<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1998
REGISTRATION NO. 333-39949
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
MPEL HOLDINGS CORP.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
6162
NEW YORK (PRIMARY STANDARD INDUSTRIAL 22-1842747
(STATE OR OTHER CLASSIFICATION NUMBER) (I.R.S. EMPLOYER
JURISDICTION OF 6851 JERICHO TURNPIKE IDENTIFICATION NUMBER)
INCORPORATION OR SUITE 246
ORGANIZATION) SYOSSET, NEW YORK 11791
(516) 364-2700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
STEVEN M. LATESSA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
6851 JERICHO TURNPIKE
SUITE 246
SYOSSET, NEW YORK 11791
(516) 364-2700
(516) 364-2876 (FAX)
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES TO:
NORMAN M. FRIEDLAND, ESQ.
RUSKIN, MOSCOU, EVANS
& FALTISCHEK, P.C.
170 OLD COUNTRY ROAD
MINEOLA, NEW YORK 11501
(516) 663-6600
(516) 663-6641 (FAX)
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
--------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF NUMBER OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE SHARES TO OFFERING PRICE PER AGGREGATE OFFERING PRICE REGISTRATION
REGISTERED BE REGISTERED SHARE (1) (2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................... 2,400,000(1) $5.00 $12,000,000 $3,540.00
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</TABLE>
<TABLE>
<S> <C>
Total Fee....................................................... $3,540.00(3)
</TABLE>
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(1) Includes 1,100,000 shares being sold for the account of Selling
Stockholders.
(2) Estimated solely for purposes of calculating the registration fee.
(3) On November 12, 1997, the Registrant filed its initial Registration
Statement (for a total of 1,265,000 shares) and paid a filing fee of
$2,116.69. An additional registration fee of $1,423.31 is being paid in
connection with the total of 1,100,000 new shares of Common Stock being
registered hereunder.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 17, 1998
MPEL HOLDINGS CORP.
A MINIMUM OF 800,000 SHARES OF COMMON STOCK AND A MAXIMUM OF
1,300,000 SHARES OF COMMON STOCK OFFERED BY THE COMPANY
----------
1,100,000 SHARES OF COMMON STOCK OFFERED BY SELLING STOCKHOLDERS
MPEL Holdings Corp. (the "Company") is hereby offering (the "Offering") a
minimum of 800,000 shares of its common stock, $.01 par value per share (the
"Common Stock") and a maximum of 1,300,000 shares of Common Stock at $5.00 per
share.
Certain stockholders of the Company (the "Selling Stockholders") also offer
hereby 1,100,000 shares of Common Stock at an offering price of $5.00 per
share. Such shares will be offered for sale by the Selling Stockholders
concurrently with the offering of Common Stock by the Company, subject to
minimum of shares being sold by the Company, and the Selling Stockholders may
be deemed to be underwriters under the federal securities laws. The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders. See "PRINCIPAL AND SELLING STOCKHOLDERS" and "PLAN OF
DISTRIBUTION."
Prior to the Offering, there has been a very limited public market for the
Common Stock, and there can be no assurance that any market will develop after
the closing of the Offering or that, if developed, it will be sustained. The
offering price of the Common Stock was arbitrarily determined by the Company
and the Selling Stockholders and does not necessarily bear any direct
relationship to the Company's assets, earnings, book value or other generally
accepted criteria of value. It is intended that the offering price of the
Common Stock will be $5.00 per share. See "PLAN OF DISTRIBUTION" for
information relating to the determination of the offering price. Upon sale of
the minimum number of shares of Common Stock offered hereby, the Company
intends to submit an application to list the Common Stock eligible for
quotation on the Nasdaq SmallCap Market under the symbol "MPLS".
The Company proposes to offer the shares of Common Stock to the public on a
minimum/maximum, best efforts basis directly through its directors and
executive officers; however, the Company may engage one or more registered
brokers or dealers to assist in the sale of the securities offered hereby. All
of the proceeds received in connection with the sale of Common Stock by the
Company will be deposited and held in escrow until subscriptions for an
aggregate of at least 800,000 shares of Common Stock have been received. If
subscriptions for the purchase of at least 800,000 shares of Common Stock have
not been received on or before the first anniversary of the effective date of
this Prospectus, the offering of the Common Stock by the Company will be
terminated and all subscription payments held in escrow will be promptly
returned to investors. See "SUMMARY OF ESCROW AGREEMENT" and "PLAN OF
DISTRIBUTION."
----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION" ON
PAGE 17.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO SELLING
PRICE TO PUBLIC AND COMMISSIONS (1) COMPANY (2)(4) STOCKHOLDERS(3)
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<S> <C> <C> <C> <C>
Per Share (by Company)..... $5.00 $-- $5.00 $--
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Total Minimum by Company
(800,000 Shares).......... $4,000,000 $-- $4,000,000 $--
- -------------------------------------------------------------------------------------------------------
Total Maximum by Company
(1,300,000 Shares)........ $6,500,000 $-- $6,500,000 $ --
- -------------------------------------------------------------------------------------------------------
Per Share (by Selling
Stockholders).............. $5.00 $-- $ -- $5.00
- -------------------------------------------------------------------------------------------------------
Total (by Selling
Stockholders).............. $ -- $-- $ -- $5,500,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Although the Company intends to offer the Common Stock directly to the
public through its directors and executive officers, it may engage and pay
compensation at customary rates to registered brokers or dealers. See "PLAN
OF DISTRIBUTION."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) Before deducting estimated expenses of $ payable by the Selling
Stockholders.
(4) The Company will not receive any of the proceeds from the sale of the
shares of Common Stock by the Selling Stockholders.
The date of this Prospectus is March 17, 1998
<PAGE>
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated herein, the information in this
Prospectus does not give effect to up to 700,000 shares of Common Stock
reserved for issuance to employees upon exercise of options which may be
granted pursuant to the Company's 1995 Stock Option Plan (the "1995 Plan"),
270,000 of which have been granted to date or up to 888,888 shares of Common
Stock issuable pursuant to a warrant granted to FC Capital Corp., as described
in "Certain Transactions". No options have been or will be granted to officers
of the Company under the 1995 Plan. The information herein reflects the
consummation of the Merger (as hereafter defined). As used herein, the term
"Company" refers to MPEL Holdings Corp., a New York corporation, and its
wholly-owned subsidiary, Mortgage Plus Equity and Loan Corporation ("Mortgage
Plus"), a New York corporation.
This Prospectus contains certain forward-looking statements that involve
certain risks and uncertainties. The Company's actual results could differ
materially from those anticipated in such forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors."
THE COMPANY
The Company, through its wholly owned subsidiary, Mortgage Plus, is a full
service retail mortgage banking company providing a broad range of residential
mortgage products (including first mortgages, second mortgages and home equity
loans) to (i) prime, or "A" credit, borrowers who qualify for conventional
mortgages (including loans which conform to the standards of certain
institutional investors, such as Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC")), (ii) borrowers who are
classified as sub-prime, or "B/C" credit, borrowers, and (iii) borrowers who
qualify for mortgages insured by the Federal Housing Administration ("FHA") or
guaranteed by the Veterans Administration ("VA"). The Company is headquartered
in Long Island, New York and has a total of 15 retail branches (the "Branch
Network") in nine (9) states, including Arkansas (1), Connecticut (1), Florida
(1), Illinois (1), Missouri (3), New Jersey (1), New York (4), Ohio (1),
Pennsylvania (1), and the Commonwealth of Puerto Rico (1). The Company is also
a licensed mortgage banking company in seven (7) additional states.
From Mortgage Plus' inception in 1987 until mid-1994, Mortgage Plus operated
as a licensed mortgage broker, principally in New York. Since obtaining its
mortgage banking license in New York in 1994, Mortgage Plus, originated $43.3
million, $58.0 million, $108.2 million, and $133.5 million of mortgage loans
for the years ended December 31, 1994, 1995, 1996, and 1997, respectively. This
growth has been due primarily to Mortgage Plus' expansion into additional
geographic markets, Mortgage Plus' focus, since mid-1996, on mortgage products
for "B/C" credit-rated borrowers and a substantial increase in loans to FHA/VA
borrowers. Mortgage Plus' "B/C" and FHA/VA loan volume has grown steadily since
1995, with loans to "B/C" borrowers accounting for 39.5%, of Mortgage Plus'
total loan origination volume for the year ended December 31, 1997, compared to
7.4% for the year ended December 31, 1995, and loans to FHA/VA borrowers
accounting for 25.0% of Mortgage Plus' total loan origination volume for the
year ended December 31, 1997, compared to 9.2% for the year ended December 31,
1995. There can be no assurance that Mortgage Plus' historical rate of growth
will continue in future periods.
The Company's growth strategy, through Mortgage Plus, includes the following
elements, which are subject to risk factors, as set forth in "Risk Factors",
beginning on page 7 hereof:
. Increasing mortgage originations to sub-prime borrowers through
recruiting experienced loan officers, increasing telemarketing and
direct mail to target audiences;
. Expanding the Company's operations in its geographic markets through
developing strategic alliances with financial institutions and mortgage
bankers and brokers; and
3
<PAGE>
. Expanding the Company's geographic coverage for mortgage originations
generally, through additions to the Branch Network, through developing
strategic alliances with financial institutions, mortgage bankers and
brokers and possible acquisitions.
The Company is an active originator of prime, sub-prime and FHA/VA
residential mortgages in its markets to individual borrowers on a retail basis.
Loan officers within the Branch Network deal directly with mortgage customers
who are initially identified through telemarketing operations, advertising,
direct mail, promotional materials and educational seminars or who are referred
by local real estate agents, builders, accountants, financial planners,
attorneys and mortgage brokers.
The growth of Mortgage Plus' mortgage lending to "B/C" credit borrowers
reflects (i) Mortgage Plus' focus on such customers since mid-1996, (ii)
Mortgage Plus' prompt and responsive service to its customers, (iii) the
increased market demand for sub-prime mortgage products, (iv) the availability
to Mortgage Plus of capital for these mortgage banking products in the form of
warehouse lines of credit, and (v) the development, on an industry-wide basis,
of a large secondary market of institutional investors who compete to purchase
mortgages from Mortgage Plus and other mortgage originators. Most "B/C" credit
borrowers have impaired credit, although "B/C" credit borrowers also include
individuals whose credit histories are not impaired but are seeking to expedite
the mortgage process or persons, such as the self-employed, who have difficulty
verifying their income. The Company is seeking to make "B/C" credit-rated loans
an even greater percentage of its total loan originations since such loans,
have generated greater revenue to the Company than "A" credit-rated loans.
Furthermore, the Company believes that the demand for loans by "B/C" credit
borrowers is less sensitive to general levels of interest rates or home sales
and therefore less cyclical than demand for loans by "A" credit-rated
borrowers. Nevertheless, the Company's "B/C" mortgage lending activities are
subject to significant risks, including risks related to the competition from
an increasing number of lenders who are also seeking "B/C" credit borrowers
(see "Risk Factors--Competition"), and the risks associated with lending to
credit impaired borrowers (see "Risk Factors--Risks of Loan Delinquencies and
Defaults").
For the year ended December 31, 1997, Mortgage Plus revenues were $8.0
million compared to $6.0 million for the year ended December 31, 1996. Mortgage
Plus experienced a net loss of $76,702 for the year ended December 31, 1997 and
a net loss of $223,340 for the year ended December 31, 1996, respectively. For
the year ended December 31, 1996, Mortgage Plus revenues were $6.0 million,
compared to $3.0 million for the year ended December 31, 1995. Mortgage Plus
revenues are generated from the fees it charges borrowers on the origination of
mortgage loans, the premiums paid by institutional investors when they purchase
the loans from Mortgage Plus and interest earned during the period (generally
less than 30 days) the loans are held for sale to institutional investors.
There is no assurance that Mortgage Plus' historical rate of growth will
continue in future periods. Mortgage Plus does not obtain commitments from
Purchasers of loans prior to origination. Mortgage Plus does not sell mortgage
loans in "securitization" transactions, but rather sells loans either on an
individual "whole loan" basis or pooled in groups to financial institutions at
fixed prices, usually on a non-recourse basis for a cash premium. Mortgage Plus
sells its mortgages to institutional investors on a "servicing-released" basis,
i.e., the purchaser assumes the obligations of servicing the loan and thereby
avoids the administrative expenses of managing a servicing portfolio, and the
foreclosures, delinquencies and resale of residential real estate associated
with servicing of loans. Mortgage Plus is subject to loan delinquencies and
defaults in those cases where it is required to repurchase such loans due to a
breach of representation or warranty in connection with the "Whole Loan Sale".
See Risk of Loan Delinquencies and Defaults.
THE MERGER
On March 5, 1998, Mortgage Plus merged (the "Merger") with a wholly-owned
subsidiary of Computer Transceiver Systems, Inc. ("CTS"), a New York
corporation, in a transaction that resulted in (i) Mortgage Plus stockholders
receiving a total of 8,056,000 shares of CTS (representing 97% of all of the
issued and outstanding
4
<PAGE>
shares of CTS) and (ii) Mortgage Plus becoming a wholly-owned subsidiary of
CTS. Immediately following the Merger, the directors of CTS became Steven M.
Latessa, Cary Wolen and Jon Blasi, who remain directors of Mortgage Plus, and
CTS' name was changed to MPEL Holdings Corp. Prior to the Merger, CTS and its
wholly-owned subsidiary had no employees, engaged in no business activity and
had only nominal assets and liabilities. At the time of the Merger, the
[338,142] shares of CTS' Common Stock were owned by approximately 745 holders
(the "Pre-Merger Holders") of record, CTS' Common Stock was traded on the
Bulletin Board under the symbol CPTT, and the average bid/ask price for the
shares in 1997 and through the date of the Merger was $.01 to $.02 per share.
The principal executive office of the Company is located at 6851 Jericho
Turnpike, Suite 246, Syosset, New York 11791 and its telephone number is (516)
364-2700.
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider all of the information set forth in this Prospectus, and, in
particular, should evaluate the factors set forth in "Risk Factors", beginning
on page 7.
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company............... Minimum--800,000 shares
Maximum--1,300,000 shares
Common Stock Offered by the Selling Stockholders.. 1,100,000 shares
Common Stock Outstanding Prior to the Offering.... 8,394,142 shares
Common Stock to be Outstanding After the Offering. Minimum--9,194,142 shares.
Maximum--9,694,142 shares
Use of Proceeds................................... Funding mortgage loans,
expanding the Branch
Network; expanding mortgage
banking operations in its
geographic markets;
increasing telemarketing
and advertising; upgrading
information systems;
repaying indebtedness; and
general working capital
purposes. The Company will
not receive any proceeds
from the sale of Common
Stock by the Selling
Stockholders.
Proposed NASDAQ SmallCap Symbol................... MPLS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................ $ 5,970,675 $ 8,000,587
Net Loss........................................... (223,340) (76,702)
Net Loss per share................................. (.03) (.01)
Weighted Average Number of Shares Outstanding...... 7,002,732 8,025,315
OPERATING DATA:
Mortgage loans originated
Conventional....................................... $ 48,102,840 $ 47,428,400
FHA/VA............................................. 24,810,101 33,324,400
Sub-Prime.......................................... 35,290,148 52,748,500
------------ ------------
Total........................................... $108,203,089 $133,501,300
Number of Loans..................................... 1,073 1,585
Average Principal Balance........................... $ 100,841 $ 84,228
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------------------------
ACTUAL PROFORMA(1) AS ADJUSTED (2)
BALANCE SHEET DATA: ---------- ----------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................ $ 377,709 $ 377,709 $2,967,709
Total assets............................. 16,216,833 16,219,885 18,909,885
Borrowings............................... 12,996,941 12,996,941 12,118,941
Stockholders' equity..................... 444,470 447,522 4,047,522
</TABLE>
- --------
(1) Adjusted to give effect to the Merger with CTS' subsidiary on February 27,
1998, and there being 338,142 shares of CTS Common Stock outstanding
immediately prior to the Merger.
(2) Adjusted to give effect to the sale of 800,000 shares of Common Stock by
the Company at an assumed initial public offering price of $5 per share and
the application of the net proceeds therefrom. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the Common Stock of the Company involves a high degree of
risk and should not be purchased by persons who cannot afford the loss of
their entire investment. Prospective investors should carefully consider the
following risk factors, in addition to other information set forth in this
Prospectus, before purchasing the Common Stock offered hereby. This Prospectus
contains certain forward looking statements that are based on current
expectations, estimates and projections about the business of the Company and
the industry in which the Company operates, management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations on such words
and similar expressions are intended to identify such forward looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which are difficult to
predict. The Company's actual results could differ materially from those
expressed or forecasted in these forward-looking statements as a result of
certain factors, including those set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this Prospectus. Historical references to the Company herein mean
Mortgage Plus Equity and Loan Corporation prior to the Merger.
HISTORY OF OPERATING LOSSES; POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company experienced a net loss of $76,702 for the year ended December
31, 1997, which was reduced by income of $1,000,000.00 resulting from proceeds
to be received from an officer's life insurance policy. The Company
experienced net losses of $223,340 and $601,313 for the years ended December
31, 1996 and 1995, respectively. The Company's accumulated deficit was $76,702
at December 31, 1997. Such losses were principally the result of the Company's
expansion of the Branch Network and increased personnel, marketing and
administrative start-up costs associated with the commencement of lending
operations to "B/C" credit-rated borrowers. There can be no assurance that the
Company will not continue to experience operating losses in future periods.
Based on the Company's currently proposed plans and assumptions relating to
the implementation of its business strategy, the Company anticipates that the
net proceeds of this Offering (at the minimum number of shares sold) will be
sufficient to satisfy its contemplated cash requirements for at least twelve
months following the consummation of this Offering. In the event that the
Company's plans change or its assumptions prove to be inaccurate (due to
unanticipated expenses, difficulties, delays or otherwise) or the proceeds of
this Offering at either the minimum or maximum number of shares otherwise
prove to be insufficient to fund the implementation of the Company's business
strategy and working capital requirements, the Company could be required to
seek additional financing. The Company has no commitments for any future
funding, and there can be no assurance that the Company will be able to obtain
additional capital in the future. The type, timing and terms of such funding
(if it is available) will be determined by prevailing conditions in the
financial markets and the Company's financial condition, among other factors.
If the Company requires additional capital and is unable to obtain the
necessary capital, it may be required to significantly curtail its activities
which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON WAREHOUSE FINANCING; PRIOR DEFAULT UNDER WAREHOUSE FINANCING
The Company currently borrows substantially all of the funds which it uses
to originate mortgage loans pursuant to a $12 million warehouse financing
facility (the "Warehouse Facility") with a commercial bank. These borrowings
are, in turn, repaid with the proceeds received by the Company from selling
such loans in pools or individual whole loan sales to institutional investors,
usually within 30 days of when the loan is originated. The Warehouse Facility
expires on April 15, 1998. The borrowings thereunder are collateralized by
specific mortgage loans held for sale to institutional investors. As of
December 31, 1997, the Company is in compliance with all terms of the
Warehouse Facility. The amount outstanding under the Warehouse Facility at
December 31, 1997 was $10,532,994. The amount outstanding under the Warehouse
Facility at March 11, 1997 was $10,902,705. Interest is variable based on the
bank's prime rate, depending on the type of loan financed, and ranged from
8.25% to 8.75% at December 31, 1997. The Warehouse Facility is personally
guaranteed by Steven Latessa and Cary Wolen, the Company's President and Chief
Operating Officer, respectively. Any failure
7
<PAGE>
to renew or obtain adequate funding under its current Warehouse Facility, or
any substantial reduction in the size of or increase in the cost of such
facility, would have a material adverse effect on the Company's business,
financial condition and results of operations because it would limit or reduce
the Company's ability to originate mortgage loans.
The Warehouse Facility contains numerous affirmative and negative covenants,
including maintenance of minimum tangible net worth, a limitation on the
Company's total indebtedness and certain financial ratios. In April 1997, the
Company determined that as of December 31, 1996, it was not in compliance with
the tangible net worth requirement of the Warehouse Facility ($900,000 at
December 31, 1996). The bank providing the Warehouse Facility waived the
Company's event of default and revised the Warehouse Facility to include the
Company's subordinated debt, obtained in the first quarter of 1997, as part of
the Company's tangible net worth.
In December, 1997, the Company obtained $1,500,000 from FC Capital
Corporation ("FC Corp.") as a secured borrowing (the "Secured Borrowing") to
supplement the Warehouse Facility. This Secured Borrowing is repayable
monthly, commencing on February 5, 1998 at the greater of $100,000 per month
or 50% of the income generated from the Company's sale of qualified mortgage
loans to FC Corp., and is secured by the Company's assets not otherwise
pledged under the Warehouse Facility. Additionally, the Company borrowed, in
January, 1998 an additional $250,000 from FC Corp. under a working capital
facility agreement. The Company's agreements with FC Corp. pursuant to which
it obtained the secured borrowing and the working capital loan require the
Company to comply with various operating and financial covenants.
In October 1996, the Company obtained a financing, in addition to its
Warehouse Facility, with another bank to borrow up to an additional $6 million
to fund loan originations. This facility contained substantially the same
covenants and restrictions as the Warehouse Facility, including a $1 million
tangible net worth requirement. Upon being notified of the default by the
Company of the net worth requirement as of December 31, 1996, this lender
elected not to waive this default and notified the Company that it was
terminating the line of credit, requiring the Company to repay the amount
outstanding, which was fully repaid as of October 24, 1997.
