Purchased Securities subject to such
Transactions then in the defaulting party's possession or control.
(c) In all Transactions in which the defaulting party is acting as Buyer,
upon tender by the nondefaulting party of payment of the aggregate
Repurchase Prices for all such Transactions, all right, title and
interest in and entitlement to all Purchased Securities subject to such
Transactions shall be deemed transferred to the nondefaulting party, and
the defaulting party shall deliver all such Purchased Securities to the
nondefaulting party.
8
<PAGE> 9
(d) If the nondefaulting party exercises or is deemed to have exercised the
option referred to in subparagraph (a) of this Paragraph, the
nondefaulting party, without prior notice to the defaulting party, may:
(i) as to Transactions in which the defaulting party is acting as
Seller, (A) immediately sell, in a recognized market (or otherwise
in a commercially reasonable manner) at such price or prices as the
nondefaulting party may reasonably deem satisfactory, any or all
Purchased Securities subject to such Transactions and apply the
proceeds thereof to the aggregate unpaid Repurchase Prices and any
other amounts owing by the defaulting party hereunder or (B) in its
sole discretion elect, in lieu of selling all or a portion of such
Purchased Securities, to give the defaulting party credit for such
Purchased Securities in an amount equal to the price therefor on
such date, obtained from a generally recognized source or the most
recent closing bid quotation from such a source, against the
aggregate unpaid Repurchase Prices and any other amounts owing by
the defaulting party hereunder; and
(ii) as to Transactions in which the defaulting party is acting as
Buyer, (A) immediately purchase, in a recognized market (or
otherwise in a commercially reasonable manner) at such price or
prices as the nondefaulting party may reasonably deem satisfactory,
securities ("Replacement Securities") of the same class and amount
as any Purchased Securities that are not delivered by the defaulting
party to the nondefaulting party as required hereunder or (B) in its
sole discretion elect, in lieu of purchasing Replacement Securities,
to be deemed to have purchased Replacement Securities at the price
therefor on such date, obtained from a generally recognized source
or the most recent closing offer quotation from such a source.
Unless otherwise provided in Annex I, the parties acknowledge and agree
that (1) the Securities subject to any Transaction hereunder are
instruments traded in a recognized market, (2) in the absence of a
generally recognized source for prices or bid or offer quotations for
any Security, the nondefaulting party may establish the source therefor
in its sole discretion and (3) all prices, bids and offers shall be
determined together with accrued Income (except to the extent contrary
to market practice with respect to the relevant Securities).
(e) As to Transactions in which the defaulting party is acting as Buyer, the
defaulting party shall be liable to the nondefaulting party for any
excess of the price paid (or deemed paid) by the nondefaulting party for
Replacement Securities over the Repurchase Price for the Purchased
Securities replaced thereby and for any amounts payable by the
defaulting party under Paragraph 5 hereof or otherwise hereunder.
(f) For purposes of this Paragraph 11, the Repurchase Price for each
Transaction hereunder in respect of which the defaulting party is acting
as Buyer shall not
9
<PAGE> 10
increase above the amount of such Repurchase Price
for such Transaction determined as of the date of the exercise or deemed
exercise by the nondefaulting party of the option referred to in
subparagraph (a) of this Paragraph.
(g) The defaulting party shall be liable to the nondefaulting party for (i)
the amount of all reasonable legal or other expenses incurred by the
nondefaulting party in connection with or as a result of an Event of
Default, (ii) damages in an amount equal to the cost (including all
fees, expenses and commissions) of entering into replacement
transactions and entering into or terminating hedge transactions in
connection with or as a result of an Event of Default, and (iii) any
other loss, damage, cost or expense directly arising or resulting from
the occurrence of an Event of Default in respect of a Transaction.
(h) To the extent permitted by applicable law, the defaulting party shall be
liable to the nondefaulting party for interest on any amounts owing by
the defaulting party hereunder, from the date the defaulting party
becomes liable for such amounts hereunder until such amounts are (i)
paid in full by the defaulting party or (ii) satisfied in full by the
exercise of the nondefaulting party's rights hereunder. Interest on any
sum payable by the defaulting party to the nondefaulting party under
this Paragraph 11 (h) shall be at a rate equal to the greater of the
Pricing Rate for the relevant Transaction or the Prime Rate.
(i) The nondefaulting party shall have, in addition to its rights hereunder,
any rights otherwise available to it under any other agreement or
applicable law.
4. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereinto and will enter
into each Transaction hereunder in consideration of and in reliance upon the
fact that, all Transactions hereunder constitute a single business and
contractual relationship and have been made in consideration of each other.
Accordingly, each of Buyer and Seller agrees (i) to perform all of its
obligations in respect of each Transaction hereunder, and that a default in
the performance of any such obligations shall constitute a default by it in
respect of all Transactions hereunder, (ii) that each of them shall be
entitled to set off claims and apply property held by them in respect of any
Transaction against obligations owing to them in respect of any other
Transactions hereunder and (iii) that payments, deliveries and other
transfers made by either of them in respect of any Transaction shall be
deemed to have been made in consideration of payments, deliveries and other
transfers in respect of any other Transactions hereunder, and the
obligations to make any such payments, deliveries and other transfers may be
applied against each other and netted.
5. NOTICES AND OTHER COMMUNICATIONS
Any and all notices, statements, demands or other communications hereunder
may be given by a party to the other by mail, facsimile, telegraph,
messenger or otherwise to
10
<PAGE> 11
the address specified in Annex II hereto, or so sent to such party at any
other place specified in a notice of change of address hereafter received by
the other. All notices, demands and requests hereunder may be made orally,
to be confirmed promptly in writing, or by other communication as specified
in the preceding sentence.
6. ENTIRE AGREEMENT; SEVERABILITY
This Agreement shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions. Each
provision and agreement herein shall be treated as separate and independent
from any other provision or agreement herein and shall be enforceable
notwithstanding the unenforceability of any such other provision or
agreement.
7. NON-ASSIGNABILITY; TERMINATION
(a) The rights and obligations of the parties under this Agreement and under
any Transaction shall not be assigned by either party without the prior
written consent of the other party, and any such assignment without the
prior written consent of the other party shall be null and void. Subject
to the foregoing, this Agreement and any Transactions shall be binding
upon and shall inure to the benefit of the parties and their respective
successors and assigns. This Agreement may be terminated by either party
upon giving written notice to the other, except that this Agreement
shall, notwithstanding such notice, remain applicable to any
Transactions then outstanding.
(b) Subparagraph (a) of this Paragraph 15 shall not preclude a party from
assigning, charging or otherwise dealing with all or any part of its
interest in any sum payable to it under Paragraph 11 hereof.
8. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York
without giving effect to the conflict of law principles thereof.
9. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any
remedy hereunder by any party shall constitute a waiver of its right to
exercise any other remedy hereunder. No modification or waiver of any
provision of this Agreement and no consent by any party to a departure
herefrom shall be effective unless and until such shall be in writing and
duly executed by both of the parties hereto. Without limitation on any of
the foregoing, the failure to give a notice pursuant to Paragraph 4(a) or
4(b) hereof will not constitute a waiver of any right to do so at a later
date.
10. USE OF EMPLOYEE PLAN ASSETS
11
<PAGE> 12
(a) If assets of an employee benefit plan subject to any provision of the
Employee Retirement Income Security Act of 1974 ("ERISA") are intended
to be used by either party hereto (the "Plan Party") in a Transaction,
the Plan Party shall so notify the other party prior to the Transaction.
The Plan Party shall represent in writing to the other party that the
Transaction does not constitute a prohibited transaction under ERISA or
is otherwise exempt therefrom, and the other party may proceed in
reliance thereon but shall not be required so to proceed.
(b) Subject to the last sentence of subparagraph (a) of this Paragraph, any
such Transaction shall proceed only if Seller furnishes or has furnished
to Buyer its most recent available audited statement of its financial
condition and its most recent subsequent unaudited statement of its
financial condition.
(c) By entering into a Transaction pursuant to this Paragraph, Seller shall
be deemed (i) to represent to Buyer that since the date of Seller's
latest such financial statements, there has been no material adverse
change in Seller's financial condition which Seller has not disclosed to
Buyer, and (ii) to agree to provide Buyer with future audited and
unaudited statements of its financial condition as they are issued, so
long as it is a Seller in any outstanding Transaction involving a Plan
Party.
11. INTENT
(a) The parties recognize that each Transaction is a "repurchase agreement"
as that term is defined in Section 101 of Title 11 of the United States
Code, as amended (except insofar as the type of Securities subject to
such Transaction or the term of such Transaction would render such
definition inapplicable), and a "securities contract" as that term is
defined in Section 741 of Title 11 of the United States Code, as amended
(except insofar as the type of assets subject to such Transaction would
render such definition inapplicable).
(b) It is understood that either party's right to liquidate Securities
delivered to it in connection with Transactions hereunder or to exercise
any other remedies pursuant to Paragraph 11 hereof is a contractual
right to liquidate such Transaction as described in Sections 555 and 559
of Title 11 of the United States Code, as amended.
(c) The parties agree and acknowledge that if a party hereto is an "insured
depository institution," as such term is defined in the Federal Deposit
Insurance Act, as amended ("FDIA"), then each Transaction hereunder is a
"qualified financial contract," as that term is defined in FDIA and any
rules, orders or policy statements thereunder (except insofar as the
type of assets subject to such Transaction would render such definition
inapplicable).
(d) It is understood that this Agreement constitutes a "netting contract" as
defined in and subject to Title IV of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") and each payment
entitlement and payment obligation
12
<PAGE> 13
under any Transaction hereunder shall constitute a "covered contractual
payment entitlement" or "covered contractual payment obligation",
respectively, as defined in and subject to FDICIA (except insofar as one
or both of the parties is not a "financial institution" as that term is
defined In FDICIA).
12. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that:
(a) in the case of Transactions in which one of the parties is a broker or
dealer registered with the Securities and Exchange Commission ("SEC")
under Section 15 of the Securities Exchange Act of 1934 ("1934 Act"),
the Securities Investor Protection Corporation has taken the position
that the provisions of the Securities Investor Protection Act of 1970
("SIPA") do not protect the other party with respect to any Transaction
hereunder;
(b) in the case of Transactions in which one of the parties is a government
securities broker or a government securities dealer registered with the
SEC under Section 15C of the 1934 Act, SIPA will not provide protection
to the other party with respect to any Transaction hereunder; and
(c) in the case of Transactions in which one of the parties is a financial
institution, funds held by the financial institution pursuant to a
Transaction hereunder are not a deposit and therefore are not insured by
the Federal Deposit Insurance Corporation or the National Credit Union
Share Insurance Fund, as applicable.
Merrill Lynch Mortgage Capital Inc. Long Beach Mortgage Company
By: By:
------------------------------ --------------------------
Title: Title:
------------------------------ --------------------------
Date: Date:
------------------------------ --------------------------
Merrill Lynch Credit Corporation
By:
------------------------------
Title:
------------------------------
Date:
------------------------------
13
<PAGE> 14
EXECUTION COPY
ANNEX I
(continued)
SUPPLEMENTAL TERMS AND CONDITIONS TO
MASTER REPURCHASE AGREEMENT,
DATED AS OF SEPTEMBER 23, 1998, AMONG
MERRILL LYNCH MORTGAGE CAPITAL INC.,
MERRILL LYNCH CREDIT CORPORATION
AND LONG BEACH MORTGAGE COMPANY
1. APPLICABILITY. These Supplemental Terms and Conditions (the
"Supplemental Terms") to the Master Repurchase Agreement (the "Master
Repurchase Agreement", and collectively with these Supplemental Terms,
the "Agreement") modify the terms and conditions under which the parties
hereto, from time to time, enter into Transactions. To the extent that
these Supplemental Terms conflict with the terms of the Master
Repurchase Agreement, these Supplemental Terms shall control.
2. ADDITIONAL DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Master Repurchase
Agreement. Capitalized terms used in the Master Repurchase Agreement
whose definitions are modified in these Supplemental Terms shall, for
all purposes of the Agreement, be deemed to have such modified
definitions.
(a) "A Quality Mortgage Loans" shall refer to Mortgage Loans
originated in the manner described for such category in
the Seller's Underwriting Guidelines.
(b) "A- Quality Mortgage Loans" shall refer to Mortgage Loans
originated in the manner described for such category in
the Seller's Underwriting Guidelines.
(c) "Affiliate" means with respect to any Person, any
director, officer, employee or partner of such Person, and
any other Person, directly or indirectly controlling,
controlled by or under common control with such Person,
and any Affiliate of any of the foregoing. The term
"control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the
management policies of the Person, whether through the
ownership of securities, by contract or otherwise.
<PAGE> 15
(d) "B Quality Mortgage Loans" shall refer to Mortgage Loans
originated in the manner described for such category in
the Seller's Underwriting Guidelines.
(e) "B- Quality Mortgage Loans" shall refer to Mortgage Loans
originated in the manner described for such category in
the Seller's Underwriting Guidelines.
(f) "Book Net Worth" shall refer to the equity of Seller
determined in accordance with GAAP less the sum of (i)
intercompany receivables (ii) loans to officers or
employees of Seller in excess of $1,000,000 in aggregate
and (iii) intangible items.
(g) "Business Day" shall mean any day excluding Saturday,
Sunday and any day on which banks located in the States of
New York, California or Texas are authorized or permitted
to close for business. All references to "business day" in
the Master Repurchase Agreement shall be deemed to be
references to Business Day.
(h) "Buyer" shall mean MLCC, in the case of Eligible Assets
secured by second liens, and MLMCI in all other cases.
(i) "Buyer's Margin Amount" shall have the meaning set forth
in the Master Repurchase Agreement except that the
percentage referred to therein for each Transaction shall
be specified in the related Confirmation/Funding Request.
(j) "C Quality Mortgage Loans" shall refer to Mortgage Loans
originated in the manner described for such category in
the Seller's Underwriting Guidelines.
(k) "Closing Agent" shall refer to each title company, closing
attorney or other agent that disburses funds on behalf of
Seller in connection with the origination of a Wet
Mortgage Loan included on the List of Closing Agents
attached hereto as Exhibit B; provided that such list may
be amended upon notice to Buyer and provided further than
any additional Closing Agent shall receive the prior
approval of Buyer.
(l) "CLTV" shall mean, with respect to each Mortgage Loan that
is not a first lien residential mortgage loan, the
combined loan-to-value ratio calculated as a fraction,
expressed as a percentage, the numerator of which is the
original principal balance of the related Mortgage Loan
(together with the related senior lien mortgage loans) and
the denominator of which is the lesser of the sales price
or the appraised value of the related mortgaged property.
2
<PAGE> 16
(m) "Confirmation/Funding Request" shall have the meaning of
"Confirmation" as set forth in the Master Repurchase
Agreement but shall be substantially in the form attached
hereto as Exhibit A.
(n) "Covenant Compliance Certificate" shall refer to a
certificate of Seller to the effect that the Seller is in
compliance, as of the date of such certificate, with the
covenants set forth Section 9(c)(v), 9(c)(vi) and
9(c)(vii) of this Agreement.
(o) "Custodian" shall refer to Chase Bank of Texas, National
Association, or any permitted successor thereto pursuant
to the Custody Agreement, as the same shall be amended
from time to time.
(p) "Custody Agreement" shall refer to a custody agreement
pursuant to which the Custodian acts as bailee for Buyer.
(q) "D Quality Mortgage Loans" shall refer to Mortgage Loans
originated in the manner described for such category in
the Seller's Underwriting Guidelines.
(r) "Disbursement Instructions" shall refer to the written
disbursement instructions sent by Seller to a Closing
Agent in connection with the origination of a Wet Mortgage
Loan.
(s) "Dry Mortgage Loans" shall refer to Mortgage Loans other
than Wet Mortgage Loans.
(t) "Eligible Assets" shall refer to duly recorded first or
second lien Mortgage Loans originated by Seller or
acquired by Seller in the ordinary course of business.
(u) "GAAP" shall mean generally accepted accounting principles
consistently applied.
(v) "Market Value" shall, in addition to the definition set
forth in the Master Repurchase Agreement, provide that (i)
buyer shall determine the Market Value for the Purchased
Securities in the good faith exercise of its reasonable
business judgment from time to time and at such time as it
may elect in its sole discretion and (ii) that Buyer shall
assign a Market Value of zero with respect to (A) any
Mortgage Loan that has been delinquent for more than the
Permitted Delinquency Period, (B) any Mortgage Loan with
respect to which there is a breach of a representation,
warranty or covenant made by Seller in this Agreement or
the Custody Agreement that materially adversely affects
Buyer's interest in such Mortgage Loan and which breach
has not been cured prior to the date on which Market Value
is being determined, (C) any Mortgage Loan that
3
<PAGE> 17
Buyer determines in its sole discretion has not been
originated in accordance with applicable laws and (D) any
Wet Mortgage Loan that is subject to the Agreement or the
Custody Agreement for more than five (5) Business Days in
aggregate without having become a Dry Mortgage Loan.
(w) "MLCC" shall refer to Merrill Lynch Credit Corporation.
(x) "MLMCI" shall refer to Merrill Lynch Mortgage Capital Inc.
(y) "Mortgage" shall mean a duly recorded first or second
mortgage or first or second deed of trust on improved
residential real property.
(z) "Mortgage Loan Schedule" shall have the meaning set forth
in Section 3(a) herein.
(aa) "Mortgage Loans" shall mean those first or second lien
residential mortgage loans that Seller has sold to Buyer
hereunder and shall include A Quality Mortgage Loans, A-
Quality Mortgage Loans, B Quality Mortgage Loans, B-
Quality Mortgage Loans, C Quality Mortgage Loans and
D Quality Mortgage Loans.
(bb) "Mortgage Loan Income" shall mean income payable with
respect to a Mortgage Loan including all amounts payable
on account of such Mortgage Loan whether principal,
interest, partial prepayments, prepayments in full,
penalties, advance payments or expenses and whether
payable by or from the Mortgagor or the servicer for such
Mortgage Loan.
(cc) "Permitted Delinquency Period" shall mean thirty (30) days
in the case of all Mortgage Loans; provided, however, that
Buyer may, in its sole discretion, extend the Permitted
Deliquency Period on a loan-by-loan basis to forty-five
(45) days with such reduction in Market Value as Buyer, in
its sole discretion, may deem appropriate.
(dd) "Person" means a corporation, association, partnership,
organization, business, trust, individual, a government or
political subdivision thereof, any governmental agency or
any other entity.
(ee) "Purchase Date" shall in addition to the meaning set forth
in the Master Repurchase Agreement, refer only to that
portion of any Purchase Date commencing at the time the
Purchase Price is paid and the Purchased Securities are
transferred, which payment and transfer shall be deemed to
be simultaneous.
4
<PAGE> 18
(ff) "Required Loan Documents" shall refer to the documents
required to be held by the Custodian as bailee under the
Custody Agreement.
(gg) "Securities" shall, in addition to the definition set
forth in the Master Repurchase Agreement, refer to
Mortgage Loans; provided, however, that such Mortgage
Loans shall not be deemed to be securities for the
purposes of any securities or blue sky laws.
(hh) "Seller" shall refer to Long Beach Mortgage Company, a
Delaware corporation.
(ii) "Seller's Margin Amount" shall have the meaning set forth
in the Master Repurchase Agreement except that the
percentage referred to therein for each Transaction shall
be specified in the related Confirmation/Funding Request.
(jj) "Seller's Underwriting Guidelines" shall refer to the
underwriting guidelines for various categories of Mortgage
Loans in the form most recently approved by Buyer in
writing.
(kk) "Servicer" shall refer to Ameriquest Mortgage Company or
Long Beach Mortgage Company.
(ll) "Servicing Agreement" shall, refer to the Master
Sub-servicing Agreement dated as of April 28, 1997 between
Seller and Ameriquest Mortgage Company, attached hereto as
Exhibit C.
(mm) "Third Person" shall refer to any Person to whom Buyer
transfers any portion of its interest in the Eligible
Assets.
(nn) "Transaction" shall, in addition to the definition set
forth in the Master Repurchase Agreement, refer to
substitutions pursuant to Paragraph 9 of the Master
Repurchase Agreement.
(oo) "Trust Receipt" shall refer to the Trust Receipt
substantially in the form attached as an exhibit to the
Custody Agreement.
(pp) "Wet Mortgage Loan" shall refer to a Mortgage Loan for
which the Custodian has not issued a Trust Receipt to
Buyer at the time the related Purchase Price is paid.
1. INITIATION, CONFIRMATION.
(a) Not less than two (2) Business Days prior to each proposed
Purchase Date, Seller shall forward to Buyer a detailed listing
of the Securities proposed to be
5
<PAGE> 19
the subject of a Transaction (a "Mortgage Loan Schedule"), which
Mortgage Loan Schedule shall indicate the category of Mortgage
Loan, whether such Mortgage Loan is a Wet Mortgage Loan or a Dry
Mortgage Loan and such other information as Buyer may require.
(b) Seller shall deliver, pursuant to the terms of the Custody
Agreement, such documents relating to each Mortgage Loan on the
Mortgage Loan Schedule.
(c) Each Confirmation shall be binding upon Seller and Buyer unless
written notice of objection is given by the objecting party to
the other party within one (1) business day after the objecting
party's receipt of such Confirmation.
(d) Buyer may, but shall not be required to, deliver Confirmations
confirming periodic adjustments in the Pricing Rate for a
particular Transaction.
(e) Notwithstanding Paragraph 3(b) of the Master Repurchase
Agreement, in the event of any conflict between the terms of a
Confirmation and this Agreement, such Confirmation shall prevail.
(f) Seller shall, simultaneously with the funding of each
Transaction, deliver to Buyer through the Custodian a fully
executed Trust Receipt.
1. MARGIN.
(a) Paragraph 4(a) of the Master Repurchase Agreement is hereby
modified to provide that if the notice to be given by Buyer to
Seller under such paragraph is given at or prior to 12:00 p.m.
New York City time on a Business Day, Seller shall transfer the
cash or Additional Purchased Securities to Buyer (in the manner
contemplated by the Agreement and the Custody Agreement) prior to
the close of business in New York City on the date of such
notice, and if such notice is given after 12:00 p.m. New York
City time, Seller shall transfer the cash or Additional Purchased
Securities (in the manner as aforesaid) prior to the close of
business in New York City on the Business Day following the date
of such notice.
(b) Paragraph 4(a) of the Master Repurchase Agreement is hereby
further amended to provide that Seller shall transfer the cash or
Mortgage Loans to Buyer (in the manner contemplated by the
Agreement and the Custody Agreement) in accordance with Section
24 of these Supplemental Terms.
(c) The Master Repurchase Agreement is hereby amended by adding the
following sentence at the end of Paragraph 4(a):
In case of a Margin Deficit with respect to Mortgage Loans,
Seller shall transfer cash or Mortgage Loans to satisfy its
obligations hereunder; provided, however, Seller may transfer
Mortgage Loans only to the extent that they have been
6
<PAGE> 20
reviewed by the Custodian pursuant to the Custody Agreement and
the Custodian has furnished its Trust Receipt with respect
thereto.
1. INCOME PAYMENTS. All payments and distributions, whether in cash or in
kind, made on or with respect to the Mortgage Loans shall, unless
otherwise mutually agreed by Buyer and Seller, be paid, delivered or
transferred in the case of Mortgage Loans, so long as an Event of
Default on the part of Seller shall not have occurred and be continuing,
directly to the Servicer from the related mortgagor.
2. MODIFICATIONS TO THE MASTER REPURCHASE AGREEMENT.
(a) The Master Repurchase Agreement is hereby amended by adding the
following after the last sentence of Paragraph 5:
If an Event of Default shall have occurred and be
continuing, Seller shall collect, or cause to be collected, all
Mortgage Loan Income on behalf of Buyer and, upon request of
Buyer, shall forward such payments to Buyer immediately upon
receipt.
(b) The Master Repurchase Agreement is hereby amended by adding the
following after the last sentence of Paragraph 7:
Buyer shall disburse funds to an account specified in
writing by Seller. In the case of Mortgage Loans, transfer of
such Mortgage Loans to Buyer shall occur as of the date on which
Buyer receives (i) the Trust Receipt of the Custodian and (ii) a
list identifying the Servicer with respect to each such Mortgage
Loan, if not otherwise set forth in the Trust Receipt.
In the case of Mortgage Loans transferred by Buyer to a
Third Person, Buyer shall send a notice to the Custodian and
transfer of such Mortgage Loans to any Third Person shall occur
when such Third Person receives the acknowledgment of the
Custodian identifying such Mortgage Loans. Any Mortgage Loans
repurchased by Seller pursuant to Paragraph 3(c) or 11(c) of the
Master Repurchase Agreement shall be transferred to Seller or its
agent upon the receipt by the Custodian from Buyer of a notice of
transfer which confirms the release of Buyer's interest in any
such Mortgage Loans.
(c) The Master Repurchase Agreement is amended by adding the
following at the end of the last sentence of Paragraph 8:
In the case of Mortgage Loans, Buyer hereby grants to
Seller the right to perform in Buyer's stead under any
repurchase, reverse repurchase or similar transaction in which
Buyer has sold, loaned or otherwise transferred the Mortgage
Loans in the event that Buyer has defaulted on its obligation to
repurchase or accept redelivery of such Mortgage Loans in
conformity with the terms of any
7
<PAGE> 21
such transaction and so long as an Event of Default under the
Agreement on the part of Seller shall not have occurred and be
continuing.
(d) Paragraph 9 of the Master Repurchase Agreement is hereby amended
by adding the following at the end of subparagraph (b):
(c) In the case of any Transaction for which the Repurchase
Date is other than the Business Day immediately following
the Purchase Date and with respect to which Seller does
not have any existing right to substitute substantially
the same Securities for the Purchased Securities, Seller
shall have the right, subject to the proviso to this
sentence, upon notice to Buyer, which notice shall be
given at or prior to 12:00 p.m. (New York City time) on
such Business Day, to substitute substantially the same
Securities for any Purchased Securities; provided,
however, that Buyer may elect, by the close of business on
the Business Day notice is received, or by the close of
the next Business Day if notice is given after 12:00 p.m.
(New York City time) on such day, not to accept such
substitution. In the event such substitution is accepted
by Buyer, such substitution shall be made by Seller's
transfer to Buyer of such other Securities and Buyer's
transfer to Seller of such Purchased Securities, and after
such substitution, the substituted Securities shall be
deemed to be Purchased Securities. In the event Buyer
elects not to accept such substitution, Buyer shall offer
Seller the right to terminate the Transaction.
(d) In the event Seller exercises its right to substitute or
terminate under sub-paragraph (c), Seller shall be
obligated to pay to Buyer, by the close of the Business
Day of such substitution or termination, as the case may
be, an amount equal to (A) Buyer's actual cost (including
all fees, expenses and commissions) of (i) entering into
replacement transactions; (ii) entering into or
terminating hedge transactions; and/or (iii) terminating
transactions or substituting securities in like
transactions with third parties in connection with or as a
result of such substitution or termination , and (B) to
the extent Buyer determines not to enter into replacement
transactions, the loss incurred by Buyer directly arising
or resulting from such substitution or termination. The
foregoing amounts shall be solely determined and
calculated by Buyer in good faith.
(e) The Master Repurchase Agreement is hereby further amended by
adding the following new subsections (i) and (j) to Paragraph 11:
(i) Any sales of Purchased Securities, pursuant to Paragraph
11(d)(i) of the Agreement, which are Mortgage Loans may be
effected in public or private sales as Buyer may
reasonably deem appropriate and at such price or prices as
Buyer may reasonably deem satisfactory. In the event Buyer
elects in lieu of so selling such Purchased Securities to
give Seller credit
8
<PAGE> 22
for such Purchased Securities, such credit shall be in an
amount equal to the Market Value thereof as of the date of
such acceleration.
(j) Any purchases of Replacement Securities, pursuant to
Paragraph 11(d)(ii) of the Agreement, which are Mortgage
Loans shall be of the same or similar type, maturity and
amount as the Purchased Securities that are not delivered
by Buyer and may be effected in purchases in a
commercially reasonable manner at such price or prices as
Seller may reasonably deem appropriate. In the event
Seller elects in lieu of so purchasing such Replacement
Securities to be deemed to have purchased Replacement
Securities in a commercially reasonable manner as provided
in Paragraph 11(d)(ii), such Replacement Securities shall
be deemed to have been purchased at the Market Value
thereof.
1. DISBURSEMENT OF FUNDS. Seller may request that the parties enter into a
transaction hereunder by making a written request for the purchase and sale
of Eligible Assets, either by mail or facsimile transmission, to Buyer.