While the Company believes it is now in full compliance with all of its loan
covenants under the Warehouse Facility and its agreements with FC Corp., there
can be no assurances that in future periods the Company will continue to
adhere to all covenants contained in these agreements. The Company's failure
to comply with the tangible net worth covenant or with any other covenants in
such agreements could again cause the Company to be in default under the
Warehouse Facility and its agreements with FC Corp. and have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISKS ASSOCIATED WITH SALES OF MORTGAGE LOANS; MORTGAGE LOAN PURCHASES BY A
LIMITED NUMBER OF INSTITUTIONS; FEDERAL PROGRAMS
The Company generates revenue by regularly selling loans it originates for
cash, at a premium, usually within 30 days after it originates the loans, to
institutional investors. There can be no assurance that such investors will
continue to purchase loans or will be willing to purchase loans on terms which
they have historically purchased. To the extent that institutional investors
who purchase "A" and/or "B/C" credit-rated loans reduce their purchases, the
price and level of the market for the Company's mortgage loans could be
negatively affected which, in turn, could materially adversely affect the
Company's mortgage loan origination volume and, potentially, its
profitability. Further, adverse conditions in the mortgage-backed
securitization market could negatively impact the ability of the Company to
complete loan sales, as many of the Company's loan purchasers securitize the
loans they purchase from the Company.
For the year ended December 31, 1996 and for the year ended December 31,
1997, the Company sold 59% and 84%, respectively, of the mortgage loans it
originated (by volume) to three institutional investors and 5 institutional
investors, respectively. Three of the investors in each of these periods were
the same. There can be no assurance that such institutional investors will
continue to purchase the Company's loans and to the extent that the Company
could not successfully replace such loan purchasers, the Company's business,
financial
8
<PAGE>
condition and results of operations could be materially and adversely
affected. Pursuant to the Company's agreements with FC Corp. for the Secured
Borrowings, the Company expects to sell a substantial percentage of its
mortgage loans to FC Corp., or an affiliate or designee thereof, although
there can be no assurance that it will, in fact, do so.
The Company's ability to sell "A" credit-rated mortgage loans to
institutional investors is dependent upon the continuation of programs
administered by government sponsored agencies such as the FHA and VA programs,
which facilitate the pooling of those mortgage loans into mortgage-backed
securities, as well as the Company's continued eligibility to participate in
these programs. The discontinuation of, or the loss of eligibility to
participate in, such government programs could have a material adverse effect
on the Company's business, financial condition and results of operations.
CONCENTRATION OF OPERATIONS IN MID-ATLANTIC REGION AND MISSOURI
For the year ending December 31, 1997, approximately 91% of the mortgage
loans originated by the Company were to borrowers in New York, New Jersey and
Missouri. Although the Company is attempting to expand its Branch Network
outside these regions, the Company's origination business is likely to contain
a high concentration in such areas for the foreseeable future. Consequently,
the Company's results of operations and financial condition are dependent upon
general trends in the economy and the residential real estate market in the
aforementioned areas.
ECONOMIC CONDITIONS
The Company's business will be adversely affected by periods of economic
slowdown or recession which may be accompanied by decreased demand for
consumer credit and declining real estate values. Any material decline in real
estate values reduces the ability of borrowers to use home equity to support
borrowings by negatively affecting loan-to-value ratios of the home equity
collateral. To the extent that loan-to-value ratios of the home equity
collateral of prospective borrowers do not meet the Company's underwriting
criteria, the volume of loans originated by the Company could decline. A
decline in loan origination volumes would have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, changes in the level of consumer confidence, real estate values and
prevailing interest rates, each of which tend to be affected by an economic
slowdown, could adversely affect the level and amount of consumer borrowing.
Furthermore, investment returns of investors purchasing mortgages are affected
by, among other things, the actual rates of delinquencies and foreclosures of
the mortgages they purchase, which could make mortgage loans less attractive
to investors during periods when such delinquencies and foreclosures are
increasing.
INTEREST RATE RISK
The Company's profitability may be directly affected by the levels of and
fluctuations in interest rates, which affect the Company's ability to earn a
spread between interest received on loans and the Company's costs of
borrowing. In 1996 and 1997, fixed rate mortgages accounted for 86.4% and
88.2%, respectively of all mortgage loans originated. Adjustable rate
mortgages for 1996 and 1997 accounted for 13.6% and 11.8%, respectively of all
mortgage loans originated. The operations and profitability of the Company are
likely to be adversely affected during any period of unexpected or rapid
changes in interest rates. For example, a substantial or sustained increase in
interest rates could adversely affect the ability of the Company to originate
loans and would reduce the value of loans that were originated prior to such
increase.
RISK OF LOAN DELINQUENCIES AND DEFAULTS
The Company is exposed to the risk of loan delinquencies and defaults from
the time the loan is made until such loan is sold to institutional investors,
typically a 30 day period. After the Company originates a loan, the loan is
usually held by the Company as part of a portfolio of loans, to be sold either
on a pool or "whole loan" basis. The Company is also subject to loan
delinquencies and defaults in those cases where it is required to repurchase
such loan due to a breach of a representation or warranty by the Company in
connection with the "whole loan" sale.
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<PAGE>
Since mid-1996, the Company has focused on increasing mortgage originations
for "B/C" or "sub-prime" credit classified borrowers. For the year ended
December 31, 1997, approximately 39.5% of the total principal amount of loans
originated by the Company were to borrowers in these credit classifications.
Loans made to such borrowers entail a higher risk of delinquency and higher
losses than loans made to borrowers who have higher credit classifications.
Since the date of its Incorporation the Company has never had to repurchase a
loan from mid-1996 to December 31, 1997. Although the Company sells these
mortgages (as well as other mortgages) on a "servicing released" basis to
investors, usually on a non-recourse basis (thereby limiting its exposure to
the risk of delinquency or default), at prices which reflect the credit risk
associated with such borrowers, any sustained period of increased
delinquencies, foreclosures or losses on such loans after the loans are sold
could adversely affect the pricing of the Company's future loan sales and/or
the willingness of investors to purchase such loans from the Company in the
future. During these periods from mid-1996 to December 31, 1997 there has been
no material adverse effect on the pricing of the Company's loans. In 1997
mortgage loans that were offered under so-called "low document" programs
(i.e., programs that do not require a borrower to fully substantiate all
information furnished in the mortgage application process) accounted for
approximately 10% of the Company's total mortgage originations (approximately
$13,000,000 of mortgage originations). As of December 31, 1997 approximately
$630,000 of so-called "low document" loans were held by the Company for sale
to investors, and as of the date hereon, all such loans had been sold.
RISKS ASSOCIATED WITH RAPID GROWTH
The Company has expanded into new geographic regions, increasing the number
of retail branch offices to 15 as of the date of this Prospectus. The Company
anticipates that it will continue to open several additional branch offices,
in part, with a portion of the proceeds of this Offering, (and as a result
expects to substantially increase its expenses, with no assurance that it will
increase revenue.) As of December 31, 1996 and 1997, there were 13 and 15
retail branches, respectively. It takes approximately 8-12 months for a new
office to become profitable. The Company's continued growth and expansion will
place additional pressures on the Company's personnel and systems. Any future
growth may be limited by, among other things, the Company's (i) need for
continued funding sources and access to capital markets, (ii) ability to
attract and retain qualified personnel, (iii) ability to maintain appropriate
procedures, policies and systems to ensure that the Company's loans have an
acceptable level of credit risk and loss and (iv) ability to establish new
relationships and maintain existing relationships with mortgage holders and
borrowers in states where the Company is active and in states where the
Company is seeking to commence operations. The Company's need for additional
operating procedures, personnel and facilities is expected to increase as a
result of further growth which the Company anticipates over the near term. The
Company anticipates opening an additional 2-4 branches over the next 12 months
at an approximate cost of $150,000-$200,000 per branch. The Company is
assessing the purchase of new systems and software to support its operations,
and plans to continue to procure hardware and software that will require
additional corresponding investments in training and education. There can be
no assurance that the Company will successfully obtain or apply the human,
operational and financial resources needed to manage a developing and
expanding business. Failure by the Company to manage its growth effectively,
or to sustain its historical levels of performance in underwriting with
respect to its increased loan origination volume, could have a material
adverse effect on the Company's business, financial condition and results of
operations and financial condition. See "Business--Growth Strategy."
RISKS ASSOCIATED WITH MORTGAGE BANKING ACTIVITIES IN PUERTO RICO
In November 1996, the Company opened a mortgage office in Puerto Rico, and
has focused the activities of that office since mid-1997 on sub-prime
borrowers. In 1997 approximately $4,300,000 in loans were originated in Puerto
Rico, of which the Company still held approximately $1,600,000 at the year end
as loans held for sale. As of the date hereof, approximately 40% of such loans
had been sold. Operationally, mortgage originations to sub-prime borrowers for
properties in Puerto Rico are essentially similar to mortgage originations for
properties located in the continental United States, and are expected to
remain so notwithstanding the referendum on the future status of Puerto Rico
as a Commonwealth of the United States. However, the Company does not believe
that the secondary market of institutional investors purchasing mortgage loans
originated in Puerto Rico is as
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<PAGE>
developed as the secondary market for mortgage loans originated in the
continental United States. This less developed secondary market may adversely
affect the premium which the Company receives on the sale of mortgages
originated in Puerto Rico. To date, the Company has had very limited
experience in the sale of mortgages originated in Puerto Rico. Although the
Company believes that there will be a number of institutions willing to
purchase mortgages the Company originates in Puerto Rico on a regular basis,
in the event that the Company cannot find institutional investors to purchase
these loans, the Company will be forced to raise additional capital to fund
and hold the loans. There can be no assurance that the Company will be able to
find institutional investors for its mortgage loans originated in Puerto Rico,
which could cause a material adverse effect on the Company's business and
financial condition.
Section 936 of the U.S. Internal Revenue Code ("Section 936") has
historically provided incentives for U.S. corporations to invest in Puerto
Rico by granting a credit to qualifying corporations ("936 Corporations")
against a portion of the U.S. income tax payable from the active conduct of a
trade or business in Puerto Rico and 100% of certain qualifying investment
income derived in Puerto Rico. Section 936 together with complementary Puerto
Rican laws have provided incentives for 936 Corporations and financial
intermediaries receiving funds from 936 Corporations to invest in mortgage
loans and mortgage-backed securities originated in Puerto Rico. Section 936
has helped, in the past, to create a pool of lower cost funds in Puerto Rico
that has historically been used by banks to fund mortgage loans. On August 20,
1996, the Small Business Job Protection Act of 1996 (the "Small Business Job
Protection Act") was signed into law. That Act provides for the elimination of
the special U.S. federal income tax benefits available under Section 936 to
U.S. corporations operating and investing in Puerto Rico. The Act repeals
Section 936, subject to a ten-year grandfather rule for 936 Corporations that
were engaged in the active conduct of a trade or business on October 13, 1995
and that qualified for and elected the benefits of Section 936 for the
corporation's taxable year which includes such date.
While the final impact of a repeal of Section 936 on the Company's
prospective business in Puerto Rico cannot be determined at this time, the
repeal of Section 936 could have an adverse effect on the general economic
condition of Puerto Rico by reducing incentives for investment in Puerto Rico.
Any such adverse effect on the general economy of Puerto Rico could lead to a
reduction in the level of residential construction and demand for mortgage
loans. The elimination of Section 936, particularly the elimination of the
credit for investment income, could also lead to a decrease in the amount of
funds invested in the Puerto Rico financial market by 936 Corporations ("936
Funds), thereby increasing funding costs and decreasing liquidity for Puerto
Rico mortgage products. The impact of any such changes on the Company's
prospective business in Puerto Rico cannot be determined at this time.
COMPETITION
The mortgage banking business is highly competitive. The Company competes
with financial institutions, such as mortgage bankers, commercial banks,
savings associations, credit unions, loan brokers and insurance companies in
the origination of mortgage loans. Competition can take many forms, including
convenience in obtaining a loan, customer service, marketing and distribution
channels and interest rates and origination fees charged to borrowers.
Competition may be affected by, among other things, fluctuations in interest
rates and general economic conditions. Although the Company believes that its
competitive advantage lies primarily with the Company's offering of a broad
menu of mortgage loan products with competitive features, its emphasis on the
quality of its service, and the pricing of its range of products at
competitive rates, there can be no assurance that the Company will be able to
compete effectively in this industry, which could materially adversely affect
the Company's financial conditions and results of operations. In addition, to
the extent that market pricing becomes more aggressive, the Company may be
unable to achieve its planned level of growth. The Company has become aware
that certain large national finance companies and conventional mortgage
originators are implementing plans to or have announced their intention to
allocate resources to the origination of loans to sub-prime credit-rated
borrowers. The entrance of these competitors into the Company's market could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Competition."
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<PAGE>
REGULATORY AND LEGISLATIVE RISK
The Company's business is subject to extensive and complex rules and
regulations of, and examinations by, various federal, state and local
government authorities. These rules and regulations impose obligations and
restrictions on the Company's loan originations, credit activities and secured
transactions. In addition, these rules limit the interest rates, finance
charges and other fees the Company may assess, mandate extensive disclosure to
the Company's customers, prohibit discrimination and impose multiple
qualification and licensing obligations on the Company. The Company's loan
origination activities are subject to the laws and regulations in each of the
states in which those activities are conducted and are also subject to various
federal laws, including the Federal Truth-in-Lending Act and Regulation Z
promulgated thereunder, the Homeownership and Equity Protection Act of 1994,
the Federal Equal Credit Opportunity Act and Regulation B promulgated
thereunder, the Fair Credit Reporting Act of 1970, the Real Estate Settlement
Procedures Act of 1974 and Regulation X promulgated thereunder, the Fair
Housing Act, the Home Mortgage Disclosure Act and Regulation C promulgated
thereunder and the Federal Debt Collection Practices Act, as well as other
Federal and State statutes and regulations affecting the Company's activities.
These rules and regulations, among other things, impose licensing
obligations on the Company, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspections and appraisals of properties,
require credit reports on prospective borrowers, regulate payment features,
mandate certain disclosures and notices to borrowers and, in some cases, fix
maximum interest rates, fees and mortgage loan amounts. Failure to comply with
these requirements can lead to revocation of its mortgage banking license in
the states where the Company is licensed and loss of approved status for
participation in government sponsored programs (such as the FHA and VA loans),
demands for indemnification or mortgage loan repurchases, certain rights of
rescission for mortgage loans, class action lawsuits and administrative
enforcement actions by federal and state governmental agencies. See
"Business--Government Regulation."
Although the Company believes that it has systems and procedures to insure
compliance with these requirements and believes that it is currently in
compliance in all material respects with applicable federal, state and local
laws, rules and regulations, there can be no assurance of full compliance with
current laws, rules and regulations or that more restrictive laws, rules and
regulations will not be adopted in the future that could make compliance
substantially more difficult or expensive. In the event that the Company is
unable to comply with such laws or regulations, its business, prospects,
financial condition and results of operations may be materially adversely
affected.
Members of Congress, government officials and political candidates have from
time to time suggested the elimination of the mortgage interest deduction for
federal income tax purposes, either entirely or in part, based on borrower
income, type of loan or principal amount. Because many of the Company's loans,
the interest on which may be currently tax deductible, are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, some of the competitive advantage of such loans when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for mortgage loans
of the kind offered by the Company.
POSSIBLE ENVIRONMENTAL LIABILITIES
Although to date, the Company has not re-acquired any properties pursuant to
any foreclosure action against any borrowers, it is possible that the Company
may, in the future, foreclose on properties securing mortgage loans. The
Company has not taken any action in regard to inspections before commitments,
obtaining waivers or insurance, to protect the Company from possible
environmental liabilities. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous
or toxic substances or chemical releases at such property and may be held
liable to a governmental entity or to third parties for property damage,
personal injury, and investigation and clean up costs incurred by such parties
in connection with the contamination. Liability under such laws has been
interpreted to be joint and several unless the harm is divisible, and there is
a reasonable basis for allocation
12
<PAGE>
of responsibility. Although the Company has not incurred losses in any
material respect as a result of liabilities under environmental laws, there
can be no assurance that the Company will not experience such losses in the
future.
DEPENDENCE UPON MANAGEMENT
The Company is dependent upon the personal efforts and abilities of three
executive officers, Steven Latessa, the Company's President and Chief
Executive Officer, Cary Wolen, the Company's Chief Operating Officer,
Secretary and Treasurer, and Jon Blasi, the Company's Chief Operating Officer
for the "B/C" Lending Division. The loss of the services of either Messrs.
Latessa, Wolen or Blasi could have a materially adverse effect on the
Company's business and operations. Messrs. Latessa, Wolen and Blasi have
entered into employment agreements with the Company that expire in September
2000. In addition, the Company has obtained a $1 million key man, term life
insurance policy on each of the lives of Messrs. Latessa, Wolen and Blasi.
VOTING CONTROL BY MAJORITY SHAREHOLDERS
Following the completion of the sale of the minimum number of shares
(800,000) of Common Stock offered hereby, Steven Latessa, Cary Wolen and Jon
Blasi will beneficially own an aggregate of 5,379,780 shares (excluding the
1,620,220 shares of Common Stock owned by such persons but held in escrow (see
"Principal and Selling Shareholders")) of the Company's outstanding Common
Stock, which will represent approximately 58.5% of the total number of shares
of the Company's outstanding Common Stock or, in the case the maximum number
of shares (1,300,000) are sold in the Offering, 55.5% of the total number of
outstanding shares. As a result of their stock ownership, Messrs. Latessa,
Wolen and Blasi will have effective control of the Company, and will continue
to have the power to control the election of all of the members of the
Company's Board of Directors and to direct the Company's management and
policies. Such persons will be able to control all decisions on matters
requiring the vote of shareholders, which include the amendment of the
Company's Certificate of Incorporation and certain provisions of the By-Laws
and the approval of fundamental corporate transactions. See "Principal and
Selling Stockholders" and "Description of Securities--Common Stock."
DETERMINATION OF PUBLIC OFFERING PRICE
Prior to the Offering there has been no active public market for the Common
Stock and there can be no assurance that an active trading market will
develop, or if developed, be sustained in the Common Stock after the Offering.
The price of the Common Stock offered by the Company and the Selling
Stockholders was arbitrarily determined and may not necessarily bear any
relationship to the Company's asset value, net worth or other established
criteria of value. Accordingly, the offering price of the Common Stock may not
be indicative of the price that may prevail at any time or from time to time
in the public market for the Common Stock following the Offering. See "Price
Range of Common Stock" and "Plan of Distribution."
NO ASSURANCE OF NASDAQ SMALLCAP MARKET LISTING; RISK OF APPLICATION OF PENNY
STOCK RULES
The Company intends to submit its application for listing on the NASDAQ
SmallCap Market pending the Company's closing of the Offering at the minimum
(800,000) number of shares sold, and it is anticipated that, the Common Stock
will be listed for trading on the NASDAQ SmallCap Market upon the sale of the
minimum number of shares. The Board of Governors of the National Association
of Securities Dealers, Inc. has established certain standards for the
continued listing of a security on the Nasdaq SmallCap Market. The maintenance
standards require, among other things, that an issuer have net tangible assets
of at least $2,000,000; that the minimum bid price for the listed securities
be $1.00 per share; that the minimum market value of the public float be at
least $1,000,000; and that there be at least two market makers for the
issuer's securities. It is a condition of the Escrow Agreement and a condition
of closing that the Company will be listed on NASDAQ SmallCap Market. If the
Company has not engaged at least two market makers at the time of the closing
of the Offering,
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<PAGE>
then it could be denied listing by NASDAQ, and would subsequently be compelled
to return funds held in escrow to all subscribers. A deficiency in either the
market value of the public float or the bid price maintenance standard will be
deemed to exist if the issuer fails the individual stated requirement for ten
consecutive trading days. There can be no assurance that the Company will
continue to satisfy the requirements for maintaining a Nasdaq SmallCap Market
listing. If the Common Stock were to be delisted from the Nasdaq SmallCap
Market, it would adversely affect the prices of such securities and the
ability of holders to sell them, and the Company would be required to comply
with the initial listing requirement to be relisted on the Nasdaq SmallCap
Market.
If the Company were delisted from the NASDAQ SmallCap Market and the price
per share were to drop below $5.00, then unless the Company satisfied certain
net asset tests, the Common Stock would become subject to certain penny stock
rules promulgated by the Securities and Exchange Commission (the
"Commission"). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current
bid and offer quotations for the penny stock, the compensation of the broker-
dealer and its salesperson in the transaction and monthly account statements
showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that, prior to a transaction in a
penny stock not otherwise exempt from such rules, the broker-dealer must make
a special written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to the
transaction. These disclosure requirements may have the effect of reducing the
level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. If the Common Stock becomes subject to the
penny stock rules, investors in the Offering may find it more difficult to
sell their Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
As of December 31, 1997 the pro forma net tangible book value of the Common
Stock assuming the merger between Mortgage Plus and CTS had taken place at
such date was $0.04 per share. Upon completion of this Offering, assuming
800,000 Shares of Common Stock is sold, the net pro forma tangible book value
would have been approximately $0.43 per share, representing dilution to the
public investors of approximately $4.57 or 91.4%. As a result, purchasers of
shares in the Offering will incur immediate and substantial dilution. In
addition, since the holders of Common Stock have no pre-emptive rights,
significant additional dilution may occur. See "Dilution."