Buyer shall pay the Purchase Price within one (1) Business Day of receipt
of such notice, so long as the terms and conditions of the Agreement and
the Custody Agreement are fully satisfied and no Event of Default hereunder
shall have occurred and be continuing. The amount of any such Purchase
Price of Eligible Assets shall be in a minimum amount of $100,000 and
integral multiples of $100,000 in excess thereof unless otherwise agreed by
Buyer in its sole discretion.
2. SECURITY INTEREST; ASSIGNMENTS.
(a) In the event, for any reason, any Transaction is construed by any
court as a secured loan rather than a purchase and sale, the
parties intend that Buyer shall have a perfected first priority
security interest in all of the Purchased Securities.
(b) Seller shall pay all reasonable fees and expenses associated with
perfecting such security interest including, without limitation,
the cost of filing financing statements under the Uniform
Commercial Code, to the extent required by Buyer or its counsel,
and any reasonable fees charged by the Custodian.
1. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Each party represents and warrants, and shall on and as of the
Purchase Date of any Transaction be deemed to represent and
warrant, as follows:
(i) The execution, delivery and performance of the Agreement
and the performance of each Transaction do not and will
not result in or require the creation of any lien,
security interest or other charge or encumbrance (other
than pursuant hereto) upon or with respect to any of its
properties; and
9
<PAGE> 23
(ii) The Agreement is, and each Transaction when entered into
under the Agreement will be, a legal, valid and binding
obligation of such party enforceable against it in
accordance with the terms of the Agreement, subject to
applicable bankruptcy, insolvency, and similar laws
affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity
(regardless of whether enforcement is sought in a
proceeding in equity or at law).
(a) Seller represents and warrants as of the date of the Agreement
and as of the Purchase Date of each Transaction, as follows:
(i) All information provided by Seller to Buyer or the
Custodian concerning the Mortgage Loans is true and
correct in all material respects;
(ii) the servicing agreement attached hereto as Exhibit C is a
true, accurate and complete copy of the servicing
agreement which agreement is in full force and effect as
of the date of this Agreement and which has not been
waived, amended or modified in any respect, other than as
disclosed to Buyer, nor have any notices of termination
been given thereunder.
(iii) No Mortgage Loan shall have any scheduled payments of
Mortgage Loan Income in default or delinquent by more than
the Permitted Delinquency Period;
(iv) Seller shall cause each Mortgage Loan to be serviced in
accordance with standards maintained by the servicers of
mortgage loans that are generally accepted in the mortgage
servicing industry as reasonable and prudent;
(v) Seller, immediately prior to the purchase by Buyer under
the Agreement, is the legal and beneficial owner of the
Mortgage Loans free and clear of any lien, security
interest, option or encumbrance;
(vi) Buyer has a perfected first-priority security interest in
each Mortgage Loan subject to no prior lien, charge,
encumbrance or rights of others, and no further action,
other than the possession by the Custodian of certain
documents relating thereto pursuant to the Custody
Agreement, including any filing or recordation of any
document, is required in order to establish and perfect
the liens on and security interest in the Mortgage Loans
in favor of Buyer against any third party in any
jurisdiction;
(vii) No Mortgage Loan was subject to any lien or encumbrance at
the time of the purchase thereof by Buyer under the
Agreement;
10
<PAGE> 24
(viii) Notwithstanding any other provision of the Agreement, no
Eligible Asset subject to any Transaction hereunder shall
have been subject to the Agreement or to the Custody
Agreement for more than (1) one hundred and fifty (150)
days in aggregate in the case of Dry Mortgage Loans that
are the subject of a Takeout Commitment, (2) ninety (90)
days in the case of all other Dry Mortgage Loans and (3)
five (5) Business Days in the case of Wet Mortgage Loans
that have not become Dry Mortgage Loans;
(ix) The aggregate outstanding Repurchase Price for Mortgage
Loans subject to the Agreement at any time does not exceed
(1) the lesser of $10,000,000 and 10% of the aggregate
outstanding Repurchase Price for all Mortgage Loans in the
case of Mortgage Loans with respect to which the Custodian
has not received all Required Loan Documents or for which
the Custodian has advised Buyer of an irregularity with
respect to any Required Loan Documents; provided that Wet
Mortgage Loans shall not be considered in the calculations
of this clause (1) until such time as Seller is required
to deliver Required Loan Documents to the Custodian, (2)
the lesser of $10,000,000 and 10% of the aggregate
outstanding Repurchase Price of all Mortgage Loans in the
case of Mortgage Loans having a CLTV in excess of 90% and
(3) the lesser of $15,000,000 and 15% of the aggregate
facility amount for all Wet Mortgage Loans;
(x) The aggregate outstanding Repurchase Price for Mortgage
Loans that are not first lien residential mortgage loans
does not exceed an amount equal to 20% of the aggregate
outstanding Repurchase Price for all Mortgage Loans
subject to the Agreement;
(xi) The CLTV for each Mortgage Loan that is not a first lien
residential mortgage loan is not in excess of 90%;
(xii) Each Eligible Asset has been originated in compliance with
the Seller's Underwriting Guidelines and all applicable
laws;
(xiii) Each Wet Mortgage Loan has been funded by a Closing Agent;
(xiv) Each Wet Mortgage Loan is a first lien residential
mortgage loan;
(xv) No Eligible Asset has a CLTV in excess of 125%;
(xvi) Each Mortgage Loan conforms to the representations and
warranties set forth in Exhibit E hereto.
(a) Seller covenants with Buyer as follows:
11
<PAGE> 25
(i) Seller shall be at the time it delivers any Mortgage Loans
to the Custodian or Buyer for any Transaction, and shall
continue to be, through the Purchase Date relating to each
such Transaction, the legal and beneficial owner of such
Mortgage Loans free and clear of any lien, security
interest, option or encumbrance except for the security
interest created by the Agreement;
(ii) All data and other information relating to the Mortgage
Loans provided at any time by or on behalf of Seller to
the Custodian, whether in writing, by electronic
transmission or on computer tape or diskette or otherwise,
will be true and correct as reported by Servicer;
(iii) On an ongoing basis, at Seller's expense without request
of Buyer, Seller shall provide Buyer with:
(1) Seller's year-end balance sheet and income
statement and cash flow statement audited by a firm
of independent accountants acceptable to Buyer in
its sole discretion, within ninety (90) days after
the end of Seller's fiscal year;
(2) Seller's quarterly balance sheet and income
statement and cash flow statement within forty-five
(45) days after the end of the first three fiscal
quarters in each of Seller's fiscal years; and
(3) Seller's monthly balance sheet and income statement
within thirty (30) days after the end of the first
two months in each of Seller's fiscal quarters;
(i) Seller shall promptly notify Buyer of (i) the acceleration
of any debt obligation or the termination of any credit
facility of Seller where such debt obligation or credit
facility is for an amount equal to or greater than
$1,000,000; (ii) the amount and maturity of any such debt
assumed after the date hereof; (iii) any adverse
developments with respect to pending or future litigation
involving Seller which, if adversely determined against
Seller either would result in a judgment equal to or
greater than $5,000,000 or would materially and adversely
affect the Purchased Securities; and (iv) any other
developments which might materially and adversely affect
the financial condition of Seller;
(ii) Seller shall experience losses or changes in its financial
condition (exclusive of amounts withdrawn for payment of
taxes due and payable by the shareholders of Seller) such
that at the end of each of two consecutive calendar
quarters its Book Net Worth is less than or equal to 80%
of its Book Net Worth at the commencement of each such
calendar quarter, respectively;
12
<PAGE> 26
(iii) Seller's Book Net Worth shall not be less than $35,000,000
at any time from and including the date of the Agreement;
(iv) The ratio of Seller's outstanding indebtedness to all
lenders (including, without limitation, all indebtedness
incurred under any loan agreement, warehouse finance
agreement and repurchase agreement but excluding any
indebtedness to Buyer or any of its Affiliates) to its
Book Net Worth shall not at any time be more than 10 to 1;
(v) Seller shall promptly notify Buyer if Seller's
Underwriting Guidelines are amended or supplemented in any
way;
(vi) Seller shall deliver or cause to be delivered to the
Custodian the Required Loan Documents relating to each Wet
Mortgage Loan within five (5) Business Days of the payment
of the Purchase Price therefor;
(vii) There shall exist, with respect to each Wet Mortgage Loan,
a policy of title insurance (or title commitment or title
binder to issue same) effective as of the date of
origination of such Wet Mortgage Loan, the original of
which policy of title insurance (or title commitment or
title binder to issue same) shall be delivered to the
Custodian in accordance with the terms of the Agreement
and the Custody Agreement;
(viii) Seller shall provide Buyer with a monthly Covenant
Compliance Certificate within thirty (30) days of the end
of each calendar month;
(ix) Seller shall provide Buyer, promptly upon Buyer's request,
with copies of any Disbursement Instructions requested by
Buyer; and
(x) Seller shall distribute to the related Closing Agent any
funds provided to it in connection with the origination of
a Wet Mortgage Loan within one (1) Business Day of its
receipt of such funds.