HOLDING COMPANY STRUCTURE
The Company is a holding company which will conduct all its operations
through its wholly-owned subsidiary, Mortgage Plus. All of the capital stock
of Mortgage Plus is owned by the Company. Therefore, the Company's rights to
participate in the assets of Mortgage Plus upon such subsidiary's liquidation
or recapitalization will be subject to the prior claims of the subsidiary's
creditors, except to the extent that the Company may itself be a creditor with
recognized claims against the subsidiary.
DIVIDENDS
The Company has not paid any cash dividends on its Common Stock since its
inception (except that prior to December 31, 1996, Mortgage Plus made S
corporation distributions to its then existing stockholders) and does not
currently anticipate paying dividends on its Common Stock in the foreseeable
future. Since the Company conducts substantially all of its operations through
its subsidiary, Mortgage Plus, the Company's ability to pay dividends will be
dependent upon the ability of Mortgage Plus to make cash distributions to the
Company. The Warehouse Facility (which is with Mortgage Plus) provides that
Mortgage Plus may declare and pay dividends provided that the payment of such
dividends will not result in a violation of the financial covenants of the
Warehouse Facility. See "Dividend Policy."
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<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock may experience fluctuations that are
unrelated to the Company's operating performance. In particular, the price of
the Common Stock may be affected by general market price movements as well as
developments specifically related to the consumer finance industry such as,
among other things, interest rate movements. In addition, the Company's
financial results are significantly dependent upon the successful completion
of the Company's loan sales in the market, and the Company's inability to
complete these transactions in a particular quarter may have a material
adverse effect on the Company's results of operations for that quarter and
could, therefore, negatively impact the price of the Common Stock.
SHARES AVAILABLE FOR FUTURE SALE
The sale, or availability for sale, of a substantial number of shares of
Common Stock in the public market subsequent to this Offering, pursuant to
Rule 144 under the Securities Act ("Rule 144") or otherwise, could materially
adversely affect the market price of the Common Stock and could impair the
Company's ability to raise additional capital through the public or private
sale of its securities. Except for (i) 1,100,000 shares of Common Stock owned
by Selling Stockholders and registered for resale; (ii) a total of 112,714
shares of Common Stock held by the holders of the Company's stock prior to the
Merger which may be immediately saleable; and 227,001 shares of Common Stock
held by Vertex Industries, Inc. ("Vertex") (a holder of the Company's stock
prior to the Merger) which cannot be sold prior to , 1998, a total of
6,956,000 shares of Common Stock currently outstanding are "restricted
securities" as that term is defined in Rule 144 and may, under certain
circumstances, be sold without registration under the Securities Act. The
availability of Rule 144 to the holders of restricted securities of the
Company would be conditioned on, among other factors, the availability of
certain public information concerning the Company. In addition, shares
issuable upon exercise of options granted under the 1995 Plan, pursuant to
Rule 701 under the Securities Act, could be sold publicly commencing 90 days
after the Company becomes a reporting company under the Exchange Act. Vertex,
has agreed not to, directly or indirectly, issue, offer, agree to sell, sell,
grant an option for the purchase or sale of, transfer, pledge, assign,
hypothecate, distribute, or otherwise dispose of, or encumber any of its
227,001 shares of Common Stock or options, rights, warrants, or other
securities convertible into, or exercisable or exchangeable for, or evidencing
any right to purchase or subscribe for, shares of Common Stock, whether or not
beneficially owned by such person, or any beneficial interest therein for a
period of 6 months from the date of this Prospectus.
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<PAGE>
USE OF PROCEEDS
After deducting the estimated expenses of this offering, the net proceeds
for the sale by the Company of the Common Stock offered hereby are estimated
to be approximately $3,600,000 if the minimum offering of 800,000 shares are
sold, $4,850,000 if 1,050,000 shares are sold, and $6,100,000 if the maximum
offering of 1,300,000 shares are sold
The following table sets forth the Company's anticipated use of proceeds at
each level of Common Stock sold.
<TABLE>
<CAPTION>
1,300,000
800,000 SHARES 1,050,000 SHARES SHARES OF
OF COMMON STOCK OF COMMON STOCK COMMON STOCK
--------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Gross Proceeds.......... 4,000,000 (100%) 5,250,000 (100%) 6,500,000 (100%)
Less: Offering Expenses. 400,000 10% 400,000 (7.7%) 400,000 (6.2%)
--------- ----- --------- ------ --------- -----
Net Proceeds............ 3,600,000 (90%) 4,850,000 (92.3%) 6,100,000 (93.8%)
========= ===== ========= ====== ========= =====
Use of Proceeds:
Fund Mortgage Loans... 550,000 (13.8%) 1,000,000 (19.0%) 1,250,000 (19.2%)
Expand Branch Network. 350,000 (8.7%) 600,000 (11.9%) 880,000 (13.5%)
Expand Mortgage
Banking Operations in
Puerto Rico.......... 345,000 (8.6%) 595,000 (11.33%) 880,000 (13.5%)
Telemarketing:
Advertising.......... 345,000 (8.6%) 595,000 (11.33%) 888,000 (13.5%)
Upgrade Information
Systems.............. 100,000 (2.5%) 150,000 (2.9%) 300,000 (4.7%)
Repay Indebtedness.... 910,000 (22.8%) 910,000 (17.33%) 910,000 (14.0%)
Working Capital....... 1,000,000 (25%) 1,000,000 (19.0%) 1,000,000 (15.4%)
--------- ----- --------- ------ --------- -----
Total Use of
Proceeds........... 3,600,000 (90%) 4,850,000 (92.3%) 6,100,000 (92.3%)
========= ===== ========= ====== ========= =====
</TABLE>
The indebtedness to be repaid with a portion of the proceeds consists of an
aggregate principal amount of $878,000 unsecured subordinated debentures, with
an interest rate of 14% per year. Of this amount, $778,000 principal amount of
the debentures, plus interest, is payable to a corporation owned by Steven
Latessa, Cary Wolen and the Estate of Anthony Saffiotti. In addition, personal
guarantees of Messrs. Latessa and Wolen under the Company's Warehouse Facility
and an equipment lease are expected to be released upon consummation of this
Offering.
The Company is dependent upon the proceeds of this Offering at the minimum
level (800,000 shares) to implement its business strategy and finance its
working capital requirements. Based on the Company's currently proposed plans
and assumptions relating to the implementation of its business strategy, the
Company anticipates that the net proceeds of this Offering will be sufficient
to satisfy its contemplated cash requirements for at least twelve months
following the consummation of this Offering. In the event that the Company's
plans change or its assumptions prove to be inaccurate (due to unanticipated
expenses, difficulties, delays or otherwise) or the proceeds of this Offering
at the minimum or maximum level (1,300,000 shares) otherwise prove to be
insufficient to fund the implementation of the Company's business strategy and
working capital requirements, the Company could be required to seek additional
financing. Exact application of the net proceeds and timing of use will vary
depending upon numerous factors, including market and competitive issues. Due
to the number and variability of factors that may effect the Company's use of
the net proceeds, the Company will retain significant discretion over the
actual application of the net proceeds. Accordingly, there can be no assurance
that actual application will not vary substantially from the Company's current
expectation.
Pending use for the purposes specified above or otherwise, the net proceeds
received by the Company in the Offering may be invested in short-term,
investment grade, interest bearing securities.
16
<PAGE>
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
inception (except that prior to December 31, 1996, Mortgage Plus made S
corporation distributions to its then existing stockholders) and does not
currently anticipate paying dividends on its Common Stock in the foreseeable
future. Since the Company conducts substantially all of its operations through
its subsidiary, Mortgage Plus, the Company's ability to pay dividends is also
dependent upon the ability of Mortgage Plus to make cash distributions to the
Company. The Warehouse Facility (which is with Mortgage Plus) provides that
Mortgage Plus may declare and pay dividends provided that the payment of such
dividends will not result in a violation of the financial covenants of the
Warehouse Facility.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock, prior to the Merger, has been listed on the
Bulletin Board under the symbol "CPTT" since , . Since at least
January 1, 1997, there has been limited trading in the Common Stock. As a
result, prices reported for the Common Stock $.01 to $.02 reflect the relative
lack of liquidity.
As of March 1, 1998 there were stockholders of record of the Company's
Common Stock. Following the Merger, the Company's Common Stock was listed on
the Bulletin Board under the symbol "MPLS".
DILUTION
As of December 31, 1997, the Company had a net pro forma tangible book value
after giving effect to the merger of approximately $325,239 (or $0.04 per
share). Net tangible book value equals the tangible net worth of the Company
(tangible assets less total liabilities) divided by the aggregate number of
shares of Common Stock outstanding. After giving effect to the sale by the
Company of 800,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $5.00 per share and the assumed offering costs of
$400,000.00, the pro forma net tangible book value of the Company as of
December 31, 1997, would be approximately $3,925,239 (or $0.43 per share).
This represents an immediate increase in pro forma net tangible book value of
$0.39 per share to current stockholders and an immediate dilution of $4.57 per
share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................... $5.00
-----
Net tangible book value before offering....................... $0.04
-----
Increase attributable to new investors........................ .39
-----
Pro forma net tangible book value after offering................ 0.43
-----
Dilution to new investors....................................... $4.57
-----
</TABLE>
The following table sets forth, as of December 31, 1997, adjusted for the
338,142 shares of Common Stock issued in connection with the Merger in March
1998, the difference between the existing stockholders of the Company and the
new investors with respect to the aggregate number of shares of Common Stock
purchased from the Company, the total cash consideration paid and the average
cash price per share paid:
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION PAID AVERAGE
-------------------- ------------------ CASH PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 8,394,142(1) 91.3% $1,056,000 20.89% $0.13
New Investors........... 800,000 8.7% $4,000,000 79.11% $5.00
--------- ------ ---------- ------
Total............... 9,194,142 100.00% $5,056,000 100.00%
========= ====== ========== ======
</TABLE>
If the maximum of 1,300,000 shares of Common Stock are sold by this
Offering, dilution per share would be $4.34. In addition, the total cash
consideration would be $6,500,000 or 86% of the total cash consideration.
17
<PAGE>
CAPITALIZATION
The following table sets forth the debt and capitalization of the Company as
of December 31, 1997 pro forma giving effect to the merger and as adjusted to
give effect to the sale by the Company of 800,000 shares of Common Stock at an
assumed public offering price of $5.00 per share, and the application by the
Company of the net proceeds therefrom as described under "Use of Proceeds."
This table should be read in conjunction with the Consolidated Financial
Statements, including the Notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------
AS
ACTUAL PRO FORMA(1) ADJUSTED(2)
----------- ------------ -----------
<S> <C> <C> <C>
Debt:
Warehouse lines of credit.............. $10,532,994 $10,532,994 $10,532,994
Subordinated debt...................... 878,000 878,000 --
Notes payable.......................... 1,392,763 1,392,763 1,392,763
Obligation under capital lease......... 193,184 193,184 193,184
----------- ----------- -----------
Total Debt.............................. $12,996,941 $12,996,941 $12,118,941
Stockholders' equity:
Common stock, $.01 par value,
15,000,000 shares authorized,
8,056,000 shares outstanding actual,
8,394,142 shares outstanding pro forma
and 9,194,142 shares outstanding, as
adjusted.............................. 8,056 8,394 9,194
Additional paid-in-capital............. 513,116 515,830 4,115,040
Accumulated deficit.................... (76,702) (76,702) (76,702)
Total stockholders' equity............. 444,470 447,522 4,047,522
----------- ----------- -----------
Total capitalization................ $13,441,411 $13,444,963 $16,166,463
=========== =========== ===========
</TABLE>
- --------
(1) Adjusted to give affect to the acquisition of CTS on March 5, 1998.
(2) Adjusted for the sale of 800,000 shares of Common Stock and application of
the estimated net proceeds therefrom as described under "Use of Proceeds."
(3) See "Description of Securities" for description of the relative rights of
the Common Stock.
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the caption "Statement of
Operations Data" and "Balance Sheet Data" for and as of December 31, 1997 and
for each of the years in the two year period then ended are derived from the
financial statements of the Company appearing elsewhere herein. The
information set forth below should be read in conjunction with such financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected financial data
presented below (other than the operating Statistics) as of December 31, 1997
and for each of the years in the two year period then ended has been derived
from audited financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................. $ 5,970,675 $ 8,000,587
Commissions, wages and benefits..................... 3,715,169 5,549,795
Selling and administrative.......................... 1,770,894 2,567,371
Interest expense.................................... 707,952 967,123
Net Loss (Pro forma for 1996)....................... (190,340) (76,702)
Net Loss Per Share (Pro forma for 1996)............. (.03) (.01)
Weighted Average Number of Shares Outstanding....... 7,002,732 8,025,315
OPERATING STATISTICS:
Mortgage originations
Conventional...................................... $ 48,102,840 $ 47,428,400
FHA/VA............................................ 24,810,101 33,324,400
Sub-Prime......................................... 35,290,148 52,748,500
------------ ------------
Total........................................... $108,203,089 $133,501,300
Number of Loans..................................... 1,073 1,585
Average Principal Balance........................... $ 100,841 84,228
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------
<S> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale........................... $ 6,300,764
Total assets........................................... 16,216,833
Borrowings............................................. 12,996,941
Stockholders' equity................................... 444,470
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the preceding
Selected Financial Data and the Company's Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
GENERAL
Overview. The Company's revenues are generated from the fees it charges
borrowers on the origination of mortgage loans, the premiums paid by
institutional investors when they purchase the loans from the Company and
interest earned during the period (generally less than 30 days) the loan is
held for sale to institutional investors. The fees charged by the Company to
its borrowers in connection with the origination of the loans and the premium
on sales of loans to third parties, less transaction costs associated with
origination of the loans, are categorized as mortgage origination revenue and
are recognized when the loans are sold. The Company sells all of its mortgage
loans (together with servicing rights) to institutional investors, usually on
a non-recourse basis, in most instances within 30 days of origination. By
selling its mortgages to institutional investors on a "servicing-released"
basis, the Company avoids the administrative and collection expenses of
managing a servicing portfolio, and is not faced with foreclosures,
delinquencies and re-acquiring and disposing of residential real estate. The
Company does not sell mortgage loans in "securitization" transactions, but
rather sells loans to financial institutions, either on a pooled or individual
"whole-loan" basis, at fixed prices on a non-recourse basis.
MORTGAGE ORIGINATIONS
The following table summarizes the Company's mortgage loan originations for
the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1995 1996 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CONVENTIONAL LOANS:
Volume....................... $43,293,573 $48,366,929 $ 48,102,840 $ 47,428,400
Percentage of total volume... 100.0% 83.4% 44.5% 35.5%
FHA/VA LOANS:
Volume....................... -- $ 5,323,313 $ 24,810,101 $ 33,324,400
Percentage of total volume... -- 9.2% 22.9% 25.0%
SUB-PRIME LOANS:
Volume....................... -- $ 4,284,375 $ 35,290,148 $ 52,748,500
Percentage of total volume... -- 7.4% 32.6% 39.5%
TOTAL LOANS:
Volume....................... $43,293,573 $57,974,617 $108,203,089 $133,501,300
Number of Loans.............. 329 503 1,073 1,585
Average Loan Size............ $ 131,591 $ 115,257 $ 100,841 $ 84,228
</TABLE>
The Company increased its mortgage loan origination volume to $133.5 million
during 1997 from $108.2 million during 1996, an increase of 23.4%. This
increase in mortgage loan origination volume was primarily due to the
expansion of the Company's Missouri operations, which accounted for $48.6
million of mortgage originations in 1997 compared to $27.6 million in 1996 and
the growth in most areas where the Company does business of "B/C" and FHA/VA
loan originations.
For the year ended December 31, 1996 and for the year ended December 31,
1997, the Company sold 59% and 84%, respectively, of the mortgage loans it
originated (by volume) to three institutional investors and 5 institutional
investors, respectively. Three of the investors in each of these periods were
the same.
20
<PAGE>
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996.
Total revenues increased $2.0 million, or 33.3%, to $8.0 million for the
year ended December 31, 1997 from $6.0 million for the year ended December 31,
1996. During the same period, the Company's total expenses increased $2.9
million, or 46.8%, to $9.1 million from $6.2 million. In addition in 1997 the
Company recognized other income of $1,000,000.00 resulting from proceeds to be
received from an officer's life insurance policy. The Company's net loss
decreased by 65.7% from $223,000 ($.03 per share) for the year ended December
31, 1996 to $76,702 ($.01 per share) for the year ended December 31, 1997. The
Company incurred large expenses in both 1997 and 1996 related to the expansion
of its Branch Network and the introduction of "B/C" credit-rated mortgage
loans. These activities and related expenses were the primary contributor to
the Company's losses in 1997 and 1996.
Revenues. The following table sets forth the components of the Company's
revenues for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenues:
Mortgage origination............. $5,307,353 $7,147,183
Interest earned.................. 663,322 860,424
---------- ----------
Total Revenues................ $5,970,675 $8,007,607
========== ==========
</TABLE>
Mortgage origination revenue increased $1.8 million, or 34.0% to $7.1
million for the year ended December 31, 1997 from $5.3 million for the year
ended December 31, 1996. The increase primarily attributable to substantial
increases in "B/C" and FHA/VA mortgage originations during the 1997 period.
Interest earned increased $197,000, or 29.7%, to $860,000 for the year ended
December 31, 1997 from $663,000 for the year ended December 31, 1996. The
increase in interest earned was primarily due to a higher average balance of
loans held for sale throughout the year ended December 31, 1997 which resulted
from the increased loan origination value during such period, and a higher
balance of loans held for sale at the beginning of such period as compared to
the corresponding period in 1996.
Expenses. The following table sets forth the components of the Company's
expenses for the periods shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Expenses:
Commissions, wages and benefits.. $3,715,169 $5,549,795
Selling and administrative....... 1,770,894 2,567,371
Interest expense................. 707,952 967,123
---------- ----------
Total Expenses................ $6,194,015 $9,084,289
========== ==========
</TABLE>
Commissions, wages and benefits increased $1.8 million, or 48.6%, to $5.5
million for the year ended December 31, 1997 from $3.7 million for the year
ended December 31, 1996. The increase in commissions, wages and benefits was
primarily due to an increase in sales staff and administrative personnel
required to process the increased volume of mortgage loan originations. As of
December 31, 1997, the Company had 127 employees as compared to 103 employees
as of December 31, 1996. Included within commissions, wages and benefits for
the year ended December 31, 1997 was $417,000 attributable to new branch
start-up expenses, as compared to $331,000 in new branch start-up expenses for
the year ended December 31, 1996. During the year ended December 31, 1997, the
Company opened three new branches, including one in Missouri, one in
Connecticut and one in Arkansas, compared to five new branches in the year
ended December 31, 1996, including two in New York, two in Missouri and one in
Puerto Rico. As a percentage of revenue, commissions and benefits represent
62.2% and 69.3% for the years ended December 31, 1996 and 1997, respectively.
21
<PAGE>
Selling and administrative expenses, which consist of occupancy, marketing
supplies, selling and other expenses, increased $800,000, or 44.4%, to $2.6
million for the year ended December 31, 1997 from $1.8 million for the year
ended December 31, 1996. Included within selling and administrative expenses
for the years ended December 31, 1997 was $237,000 attributable to new branch
start up expenses, as compared to $225,000 for the year ended December 31,
1996. As a percentage of revenue, selling and administrative expense
represented 29.7% and 32.1% for the years ended December 31, 1996 and 1997,
respectively.
Interest expense increased $259,000 or 36.6%, to $967,000 for the year ended
December 31, 1997 from $708,000 for the year ended December 31, 1996. The
increase in interest expense was attributable to the interest costs and
borrowing by the Company to fund the higher balance of loans originated during
the year ended December 31, 1997 and higher average balances of loans held for
sale and amounts due from investors during 1997. As a percentage of revenue,
interest expense represented 11.9% and 12.1% for the years ended December 31,
1996 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary operating cash requirements include the funding or
payment of: (i) loan originations; (ii) interest expense incurred on
borrowings under its Warehouse Facility; (iii) capital expenditures; (iv)
personnel and commission costs; and (v) other operating and administrative
expenses. The Company generates cash flow from fees received from its
borrowers for mortgage originations, the sale of mortgage loans into the
secondary market and interest income on loans held for sale.
Since July, 1993, the Company has maintained the Warehouse Facility with a
commercial bank. This credit facility expires on April 15, 1998 and is
generally renewable on an annual basis. This credit facility currently has a
maximum borrowing limit of $12 million. All borrowings under the Warehouse
Facility are secured by the mortgage loans originated by the Company through
this facility. The Warehouse Facility is guaranteed by Steven Latessa and Cary
Wolen. The Company is required to comply with various operating and financial
covenants as defined in the Warehouse Facility including, but not limited to,
maintenance of certain financial ratios and minimum tangible net worth. The
Company has received a waiver from the commercial bank of the minimum tangible
net worth requirement as of December 31, 1996 and a modification for future
periods which allows the Company to include its subordinated debt in the
calculation of tangible net worth. The continued availability of funds
provided under the Warehouse Facility is subject to the Company's compliance
with the modified covenants. The Company expects to renew or replace the
Warehouse Facility when the current term expires.
On October 7, 1996 the Company entered into a Mortgage Loan Warehousing and
Security Agreement with another commercial bank. This credit facility was for
a maximum borrowing limit of $6 million. All borrowings under this credit
facility were secured by the mortgage loans originated by the Company through
this facility. The Mortgage Loan Warehousing and Security Agreement was
guaranteed by Messrs. Latessa and Wolen. The Company was required to comply
with various operating and financial covenants as defined in the Mortgage Loan
Warehousing and Security Agreement including, but not limited to, maintenance
of certain financial ratios and a minimum tangible net worth. As with the
Warehouse Facility, the Company was not in compliance with the net worth
covenant at December 31, 1996. The commercial bank notified the Company on May
16, 1997 that new loans would not be added to this warehouse line of credit
subsequent to June 15, 1997 and that this warehouse line of credit could not
be utilized subsequent to August 15, 1997. The Company has repaid all amounts
under this credit facility. The Company does not believe the unavailability of
this warehouse line of credit has had an impact on the Company's ability to
originate and sell mortgage loans due to the amount of credit available under
the $12 million Warehouse Facility. See "Risk Factors--Dependence on Warehouse
Financing; Prior Default under Warehouse Financing."
In December, 1997, the Company and FC Capital Corporation ("FC Corp.")
entered into an agreement (the "Term Loan Agreement") pursuant to which the
Company borrowed $1,500,000 (which, together with interest, is called the
"Borrowed Amount") based upon the Company's commitment to repay the Borrowed
22
<PAGE>
Amount, on a monthly basis beginning in February, 1998, at the greater of
either $100,000 or 50% of the income generated from the Company's sale to FC
Corp. (or its designated affiliate) of qualified mortgage loans. To secure the
Company's repayment of the Borrowed Amount, the Company granted FC Corp. a
security interest in all its assets, subject to the prior interest of the
Warehouse Facility in certain mortgage loans. In addition to the Term Loan
Agreement, FC Corp. loaned $250,000 to the Company pursuant to a Working
Capital Financing Agreement, which amount, together with interest thereon, is
due and payable on the first anniversary of the Company's borrowing under the
Working Capital Financing Agreement.
The Company's business requires continual access to short-term sources of
funds. While management believes that it has sufficient funds to finance its
operations and that it will be able to refinance or otherwise repay its debt
in the normal course of business, there can be no assurance that the Warehouse
Facility can be extended or that funds generated from operations will be
sufficient to satisfy such obligations. Future financing may involve the
issuance of debt or equity securities. The Company's cash requirements may be
significantly influenced by possible acquisitions or strategic alliances,
although no particular acquisition or strategic alliance has been agreed upon
or become the subject of any letter of intent or agreement in principle.
In 1997, the Company borrowed $878,000, of which $778,000 was borrowed from
SWL, Inc., a corporation controlled by Messrs. Latessa, Wolen and the Estate
of Anthony Saffiotti. The borrowings were in the form of unsecured
subordinated debentures bearing interest rates ranging from 9% to 14% per
year, payable quarterly in arrears, with the final payment due on March 31,
1998. These loans were made for general working capital purposes. The Company
intends to use approximately $910,000 of the proceeds of this Offering to
repay these loans, with accrued interest.
In December 1996, the Company sold an aggregate of 1,000,000 shares of its
Common Stock at $1.00 per share, of which 900,000 shares were sold to Melville
Ventures & Associates, L.P., an investment partnership, and 100,000 shares
were sold to two additional investors.
In November, 1997, upon the death of Anthony Saffiotti ("Saffiotti"), a
stockholder who owned 1,620,220 shares of the Company's Common Stock, the
Company became obligated to purchase from Saffiotti (through his estate) and
the estate of Saffiotti became obligated to sell to the Company, all 1,620,220
shares of Common Stock at book value, which, at December 31, 1997, was $.055
per share (approximately $89,112). (See "Certain Transactions.")
The Company may be able to increase its production of mortgage loan
originations through, among other things, increased advertising and promotion,
expanded telemarketing capabilities and continued expansion into new markets.
This possible increase in mortgage loan originations is expected to be funded
by additional borrowings under the Warehouse Facility and, if available, one
or more other borrowing arrangements which the Company believes might be
available to it following the Offering, depending on the whether the offering
is at the minimum or maximum level. To the extent that additional borrowings
under the Warehouse Facility or other arrangements are not available on
satisfactory terms, the Company will explore alternative means of financing,
including raising capital through additional offerings of securities.
23
<PAGE>
BUSINESS
GENERAL
The Company, through its wholly owned subsidiary, Mortgage Plus, is a full
service retail mortgage banking company providing a broad range of residential
Mortgage Products (including first mortgages, home equity loans and second
mortgages) to (i) prime, or "A" credit borrowers who qualify for conventional
mortgages (including loans which conform to the standards of certain
institutional investors, such as Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC")), (ii) borrowers
who are classified as sub-prime, or "B/C" credit, borrowers, and (iii)
borrowers who qualify for mortgages insured by the Federal Housing
Administration ("FHA") or guaranteed by the Veterans Administration ("VA").
The Company is headquartered in Long Island, New York and has a total of 15
retail branches (the "Branch Network") in nine states, including Arkansas (1),
Connecticut (1), Florida (1), Illinois (1), Missouri (3), New Jersey (1), New
York (4) and Cleveland (1), and the Commonwealth of Puerto Rico (1). The
Company is also a licensed mortgage banking company in seven additional states
and anticipates becoming licensed in 11 additional states during the first
quarter of 1998.
From the Company's inception in 1987 until mid-1994, the Company operated as
a licensed mortgage broker, principally in New York. Since obtaining its
mortgage banking license in New York in 1994, the Company has grown
significantly, originating $43.3 million, $58.0 million, $108.2 million and
133.5 million of mortgage loans for the years ended December 31, 1994, 1995,
1996 and 1997, respectively. This growth has been due primarily to the
Company's expansion into additional geographic markets, the Company's focus,
since mid-1996, on mortgage products for "B/C" credit-rated borrowers and a
substantial increase in loans to FHA/VA borrowers. The Company's "B/C" and
FHA/VA loan volume has grown steadily since 1995, with loans to "B/C"
borrowers accounting for 39.5%, of the Company's total loan origination volume
for the year ended December 31, 1997, compared to 7.4% for the year ended
December 31, 1995, and loans to FHA/VA borrowers accounting for 25.0% of the
Company's total loan origination volume for the year ended December 31, 1997,
compared to 9.2% for the year ended December 31, 1995.
The Company is an active originator of prime, sub-prime and FHA/VA
residential first mortgages in its markets to individual borrowers on a retail
basis. Loan officers within the Branch Network deal directly with mortgage
customers who are initially identified through telemarketing operations,
advertising, direct mail, promotional materials and educational seminars or
who are referred by local real estate agents, builders, accountants, financial
planners, attorneys and mortgage brokers.
The growth of the Company's mortgage lending to "B/C" credit borrowers
reflects (i) the Company's focus on such customers since mid-1996, (ii) the
Company's prompt and responsive service to its customers, (iii) the demand for
sub-prime mortgage products, (iv) the availability to the Company of capital
for these mortgage banking products in the form of warehouse lines of credit,
and (v) the development, on an industry-wide basis, of a large secondary
market of institutional investors who compete to purchase mortgages from the
Company and other mortgager originators. Most "B/C" credit borrowers have
impaired credit, although "B/C" credit borrowers also include individuals
whose credit histories are not adverse but are seeking an expedited mortgage
process or persons such as the self-employed, who have difficulty verifying
their income. The Company expects that "B/C" credit-rated loans will become an
even greater portion of its total loan originations since such loans, have
generated greater revenue to the Company than "A" credit-rated loans.
Furthermore, the Company believes that the demand for loans by "B/C" credit
borrowers is less sensitive to general levels of interest rates or home sales
and therefore less cyclical than demand for loans by "A" credit-rated
borrowers. Nevertheless, the Company's "B/C" mortgage lending activities are
subject to significant risks, including risks related to the competition from
an increasing number of lenders who are also seeking "B/C" credit borrowers
(see "Risk Factors--Competition"), and the risks associated with lending to
credit impaired borrowers (see "Risk Factors--Risks of Loan Delinquencies and
Defaults").
For the year ended December 31, 1997, the Company had revenues of $8.0
million, compared to $6.0 million for the year ended December 31, 1996 and
$3.0 million for the year ended 1995. The Company's
24
<PAGE>
revenues are generated from the fees it charges borrowers on the origination
of mortgage loans, the premiums paid by institutional investors when they
purchase the loans from the Company and interest earned during the period
(generally less than 30 days) the loans are held for sale to institutional
investors. The Company does not sell mortgage loans in "securitization"
transactions, but rather sells loans either on an individual "whole loan"
basis or pooled in groups to financial institutions at fixed prices, usually
on a non-recourse basis for a cash premium. The Company sells its mortgages to
institutional investors on a "servicing-released" basis, i.e. the purchaser
assumes the obligations of servicing, the loan and thereby avoids the
administrative expenses of managing a servicing portfolio, and the associated
foreclosures, delinquencies and resale of residential real estate.
GROWTH STRATEGY
The Company's growth strategy includes the following elements:
. Increasing mortgage originations to sub-prime borrowers through
recruiting experienced loan officers, increasing telemarketing and
direct mail to target audiences;
. Expanding the Company's operations in the Commonwealth of Puerto Rico
through developing strategic alliances with financial institutions and
mortgage bankers and brokers; and
. Expanding the Company's geographic coverage for mortgage originations
generally, through additions to the Branch Network, through developing
strategic alliances with financial institutions, mortgage bankers and
brokers and possible acquisitions.
PRODUCTS AND SERVICES
The Company offers, through its Branch Network currently consisting of 15
offices, a broad array of mortgage products to "A" credit-rated borrowers, the
borrower who can qualify for an FHA/VA mortgage, or individuals seeking home
mortgages who are classified as "B/C" credit-rated, or sub-prime, borrowers.
The Company's mortgage products include fixed rate and adjustable rate loans
for the purchase and/or refinancing of residential properties.
Loan Originations to Borrowers. The Company's mortgage products are designed
to respond to consumer needs and competitive factors as well as the
requirements mandated by prospective purchasers of these loans. These products
include fixed-rate 15-year and 30-year mortgages offered in several formats.
The Company also offers various adjustable rate mortgages ("ARMS"), including
loans with balloon payments and various amortization schedules. Accordingly,
some loans may have relatively short maturity dates (such as five or seven
years) with longer amortization schedules (such as 25 to 30 years). Applicants
have a choice of electing to "lock-in" their interest rates as of the
application date or thereafter or to accept a prevailing interest rate at
closing. A prevailing interest rate is subject to change in accordance with
market interest rate fluctuations and is set by the Company three to five days
prior to closing.
The Company's mortgage products are tailored (with varying down payment
requirements, loan-to-value ratios ("LTV") and interest rates) based upon the
borrower's particular credit classification and the borrower's willingness or
ability to meet varying income documentation standards. These document
standards include the full income documentation program pursuant to which a
prospective borrower's income is evaluated based on tax returns, W-2 forms and
pay stubs; the limited income documentation program pursuant to which a
prospective borrower's income is evaluated based on bank statements and profit
and loss statements; the stated income program pursuant to which a prospective
borrower's employment, rather than income, is verified; or the no ratio loan
program pursuant to which a prospective borrower's credit history and
collateral values, rather than income or employment, are verified. These loan
variations give the Company the flexibility to loan funds to a wider range of
borrowers.
Mortgages Insured or Guaranteed by Government Agencies. The Company has been
designated by the U.S. Department of Housing and Urban Development ("HUD") as
a direct endorser of loans insured by the
25
<PAGE>
FHA and an automatic endorser of loans partially guaranteed by the VA, and can
offer FHA or VA mortgages to qualified borrowers. As a direct or automatic
endorser, the Company can originate loans insured or guaranteed by those
agencies without prior approval. Generally, FHA and VA mortgages are available
to borrowers with low/middle incomes and impaired credit classifications for
properties within a specific price range. FHA mortgages must be underwritten
within specific governmental guidelines, which include income verification,
borrower asset, borrower credit worthiness, property value and property
condition. Because these guidelines require that borrowers seeking FHA-insured
mortgages submit more extensive documentation and the Company perform a more
detailed underwriting of the mortgage than prime credit mortgages, the
Company's origination fees for these mortgages are generally higher than a
comparable sized mortgage from a prime credit-rated borrower. FHA/VA loans are
available on terms of fifteen or thirty years.
The Company also offers Title I home improvement loans, representing loans
to homeowners, a portion of which is guaranteed by the FHA, for the purpose of
certain pre-qualified home improvements.
FNMA/FHLMC Mortgages. The Company offers mortgage products that conform to
the underwriting guidelines of FNMA and FHLMC. Although the Company does not
currently sell these mortgages directly to FNMA and FHLMC, the Company
attempts to conform substantially all of the conventional loans which it
originates to their guidelines because they are readily marketable to
institutional investors.
Sales of Mortgage Loans
The Company follows a strategy of selling for cash, generally within 30 days
following the date of a mortgage origination, all of the loans it originates
(and related servicing rights) to institutional investors, usually on a non-
recourse basis. This strategy allows the Company to (i) generate cash revenues
(which includes, in most cases, a premium over the face amount of the loans to
be sold), (ii) reduce the Company's exposure to interest rate fluctuations,
and (iii) substantially reduce any potential expense or loss in the event the
loan goes into default after the first month of its origination. The non-
recourse nature of the Company's loan sales does not, however, entirely
eliminate the Company's default risk since the Company may be required to
repurchase a loan from the investor or indemnify an investor if the borrower
fails to makes its first mortgage payment or if the loan goes into default and
the Company is found to be negligent in uncovering fraud in connection with
the loan origination process.
SPECIFIC CLASSIFICATIONS OF VARIOUS MORTGAGE LOANS
Mortgage loans are classified by the Company according to a number of
factors related to the borrower and to the underlying property to be financed.
These factors are based on government, industry and institutional standards
and experience, and are widely employed by mortgage lenders as well as
mortgage investors in the secondary trading market. Government agencies
classify mortgage loans in order to assess those which qualify for certain
government-sponsored programs and enable purchasers of mortgages to resell
them in the form of asset-backed securities. These classifications help create
and maintain a substantial liquid secondary market for these financial assets.
This liquidity in turn ensures that lenders and borrowers will be able to
access the mortgage market.
The Company's underwriters follow guidelines established by various
government agencies and institutional investors. Loan applications are
classified according to certain characteristics such as collateral, loan size,
various debt ratios, LTV, credit history and term of the loan. Loan applicants
with less than favorable credit ratings may be offered loans with higher
interest rates, lower LTV ratios, and higher origination fees than applicants
with more favorable credit ratings. These higher fees reflect the somewhat
higher risks associated with these loans.
The Company has established classifications with respect to the credit
profiles of loans to sub-prime borrowers based on certain of the applicant's
characteristics. Each applicant for a sub-prime loan is placed into one of
three letter credit risk categories, credit grade "A" through "C." Ratings are
based upon a number of factors, including the applicant's credit history, the
value of the property and the applicant's employment status,
26
<PAGE>
and are subject to the discretion of the Company's underwriting staff. Terms
of loans made by the Company, as well as the maximum LTV and debt service-to-
income coverage (calculated by dividing fixed monthly debt payments by gross
monthly income), vary depending upon the classification of the borrower.
Borrowers with lower credit ratings generally pay higher interest rates and
loan origination fees.
The general criteria currently used by the Company's underwriting staff in
classifying "B/C" credit-rated loan applicants are as set forth below.
UNDERWRITING CRITERIA FOR SUB-PRIME LENDING
<TABLE>
<CAPTION>
"A" RISK "B" RISK "C" RISK
-------- -------- --------
<S> <C> <C> <C>
General Repayment....... Has repaid Has generally repaid May have experienced
installment or installment or credit significant past
revolving debt problems credit problems
Existing mortgage loans. Current at Current at May not be current at
application time application time and application time and
and a maximum of a maximum of three a maximum of four 30-
two 30-day late 30-day late payments day late payments and
payments in the in the last 12 months one 60-day late
last 12 months payment in the last
12 months
Non-mortgage credit..... Minor derogatory Some prior defaults Significant prior
items allowed with allowed but major delinquencies may
a letter of credit or installment have occurred, but
explanation; no debt paid as agreed major credit or
open collection may offset some installment debt paid
accounts or charge- delinquency; open as agreed may offset
offs, judgments or charge-offs, some delinquency
liens judgments or liens obligations in the
are permitted on a future
case-by-case basis
Bankruptcy filings...... Discharged more Discharged more than Discharged more than
than four years two years prior to one year prior to
prior to closing closing and credit closing and credit
and credit reestablished reestablished
reestablished
Debt service-to-income Generally 38% or Generally 45% or less Generally 50% or less
ratio.................. less
Maximum loan-to-value
ratio:
Owner-occupied.......... Generally 80% (or Generally 80% (or Generally 75% (or 80%
90%*) for a one-to 85%*) for a one-to for first liens*) for
two-family two-family residence a one-to two-family
residence; 75% for residence; 65% for a
a condominium condominium; 60% for
a three-to four-
family residence
Non-owner-occupied...... Generally 70% for a Generally 70% for a Generally 60% for a
one-to four-family one-to two-family one-to two-family
residence residence residence
</TABLE>
- --------
* On an exceptional basis
The Company uses the foregoing credit grading criteria as guidelines only.
On a case-by-case basis, the Company may determine that the prospective
borrower warrants an exception. Exceptions may generally be allowed if the
application reflects certain compensating factors such as loan-to-value ratio,
debt ratio, length of employment and other factors. For example, a higher debt
ratio may be acceptable with a lower loan-to-value ratio. Accordingly, the
Company may classify in a more favorable credit grade category certain
mortgage loans that, in the absence of such compensating factors, would
satisfy only the criteria of a less favorable risk category.
27
<PAGE>
MORTGAGE ORIGINATION
The following table shows mortgage loan origination volume by type of loan
for each of the four years ended December 31, 1994, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1995 1996 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CONVENTIONAL LOANS:
Volume..................... $43,293,573 $48,366,929 $ 48,102,840 $ 47,428,400
Percentage of total volume. 100.0% 83.4% 44.5% 35.55%
FHA/VA LOANS:
Volume..................... -- $ 5,323,313 $ 24,810,101 $ 33,324,400
Percentage of total volume. -- 9.2% 22.9% 25.0%
SUB-PRIME LOANS:
Volume..................... -- $ 4,284,375 $ 35,290,148 $ 52,748,500
Percentage of total volume. -- 7.4% 32.6% 39.5%
TOTAL LOANS:
Volume..................... $43,293,573 $57,974,617 $108,203,089 $133,501,300
Number of Loans............ 329 503 1,073 1,585
Average Loan Size.......... $ 131,591 $ 115,257 $ 100,841 $ 84,228
</TABLE>
GEOGRAPHIC EXPANSION
The Company has expanded its Branch Network from 7 branches in four states
in December 1995, to 15 retail branch offices in 8 states and the Commonwealth
of Puerto Rico as of the date hereof. The Company is currently licensed as a
mortgage banking company and doing business in seven additional states with
applications to become licensed pending in an additional 11 states. The
Company plans to continue the expansion of its Branch Network as opportunities
present themselves. Additional branch offices will allow the Company to focus
on developing contacts with individual borrowers, local brokers and referral
sources, such as accountants, attorneys and financial planners, with a view
toward expanding its direct consumer loan business. In addition, the Company's
expansion strategy involves: (i) targeting cities where the population density
and economic indicators are favorable for lending; and (ii) testing the target
market prior to the establishment of a branch office, where local regulations
permit, via newspaper, radio and direct mail advertising.
New locations are carefully selected. Most are in close proximity to offices
of prominent local realtors. All of the offices are operated under leases
which have terms of less than 5 years and are managed by personnel either
trained at the Company's headquarters in Syosset, New York or who possess
prior industry experience. The amount of space under these leases is based on
projected short to intermediate term needs, rather than committing Company
resources for an excessively long term. New locations are carefully selected
to provide either for contiguous in-state or related state expansion, while
others are intended to accommodate new state licenses and/or new markets.
The Company carefully evaluates several criteria as new offices are
considered, including income trends, employment data, housing affordability,
median sales prices of homes, single-family permits, local contacts,
management availability, and other housing-related characteristics.
Notwithstanding the Company's expansion of its Branch Network, approximately
91% of all of the mortgage loans originated by the Company for the year end
December 31, 1997 were to borrowers in New York, New Jersey and Missouri and
the Company's origination business is likely to contain a high concentration
in such areas for the foreseeable future.
28
<PAGE>
Puerto Rico. In November 1996, the Company opened a sales office in Puerto
Rico, initially to originate loans to "A" credit-rated borrowers, and
commenced sub-prime credit-rated mortgage originations in June 1997. It is
anticipated that the majority of mortgage originations in Puerto Rico in the
future will consist of loans to sub-prime credit-rated borrowers. These sub-
prime credit-rated mortgage originations are essentially similar to the
mortgage originations in the continental United States although the secondary
market for sub-prime mortgages is not as developed as the market for these
mortgages in the continental United States. The Company believes that Puerto
Rico offers an opportunity for the Company to increase its sub-prime mortgage
originations because Puerto Rico has high levels of home ownership and lack of
competition from other lenders for sub-prime credit mortgages. Through
December 31, 1997, the Puerto Rico office originated mortgage loans totaling
$4,350,425.