1. EVENTS OF DEFAULT.
(a) The term "Event of Default" shall, in addition to the definition set
forth in the Master Repurchase Agreement, include the following
events:
(i) Any governmental or self-regulatory authority shall take
possession of Seller, or any Affiliate thereof, or all or
substantially all its property or appoint any such
trustee, receiver, conservator or other official, or such
party shall take any action to authorize any of the
actions set forth in this clause (i);
13
<PAGE> 27
(ii) Buyer or Seller shall have reasonably determined that the
other party is or will be unable to meet its commitments
under this Agreement, shall have notified such other party
of such determination and such other party shall not have
responded with appropriate information to the contrary to
the satisfaction of the notifying party within one (1)
Business Day;
(iii) In the judgment of Buyer a material adverse change shall
have occurred in the business, operations, properties,
prospects or financial condition of Seller;
(iv) The Agreement shall for any reason cease to create a
valid, perfected, first priority security interest in any
of the Purchased Securities;
(v) Seller shall be in default with respect to any normal and
customary covenants under any material contract or
agreement to which it is a party, such material contract
or agreement relating to obligations equal to or greater
than $500,000, or where any obligations subject to such
acceleration at any time equal or exceed $500,000 which
default permits acceleration of the obligations of Seller
under such contract or agreement by any other party
thereto;
(vi) Seller shall merge or consolidate into any entity unless
the surviving or resulting entity shall be acceptable to
Buyer, in its sole discretion, and such entity expressly
assumes by written agreement, executed and delivered to
Buyer in form and substance satisfactory to Buyer, the
performance of all Seller's duties and obligations
hereunder and under the Custody Agreement;
(vii) Buyer shall request assurances as to the financial
well-being of Seller and such assurances shall not have
been provided in writing within forty-eight (48) hours of
receipt of such request; provided, that such request shall
be in writing, and if transmitted by facsimile such
request shall be deemed to be received when transmitted so
long as the transmitting machine has provided an
electronic confirmation of such transmission.
(viii) A final non-appealable judgment by any competent court in
the United States of America for the payment of money in
an amount of at least $500,000 is rendered against the
defaulting party, and the same remains undischarged or
unpaid for a period of thirty (30) days during which
execution of such judgment is not effectively stayed;
provided, that such amount shall first be reduced by the
expected proceeds of any applicable insurance policy;
provided, further, that Seller shall have provided Buyer
with written evidence that the Seller is entitled to such
14
<PAGE> 28
proceeds under a current insurance policy, that a claim
has been filed under the policy, the related insurance
carrier has approved or is reviewing the related claim and
that the claim has not been rejected.
(ix) Any representation or warranty made by Seller in the
Agreement or the Custody Agreement shall have been
incorrect or untrue when made or repeated or when deemed
to have been made or repeated and such breach is
continuing; provided, however, that with respect to any
representation or warranty made by Seller with respect to
a Mortgage Loan, such circumstance shall not constitute an
Event of Default if after determining the aggregate Market
Value of all Mortgage Loans subject to Transactions
without consideration of the Mortgage Loan with respect to
which such circumstances have occurred, no other Event of
Default shall have occurred and be continuing;
(x) Seller shall breach any covenant in the Agreement and such
breach is continuing; provided, that with respect to the
covenants set forth in Sections 9(c)(iii) and (xii),
Seller shall have five (5) days in which to cure such
breach;
(xi) A firm of independent accountants shall have failed to
issue an opinion or shall have issued an opinion qualified
adversely in any material respect in connection with the
most recent audited financial statements of Seller;
(xii) Seller or any of Seller's Affiliates shall be in default
with respect to any contract or agreement with Buyer or
any of Buyer's Affiliates.
(a) In addition to the other remedies available to Buyer or Seller
upon the occurrence and during the continuance of an Event of
Default by a defaulting party, Buyer shall have the following
additional remedies upon the occurrence and during the
continuance of an Event of Default by Seller:
(i) All rights of Seller to receive payments on the Mortgage
Loans which it would otherwise be authorized to receive
pursuant to Paragraph 5 of the Master Repurchase Agreement
as modified by Section 4 of these Supplemental Terms shall
cease, and all rights to such payments shall thereupon
become vested in Buyer, which shall thereupon have the
sole right to receive such payments and apply them to the
amounts owed by Seller pursuant to the Agreement.
(ii) All payments that are received by Seller contrary to the
provisions of the preceding clause (i) shall be received
in trust for the benefit of Buyer, shall be segregated
from other funds of Seller and shall be promptly paid to
Buyer.
15
<PAGE> 29
(iii) Any funds paid by Buyer to Seller in respect of Wet
Mortgage Loans that have not been distributed to a Closing
Agent shall be promptly repaid to Buyer.
(iv) Buyer may unilaterally instruct the Servicer to direct all
payments of Mortgage Loan Income directly to Buyer.
(v) Buyer shall be entitled to the right of set off with
respect to any amounts owed by Buyer or any Affiliate of
Buyer to Seller or any Affiliate of Seller under any
contract, margin account or other arrangement.
(a) Any sale of Purchased Securities under Paragraph 11 of the Master
Repurchase Agreement as modified by these Supplemental Terms
shall be conducted in a commercially reasonable manner.
(b) Expenses incurred in connection with an Event of Default shall
include without limitation those reasonable costs and expenses
incurred by the nondefaulting party as a result of the early
termination of any repurchase agreement or reverse repurchase
agreement entered into by the nondefaulting party in connection
with the Transaction then in default.
(c) Any provision of the Agreement to the contrary notwithstanding,
no breach of a representation, warranty or covenant with respect
to any Mortgage Loan shall be an Event of Default if, after
determining the Market Value of the Mortgage Loans without taking
into account the Mortgage Loan with respect to which such breach
has occurred, no other Event of Default shall have occurred and
be continuing.
1. UNILATERAL TERMINATION BY BUYER.
(a) At the option of Buyer, exercised by written notice to Seller,
the Repurchase Date for some or all of the Transactions under the
Agreement shall be deemed to immediately occur in the event that
the senior debt obligations or short-term debt obligations of
Merrill Lynch & Co., Inc. shall be rated below the four highest
generic grades (without regard to any pluses or minuses
reflecting gradations within such generic grades) by any
nationally-recognized statistical rating organization.
(b) The event specified in subparagraph (a) above which may, at the
option of Buyer, cause an acceleration of the Repurchase Date for
a Transaction shall be in addition to any other rights of Buyer
to cause such an acceleration under the Agreement.
16
<PAGE> 30
1. FINANCIAL STATEMENTS.
(a) As of the date hereof, Seller shall provide Buyer with its
audited year-end financial statements and its most recent
available interim financial statement. Seller shall provide Buyer
with Seller's year-end balance sheet, income statement, and cash
flow statement, audited by a firm of independent accountants
acceptable to Buyer in its sole discretion, within ninety (90)
days after the end of Seller's fiscal year, Seller's quarterly
balance sheet, income statement and cash flow statement within
forty-five (45) days after the end of the first three fiscal
Quarters in each of Seller's fiscal years and Seller's monthly
balance sheet, income statement within thirty (30) days after the
end of the first two months in each of Seller's fiscal quarters.
(b) Seller shall provide Buyer, at the expense of Seller when
requested by Buyer, with all periodic unaudited balance sheets
and income statements from time to time as soon after the
preparation thereof as practicable.
(c) Each delivery of Purchased Securities by Seller to Buyer
hereunder will constitute a representation by Seller that there
has been no material adverse change in Seller's financial
condition not disclosed to Buyer since the date of Seller's most
recent unaudited balance sheet or income statement delivered to
Buyer. Seller shall provide Buyer, from time to time at Seller's
expense, with such information concerning Seller of a financial
or operational nature as Buyer may reasonably request promptly
upon receipt of such request.
1. PRICE DIFFERENTIAL; REPURCHASE PRICE.
(a) The Price Differential shall be payable in arrears with respect
to each Transaction, together with the Purchase Price therefor,
on the termination date for the related Transaction or as may be
otherwise mutually agreed upon by the parties and as specified in
the related Confirmation.
(b) All calculations of Price Differential shall be made on the basis
of a 360-day year and the actual number of days elapsed.
(c) Payment of the Repurchase Price (including the Price
Differential) shall be made by wire transfer in immediately
available funds or in such other manner as may be mutually agreed
upon by Buyer and Seller in writing. Amounts received by Buyer
after 3:00 p.m., New York City time, on any Business Day shall be
deemed to have been paid by Seller and received by Buyer on the
next succeeding Business Day.
1. MAXIMUM TRANSACTION AMOUNT.
(a) The aggregate outstanding Repurchase Price for the Purchased
Securities that are Mortgage Loans shall not at any time exceed
$100,000,000.
17
<PAGE> 31
(b) The aggregate outstanding Repurchase Price for Purchased
Securities that are C Quality Mortgage Loans or D Quality
Mortgage Loans shall not at any time exceed 20% of the aggregate
outstanding Repurchase Price for all Purchased Securities under
the Agreement.
1. TERMINATION. Notwithstanding any provisions of Paragraph 15 of the
Master Repurchase Agreement to the contrary, the Agreement and all
Transactions outstanding hereunder shall terminate automatically without
any requirement for notice on the date occurring on the earlier of (i)
eleven months and twenty-nine days after the date of the Agreement and
(ii) the written agreement of Seller and Buyer; provided, however, that
notwithstanding the foregoing, the Agreement shall continue in full
force and effect until any outstanding Repurchase Price has been paid in
full. Upon termination of the Agreement and the payment of the
Repurchase Price with respect to all Transactions, Buyer shall release
its lien and security interest under the Agreement and assign, transfer
and deliver, against receipt, any remaining Purchased Securities and
money received in respect thereof to or on the order of Seller. Upon the
request of Seller, Buyer will then execute termination statements and
such other documents as Seller may reasonably request as are necessary
to make clear upon the public record the termination of the lien and
security interests created by the Agreement with respect to the
Purchased Securities.
2. ADDITIONAL INFORMATION; CONFIDENTIALITY.
(a) At any reasonable time, Seller shall permit Buyer, its agents or
attorneys, to inspect and copy any and all documents and data in
their possession pertaining to each Mortgage Loan that is the
subject of such Transaction. Such inspection shall occur upon the
request of Buyer at a mutually agreeable location during regular
business hours and on a date not more than two (2) Business Days
after the date of such request.
(b) Seller agrees to provide Buyer from time to time with such
information concerning Seller of a financial or operational
nature as Buyer may reasonably request.
(c) Each of the parties acknowledges that the Agreement and the
Custody Agreement are confidential in nature and each such party
agrees that, unless otherwise directed by a court or regulatory
entity of competent jurisdiction or as may be required by federal
or state law (which determination as to federal or state law
shall be based upon written advice of counsel), it shall limit
the distribution of such documents to its officers, employees,
attorneys, accountants and agents as required in order to conduct
its business with the other parties hereto. This subparagraph (c)
shall not apply to information which has entered the public
domain through means other than a breach of the foregoing
covenant by the party seeking to distribute such documents or
which the other party has given written permission to disclose.
18
<PAGE> 32
1. OPINIONS OF COUNSEL. Seller shall, within thirty (30) days of the date
of this Agreement and, upon the request of Buyer, on the date of any
subsequent Transaction, cause to be delivered to Buyer, with reliance
thereon permitted as to any person or entity that purchases the Eligible
Assets from Buyer in a repurchase transaction, a favorable opinion of
Seller's counsel with respect to the matters set forth in Exhibit D
hereto, in form and substance reasonably acceptable to Buyer.
2. FURTHER ASSURANCES. Seller shall promptly provide such further
assurances or agreements as Buyer may request in order to effect the
purposes of the Agreement.
3. BUYER AS ATTORNEY-IN-FACT. Upon the occurrence and during the
continuation of an Event of Default, Buyer is hereby appointed the
attorney-in-fact of Seller for the purpose of carrying out the
provisions of the Agreement and taking any action and executing any
instruments that Buyer may deem necessary or advisable to accomplish the
purposes hereof, which appointment as attorney-in-fact is irrevocable
and coupled with an interest. Without limiting the generality of the
foregoing, after an Event of Default has occurred and is continuing,
Buyer shall have the right and power to (i) take any action Buyer deems
prudent to direct the receipt of payments on any Mortgage Loan from the
Servicer thereof to Buyer or its designee, including, without
limitation, the sending of any letter which irrevocably instructs such
Servicer to make all payments directly to Buyer or its designee, and
(ii) receive, endorse and collect all checks made payable to the order
of Seller representing any payment on account of the principal of or
interest on any of the Purchased Securities and to give full discharge
for the same.
4. APPOINTMENT OF AGENT. MLCC hereby appoints MLMCI as its agent for
purposes of reviewing and executing Confirmation/Funding Requests,
determining Market Value, exercising any termination option provided for
in Paragraph 15 of these Supplemental Terms, exercising MLCC's rights
under any margin maintenance provision of the Agreement, exercising
MLCC's rights under the default provisions of the Agreement and such
other purposes as MLCC may direct. The appointment of such agent shall
not relieve MLCC of its obligations as Buyer hereunder.
5. SERVICING ARRANGEMENTS.
(a) The parties hereto agree and acknowledge that, notwithstanding
the purchase and sale of the Purchased Securities contemplated
hereby, Seller shall cause the Purchased Securities to continue
to be serviced for the benefit of Buyer and, if Buyer shall
exercise its rights to sell the Purchased Securities pursuant to
this Agreement prior to the related Repurchase Date, Buyer's
assigns; provided, however, that, the obligation of Seller to
service or cause to be serviced the Purchased Securities for the
benefit of Buyer as aforesaid shall cease upon the payment to
Buyer of the Repurchase Price therefor.
(b) Seller shall service or caused to be serviced the Purchased
Securities to be serviced in accordance with the servicing
standards for similar assets generally
19
<PAGE> 33
employed by prudent servicers in the mortgage loan industry.
(c) Buyer may, in its sole discretion if an Event of Default shall
have occurred and be continuing, without payment of any
termination fee or any other amount to Seller, (i) sell its right
to the Purchased Securities on a servicing released basis or (ii)
terminate the Servicer with or without cause.
1. CROSS-COLLATERALIZATION; RIGHT OF SET-OFF. Buyer may, in its sole
discretion upon the occurrence and during the continuation of an Event
of Default hereunder, proceed against any assets of Seller held by Buyer
or any Affiliate under any agreement and shall have a right of set-off
against any amounts owed by Buyer or any Affiliate to Seller under any
agreement. In addition, the parties agree that Buyer may, in its sole
discretion upon the occurrence and during the continuation of an event
of default under any other agreement to which Seller and Buyer or any of
its Affiliates are parties, proceed against any assets held by Buyer
hereunder and shall have a right of set-off against any amounts owed by
Buyer to Seller hereunder.
2. EXPENSES. Seller shall pay its own expenses and all reasonable
out-of-pocket costs and expenses: (1) of Buyer incident to the
preparation and negotiation of the Agreement, the Custodial Agreement,
any documents relating thereto, any amendments or waivers thereto, and
the protection of the rights of Buyer thereunder, (including fees and
disbursements of counsel up to a maximum amount of $25,000), (2) of
Buyer incident to Buyer's due diligence review of the Mortgage Loans and
the books and records of Seller relating thereto, up to a maximum amount
of $75,000, and (3) of Buyer incident to the enforcement of payment of
amounts due under the Agreement or the Custodial Agreement, whether by
judicial proceedings or otherwise, including, without limitation, in
connection with bankruptcy, insolvency, liquidation, reorganization,
moratorium or other similar proceedings involving Seller.
Notwithstanding any provision hereof to the contrary, the obligations of
Seller under this Paragraph 23 shall be effective and enforceable
whether or not any Transaction remains outstanding and shall survive
payment of all other obligations owed by Seller to Buyer.
3. COUNTERPARTS. The Agreement may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an
original, and such counterparts shall constitute but one and the same
instrument.
4. BINDING TERMS. All of the covenants, stipulations, promises and
agreements in the Agreement shall bind the successors and assigns of the
parties hereto, whether expressed or not.
5. NOTICES AND OTHER COMMUNICATIONS. Any provision of Paragraph 13 of the
Master Repurchase Agreement to the contrary notwithstanding, any notice
required or permitted by the Agreement shall be in writing (including
telegraphic, facsimile or telex communication) and shall be effective
and deemed delivered only when received by the party to which it is
sent; provided, however, that a facsimile transmission
shall be deemed
20
<PAGE> 34
to be received when transmitted so long as the transmitting machine has
provided an electronic confirmation of such transmission. Any such
notice shall be sent to a party at the address or facsimile transmission
number set forth in Annex II attached hereto.
6. INCORPORATION OF TERMS. The Master Repurchase Agreement as supplemented
hereby shall be read, taken and construed as one and the same
instrument.
21
<PAGE> 35
EXHIBIT A
CONFIRMATION/FUNDING REQUEST
<TABLE>
<CAPTION>
<S> <C>
TO: Long Beach Mortgage Company FROM: Merrill Lynch Mortgage Capital Inc.
1100 Town and Country Road, Ste 1600 101 Hudson Street, 12th Floor
Orange, California 92868 Jersey City, NJ 07302
Attention: Terrin Enssle Attention: Michael Fiorino
</TABLE>
Merrill Lynch Mortgage Capital Inc. ("Buyer") is pleased to confirm your sale
and our purchase of the Mortgage Loans listed on Attachment I hereto pursuant to
the Master Repurchase Agreement (including the supplemental terms set forth in
Annex I thereto), dated as of September 23, 1998 (the "Master Repurchase
Agreement") among Buyer and Long Beach Financial Corporation under the following
terms and conditions:
ORIG PRIN AMT OF MTG LOANS:
----- ----- ----- -----
REM PRIN AMT OF MTG LOANS:
----- ----- ----- -----
PURCHASE DATE:
----- ----- ----- -----
REPURCHASE DATE:
----- ----- ----- -----
PURCHASE PRICE:
----- ----- ----- -----
PRICING RATE:
----- ----- ----- -----
PRICE DIFFERENTIAL DUE:
----- ----- ----- -----
BUYER'S MARGIN AMOUNT:
----- ----- ----- -----
SELLER'S MARGIN AMOUNT:
----- ----- ----- -----
The Master Repurchase Agreement is incorporated by reference into this
Confirmation/Funding Request and made a part hereof as if it were fully set
forth herein. All capitalized terms used herein but not otherwise defined shall
have the meanings specified in the Master Repurchase Agreement.
LONG BEACH MORTGAGE COMPANY MERRILL LYNCH MORTGAGE
CAPITAL INC.
BY: BY:
--------------------------- -------------------------
NAME: NAME
--------------------------- -------------------------
TITLE: TITLE:
--------------------------- -------------------------
A-1
<PAGE> 36
ATTACHMENT 1
TO EXHIBIT A
CONFIRMATION/FUNDING REQUEST FOR MORTGAGE LOANS
Request No. ___
Date: _________
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investor Product Wire Loan Borrower Loan Purchase Market Note No. Days Maturity Wet/
Type Date Number Last Amount Price Value Rate Delinquent Date Dry
-------- ---- ------ --- ------ ------- ------ ---- ---------- ------- ---
</TABLE>
TOTALS:
Long Beach Financial Corporation
By: ______________________________
Title: ______________________________
Date: ______________________________ Amount to be
funded by Buyer:
$________________
- -------------------------------------------------------------------------------
** Long Beach Mortgage Company hereby represents that as of the related
Purchase Date no warehouse lien or other lien or encumbrance exists with
respect to the above-referenced Mortgage Loans.