Expansion Through Strategic Alliances and Acquisitions. To date, the Company
has expanded its loan origination capabilities through internal growth.
However, in the future, it may also grow through creating strategic alliances
with other retail mortgage lenders and through acquisitions. The Company
believes that acquisitions will help the Company accelerate its pace of
growth, and will enable the Company to realize significant economies of scale
in the mortgage business. The Company will seek out candidates for alliances
and/or acquisitions which operate in geographic and product areas that
complement its existing business. As of the date of this Offering, the Company
has not entered into any commitments for any strategic alliance or
acquisition.
MARKETING AND SALES
The principal target of the Company's marketing programs are residential
home owners and home buyers. The Company uses a combination of direct
marketing and third party contacts through real estate professionals, such as
real estate brokers, attorneys, accountants, and financial planners to develop
new business.
The Company's marketing programs, at both the corporate and the branch
office level, include market-sensitive advertising in key newspapers and other
publications, public relations, promotional materials customized for consumers
and real estate professionals, collateral materials supporting particular
product promotions, educational seminars, trade shows, telemarketing, and
sponsoring or promoting other special events. The Company also conducts
seminars in conjunction with other real estate professionals, targeting
potential home buyers. All of the Company's loan representatives, consisting
of approximately 30 commissioned salespersons, support these activities with
extensive personal contact.
Telemarketing. In January, 1997, the Company formed its Retail/Telemarketing
Division to solicit loans directly from prospective borrowers. The Company
believes that the Retail/Telemarketing Division represents a significant
opportunity to expand origination volume by marketing directly to borrowers.
The division currently employs 20 telemarketers, who utilize telephone lists
from various sources.
Customer Service. A key element of the Company's marketing strategy, as well
as its operational philosophy, is to provide outstanding service to its
customers. The Company emphasizes promptness and professionalism in all its
dealings with customers. The Company believes that its ability to quickly
process loan applications provides an advantage over many banks, finance
companies, other mortgage banking firms and mortgage brokers. The Company
believes that its response to a potential mortgage customer, from the
Company's receipt of a loan application to its issuance of a final lending
commitment, is among the quickest in the industry. This capability, together
with the breadth of the Company's product offerings, has enabled the Company
to distinguish itself in a competitive market and thereby achieve growth in
revenues and profits.
OPERATIONS
Loan Approval Process. All loan applications are, depending on the type of
loan sought, forwarded to either Syosset, New York or St. Charles, Missouri
(for "A" credit-rated) or to Fairfield, New Jersey (for "B/C" credit-rated)
for processing, underwriting and closing. This centralization allows the
Company to maintain efficiency and uniformity in processing, as well as
quality control over all such loans.
The Company's review of a loan application and the related underwriting
process leading to loan approval generally includes matters such as
verification of an applicant's income and bank deposits, review of a credit
29
<PAGE>
report from a credit reporting agency, receipt of a preliminary title report,
receipt of a real estate appraisal, verification of the accuracy of the
applicant's information, and compliance with the Company's underwriting
criteria and those of either FHA, VA and/or institutional investors. After
underwriting approval of an "A" credit-rated loan, the Company issues a
written loan commitment to the applicant which sets forth, among other things,
the loan amount, interest rate, fees, funding conditions and approval
expiration dates. After underwriting approval of a sub-prime credit-rated
loan, the Company issues a pre-approval letter subject to completion of
underwriting conditions.
Loan Funding and Borrowing Arrangements. The Company's mortgage loan
originations are funded by borrowings under the Warehouse Facility in the
amount of $12 million, provided by a commercial bank. The Warehouse Facility
expires on April 15, 1998, is renewable annually and is collateralized by
specific mortgage loans held for sale. The Warehouse Facility requires the
Company to repay the amount it borrows to fund a loan origination generally
within 60 days after the loan is closed or when the Company receives payment
from the sale of the funded loan, whichever occurs first. Until such sale
closes, the Warehouse Facility provides that the funded loan is pledged to
secure the outstanding borrowings.
The amount outstanding under the Warehouse Facility at December 31, 1996 was
$7,657,362 and at December 31, 1997 was $10,532,994. The amount outstanding
under the Warehouse Facility at March 11, 1998 was $10,902,705. The interest
rate on funds borrowed pursuant to the Warehouse Facility depends on the type
of mortgage financed, and is based on the bank's prime rate minus 25 basis
points for "A" credit-rated mortgage loans, and prime rate plus 25 basis
points for sub-prime credit-rated loans. At December 31, 1997, interest ranged
from 8.25% to 8.75%. The Warehouse Facility provides that the commercial bank
fund 98% of the principal amount of "A" credit-rated loans and 95% of the
principal amount of "B/C" credit-rated loans. The Warehouse Facility is
personally guaranteed by Messrs. Latessa and Wolen and contains certain
covenants requiring, among other things, maintenance of certain financial
ratios and minimum tangible net worth. In June, 1997, the Company received a
waiver from the lender of the minimum tangible net worth requirement which was
$900,000 at the time of default and modifications thereof. (See "Risk
Factors--Dependence on Warehouse Financing; Prior Default under Warehouse
Facility."). See "Use of Proceeds." The Company expects to be able to renew or
replace the Warehouse Facility when its current terms expire.
From October 1996 through June 1997, the Company had an additional $6
million warehouse line of credit with a commercial bank which was
collateralized by specific mortgage loans held for sale. The amount
outstanding under this warehouse line of credit at December 31, 1996 was
$1,936,333. Interest was variable based on prime and was 8.5% at December 31,
1996. This warehouse line of credit was personally guaranteed by Messrs.
Latessa and Wolen and contained certain covenants requiring, among other
things, maintenance of certain financial ratios and minimum tangible net
worth. The Company was not in compliance with minimum tangible net worth
requirement at December 31, 1996. The bank notified the Company that it could
not add new loans to the warehouse line of credit subsequent to June 15, 1997
and that the warehouse line of credit would be terminated subsequent to August
15, 1997. As of October 27, 1997, the Company has paid off all amounts
outstanding under this line of credit. The management of the Company does not
believe that the unavailability of this warehouse line of credit has had an
impact on the Company's ability to originate or sell mortgage loans due to the
amount available under the Warehouse Facility.
The Company continues to investigate and pursue alternative and
supplementary methods of funding its operations through the public and private
capital markets. There can be no assurances, however, that the Company will be
successful in identifying these alternatives, or in consummating any such
funding transactions with such alternative sources.
Sale of Loans. The Company markets and sells loans it originates to various
financial institutions, including, but not limited to, insurance companies,
banks, savings and loans, finance companies and finance companies, in the
secondary market. "A" credit-rated loans are sold individually or in small
groups of less than 10 loans. Sub-prime, or "B/C" credit-rated loans are sold
in pools of $1 to $2 million face amount of mortgages. Both "A" and "B/C"
credit-rated loans are sold in privately-negotiated transactions. The Company
is not required to deliver any preset amount of loans to any of its investors,
and therefore does not have any fixed
30
<PAGE>
dollar commitments to any investor. However, the Company has arrangements with
certain of its institutional investors that require the investor to purchase
all loans which meet that investors guidelines for originating "A" credit-
rated loans.
The Company sells its loans to institutional investors with customary
representations and warranties covering loans sold. The Company, may be
required to repurchase loans pursuant to its representations and warranties.
The Company also may be obligated to repurchase a loan if a default occurs
within the first month following the date it was originated or if the loan
documentation is alleged to contain fraudulent misrepresentations made by the
borrower. To date, the Company has never been required to repurchase a loan.
In addition, in certain circumstances, if a loan is repaid within the first 12
months of the sale of the loan, the Company may be responsible for a partial
repayment of premiums. To date, the amount of premiums that had to be repaid
in any year has been less than 1% of the Company's total revenue.
Revenue Generated Upon Sale of the Loan. The Company's sale of mortgage
loans, together with servicing rights, to institutional investors generates
revenues based on the difference between the value of the loan to the
investors (which includes a servicing release premium, which is typically
between 1% and 2 1/2% of the mortgage's principal amount) and the Company's
cost basis for such loan, which is generally the principal amount of the loan
funded by the Company adjusted for origination fees and costs. The Company
attempts to maximize its revenue on loan sales by closely monitoring
institutional purchasers' requirements and focusing on originating the types
of mortgage loans for which institutional purchasers tend to pay higher
prices.
The Company does not combine and sell its mortgage originations to investors
in private placements or in public offerings as asset-backed securities.
Quality Control. A significant element of the Company's quality control
process is that the Company's underwriting personnel function independently of
the Company's loan officers. The Company believes that the implementation and
enforcement of its comprehensive underwriting guidelines and its quality
control program are a significant element in the Company's ability to
originate quality loans that are attractive to the secondary market. The
Company's quality control process examines branch offices and approximately
10% of all loans that were originated in order to enhance the ongoing
evaluation of the loan processing function. In conducting branch examinations,
the quality control process reviews the loan applications for compliance with
federal and state and any institutional lending standards, which may involve
reverifying employment and bank information and obtaining separate credit
reports and property appraisals. The quality control reports are submitted
directly to an executive officer of the Company.
The Company has a training program for its sales and loan production
personnel through in-house classes which cover all aspects of making a loan.
Supervisory and other key personnel at the various branch offices are often
brought to the Syosset headquarters for extensive training; they in turn
conduct appropriate training at the local office level.
COMPETITION
The mortgage banking industry is highly competitive across the United States
and within the states where the Company conducts business. The Company's
competitors include financial institutions, such as other mortgage bankers,
state and national commercial banks, savings and loan associations, credit
unions, insurance companies, and other finance companies. Most of these
competitors are substantially larger and have considerably greater financial,
technical, and marketing resources than the Company. In addition, many
financial service organizations have formed networks for loan origination.
Competition in the mortgage banking industry can take many forms, including
convenience in obtaining a loan, customer service, marketing and distribution
channels, amount and term of the loan, and interest rates. The Company
believes that it is able to compete on the basis of providing prompt and
responsive service and offering competitive loan programs to borrowers. The
Company's underwriters have the flexibility to deviate from the
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<PAGE>
Company's underwriting guidelines when an exception or upgrade is warranted by
a particular loan applicant's situation, such as evidence of a strong mortgage
repayment history relative to a weaker overall consumer-credit repayment
history.
Since there are significant costs involved in establishing a network of
retail branches, such as the Company's Branch Network, there are potential
barriers to market entry for any company seeking to provide a full range of
mortgage banking services. No single lender or group of lenders has, on a
national level, achieved a dominant or even a significant share of the market
with respect to loan originations.
INFORMATION SYSTEMS
The Company continues to design and integrate into its operations the
ability to access critical information for management on a timely basis. The
Company uses various software programs designed specifically for the mortgage
lending industry. Each branch office provides headquarters and senior
management with productivity and other key data. The information system
provides weekly and monthly detailed information on loans in process, fees,
commissions, closings, detailed monthly financial statements and all other
aspects of running and managing the business. The Company anticipates using
proceeds of the Offering for upgrades and improvements of the information
system, including the capability to obtain loan and other information from
branches on a daily basis. The cost of implementing these upgrades and
improvements is estimated to be $300,000 including both software, hardware and
management information systems personnel for all locations.
PROPERTY
The Company maintains 15 leased locations in nine states and the
Commonwealth of Puerto Rico. All of the Company's leases are for terms of 5
years or less in order to minimize capital requirements and retain operating
flexibility. The table below provides details as to each location.
FACILITY LEASE DATA
<TABLE>
<CAPTION>
CURRENT
SIZE IN MONTHLY COST
CITY/STATE LOCATION SQUARE FEET LEASE COST SQ. FT. LEASE TERM OFFICE TYPE
- ---------- ---------------------- ----------- ---------- ------- ---------- -------------------
ARKANSAS (1)
<S> <C> <C> <C> <C> <C> <C>
Little Rock, AR........ 100 N. Rodney Parham 1100 $1,500 $16.36 2/1/97-1/31/2000 Branch
<CAPTION>
CONNECTICUT (1)
<S> <C> <C> <C> <C> <C> <C>
Torrington, CT......... 760 East Main Street 800 675 10.13 7/1/97-6/30/98 Branch
<CAPTION>
FLORIDA (1)
<S> <C> <C> <C> <C> <C> <C>
Ft. Meyers, FL 10051 McGregor 800 809 9.45 11/3/98-12/1/99 Branch
<CAPTION>
ILLINOIS (1)
<S> <C> <C> <C> <C> <C> <C>
Shattuc, IL............ 38 Harbor Drive 400 500 10.50 7/1/96-8/31/99 Branch
<CAPTION>
MISSOURI (3)
<S> <C> <C> <C> <C> <C> <C>
St. Charles, MO........ 2001 Golfway Dr 2,000 1,172 7.03 4/1/97-2/28/2001 Branch
Des Peres, MO.......... 1181 Manchester Rd 2,000 1,675 13.28 6/1/96-5/31/2001 Branch
Hannibal, MO........... 1239 N. Main Street 700 650 11.25 4/97-1/31/98 Branch
<CAPTION>
NEW JERSEY (1)
<S> <C> <C> <C> <C> <C> <C>
Sub-prime Lending
Fairfield, NJ.......... 100 Passaic 4,000 5,821 17.46 12/1/95-12/21/2001 Headquarters/Branch
<CAPTION>
NEW YORK STATE (4)
<S> <C> <C> <C> <C> <C> <C>
Corporate
Syosset, NY............ 6851 Jericho Tpke 6,623 6,700 15.40 6/1/96-6/30/99 Headquarters/Branch
Hauppauge, NY.......... 517 Rt. 111 1,270 1,482 14.00 3/1/96-2/28/98 Branch
Centereach, NY......... 2367 Middle Country Rd 1,000 1,300 15.60 10/1/96-11/30/99 Branch
Staten Island, NY...... 1667 Richmond Rd 400 1,300 19.19 1/1/98-12/31/99 Branch
<CAPTION>
PENNSYLVANIA (1)
<S> <C> <C> <C> <C> <C> <C>
Scranton, PA........... 538 Spruce St. 700 700 12.00 10/1/97-9/30/98 Branch
<CAPTION>
PUERTO RICO (1)
<S> <C> <C> <C> <C> <C> <C>
Hato Rey, PR........... Royal Bank Center 750 1,262 19.20 8/1/97-7/31/2000 Branch
<CAPTION>
OHIO (1)
<S> <C> <C> <C> <C> <C> <C>
Cleveland, OH.......... 925 Euclid Ave. 1193 1,292 13.00 1/1/98-1/31/2001 Branch
</TABLE>
32
<PAGE>
GOVERNMENT REGULATIONS
The Company's business is subject to extensive and complex rules and
regulations of, and examinations by, various federal, state and local
government authorities. These rules and regulations impose obligations and
restrictions on the Company's loan originations, credit activities and secured
transactions. In addition, these rules limit the interest rates, finance
charges and other fees the Company may assess, mandate extensive disclosure to
the Company's customers, prohibit discrimination and impose multiple
qualification and licensing obligations on the Company. The Company's loan
origination activities are subject to the laws and regulations in each of the
states in which those activities are conducted and are also subject to various
federal laws, including the Federal Truth-in-Lending Act and Regulation Z
promulgated thereunder, the Homeownership and Equity Protection Act of 1994,
the Federal Equal Credit Opportunity Act and Regulation B promulgated
thereunder, the Fair Credit Reporting Act of 1970, the Real Estate Settlement
Procedures Act of 1974 and Regulation X promulgated thereunder, the Fair
Housing Act, the Home Mortgage Disclosure Act and Regulation C promulgated
thereunder and the Federal Debt Collection Practices Act, as well as other
Federal and State statutes and regulations affecting the Company's activities.
These rules and regulations, among other things, impose licensing
obligations on the Company, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspections and appraisals of properties,
require credit reports on prospective borrowers, regulate payment features,
mandate certain disclosures and notices to borrowers and, in some cases, fix
maximum interest rates, fees and mortgage loan amounts. Failure to comply with
these requirements can lead to revocation of its mortgage banking license in
the states where the Company is licensed and loss of approved status for
participation in government sponsored programs (such as the FHA and VA loans),
demands for indemnification or mortgage loan repurchases, certain rights of
rescission for mortgage loans, class action lawsuits and administrative
enforcement actions by federal and state governmental agencies. See
"Business--Government Regulation."
Although the Company believes that it has systems and procedures to insure
compliance with these requirements and believes that it is currently in
compliance in all material respects with applicable federal, state and local
laws, rules and regulations, there can be no assurance of full compliance with
current laws, rules and regulations or that more restrictive laws, rules and
regulations will not be adopted in the future that could make compliance
substantially more difficult or expensive. In the event that the Company is
unable to comply with such laws or regulations, its business, prospects,
financial condition and results of operations may be materially adversely
affected.
Members of Congress, government officials and political candidates have from
time to time suggested the elimination of the mortgage interest deduction for
federal income tax purposes, either entirely or in part, based on borrower
income, type of loan or principal amount. Because many of the Company's loans,
the interest on which may be currently tax deductible, are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, some of the competitive advantage of such loans when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for mortgage loans
of the kind offered by the Company.
EMPLOYEES
As of December 31, 1997 the Company had 127 employees, substantially all of
whom were full-time employees. Of these, approximately 45 were employed at the
Company's Syosset, New York headquarters, and 82 were employed at the
Company's branch offices. Approximately 30 of the Company's employees are
commission-based loan officers. None of the Company's employees are
represented by a union. The Company considers its relations with its employees
to be satisfactory.
33
<PAGE>
LEGAL PROCEEDINGS
The Company is a defendant in a legal proceeding brought by two former
employees, alleging breach of contract in connection with establishing and
operating a branch office. This action is captioned as Stanton v. Mortgage
Plus Equity and Loan Corp., and was brought in the Supreme Court of the State
of New York, Nassau County. The plaintiffs sought a preliminary injunction and
damages in the amount of $1,257,000 plus costs and disbursements. The
preliminary injunction has been denied, but the remaining claims are still
pending. This action is currently in the discovery stage, which is tentatively
scheduled to be completed by the end of April, 1998. The Company believes that
the action is without merit and the Company is vigorously defending this
action.
Apart from the proceeding described above, in the ordinary course of its
business, the Company is from time to time subject to various legal
proceedings. The Company does not believe that any of these legal proceedings
arising in the ordinary course, individually or in the aggregate, will have a
material adverse effect on the business, financial condition or results of
operations of the Company.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's directors
and persons nominated to become directors and executive officers and the
positions they hold with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven M. Latessa 42 Chief Executive Officer, President and
Chairman of the Board of Directors
Cary Wolen 36 Chief Operating Officer, Secretary,
Treasurer and Director
Jon P. Blasi 41 Chief Operating Officer B/C Lending
Division and Director
Daniel Intemann 38 Nominee for Director
</TABLE>
STEVEN M. LATESSA co-founded the Company in 1987 and is the Company's Chief
Executive Officer, President and Chairman of the Board of Directors.
CARY WOLEN co-founded the Company in 1987 and is the Company's Chief
Operating Officer, Chief Financial Officer and Director.
JON P. BLASI has been Chief Operating Officer of the Company's "B/C" Lending
Division since March 1996 and from November 1995 through March 1996, Mr. Blasi
was its Executive Vice President. In January 1998, Mr. Blasi was appointed as
a Director. From January 1991 through November 1995, Mr. Blasi was Director of
Northeast Operations for New Jersey Mortgage and Investment Corporation. From
1987 through 1991, Mr. Blasi was President of Jordan Construction &
Development, a construction company, and Jordan Interests, a finance company,
both located in New Jersey. From 1983 through 1987, Mr. Blasi was President of
Credit Company of America, Inc., a real estate investment and management firm
("CCA"). In January 1988, in connection with the sale of promissory notes by
CCA, Mr. Blasi entered a plea of nolo contendere to a violation of the Texas
State Securities Act. In March 1996, after making full restitution to the note
purchasers in the amount of $30,000, the violation was dismissed.
DANIEL INTEMANN has been nominated to become a director of the Company upon
the consummation of the Offering. From March 1996 through the present, Mr.
Intemann is Vice President--New York Regional Sales Manager for Chase
Manhattan Bank. From July 1995 through March 1996, Mr. Intemann was Vice
President--Sales Production of Greenpoint Bank. From April 1993 through July
1995, Mr. Intemann was Vice President for Barclay's American Mortgage. From
September 1987 through April 1993, Mr. Intemann was Vice President--Lender
Express at Prudential Home Mortgage Company, Inc. Mr. Intemann received a B.A.
in Economics from the State University of New York at Oneonta in 1981.
BOARD OF DIRECTORS
The Board of Directors currently consists of Messrs. Latessa, Wolen and
Blasi. Upon completion of the Offering, the Company expects to appoint Daniel
Intemann, as a member of its Board of Directors, and, possibly, another
independent director.
Executive officers of the Company are elected annually by the Board of
Directors and serve until their successors are duly elected and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors will establish an Audit Committee prior to the
commencement of this Offering. The Audit Committee will make annual
recommendations to the Board of Directors concerning the appointment of the
independent public accountants of the Company and will review the results and
scope of the audit and other services provided by the Company's independent
auditors. A majority of the members of the Audit Committee will be independent
directors. Upon consummation of the Offering, the Board of Directors expects
to appoint Daniel Intemann and the additional independent director to the
Audit Committee.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table shows all the cash and other compensation paid or to be
paid by the Company, as well as certain other compensation paid or accrued,
during the fiscal years indicated, to the Chief Executive Officer ("CEO") and
the other most highly compensated executive officers whose compensation
exceeded $100,000 in the year ended December 31, 1997.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OTHER
--------------------------- ---- ---------- --------- -----
<S> <C> <C> <C> <C>
Steven M. Latessa........................ 1997 $130,000 $15,000
Chief Executive Officer, President 1996 $130,000 $10,000
1995 $104,920 $18,900
1994 $ 66,380 0
Cary Wolen............................... 1997 $132,080 $10,000
Chief Operating Officer, Secretary, 1996 $132,080 $ 5,000
Treasurer 1995 $113,660 $15,240
1994 $ 72,840 0
Jon P. Blasi............................. 1997 $149,999
1996 $ 47,999
1995 $ 12,500
</TABLE>
KEY MAN LIFE INSURANCE
The Company is the beneficiary of $1,000,000 key man term life insurance
policies on each of the lives of Steven Latessa, Cary Wolen and Jon P. Blasi.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Company (the "Certificate") provides
that a director shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except: (i) for any breach of the director's duty of loyalty to the Company or
its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of law; (iii) for
liability under Section 174 of the Delaware General Corporation Law (relating
to certain unlawful dividends, stock repurchases or stock redemptions); or
(iv) for any transaction from which the director derived any improper personal
benefit. The effect of this provision in the Certificate is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in certain
limited situations. This provision does not limit or eliminate the rights of
the Company or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of
care. These provisions will not alter the liability of directors under federal
securities laws.
The Company's By-Laws provide that the Company shall indemnify each director
and such of the Company's officers, employees and agents as the Board of
Directors shall determine from time to time to the fullest extent provided by
the laws of the State of Delaware.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no compensation for
service as members of the Board. It is expected that directors who are not
employees of the Company will receive, out of the 1995 Plan, options to
purchase 5,000 shares of Common Stock immediately following each annual
meeting of stockholders so long as they continue to serve as directors
following such meeting, and reimbursement of expenses incurred in connection
with attendance of Board and/or committee meetings.
36
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Steven Latessa, Cary
Wolen and Jon P. Blasi. Each of the employment agreements expires on September
30, 2000, unless sooner terminated for death, physical or mental incapacity or
cause (which is defined as the uncured refusal to perform, or habitual neglect
of, the performance of the officer's duties, willful misconduct, dishonesty or
breach of trust which causes the Company to suffer any loss, fine, civil
penalty, judgment, claim, damage or expense, a material breach of the
employment agreement, or a felony conviction), or terminated by either party
with thirty (30) days' written notice, and are automatically renewed for an
additional three year term, unless cancelled at least one year prior to
expiration of the existing term. Each employment agreement provides that all
of such executive's business time be devoted to the Company. In addition, each
of the employment agreements also contain: (i) non-competition provisions that
preclude each employee from competing with the Company for a period of two
years from the date of the termination of his employment of the Company, (ii)
non-disclosure and confidentiality provisions that specify that all
confidential information developed or made known during the term of employment
shall be exclusive property of the Company, and (iii) non-interference
provisions whereby, for a period of two years after his termination of
employment with the Company, the executive shall not interfere with the
Company's relationship with its customers or employees.
Each of the employment agreements provides that the executive will receive
an initial base salary of $150,000 per annum, subject to increases of 4% per
year, commencing in 1998. Each of the executives will also be eligible for a
bonus of up to 5% of all pre-tax earnings of the Company.
Each of the employment agreements provides that if the executive officer is
terminated for reasons other than for cause, the Company will continue to pay
his total base salary for the remainder of the term of the employment
agreement or one year, whichever is greater.
1995 PLAN
The 1995 Plan, which was adopted on September 1, 1995, is an equity
incentive plan pursuant to which shares of common stock may be issued to
employees in the form of stock options, appreciation rights, performance
shares, or other forms of equity-based awards. The 1995 Plan was adopted to
provide long-term incentives to employees and for them to participate in the
long-term growth and success of the business. 700,000 shares of Common Stock
have been reserved for issuance upon exercise of options and other awards
which may be granted under the 1995 Plan. As of the date hereof, options to
purchase an aggregate of 270,000 shares have been granted under the 1995 Plan
with exercise prices ranging from $1 per share to $3 per share. There have
been no options or other awards granted to any of the Company's executive
officers under the 1995 Plan.
401(K) PLAN
The Company does not have a pension plan. The Company has a 401(k) plan
which it put in place in 1991. The plan provides for the Company to make
annual discretionary contributions.
37
<PAGE>
CERTAIN TRANSACTIONS
Certain of the Company's offices are sub-leased from Mattituck, Inc., a
company which is owned by Messrs. Latessa, Wolen and the Estate of Anthony
Saffioti. Total lease expense paid to Mattituck for the years ended
December 31, 1997 and 1996 was approximately $158,000 and $134,000,
respectively. Rent expense paid to Mattituck, Inc. was equal to the aggregate
amount of lease payments between Mattituck, Inc. and the respective lessors.
During the period October 1, 1995 through September 30, 1996, the Company
processed and closed approximately $24.7 million of residential mortgage loans
by borrowers whose loan applications were submitted to the Company by a joint
venture, which was 50% owned by the Company. The Company received revenues
from those loans of approximately $92,000 and $31,000 for the years ended
December 31, 1996 and 1995, respectively. The Company ended this activity on
September 30, 1996.
In December 1996, the Company sold an aggregate of 1,000,000 shares of its
Common Stock at $1.00 per share, of which 900,000 shares were sold to Melville
Ventures & Associates, L.P., an investment partnership, and 100,000 shares
were sold to an additional two investors.
In March 1997, SWL, Inc., a company owned by Messrs. Latessa, Wolen and
Anthony Saffioti, loaned the Company $278,000, at an interest rate of 14% per
year, due on March 31, 1998. In October 1997, SWL Inc. loaned the Company an
additional $500,000 at an annual rate of 9% due April 1998.
In February 1997, Messrs. Latessa and Wolen granted Jon Blasi options to
purchase an aggregate of $252,276 shares of Common Stock of the Company, one-
third of which are exercisable at $1.00 per share commencing on February 15,
1998, one-third of which are exercisable at $1.25 per share commencing
February 15, 1999, and the remaining one-third of which are exercisable at
$1.50 per share commencing on February 15, 2000. The options are exercisable
until February 15, 2000 so long as Mr. Blasi remains employed by the Company.
In October, 1997, Anthony Saffioti, a shareholder owning 1,620,220 shares
(the "Saffioti Shares") of Mortgage Plus, died and, pursuant to a Restated
Shareholder's Agreement (which, by its terms, was terminated upon the Merger),
his estate (the "Estate") was obligated to sell, and the Company was obligated
to purchase, all the Saffioti Shares at a price (the "Price") that reflected
the per share book value at the time of death. Mortgage Plus advised the
Estate that the per share book value was $.055 at December 31, 1997, and that
it was prepared to deliver the Price (approximately $89,112) to the Estate
upon delivery of the stock certificates evidencing such shares. Subsequent to
December 31, 1997, the Company determined to reissue the Saffioti Shares
(called the "Dividend Shares") to all other Mortgage Plus shareholders, in
proportion to their ownership, as a stock dividend; subject however to the
agreement to indemnify Mortgage Plus and any affiliate (which would include
the Company), through the surrender of an amount of Dividend Shares, in the
event Mortgage Plus or any affiliate is obligated to pay the Estate more than
the $89,112 price. Pending the completion of all required actions in
connection with the repurchase of the Saffioti Shares, the Dividend Shares
have been placed in an escrow account.
In December, 1997, the Company and FC Capital Corporation ("FC Corp.")
entered into an agreement (the "Term Loan Agreement") pursuant to which the
Company borrowed $1,500,000 (which, together with interest, is called the
"Borrowed Amount") based upon the Company's commitment to repay the Borrowed
Amount, on a monthly basis beginning in February, 1998, at the greater of
either $100,000 or 50% of the income generated from the Company's sale to FC
Corp. (or its designated affiliate) of qualified mortgage loans. To secure the
Company's repayment of the Borrowed Amount, the Company granted FC Corp. a
security interest in all its assets, subject to the prior interest of the
Warehouse Facility in certain mortgage loans. In addition to the Term Loan
Agreement, FC Corp. loaned $250,000 to the Company pursuant to a Working
Capital Financing Agreement, which amount, together with interest thereon, is
due and payable on the first anniversary of the Company's borrowing under the
Working Capital Financing Agreement.
In connection with the Term Loan and the Working Capital Financing
Agreement, the Company granted FC Corp. a warrant to purchase up to 888,888
shares of its Common Stock at an exercise price of $ per share. The exercise
period for this warrant is for three years, commencing on the .
38
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of December 31, 1997,
concerning the beneficial ownership of the Company's Common Stock by: (i) each
person known by the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, (ii) each director and each executive
officer named in the Summary Compensation Table contained in this Prospectus,
(iii) each Selling Stockholder and (iv) all directors and executive officers
of the Company as a group. The Selling Stockholders may be deemed to be
underwriters under the federal securities laws. Each person named has sole
voting and investment power with respect to the shares indicated, except as
otherwise stated in the notes to the table:
The address of each person listed below is 6851 Jericho Turnpike, Syosset,
NY 11791 unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
OFFERING(1)(7) OFFERING(6)(7)
----------------- SHARES BEING -----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ ------ ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Melville Ventures & Associates
LP(3)(4)..................... 1,126,516 13.4% 900,000 226,516 2.5%
New Millenium(5)(4)........... 62,587 .7% 50,000 12,587 .1%
Cary Wolen(4)................. 2,933,343 35.0% 50,000 2,833,462 31.4%
Steven Latessa(4)............. 2,933,343 35.0% 50,000 2,833,462 31.4%
Jon Blasi(2)(4)............... 867,463 10.3% 50,000 817,463 18.9%
Daniel Intermann.............. -- -- -- -- --
All officers and directors as
a group...................... 6,734,149 80.3% 150,000 6,584,149 74.5%
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the Rule 13d-3 of
the Securities Exchange Act of 1934 and generally includes voting and
investment power with respect to securities, subject to community property
laws, where applicable. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the
date of this Prospectus upon exercise of options or warrants. Each
beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date of
this Prospectus have been exercised. Unless otherwise noted, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(2) Does not include 252,276 shares of Common Stock issuable upon exercise of
options granted to Mr. Blasi by Messrs. Latessa and Wolen. See "Certain
Transactions."
(3) Address is 201 North Service Road, Melville, New York 11747.
(4) Includes a total of 1,620,220 shares held in escrow for the benefit of
Steven M. Latessa ( shares), Cary Wolen ( shares) Jon and Lydya
Blasi ( shares) Melville Ventures and Associates LP ( shares) New
Millenium ( shares) and Timothy Mayette ( shares) pending payment by
such persons of an aggregate of $89,112 to a prior stockholder of the
Company. (See "Certain Transactions")
(5) Address is 1 Roosevelt Ave., Port Jefferson Station, NY 11776.
(6) Assumes the minimum number of shares (800,000) of Common Stock are sold in
the Offering. If the maximum number of shares (1,300,000) are sold in the
Offering, the percentage ownership will be as follows: Cary Wolen, 29.2%;
Steven Latessa, 29.2%; Jon Blasi, 12.2% and all officers and directors as
a group, 70.6%.
(7) Does not include 888,888 shares issuable to FC Corp. pursuant to an option
to purchase such shares at $ per share, commencing on , 1998. (See
"Certain Transactions")
39
<PAGE>
DESCRIPTION OF SECURITIES
The following summary description of the Company's securities is qualified
in its entirety by reference to the Company's Certificate of Incorporation and
its By-Laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue 15,000,000 shares of Common Stock, of
which 8,394,142 shares are issued and outstanding as of the date of this
Prospectus. Each outstanding share of Common Stock is entitled to one vote,
either in person or by proxy, on all matters that may be voted upon by the
owners thereof at meetings of the stockholders.
The holders of Common Stock (i) have equal ratable rights to dividends from
funds legally available therefore, when, and if declared by the Board of
Directors of the Company, after payment of dividends to holders of preferred
stock, if any; (ii) are entitled to share ratably in all of the assets of the
Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription or conversion rights, or redemption or
sinking fund provisions applicable thereto; and (iv) are entitled to one non-
cumulative vote per share on all matters on which stockholders may vote at all
meetings of stockholders. This means that holders of more than 50% of the
shares voting for the election of directors can elect all of the directors if
they choose to do so. The outstanding shares of Common Stock are, and the
shares of Common Stock offered by the Company hereby when issued will be,
fully paid and nonassessable.
Any person who seeks to acquire 10% or more of the Company's Common Stock
has to file for approval with the New York State Banking Department for
approval for Change of Control, in accordance with New York State Banking
Department regulations.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Certificate and the By-laws of the Company summarized
in the succeeding paragraphs may be deemed to have anti-takeover effects and
may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider to be in such shareholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by shareholders.
AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock are available for future
issuance without shareholder approval. These additional shares may be utilized
for a variety of corporate purposes, including future public offerings to
raise additional capital, corporate acquisitions and employee benefit plans.
Except as disclosed in this Prospectus, there are no present plans,
understandings, agreements or arrangements concerning the issuance of Common
Stock.
The existence of authorized but unissued and unreserved Common Stock may
enable the Board of Directors to issue shares which could render more
difficult or discourage any attempt to obtain control of the Company by means
of proxy contest, tender offer, merger, or otherwise, and thereby protect the
continuity of the Company's management.
40
<PAGE>
NUMBER OF DIRECTORS
The By-laws provide that the number of directors shall be fixed from time to
time by resolution adopted by a majority of the directors then in office, but
may not consist of fewer than three nor more than seven members. Following the
Offering, the size of the Board of Directors is expected to be set at four
members.
REMOVAL OF DIRECTORS AND FILLING VACANCIES
The By-laws provide that a director may be removed by shareholders only for
cause with the approval of the holders of at least 66 2/3% of the total voting
power of all outstanding securities of the Company then entitled to vote
generally in the election of directors, voting together as a single class.
The Certificate and By-laws provide that, all vacancies on the Board of
Directors, including those resulting from an increase in the number of
directors, may be filled solely by a majority of the remaining directors, even
if they do not constitute a quorum. When one or more directors resign from the
Board of Directors effective at a future date, a majority of directors then in
office, including the directors who are to resign, may vote on filling the
vacancy.
LIMITATIONS ON SHAREHOLDER ACTION BY LESS THAN UNANIMOUS WRITTEN CONSENT AND
LIMITATIONS ON CALLING SHAREHOLDER MEETINGS
Under New York law, any shareholder action required or permitted to be taken
by shareholder vote may be taken with the unanimous written consent of
shareholders. The certificate of incorporation may provide, to the extent not
inconsistent with New York law, that such shareholder action may be taken upon
the written consent of less than all outstanding shares. The Certificate does
not provide for written consent by less than all the outstanding Common
Shares. Under New York law, special meetings of shareholders may be called by
the Board of Directors and such person or persons as so authorized by the
certificate of incorporation or the By-laws. In addition, the New York
Business Corporation Law ("NYBCL") provides that if, for a period of one month
after the date fixed by or under the By-laws for the annual meeting, there is
a failure to elect a sufficient number of directors to conduct the business of
the corporation and the Board of Directors fails to call a special meeting for
the election of directors, holders of 10 percent of the shares entitled to
vote in an election of directors may require the call of a special meeting for
the election of directors. The By-laws provide that special meetings of
shareholders may be called at any time by the Board of Directors, the Chairman
of the Board or the President of the Company. Shareholders are not permitted
to call a special meeting or to require that the Board of Directors call a
special meeting of shareholders. Such provision may have the effect of
delaying consideration of a shareholder proposal until the next annual meeting
unless a special meeting is called by the Board of Directors, the Chairman of
the Board or the President of the Company.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate provides that the affirmative vote of the holders of at
least 50% of the total voting power of all outstanding securities of the
Company then entitled to vote generally in the election of directors, voting
together as a single class, is required to amend provisions of the Certificate
or the By-laws, including provisions contained in the By-laws relating to the
number, election and term of directors; the removal of directors and the
filling of vacancies; the limitations on the calling of a special meeting of
shareholders; the prohibition on cumulative voting by shareholders;
indemnification of directors, officers and others; and certain supermajority
voting requirements. These voting requirements will have the effect of making
more difficult any amendment by shareholders, even if a majority of the
Company's shareholders believes that such amendment would be in their best
interests.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate provides that a director will not be personally liable for
damages to the Company or its shareholders for breach of duty as a director,
except to the extent such exemption for liability or limitation thereof
41
<PAGE>
is not permitted under the NYBCL (i.e., liability (i) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (ii) for any transaction from which he was not legally
entitled, (iii) for paying a dividend in violation of Section 510 of the NYBCL
(which, among other things, requires that dividends be paid only out of earned
surplus and prohibits dividend payments when a corporation is insolvent or
would thereby be made insolvent) or approving a stock repurchase in violation
of Section 513 of the NYBCL (which, among other things, prohibits a
corporation from purchasing or redeeming its shares out of surplus if the
corporation is insolvent or would thereby be made insolvent and places certain
restrictions on the purchase price payable by a corporation in purchasing or
redeeming its shares), (iv) for the distribution of assets to shareholders
after dissolution without provision for all known liabilities, or (v) for
making any loan to directors other than loans authorized by vote of
shareholders as required by Section 714 of the NYBCL).
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate provides that each person (and the heirs, executors, or
administrators of such person) who was or is a party or is threatened to be
made a party to, or is involved in any threatened pending or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative,
by reason of the fact that such person is or was a director or officer of the
Company or is or was serving at the request of the Company as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, will be indemnified and held harmless by the Company to the
fullest extent permitted by the NYBCL. The Certificate further provides that
the right to indemnification includes the right to be paid by the Company for
expenses incurred in connection with any such proceeding in advance of its
final disposition to the fullest extent permitted by the NYBCL, and the right
to indemnification conferred thereunder is a contract right.
The Certificate further provides that the Company may, by action of its
Board of Directors, provide indemnification to such of the employees and
agents of the Company and such other persons serving at the request of the
Company as employees or agents of another corporation, partnership, joint
venture, trust or other enterprise to such extent and to such effect as is
permitted by the NYBCL and the Board of Directors.
Pursuant to the NYBCL, the Company has the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Company, or is was serving at the request of the Company as a
director, officer, employee or agent of the Company against any expense,
liability or loss incurred by such person in any such capacity or arising out
of his or her status as such, whether or not the Company would have the power
to indemnify such person against such liability under the NYBCL.
The Certificate provides that (i) the rights and authority described above
are not exclusive of any other right that any person otherwise may have or
acquire and (ii) no amendment, modification or repeal of the Certificate, or
adoption of any additional provision of the Certificate or the Bylaws or, to
the fullest extent permitted by the NYBCL, any amendment, modification or
repeal of law will eliminate or reduce the effect of the provisions in the
Certificate limiting liability or indemnifying certain persons or adversely
affect any right or protection then existing thereunder in respect of any acts
or omissions occurring prior to such amendments, modification, repeal or
adoption.
BUSINESS COMBINATIONS
The Certificate of the Company contains a provision expressly electing not
to be governed by Section 912 of the NYBCL, which relates to limitations on
certain business combinations by interested shareholders.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The 800,000 shares of Common Stock sold in the Offering (or 1,300,000, if
the maximum number of shares are issued) will be freely transferable without
restriction or further registration under the Securities Act of 1933
("Securities Act") unless acquired by an "affiliate" of the Company within the
meaning of the Securities Act. Upon completion of the Offering, the existing
stockholders of the Company will own 6,850,000 shares of Common Stock. All of
these shares (a total of shares) except for (i) 1,100,000 shares of Common
Stock owned by Selling Stockholders and registered for resale; (ii) a total of
shares of Common Stock held by the holders of the Company's stock prior
to the Merger which may be immediately saleable; and shares of Common
Stock held by Vertex (a holder of the Company's stock prior to the Merger)
which cannot be sold prior to , 1998, a total of shares of Common
Stock currently outstanding are deemed "restricted securities" as defined by
Rule 144 under the Securities Act of 1933, as amended ("Securities Act").
In general, Rule 144 as currently in effect provides that a person who is an
affiliate of the Company (or persons whose sales are aggregated with an
affiliate), or who has beneficially owned shares for at least one year which
were issued and sold in reliance upon certain exemptions from registration
under the Securities Act ("Restricted Shares"), is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
one (1%) percent of the then outstanding shares of Common Stock or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain manner-
of-sale provisions, notice requirements and the availability of current public
information about the Company. However, a person who has beneficially owned
Restricted Shares for at least two years and who is not an affiliate of the
Company and who has not been an affiliate of the Company for at least three
months immediately preceding the sale may sell such shares under Rule 144
without regard to volume limitations described above.
In addition, subject to certain limitations on the aggregate offering price
of a transaction and other conditions, Rule 701 of the Securities Act ("Rule
701") may be relied upon with respect to the resale of securities originally
purchased from the Company by its employees, directors, officers, consultants
or advisors prior to the date the issuer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. The Commission has indicated
that Rule 701 will apply to typical stock options granted by an issuer before
it becomes subject to the reporting requirements of the Exchange Act, along
with the shares acquired upon exercise of such options (including exercises
after the date of this Prospectus). The Company will become subject to the
Exchange Act reporting requirements upon commencement of this Offering.