A-1-1
<PAGE> 37
EXHIBIT B
LIST OF CLOSING AGENTS
B-1
<PAGE> 38
EXHIBIT C
SERVICING AGREEMENT
C-1
<PAGE> 39
EXHIBIT D
OPINION OF COUNSEL TO SELLER
1. Seller is a duly organized and validly existing corporation in good
standing under the laws of the State of Delaware and has all power and
authority (corporate and other) to enter into and perform its
obligations under the Agreement. Seller is duly qualified to do business
and is in good standing in each jurisdiction in which the character of
the business transacted by it requires such qualification and in which
the failure so to qualify would have a material adverse effect on the
business, properties, prospects, assets or condition (financial or
other) of Seller and its subsidiaries, considered as a whole.
2. The Agreement has been duly authorized, executed and delivered by
Seller.
3. The consummation of any of the transactions contemplated by the
Agreement will not conflict with, result in a breach of, or constitute a
default under the charter or bylaws of Seller or the terms of any
indenture or other agreement or instrument known to us to which Seller
is party or bound, or any order known to such counsel to be applicable
to Seller or any regulations applicable to Seller, of any state or
federal court, regulatory body, administrative agency, governmental body
or arbitrator having jurisdiction over Seller.
4. There is no pending or threatened action, suit or proceeding before any
court or governmental agency, authority or body or any arbitrator
involving Seller or relating to the transaction contemplated by the
Agreement which, if adversely determined, would have a material adverse
effect on Buyer.
5. Each note relating to a Mortgage Loan will have been endorsed in a
manner which satisfies any requirement of endorsement in order to
transfer all right, title and interest in and to that Mortgage Loan from
Seller to Buyer. Each assignment of Mortgage related to each Mortgage
Loan is in recordable form and is sufficient under applicable law to
validly and effectively transfer all right, title and interest of Seller
to Buyer. The Agreement together with (a) the delivery of such related
notes to the Custodian; (b) the endorsement of such Notes in blank; and
(c) the delivery of the assignments of Mortgages related to the Mortgage
Loans to the Custodian in recordable form assigning such Mortgages in
blank, creates a valid, perfected security interest in such Mortgage
Loans in favor of Custodian for the benefit of Buyer; such security
interest will have the same priority and will be subject to the same
security interests and liens as apply to such Mortgage Loans in the
hands of Seller.
6. The Agreement constitutes a valid and legally binding obligation of
Seller enforceable against Seller in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights
generally and to general equity principles.
D-1
<PAGE> 40
7. No consent, approval, authorization or order of any state or federal
court or government agency or body is required to be obtained by Seller
for the consummation of the transactions contemplated by the Agreement.
8. The consummation of any of the transactions contemplated by the
Agreement will not conflict with, result in a breach of, or constitute a
default under any regulations applicable to Seller, of any state or
federal court, regulatory body, administrative agency, governmental body
or arbitrator having jurisdiction over Seller.
D-2
<PAGE> 41
EXHIBIT E
REPRESENTATIONS AND WARRANTIES
Part I. Eligible Asset
As to each Eligible Asset on a Purchase Date (and the related Mortgage,
mortgage Note, assignment of Mortgage and mortgaged property), Seller shall be
deemed to make the following representations and warranties to Buyer as of such
date and as of each date Market Value is determined. With respect to any
representations and warranties made to the best of Seller's knowledge, in the
event that it is discovered that the circumstances with respect to the related
Mortgage Loan are not accurately reflected in such representation and warranty
notwithstanding the knowledge or lack of knowledge of Seller, then,
notwithstanding that such representation and warranty is made to the best of
Seller's knowledge, such Mortgage Loan shall be assigned a Collateral Value of
zero.
1. Seller has good title to and is the sole owner and holder of the
Mortgage Loan.
2. Immediately prior to the pledge and grant of security interest to
Buyer, the Note and the Mortgage Loan were not subject to an assignment or
pledge, and Seller has full right and authority to pledge and assign the
Mortgage Loan to Buyer.
3. Seller is transferring such Mortgage Loan to Buyer free and clear of
any and all liens, pledges, charges or security interests of any nature
encumbering the Mortgage Loan.
4. The information set forth on the List of Eligible Assets is true and
correct in all material respects as of the date of the origination of the
Mortgage Loan.
5. Each Mortgage Loan has been originated and serviced in compliance
with all applicable federal, state and local laws and regulations and the terms
of the related Note and Mortgage.
6. The related Note and Mortgage are genuine and each is the legal,
valid and binding obligation of the maker thereof, enforceable in accordance
with its terms except as such enforcement may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
7. The related Mortgage is a valid and enforceable first lien or second
lien on the related mortgaged property, which mortgaged property, to the best of
Seller's knowledge, is free and clear of all encumbrances and liens (including
mechanics liens) having priority over the first lien of the Mortgage except for:
(i) liens for real estate taxes and assessments not yet due and payable; (ii)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of such Mortgage, such
exceptions appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected or considered in the lender's title
insurance policy delivered to the originator of the Mortgage Loan and
E-1
<PAGE> 42
referred to in the appraisal made in connection with the origination of the
related Mortgage Loan and (iii) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security intended to be provided by such Mortgage.
8. Any security agreement, chattel mortgage or equivalent document
related to such Mortgage Loan establishes and creates a valid and enforceable
lien on the property described herein.
9. Seller has not advanced funds, or induced, solicited or knowingly
received any advance of funds by a party other than the Borrower, directly or
indirectly, for the payment of any amount required under the Mortgage Loan under
the Mortgage Loan.
10. Except as otherwise disclosed by written instruments included in the
related documents required to be held by the Custodian pursuant to the Custodial
Agreement with respect to such Mortgage Loan (the "Mortgage File"), Seller has
not impaired, waived, altered or modified the related Mortgage or Note in any
material respect, or satisfied, canceled, rescinded or subordinated such
Mortgage or Note in whole or in part or released all or any material portion of
the mortgaged property from the lien of the Mortgage, or executed any instrument
of release, cancellation, rescission or satisfaction of the Note or Mortgage.
11. The Mortgage has not been satisfied, canceled or subordinated, in
whole, or rescinded, and the mortgaged property has not been released from the
lien of the Mortgage, in whole or in part (except for a release that does not
materially impair the security of the Mortgage Loan or a release the effect of
which is reflected in the loan-to-value ratio for the Mortgage Loan as set forth
in the List of Eligible Assets, nor to the best of Seller's knowledge has any
instrument been executed that would effect any such release, cancellation,
subordination or rescission;
12. No condition exists which could give rise to any right of
rescission, set off, counterclaim, or defense including, without limitation, the
defense of usury, and no such right has been asserted.
13. To the best of Seller's knowledge, there is no proceeding pending
for the total or partial condemnation and no eminent domain proceedings pending
affecting any mortgaged property.
14. Each Mortgage Loan is covered by either (i) a mortgage title
insurance policy or other generally acceptable form of insurance policy
customary in the jurisdiction where the mortgaged property is located or (ii) if
generally acceptable in the jurisdiction where the mortgaged property is
located, an attorney's opinion of title given by an attorney licensed to
practice law in the jurisdiction where the mortgaged property is located. All of
Seller's rights under such policies, opinions or other instruments shall be
deemed to be transferred and assigned to Buyer upon transfer and pledge of the
Mortgage Loans hereunder. The title insurance policy has been issued by a title
insurer licensed to do business in the jurisdiction where the mortgaged property
is located, insuring the original lender, its successor and assigns, as to the
first or second priority lien, as applicable, of the Mortgage in the original
principal amount of the Mortgage
E-2
<PAGE> 43
Loan, subject to the exceptions contained in such policy. Seller is the sole
insured of such mortgagee title insurance policy, and such mortgagee title
insurance policy is in full force and effect and will be in force and effect
upon the consummation of the transactions contemplated by this Agreement. Seller
has not made and has no knowledge of any claims made as of the Purchase Date
under such mortgagee title insurance policy. Seller has no knowledge as to
whether or not any such claims may be made at any time in the future relating to
actions which predate the Purchase Date; and Seller shall notify Buyer if it
becomes aware of any such claim. Seller is not aware of any action by a prior
holder and Seller has not done, by act or omission, anything which could impair
the coverage or enforceability of such mortgagee title insurance policy or the
accuracy of such attorney's opinion of title.
15. Except for delinquent monthly payments, there exists no material
default, breach, violation or event of acceleration existing under the related
Mortgage or the related Note and no event which, with the passage of time or
with notice and the expiration of any grace or cure period, would constitute a
material default, breach, violation or event of acceleration. Seller has not
waived any such default, breach, violation or event of acceleration.
16. With respect to any Mortgage Loan which provides for an adjustable
interest rate, all rate adjustments made by Seller have been performed in
accordance with the terms of the related Note or subsequent modifications, if
any.
17. With respect to any Mortgage Loan for which Seller is holding escrow
funds, and to the best of Seller's knowledge with respect to all other Mortgage
Loans, as of the time of origination, there are no delinquent taxes, ground
rents, water charges, sewer rents, assessments, insurance premiums, leasehold
payments, including assessments payable in future installments or other
outstanding charges, affecting the related mortgaged property.
18. No foreclosure proceedings are pending against the related mortgaged
property, and to Seller's best knowledge, no material litigation or lawsuit
relating to the Mortgage Loan is pending and the Mortgage Loan is not subject to
any pending bankruptcy or insolvency proceeding.