Securities issued in reliance on Rule 701 are restricted securities and,
subject to the contractual restrictions described below, beginning 90 days
after the date of this Prospectus, may be sold by persons other than
affiliates subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its one-year minimum holding
period requirements.
Prior to the Offering, although the shares of CTS were traded on the
Bulletin Board there has been only a very limited public market for the Common
Stock, and no predictions can be made as to the effect, if any, that market
sales of Common Stock or the availability of Common Stock for sale will have
on the market price prevailing for the Common Stock from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices and could impair the
Company's ability in the future to raise additional capital.
43
<PAGE>
PLAN OF DISTRIBUTION
As soon as practicable after the Registration Statement of which this
Prospectus is a part is declared effective by the Securities and Exchange
Commission, the Company intends to commence this offering. If subscriptions
for the purchase of at least 800,000 Shares have not been received on or
before the first anniversary of the effective date of this Prospectus, the
offering of the Shares will be terminated and all subscription payments will
be promptly returned to investors. Subject to the provisions of applicable
federal and state securities law, the Company proposes to offer the Shares to
the public on a minimum/maximum, best efforts basis through its directors and
executive officers. Such persons will not receive any underwriting discount,
commission or other form of remuneration in connection with this offering.
Although the Company has made no arrangements with any brokerage or dealers
concerning the distribution of the securities offered hereby, it may do so in
the future and pay a selling commission or allow a discount in customary
amounts. In an offering conducted on a best-efforts basis, such as the one
made pursuant to this Prospectus, the selling parties are committed to devote
their time and attention to the sale of the offered securities, but have no
commitment to sell any securities or to purchase any securities if there is
insufficient investment interest from the public.
The Selling Stockholders propose to offer shares of the Company's Common
Stock directly to the public concurrently with the offering of Shares by the
Company, but subject to the Company's sale of the minimum number of shares.
The Company has agreed to perform certain ministerial acts necessary to
facilitate such offering in an efficient manner. There is no minimum purchase
requirement with respect to the Common Stock offered by the Selling
Stockholders and no arrangements have been made to escrow any portion of the
proceeds from such sale. Immediately upon receipt of a subscription for the
Common Stock offered by the Selling Stockholders, such transaction will be
executed by the Company's Transfer Agent, and a certificate representing the
purchased shares will be mailed by first class mail to the subscriber and the
proceeds of the sale distributed to the Selling Stockholder.
All securities offered hereby will be sold only for cash. At such time as
the registration statement of which this Prospectus is a part is declared
effective, a written confirmation will be physically mailed, together with a
copy of this Prospectus, to each person who previously submitted an indication
of interest, directing such person to complete, date, sign and return two
copies of the subscription agreement (together with the applicable
subscription payment) to the Escrow Agent.
Within five days of its receipt of a subscription agreement and subscription
payment, a written confirmation will be sent by first class mail to notify the
subscriber of the extent, if any, to which, such subscription has been
accepted. Not more than ten (10) days after the minimum offering of 800,000
Units has been sold a subscriber's Common Stock certificate will be mailed by
first class mail. The Company shall not use the proceeds paid by any investor
until the Common Stock certificate evidencing such investment has been mailed.
SUMMARY OF ESCROW AGREEMENT
The Company intends to enter into an Escrow Agreement with American Stock
Transfer and Trust Company. The following is a summary of certain provisions
of the Escrow Agreement and is not necessarily complete. References are made
to the copy of the Escrow Agreement filed as an exhibit to the Registration
Statement and the following summary is qualified in all respects by such
reference.
The Escrow Agreement will be entered into for the express purpose of
complying with the provisions of Rule 10b-9 of the Exchange Act. Promptly
following its receipt thereof, the Company will deposit with the Escrow Agent
all of the proceeds received by the Company with respect to the Offering until
the minimum offering is sold. Until the minimum offering is sold, all offering
proceeds will be deposited by the Escrow Agent into a separate bank account
established and maintained by the Escrow Agent for the sole and exclusive
benefit of the purchasers of the Shares offered hereby.
44
<PAGE>
All Shares held under the Escrow Agreement will be treated as authorized but
unissued shares of the Common Stock of the Company. Purchasers will not have
any rights as stockholders of the Company until the conditions of the escrow
are fulfilled. While held under the Escrow Agreement, no transfer or other
disposition of the Shares or any interest relating thereto, is permitted other
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended, or Title I of the Employee Retirement Income Security Act,
or the rules thereunder.
All offering proceeds held in Escrow Account will be released by the Escrow
Agent to the Company and certificates representing the shares of Common Stock
will be issued and delivered to the persons entitled thereto immediately upon
the receipt by the Escrow Agent of a signed representation from the Company
together with such other evidence acceptable to the Escrow Agent that the
minimum offering has completed.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, New
York.
EXPERTS
The financial statements of Mortgage Plus Equity and Loan Corp., as of
December 31, 1997 and for each of the two years in the period then ended
included elsewhere in the Prospectus, have been audited by Richard A. Eisner &
Company, LLP, independent auditors, as set forth in their report thereon
appearing herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form SB-2 (the
"Registration Statement") under the Securities Act with respect to the shares
of Common Stock offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and such exhibits and
schedules, which may be inspected without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511 or Seven World Trade Center, New York, New York
10048. Copies of such material may also be obtained at prescribed rates from
the Public Reference Section of the Commission in Washington, D.C. 20549.
Statements contained in the Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding the
Company; the address of such site is http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such interim reports as it deems
appropriate or as may or may not be required by law.
The Company will provide without charge to each person who receives this
Prospectus, upon written or oral request of such person, a copy of the
Registration Statement (excluding exhibits) by contacting the Company at 6851
Jericho Turnpike, Suite 246, Syosset, New York 11791, telephone (516) 364-
2700, attention: Chief Financial Officer.
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Independent Auditors' Reports......................................... F-2
Financial Statements:
Balance Sheet at December 31, 1997.................................. F-3
Statements of Operations for the years end December 31, 1996 and
1997............................................................... F-4
Statements of Stockholders' Equity/Capital Deficiency for the years
ended December 31, 1996 and 1997................................... F-5
Statements of Cash Flows for the years ended December 31, 1996 and
1997............................................................... F-6
Notes to Financial Statements......................................... F-7-F-17
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Mortgage Plus Equity and Loan Corp.
We have audited the accompanying balance sheet of Mortgage Plus Equity and
Loan Corp. as of December 31, 1997, and the related statements of operations,
stockholders' equity/capital deficiency and cash flows for each of the years
in the two year period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of Mortgage Plus Equity and Loan
Corp. as of December 31, 1997 and the results of its operations and its cash
flows for the each of the years in the two year period then ended, in
conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
February 6 , 1998
With respect to Note 16
March 5, 1998
F-2
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents....................................... $ 377,709
Mortgage loans held for sale.................................... 6,300,764
Due from investors.............................................. 6,959,131
Other receivables and other assets.............................. 1,684,676
Due from stockholders........................................... 263,646
Deferred offering costs......................................... 122,283
Property and equipment--net..................................... 508,624
-----------
$16,216,833
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse line of credit........................................ $10,532,994
Loans closed to be disbursed.................................... 1,989,264
Notes payable................................................... 1,392,763
Subordinated debt............................................... 878,000
Obligation under capital lease.................................. 193,184
Accounts payable and accrued expenses........................... 786,158
-----------
Total liabilities........................................... 15,772,363
-----------
Commitments and contingencies (Note 15)
Stockholders' equity:
Preferred stock--$.001 par value; authorized 1,000,000 shares,
issued and outstanding none..................................
Common stock--$.001 par value; authorized 20,000,000 shares;
issued and outstanding 8,056,000 shares...................... 8,056
Additional paid-in capital.................................... 513,116
Accumulated deficit........................................... (76,702)
-----------
Total stockholders' equity.................................. 444,470
-----------
$16,216,833
===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
REVENUES:
Mortgage origination, net............................ $5,307,353 $7,147,163
Interest earned...................................... 663,322 860,424
---------- ----------
Total revenues..................................... 5,970,675 8,007,587
---------- ----------
EXPENSES:
Commissions, wages and benefits...................... 3,715,169 5,549,795
Selling and administrative........................... 1,770,894 2,567,371
Interest expense..................................... 707,952 967,123
---------- ----------
Total expenses..................................... 6,194,015 9,084,289
---------- ----------
OPERATING LOSS......................................... (223,340) (1,076,702)
OTHER INCOME........................................... 1,000,000
---------- ----------
NET LOSS............................................... (223,340) (76,702)
========== ==========
Basic loss per share................................. $ (0.03) $ (0.01)
========== ==========
Pro forma for 1996:
Historical net loss shown above...................... (223,340)
Pro forma benefit for income taxes for the period
prior to the termination of the S corporation sta-
tus................................................. (33,000)
----------
PRO FORMA NET LOSS .................................... $ (190,340)
==========
Pro forma basic loss per share......................... $ (0.03)
==========
</TABLE>
See notes to financial statements
F-4
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
STATEMENT OF STOCKHOLDERS' EQUITY/CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
--------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1,
1996...................... 7,000,000 $7,000 $(363,611) $(356,611)
Shares transferred by a
principal stockholder to
an officer................ $ 41,000 41,000
Issuance of common stock... 1,000,000 1,000 868,903 869,903
S corporation distribution. (43,558) (43,558)
Net loss................... (223,340) (223,340)
Transfer of S corporation
cumulative loss to
additional paid-in capital
upon the Company's change
to C corporation status... (630,509) 630,509
--------- ------ -------- --------- ---------
BALANCE AS OF DECEMBER 31,
1996...................... 8,000,000 8,000 279,394 -- 287,394
Shares issued in payment of
interest on a subordinated
debt...................... 56,000 56 55,944 56,000
Issuance of warrants in
connection with a note
payable................... 177,778 177,778
Net loss................... (76,702) (76,702)
--------- ------ -------- --------- ---------
BALANCE AS OF DECEMBER 31,
1997...................... 8,056,000 $8,056 $513,116 $ (76,702) $ 444,470
========= ====== ======== ========= =========
</TABLE>
See notes to financial statements
F-5
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31.
----------------------
1996 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $ (223,340) $ (76,702)
Adjustments to reconcile net loss to net cash used in
operating activities:
Shares issued in payment of interest expense......... 56,000
Shares transferred by a principal stockholder to an
officer............................................. 41,000
Depreciation......................................... 39,996 79,773
Changes in:
Mortgage loans held for sale........................ (4,781,181) 4,235,230
Due from investors.................................. (6,959,131)
Other receivables and other assets.................. (189,614) (1,452,834)
Accounts payable and accrued expenses............... (85) 93,399
---------- ----------
Net cash used in operating activities.............. (5,113,224) (4,024,265)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................... (253,890) (267,167)
Advances to stockholders.............................. (29,562) (234,084)
---------- ----------
Net cash used in investing activities............... (283,452) (501,251)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from warehouse lines of credit........... 4,062,670 718,349
Loans closed to be disbursed.......................... 490,227 1,499,037
Proceeds from subordinated debt....................... 1,278,000
Repayment of subordinated debt........................ (400,000)
Proceeds from notes payable........................... 30,000 1,322,222
Repayment of notes payable............................ (25,000) (91,959)
Proceeds from sale leaseback of equipment............. 275,000
Repayments of obligation under capital lease.......... (81,816)
S corporation distribution............................ (43,558)
Issuance of common stock, net......................... 869,903
Issuance of warrants.................................. 177,778
Deferred offering costs............................... (122,283)
---------- ----------
Net cash provided by financing activities........... 5,384,242 4,574,328
---------- ----------
NET INCREASE (DECREASE) IN CASH........................ (12,434) 48,812
Cash and cash equivalents at the beginning of year.... 341,331 328,897
CASH AND CASH EQUIVALENTS AT THE END OF YEAR........... $ 328,897 $ 377,709
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.............................................. $ 649,706 $ 909,014
========== ==========
</TABLE>
Supplemental non-cash disclosures:
In 1997, the Company issued 56,000 shares of common stock in settlement of
interest aggregating $56,000 on certain subordinated debt.
See notes to financial statements
F-6
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
Mortgage Plus Equity and Loan Corp. (the "Company") organized in 1987, is
primarily engaged in the business of originating and selling first mortgages
collateralized by single family residences. From its inception through 1993,
the Company operated as a mortgage broker. The Company, in 1994, became a
mortgage banker and in 1995, the Company commenced originating and selling
sub-prime residential first mortgages. The Company is an approved
nonsupervised mortgagee for the U.S. Department of Housing and Urban
Development, and originates substantially all of its mortgage loans in New
York, New Jersey and Missouri.
Cash equivalents:
The Company considers cash equivalents to consist of short term investments
with an initial maturity of three months or less. Management mitigates credit
risk by investing in or through large financial institutions.
Revenue recognition:
The Company sells whole mortgage loans and pools of mortgage loans,
servicing released, on a non-recourse basis. Mortgage origination fees, net of
direct loan origination costs, are deferred and included in mortgage loans
held for sale, until the loans are sold. Revenue recognition from the sale of
mortgage loans occurs when the loans are shipped to investors pursuant to
existing sales commitments. Mortgage origination revenue is the differential
between the sales proceeds including premium, if any, and the carry amount of
the mortgage. Based upon the amount of mortgage loans subject to recapture of
premiums and the amounts the Company has previously paid to investors as
recapture of premium, management provides an allowance for premium recapture
(See Note 15).
Mortgage loans held for sale:
Mortgage loans held for sale are collateralized residential real estate
loans with a weighted average interest rate of approximately 13% as of
December 31, 1997 and are carried at the lower of cost or market on an
aggregate basis.
Included in mortgage loans held for sale are deferred origination fees of
approximately $160,000 and deferred origination costs of $155,000.
Property and equipment:
Property and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight line method over the
estimated useful lives of the assets. Leasehold improvements are amortized
over the lesser of the useful life of the asset or the remaining lease period.
Expenditures for maintenance and repairs are charged to expense; major
replacements and betterments are capitalized.
If an asset is identified as impaired, the Company estimates future cash
flows (undiscounted and without interest) which are expected to result from
the use of the asset and its eventual disposition. If the sum of the future
cash flows is less than the carrying amount of the asset, the Company
recognizes an impairment loss. No such losses have been required to be
recognized.
Loans closed to be disbursed:
Loans closed to be disbursed generally represents the amounts for which
mortgagors have signed loan and mortgage documents in order to refinance
existing mortgage obligations where, since the three day recission period has
not expired, the Company has not disbursed any funds. Upon disbursement of
funds, the mortgage loan is typically pledged as collateral under a warehouse
line of credit.
F-7
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes:
Through December 30, 1996, the Company had elected for both federal and
state purposes to be treated as an S corporation and incurred only minimum
taxes at the state level. Consequently, the net earnings of the Company were
taxed directly to the stockholders rather than the Company. Effective as of
December 31, 1996, the Company terminated its S corporation status and will be
taxed as a C corporation.
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities. (See Note 10).
Advertising expenses:
The Company expenses advertising costs which consist primarily of
promotional items and print media. Total advertising expense for the year
ended December 31, 1997 and 1996 was $232,000 and $133,000, respectively.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 period. Actual results could differ from those estimates.
Stock-based compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("FAS 123") allows companies to either expense the
estimated fair value of employee stock options or to continue to follow the
intrinsic value method set forth in Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") but disclose the pro
forma effects on net income (loss) had the fair value of the options been
expensed. The Company has elected to apply APB 25 in accounting for its
employee stock options incentive plans.
Per share data:
Basic loss per share was computed based on the net loss (pro forma in 1996)
and the weighted average number of shares of common stock outstanding during
the year. Diluted loss per share is not shown since it would be anti-dilutive.
The weighted average number of shares outstanding for the years ended December
31, 1997 and 1996 was 8,025,315 and 7,002,732, respectively.
F-8
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. OTHER RECEIVABLES AND ASSETS
Other receivables and assets as of December 31, 1997 consist of:
<TABLE>
<S> <C>
Officer's life insurance receivable.............................. $1,000,000
Deferred costs on loans in process............................... 269,641
Due from employees............................................... 150,538
Mortgage fees receivable......................................... 146,853
Other............................................................ 117,644
----------
$1,684,676
==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 consist of :
<TABLE>
<CAPTION>
ASSET
LIVES
----------
<S> <C> <C>
Equipment and furniture................................. 5-10 Years $177,284
Equipment subject to capital lease...................... 5 Years 300,389
Leasehold improvements.................................. 5 Years 196,690
--------
674,363
Accumulated depreciation and amortization............... (165,739)
--------
$508,624
========
</TABLE>
Included in depreciation expense for the year ended December 31, 1997 is
depreciation expense on equipment under capital lease of $45,000.
4. WAREHOUSE LINES OF CREDIT
The Company has a $12 million warehouse line of credit expiring April 15,
1998, with a commercial bank which is renewable annually and collateralized by
specific mortgage loans held for sale and amounts due from investors. Interest
is variable based on the prime rate and type of collateral and ranged from 8-
1/4% to 8-3/4% as of December 31, 1997. This warehouse line of credit is
personally guaranteed by the Company's principal shareholders and contains
certain covenants requiring, among other things, maintenance of certain
financial ratios and minimum tangible net worth.
As of December 31, 1997, based upon the most restrictive covenants, the
Company is precluded from declaring or paying any cash dividends.
5. DEFERRED OFFERING COSTS:
The Company has incurred $122,000 in incremental costs in connection with a
proposed initial public offering of common stock. Upon consummation of the
offering, the deferred costs will be charged against the gross proceeds of the
offering or, if not consummated, they will be charged to expense. The Company
will incur substantial additional offering costs.
F-9
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE
Notes payable as of December 31, 1997 consists of:
<TABLE>
<S> <C>
Note payable in monthly installments of the greater of $100,000
or 50% of the premiums on mortgages sold to the lender, plus
interest at the prime rate plus 1% per annum (9-1/2% as of
December 31, 1997) due April 1999 and collateralized by all
unencumbered assets (a)....................................... $1,322,222
Note payable in monthly installments of $2,083 plus interest at
the prime rate plus 2% per annum (10-1/2% at December 31,
1997), due March 1999. Guaranteed by the principal stockhold-
ers and collateralized by a $50,000 cash account.............. 37,006
Note payable in monthly installments of $4,104 plus interest at
the prime rate plus 2% per annum (10-1/2% as of December 31,
1997) due October 1998........................................ 33,535
----------
$1,392,763
==========
</TABLE>
- --------
(a) In connection with this note payable, which was issued in December 1997,
the Company issued warrants to purchase 888,888 shares of common stock.
These warrants are exercisable the earlier of August 1998 or the effective
date of a public offering and expire three years later. The exercise price
is $1.00 per share prior to the public offering and, subsequently, 85% of
the public offering price. The Company valued the warrants at $177,778.
Accordingly, the note payable has been reduced by the $177,778 discount
and additional paid-in capital increased by the same amount. The imputed
interest rate on the note is 27.6% per annum. In January 1998 the Company
borrowed an additional $250,000 under the working capital facility. The
Company's agreement requires that it comply with various operating and
financial covenants.
Minimum principal payments on the notes payable during the years ended
December 31, 1998 and 1999 are $995,170 and $397,590, respectively.
7. SUBORDINATED DEBT
In March 1997, the Company borrowed $778,000 ($313,000 from affiliates of
certain of the Company's principal stockholders). These borrowings, due March
1998, are not collateralized and are subordinated to the notes payable and the
warehouse line. Interest on these notes is 14% per annum. In July 1997, the
Company issued 28,000 shares of its common stock to a note holder in
satisfaction of the interest due at maturity on $400,000 of this debt. The
shares were valued at $56,000, representing the interest due on this
obligation based upon its stated maturity date. In December 31, 1997, the
$400,000 obligation was repaid with a portion of the proceeds of the
$1,500,000 note payable (see Note 6). In October 1997, the Company borrowed
$500,000 from an affiliate of certain principal stockholders. This borrowing,
due April 1998, is collateralized by the officer's life insurance claim
receivable and is subordinated to the notes payable and warehouse line.
Interest is 9% per annum.
F-10
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. OBLIGATION UNDER CAPITAL LEASE
As of December 31, 1997, the future minimum lease payments under a capital
lease expiring December 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998.............................................................. $108,024
1999.............................................................. 108,024
--------
216,048
Less amount representing interest................................. (22,864)
--------
$193,184
========
</TABLE>
This obligation is guaranteed by the Company's principal stockholders. The
obligation under the capital lease is the result of the Company entering into
a sale leaseback transaction. Since the lease covers substantially all of the
economic life of the equipment, it has been recorded as a capital lease and no
gain or loss on the sale has been recognized.
9. RELATED PARTY TRANSACTIONS
The Company subleases certain of its offices from an affiliate (see Note
15). Total related party lease expense paid approximated $158,000 and $134,000
for the years ended December 31, 1997 and 1996, respectively. The Company pays
rent to the affiliate based on its proportionate share of the amount paid by
the affiliate to the ultimate lessor.
During 1997, the Company accrued, but did not pay, approximately $33,000 of
interest expense on the subordinated debt due to related parties (see note).
The liability is included in accounts payable and accrued expenses.
During 1996, the Company processed and closed approximately $18.3 million of
residential mortgage loans for an affiliate for which it received fees of
approximately $92,000. The Company ended this activity on September 30, 1996.