19. The Mortgage Loan obligates the Borrower thereunder to maintain a
hazard insurance policy ("Hazard Insurance") in an amount at least equal to the
lesser of (i) the amount necessary to fully compensate for any damage or loss to
the improvements which are part of such mortgaged property on a replacement cost
basis and (ii) the outstanding principal balance of the Mortgage Loan, in either
case in an amount sufficient to avoid the application of any "co-insurance
provisions". If the mortgaged property is in an area identified in the Federal
Register by the Federal Emergency Management Agency ("FEMA") as having special
flood hazards, a flood insurance policy is in effect which met the requirements
of FEMA at the time such policy was issued. The Mortgage obligates the Borrower
to maintain the Hazard Insurance and, if applicable, flood insurance policy at
the Borrower's cost and expense, and on the Borrower's failure to do so,
authorizes the holder of the Mortgage to obtain and maintain such insurance at
the Borrower's cost and expense, and to seek reimbursement therefor from the
Borrower. The mortgaged property is covered by Hazard Insurance.
E-3
<PAGE> 44
20. The Note is not and has not been secured by any collateral except
the lien on the corresponding Mortgage and the security interest of any
applicable security agreement or chattel mortgage.
21. Subject to any applicable laws, the Mortgage contains an enforceable
provision for the acceleration of the payment of the unpaid principal balance of
the Mortgage Loan in the event that the mortgaged property is sold or
transferred without the prior written consent of the Mortgagee thereunder. The
Mortgage contains customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for the realization against
the mortgaged property of the benefits of the security provided thereby,
including (i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale or judicial foreclosure and (ii) otherwise by judicial
foreclosure. To the best of Seller's knowledge, since the date of origination of
the Mortgage Loan, the mortgaged property has not been subject to any bankruptcy
proceeding or foreclosure proceeding and the Borrower has not filed for
protection under applicable bankruptcy laws. There is no homestead or other
exemption available to the Borrower that would interfere with the right to sell
the mortgaged property at a trustee's sale or the right to foreclose the
Mortgage. In the event the Mortgage constitutes a deed of trust, a trustee, duly
qualified under applicable law to serve as such, has been properly designated
and currently so serves and is named in the Mortgage, and no fees or expenses
are or will become payable by Buyer to the trustee under the deed of trust,
except in connection with a trustee's sale after default by the related
Borrower. The Borrower has not notified Seller and Seller has no knowledge of
any relief requested or allowed to the Borrower under the Soldiers and Sailors
Civil Relief Act of 1940.
22. Except as set forth in the appraisal which forms part of the related
Mortgage File, the mortgaged property, normal wear and tear excepted, is
undamaged by waste, fire, earthquake or earth movement, windstorm, flood,
tornado or other casualty so as to affect materially and adversely the value of
the mortgaged property as security for the Mortgage Loan or the use for which
the premises were intended and Seller has no knowledge of any proceeding pending
for the total or partial condemnation of such Mortgage Property.
23. There was no fraud involved in the origination of the Mortgage Loan
by the mortgagee or, to Seller's knowledge, by the Borrower, any appraiser or
any other party involved in the origination of the Mortgage Loan.
24. Each Mortgage File contains an appraisal of the mortgaged property
indicating an appraised value equal to the appraised value identified for such
mortgaged property on the List of Eligible Assets, unless indicated in Seller's
Underwriting Guidelines. Each appraisal has been performed in accordance with
the provisions of the Financial Institutions Reform, Recovery and Enforcement
Act of 1989.
25. All parties which have had any interest in the Mortgage Loan,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) in compliance with any
and all applicable "doing business" and licensing requirements of the laws of
the state wherein the mortgaged property is located.
E-4
<PAGE> 45
26. No improvements on the related mortgaged property encroach on
adjoining properties (and in the case of a condominium unit, such improvements
are within the project with respect to that unit), and no improvements on
adjoining properties encroach upon the mortgaged property unless there exists in
the Mortgage File a title policy with endorsements which insure against losses
sustained by the insured as a result of such encroachments.
27. Principal payments on the Mortgage Loan commenced no more than sixty
days after the proceeds of the Mortgage Loan were disbursed and the Note is
payable on the first day of each month.
28. The Mortgage Loan bears interest at the mortgage interest rate as
disclosed in the electronic tape relating to the Mortgage Loans forwarded by
Seller to Buyer and the Note does not permit negative amortization.
29. With respect to escrow deposits, if any, all such payments are in
the possession of, or under the control of, Seller and there exist no
deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made. No escrow deposits or escrow advances or
other charges or payments due Seller have been capitalized under any Mortgage or
the related Note.
30. No Mortgage Loan contains provisions pursuant to which monthly
payments are: (i) paid or partially paid with funds deposited in any separate
account established by Seller, the Borrower, or anyone on behalf of the
Borrower; (ii) paid by any source other than the Borrower or (iii) contains any
other similar provisions which may constitute a "buydown" provision. The
Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan
does not have a shared appreciation or other contingent interest feature.
31. To Seller's best knowledge, the mortgaged property is lawfully
occupied under applicable law.
32. Each Mortgage Loan has been underwritten in accordance with Seller's
Underwriting Guidelines and Policies (on the basis of its classification of an A
Quality Non-Conforming Mortgage Loan, A- Quality Non-Conforming Mortgage Loan, B
Quality Non-Conforming Mortgage Loan, B- Quality Non-Conforming Mortgage Loan, C
Quality Non-Conforming Mortgage Loan or D Quality Non-Conforming Mortgage Loan,
as applicable) in effect at the time the Mortgage Loan was originated or
purchased by Seller.
33. No law relating to servicing, collection or notification practices
and no law relating to origination practices, has been violated in connection
with any Mortgage Loan transferred to Buyer pursuant to this Agreement,
including, without limitation, usury, truth in lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure
laws. The Mortgage Loan has been serviced by Seller and any predecessor servicer
in accordance with the terms of the Note.
E-5
<PAGE> 46
34. No Mortgage Loan was made in connection with (a) the construction or
rehabilitation of a mortgaged property or (b) facilitating the trade-in or
exchange of a mortgaged property.
(A) Except for Mortgage Loans for which a portion of the proceeds
of the loan, such amount not exceeding $10,000, are held by the Seller
to cover the cost of repairs to the related Mortgaged Property, such
Mortgage Loans not to exceed 10% of all Mortgage Loans subject to
Transactions, by principal balance, the proceeds of the Mortgage Loan
have been fully disbursed to or for the account of the Borrower and
there is no obligation for the Mortgagee to advance additional funds
thereunder, and any and all requirements as to completion of any on-site
or off-site improvement and as to disbursements of any escrow funds
therefor have been complied with. All costs, fees and expenses incurred
in making or closing the Mortgage Loan and the recording of the Mortgage
have been paid, and the Borrower is not entitled to any refund of any
amounts paid or due to the Mortgagee pursuant to the Note or Mortgage.
1. To the best of Seller's knowledge, there are no mechanics' or similar
liens or claims that have been filed for work, labor or material (and no rights
are outstanding that under law could give rise to such lien) affecting the
related mortgaged property that are or may be liens prior to, or equal or
coordinate with, the lien of the related Mortgage.
2. As to each fixed rate Mortgage Loan, interest is calculated on the
Note on the basis of twelve 30 day months and a 360 day year, and, as to each
adjustable rate Mortgage Loan, interest is calculated on the Note on the basis
of the number of days in the related interest accrual period.
3. The mortgaged property consists of either (i) a single parcel of real
property or (ii) more than one parcel of real property (as determined for tax
purposes only) which parcels are contiguous and are subject to a single deed or
title, in each case with a detached single family residence erected thereon, or
a two- to four-family dwelling, or an individual condominium unit in a low-rise
or high-rise condominium project, or a manufactured dwelling attached to a
permanent foundation, or an individual unit in a planned unit development or a
townhouse. No residence or dwelling is a mobile home. No Mortgage Loan is
secured by a leasehold estate.
E-6
<PAGE> 47
ANNEX II
Names and Addresses for Communications Between Parties
MERRILL LYNCH MORTGAGE CAPITAL INC.
Timothy M. Loughlin, Jr.
Vice President
Merrill Lynch World Headquarters
World Financial Center
North Tower - 8th Floor
New York, New York 10281
Telephone: (212) 449-5939
Telecopy: (212) 449-6673
MERRILL LYNCH CREDIT CORPORATION
c/o Merrill Lynch Mortgage Capital Inc.
Timothy M. Loughlin, Jr.
Vice President
Merrill Lynch World Headquarters
World Financial Center
North Tower - 8th Floor
New York, New York 10281
Telephone: (212) 449-5939
Telecopy: (212) 449-6673
in each case with a copy to
Michael A. Blum
Director
Merrill Lynch World Headquarters
World Financial Center
North Tower - 8th Floor
New York, New York 10281
Telephone: (212) 449-8486
Telecopy: (212) 449-6673
and
Michael P. Peck, Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Telephone: (212) 839-5576
Telecopy: (212) 839-5599
II-1
<PAGE> 48
and
LONG BEACH MORTGAGE COMPANY
Terrin Enssle
1100 Town and Country Road
Suite 1600
Orange, California 92868
Telephone: (714) 541-5378
Telecopy: (714) 560-0508
II-1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 34,448
<SECURITIES> 32
<RECEIVABLES> 373,405
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,152
<DEPRECIATION> 1,791
<TOTAL-ASSETS> 454,413
<CURRENT-LIABILITIES> 0
<BONDS> 350,626
0
0
<COMMON> 25
<OTHER-SE> 90,657
<TOTAL-LIABILITY-AND-EQUITY> 454,413
<SALES> 0
<TOTAL-REVENUES> 104,799
<CGS> 0
<TOTAL-COSTS> 55,426
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,500
<INTEREST-EXPENSE> 10,538
<INCOME-PRETAX> 35,335
<INCOME-TAX> 14,260
<INCOME-CONTINUING> 21,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,075
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.84
</TABLE>