10. INCOME TAXES
The components of deferred tax assets and liabilities as of December 31,
1997 are as follows:
<TABLE>
<S> <C>
Deferred tax asset:
Deferred mortgage origination fees................................ $ 67,100
Net operating loss carryforward................................... 564,500
Other............................................................. 8,400
--------
Total deferred tax asset......................................... 640,000
Deferred tax liability--deferred mortgage origination costs:....... (113,200)
--------
Net deferred tax asset............................................. 526,800
Valuation allowance................................................ 526,800
--------
$ --
========
</TABLE>
F-11
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As a result of the Company becoming a C corporation for income tax purposes
as of December 31, 1996, it recognized a deferred tax asset valuation
allowance of $99,000 as of such date. In 1997, the valuation allowance
increased by $427,800.
The difference between the tax benefit computed at the statutory federal
income tax rate on the Company's net loss and the Company's effective tax rate
benefit for the years ended December 31, 1996 (on a pro forma basis) and 1997
is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
----- ------
<S> <C> <C>
Statutory federal income tax rate........................... (34.0)% (34.0)%
Increase in valuation allowance............................. 11.8 438.8
Non-deductible meals and entertainment...................... 4.1 24.3
Non-taxable proceeds from officer's life insurance claim.... (443.3)
Other....................................................... 3.3 14.2
----- ------
Effective income tax rate benefit........................... (14.8)% --
===== ======
</TABLE>
As of December 31, 1997, the Company had a net operating loss carryforward
of $1,300,000 expiring in 2012.
11. STOCKHOLDER'S EQUITY/CAPITAL DEFICIENCY
Common stock:
During 1996, a principal stockholder of the Company transferred 693,000
shares to an officer of the Company. The estimated fair value of $41,000 was
charged to operations and credited to additional paid-in capital.
On December 31, 1996, the Company issued 1,000,000 shares of common stock in
a private placement at a price of $1.00 per share to an unaffiliated investor.
Net proceeds of this private placement were approximately $869,000 which were
used for Company operations.
The Company has reserved 1,288,888 shares of its common stock for issuance
upon exercise of incentive stock options and warrants issued in connection
with a note payable.
Stock options:
On December 31, 1995, the Board of Directors approved the Equity Incentive
Plan (the "Plan") and, as amended, authorized the issuance of up to 700,000
shares of common stock of the Company upon the exercise of incentive stock
options ("options") which may be granted for a maximum of ten years pursuant
to the Plan. The Plan provides primarily for the granting of options to
certain key employees and exercise prices at not less than the estimated fair
value at date of grant.
On November 1, 1996, 185,000 options were granted. The options were issued
at exercise prices equal to estimated fair value of the Company's common stock
on the grant date of $1.00 per common share. These options vest ratably on the
anniversary of the date of grant through November 1, 2000 (46,250 shares on
each of November 1, 1997, 1998, 1999 and 2000). The option's maximum term is
ten years. No options were forfeited or exercised during 1996 or 1997. No
options were canceled during 1996, however, options for 150,000 shares were
canceled in 1997.
In February 1998 the Company granted options to purchase 235,000 shares at
an exercise price of $3 per share.
F-12
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. STOCKHOLDER'S EQUITY/CAPITAL DEFICIENCY (CONTINUED)
Stock options: (continued)
On February 15, 1997, the principal stockholders of the Company granted an
officer options to acquire up to 378,414 shares of the Company's common stock
owned by the stockholders at exercise prices not less than the estimated fair
value of the Company's common stock at the grant date. The following table
summarizes information about these options which expire in February 2000:
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE
SHARES PRICE VESTING DATE
------ -------- ------------
<S> <C> <C>
126,138 $1.00 February 15, 1998
126,138 1.25 February 15, 1999
126,138 1.50 February 15, 2000
</TABLE>
The fair value of each option granted in 1996 and 1997 has been estimated on
the date of grant using the Black-Scholes options pricing model with the
following assumptions; no dividend yield, expected volatility of 0%, risk-free
interest rate of 6%, and expected lives of approximately four years for the
1996 options and three years for the 1997 options. The fair value of options
granted during 1996 and 1997 were $.0.21 and $0.06 per share, respectively.
The Company applies APB 25 in accounting for its stock option incentive plan
and, accordingly, recognizes compensation expense for the difference between
fair value of the underlying common stock and the grant price of the option at
the date of grant. The effect of applying SFAS No. 123 on 1996 and 1997 pro
forma net loss is not necessarily representative of the effect on reported net
income (loss) in future years due to, among other things (1) the vesting
period of the stock options and (2) the fair value of additional stock options
in future years. Had compensation cost for the Company's stock option plan
been determined based upon the fair value at the grant date for awards granted
under the plan and by stockholders consistent with the methodology prescribed
under SFAS No. 123, the Company's net loss in 1996 and 1997 would have been
approximately $(230,000) and $(97,000), respectively.
The following table summarizes information about stock options outstanding
for which the Company has an obligation to issue shares of common stock as of
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- ------------------------
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING WEIGHTED EXERCISABLE WEIGHTED
AS OF CONTRACTUAL AVERAGE AS OF AVERAGE
EXERCISE DECEMBER 31, LIFE EXERCISE DECEMBER 31, EXERCISE
PRICE 1997 (IN YEARS) PRICE 1997 PRICE
-------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$1.00 35,000 8.84 $1.00 8,750 $1.00
</TABLE>
12. BRANCH EXPENSE
During the years ended December 31, 1997 and 1996, the Company incurred
expenses of $654,000 and $556,000, respectively, in conjunction with the
expansion of the Company's lending operation through the opening of new
offices. These expenses consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1997
-------- --------
<S> <C> <C>
Commissions, wages and benefits........................... $331,000 $417,000
Selling and administrative expenses....................... 225,000 237,000
</TABLE>
F-13
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. RETIREMENT PLAN
The Company has a 401(k) savings plan (the "Plan") which enables employees
to make contributions on a pre-tax salary basis in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The Plan provides
for a discretionary company contribution to be determined annually. The
Company did not make any contributions for the 1997 and 1996 Plan years.
14. OTHER INCOME
Other income represents proceeds due the Company under an officer's life
insurance policy as a result of the death of the officer in October 1997.
15. COMMITMENTS, CONTINGENCY AND OTHER
Litigation:
In May 1997, two former employees initiated litigation alleging breach of
contract in connection with establishing and operating a branch office and are
seeking approximately $1,257,000 in damages and sought a preliminary
injunction. While the preliminary injunction has been denied, the remaining
claims are still pending. While the outcome cannot be determined, management
believes that the action is without merit and is vigorously contesting this
matter.
Leases:
The Company has various lease agreements for equipment and office space
extending through March 2004.
The following is a schedule of future minimum rental payments required under
noncancelable leases:
<TABLE>
<CAPTION>
YEARS ENDING RELATED OTHER
DECEMBER 31, PARTY LEASES LEASES
------------ ------------ ----------
<S> <C> <C>
1998................................................ $143,700 $ 205,400
1999................................................ 92,300 446,700
2000................................................ 51,300 479,200
2001................................................ 10,400 511,300
2002................................................ 479,900
Thereafter.......................................... 659,800
-------- ----------
$297,700 $2,782,300
======== ==========
</TABLE>
The Company's rent expense approximated, $525,000 and $362,000 for the years
ended December 31, 1997 and 1996, respectively.
Employment agreements:
The Company entered into employment agreements with three key executives
expiring in September 2000. Under the terms of the agreements, the aggregate
initial annual compensation is $150,000 per executive. Additionally, the
agreements, among other things, include provisions for bonuses based on up to
5% of income before provision for income taxes and also provides for increases
in compensation and severance payments, provided that the officer is not
terminated for cause.
Contingency:
The Company has received an assessment from the Internal Revenue Service
(the "IRS") concerning the classification of certain workers by the Company as
independent contractors during the period 1992 through 1994. This assessment
totals approximately $233,000 for employment taxes as if the independent
contractors
F-14
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS, CONTINGENCY AND OTHER (CONTINUED)
were classified as employees during the period. The Company has formally
disputed this assessment and has commenced discussions with the IRS to settle
this dispute. Management believes, based on advice of counsel, that it has
sufficient documentation and basis for its independent contractor
classification. The Company has held settlement discussions with the IRS and
has accrued the anticipated settlement amount.
Financial instruments with off-balance sheet risk or concentrations of credit
risk:
In the normal course of business, there are various financial instruments
which are properly not recorded in the financial statements. The Company's
risk of accounting loss due to the credit risks and market risks associated
with these off-balance sheet instruments varies with the type of financial
instrument and principal amounts. Credit risk represents the possibility of a
loss occurring from the failure of another party to perform in accordance with
the terms of a contract. Market risk represents the possibility that future
changes in market prices may make a financial instrument less valuable or more
onerous.
Certain of the investors in sub-prime mortgages require the Company to
return a portion of the sale price of the mortgage loan paid to the Company if
the sub-prime mortgagor pays off within one year. During the two years ended
December 31, 1997, the Company incurred costs of approximately $50,000 related
to the early pay-off of sub-prime mortgage loans sold to investors. The
Company does not currently believe any future recapture costs would be
significant and has provided $20,000 as an allowance for estimated future
recapture costs as of December 31, 1997.
The Company had approximately $58.4 million of mortgage loans in various
stages of process as of December 31, 1997 of which approximately $13.4 million
has been committed and rate-locked. For approximately $31.0 million of
mortgage loans held for sale and loans in process, the Company has committed
to sell them to investors. For sub-prime mortgage loans, the Company
accumulates mortgage loans into pools (usually $1 million to $2 million) and
sells the weighted average note rate to an investor. The ultimate amount of
the gain or loss on the sale of the mortgage loan is determined by the
difference between the cost of the loans and the price paid by the investor.
In connection with the sale of loans to its investors, the Company normally
makes representations and warranties (which are customary in the industry)
relating to, among other things, the Company's compliance with laws,
regulations, investor standards and the accuracy of information supplied by
the mortgagor and verified by the Company. In the event of a breach of these
representations and warranties, the Company would be required to repurchase
such loans. The Company did not repurchase any loans during the period from
January 1, 1996 through December 31, 1997.
Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Values of Financial Instruments" ("FAS 107") requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate that value. Because no
market exists for certain of the Company's assets and liabilities, fair value
estimates are based upon judgments regarding credit risk, investor expectation
of economic conditions, normal cost of administration and other risk
characteristics, including interest rate and prepayment risk. These estimates
are subjective in nature and involve uncertainties and matters of judgment and
significantly affect the estimates.
Fair value estimates are based on existing balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. The tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on the fair value
estimates and have not been considered in the estimates.
F-15
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS, CONTINGENCY AND OTHER (CONTINUED)
The following summarizes the information about the fair value of the
financial instruments recorded on the Company's financial statements in
accordance with FAS 107.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------
CARRYING
VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Cash.................................................. $ 377,709 $ 377,709
Mortgages held for sale............................... 6,300,764 6,569,960
Due from investors.................................... 6,959,131 6,959,131
Loans closed to be disbursed.......................... 1,989,264 1,989,264
Borrowings............................................ 12,996,941 12,996,941
</TABLE>
The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments, including the off-balance sheet instruments
are as follows:
CASH
The carrying amount of cash approximates fair value.
MORTGAGE LOANS HELD FOR SALE
The Company has estimated the fair values reported based on recent sales.
DUE FROM INVESTORS
The carrying value reported approximates fair value due to the short-term
nature of the asset.
BORROWINGS AND LOANS CLOSED BUT NOT DISBURSED
The carrying value reported approximates fair value due to the short-term
nature of a significant portion of the borrowings and the variable interest
rates charged on most borrowings.
COMMITMENTS TO ORIGINATE LOANS AND LOANS IN PROCESS
Typically, the Company does not charge fees for commitments to originate
loans or to rate lock such commitments. Furthermore, the Company does not
receive fees on commitments to sell. In addition, market interest rates as of
December 31, 1997 have not changed significantly since the dates of the
commitments. Accordingly, these off-balance sheet instruments have no
estimated fair value.
Concentrations:
For the year ended December 31, 1997 and 1996, one investor accounted for
41% and five investors accounted for 84%, respectively of mortgages sold.
16. SUBSEQUENT EVENTS
MERGER
On March 5, 1998, the Company merged with a wholly owned subsidiary of
Computer Transceiver Systems, Inc. ("CTSI"), a nonoperating public company
which will have 338,142 shares of common stock outstanding prior to the
merger. Pursuant to the merger, CTSI acquired all of the outstanding common
stock of the Company in exchange for 8,056,000 shares of CTSI common stock.
The merger has been accounted for as a reverse acquisition. Immediately
following the merger CTSI changed its name to MPEL Holdings Corp.
F-16
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
STOCKHOLDERS' EQUITY
In October 1997, a shareholder owning 1,620,220 shares died and under the
terms of the stockholders' agreement, the Company is obligated to repurchase
the stock at book value (approximately $90,000). Pursuant to an agreement
among the Company and the three principal shareholders, the principal
shareholders, until such time as the Company completes a public offering of
securities, assumed this obligation and, upon purchase of the stock will
contribute the stock to the Company. Upon completion of the offering of
securities, the obligation to purchase the shares of the deceased shareholder
will revert back to the Company.
On March 2, 1998, the Company initiated the repurchasing of these shares and
in connection therewith such shares have been placed in an escrow account.
Concurrently, the Company declared a stock dividend and issued 1,620,220
shares of its common stock to the existing shareholders. The shareholders have
agreed, should the Company be required to pay more than $90,000, to surrender
some or all of theses shares. Accordingly, these shares have been placed in an
escrow account.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE SUCH DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 17
Price Range of Common Stock............................................... 17
Dilution.................................................................. 17
Capitalization............................................................ 18
Selected Consolidated Financial Data...................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 24
Management................................................................ 35
Certain Relationships and Related Party Transactions...................... 38
Principal and Selling Stockholders........................................ 39
Description of Securities................................................. 40
Shares Eligible for Future Sale........................................... 43
Plan of Distribution...................................................... 44
Summary of Escrow Agreement............................................... 44
Legal Matters............................................................. 45
Experts................................................................... 45
Additional Information.................................................... 45
Index to Financial Statements............................................. F-1
</TABLE>
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distributions, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters with respect to their unsold allotments of
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A MINIMUM OF 800,000 SHARES OF COMMON STOCK AND A MAXIMUM OF
1,300,000 SHARES OF COMMON STOCK OFFERED BY THE COMPANY
1,100,000 SHARES OF COMMON STOCK
OFFERED BY SELLING STOCKHOLDERS
MPEL HOLDINGS CORP.
COMMON STOCK
----------------
PROSPECTUS
----------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 721 through 726 of the New York Business Corporation Law ("NYBCL")
provide that a corporation may indemnify any person, including officers and
directors, who are (or who are threatened to be made) parties to any action or
proceeding (except a derivative action), whether civil or criminal, by reason
of their being officers or directors or serving at the request of the
corporation as a director or officer of any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees; provided that the officer or director acted in good
faith, for a purpose that such officer or director reasonably believed to be
in or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed
to the best interests of the Corporation. In the case of criminal actions or
proceedings, indemnification is allowed if the officer or director had not
reasonable cause to believe that his conduct was unlawful. An officer or
director who is successful in defense of such civil or criminal action or
proceeding is entitled to indemnification.
A corporation may indemnify any person made (or threatened to be made) a
party to a derivative action by reason of the fact that such person is or was
a director or officer of the corporation or was serving at the request of the
corporation as a director or officer of the corporation of any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise, against amounts paid in settlement and reasonable expenses,
including attorneys' fees, provided that such director or officer acted in
good faith, for a purpose which he reasonably believed to be in (or, in the
case of service for another corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise, not opposed to) the best
interests of the corporation, except that no indemnification is permitted in
respect of a threatened action or pending action which is settled or otherwise
disposed of, or in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, except to the
extent that court may otherwise determine.
The Company's Certificate of Incorporation eliminates personal liability of
the fullest extent permitted by NYBCL.
A person who has been successful in the defense of a civil or criminal
action or proceeding of the character described above is entitled to
indemnification to the extent described above. Otherwise, absent court
approval, indemnification in the specific case would have to be authorized
either (i) by the board of directors acting as a quorum consisting of
directors who are not parties to the action or (ii) by the board upon the
opinion of independent legal counsel that indemnification is proper in the
circumstances or (iii) by the shareholders.
A New York corporation may generally purchase insurance, consistent with the
limitations of New York insurance law and regulatory supervision, to
indemnify, in certain circumstances, directors and officers whether or not
they could by statute be indemnified by the corporation, so long as no final
adjudication has established that the directors' or officers' acts of active
and deliberate dishonesty were material to the cause of action so adjudicated
or that the directors or officers personally gained in fact a financial profit
or other advantage.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such
persons in their official capacities if such person acted in good faith and in
a manner that he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonably cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the applicable provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities
being registered, other than underwriting discounts and commissions and the
Representative's non-accountable expense allowance. All of the amounts shown
are estimated except the Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
SEC registration fee.................................................. $3,540.00
NASDAQ listing fee....................................................
Blue Sky fees and expenses (including legal fees).....................
Printing and engraving expenses.......................................
Legal fees and expenses...............................................
Accounting fees and expenses..........................................
Transfer agent and registrar fee......................................
Miscellaneous.........................................................
Total................................................................
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In December 1996, the Company sold an aggregate of 1,000,000 shares of its
Common Stock at $1.00 per share, of which 900,000 shares were sold to Melville
Ventures & Associates, L.P., an investment committee partnership. The
Company's sale of shares of Common Stock to Melville Ventures & Associates,
L.P., an investment committee partnership, was exempt from registration
requirements pursuant to Section 4(2) of the Securities Act, since the Company
sold the shares to a single investor, which was sophisticated and accredited
and had done business with the Company on prior occasions.
In March 1997, the Company borrowed $778,000 ($313,000 from affiliates of
certain of the Company's principal stockholders). These borrowings, due April
1998, are not collateralized and are subordinated to the notes payable and the
warehouse line. Interest on these notes is 14% per annum. In July 1997, the
Company issued 56,000 shares of its common stock to a note holder in
satisfaction of the interest due at maturity on $400,000 of this debt. The
shares were valued at $56,000, representing the interest due on this
obligation based upon its stated maturity date. In December 31, 1997, the
obligation was repaid with a portion of the proceeds of the $1,500,000 note
payable. In October 1997, the Company borrowed $500,000 from an affiliate.
This borrowing due April 1998, is collateralized by the officer's life
insurance claim receivable and is subordinated to all the notes payable and
warehouse line. Interest is 9% per annum. The Company's issuance of these
shares to the note holder is exempt from registration requirements pursuant to
Section 4(2) of the Securities Act, since the Company issued the shares to a
single, accredited, sophisticated investor who had done business with the
Company on prior occasions.
On February 15, 1997, the principal stockholders of the Company granted an
officer an option to acquire up to 378,414 shares of the Company's common
stock owned by the stockholders at exercise prices not less than the estimated
fair value of the Company's common stock at the grant date. The Company's
grant of these options to the officer is exempt from registration requirements
pursuant to Section 4(2) of the Securities Act, since the Company issued the
shares to an officer of the Company, who was single, sophisticated investor.
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
**1.1 Form of Underwriting Agreement
**1.2 Form of Representative's Warrant Agreement
*3.1 Form of Certificate of Incorporation
*3.2 Form of By-Laws
*4.1 Form of Common Stock Certificate
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
**4.2 Form of Representative's Warrant
*5.1 Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
*10.1 1995 Stock Option Plan
*10.2 Form of Employment Agreement between the Company and Steven Latessa
*10.3 Form of Employment Agreement between the Company and Cary Wolen
*10.4 Form of Contribution Agreement
10.5 Intentionally Omitted
*10.6 Mortgage Loan Warehousing Agreement by and between Mortgage Plus Equity
and Loan Corporation and Summit Bank
*10.7 Employment Agreement between the Company and Jon P. Blasi
10.8 Restated Shareholders Agreement
10.9 Working Capital Financing Agreement between FC Capital Corporation and
Mortgage Plus Equity and Loan Corporation
10.10 Term Loan and Security Agreement between FC Capital Corporation and
Mortgage Plus
10.11 Warrant Agreement between FC Capital Corporation and Mortgage Plus
Equity and Loan Corporation
21.1 Subsidiaries of Registrant
23.1 Consent of Richard A. Eisner & Company, LLP
Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in
*23.3 Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Statement Schedule
</TABLE>
- --------
* to be filed by amendment
** Previously filed, but not applicable.
Schedules other than the ones listed above are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issues.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and continued in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act each Post-
Effective Amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities therein and the
Offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in Syosset, New York, on March 12, 1998.
MPEL Holdings Corp.
/s/ Steven Latessa
By: ______________________________________
Steven Latessa, President
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated. Each person whose signature appears below hereby authorizes each of
Steven M. Latessa and Cary Wolen with full power of substitution to execute in
the name of such person and to file any Amendment or Post-Effective Amendment
to this Registration Statement making such changes in this Registration
Statement as the Registrant deems appropriate and appoints each of Steven M.
Latessa and Cary Wolen with full power of substitution, attorney-in-fact to
sign and to file any amendment and Post-Effective Amendment to this
Registration Statement.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Steven M. Latessa President, Chief Executive March 12, 1998
____________________________________ Officer, Chairman of the
Board, Director
/s/ Cary Wolen Chief Operating Officer, March 12, 1998
____________________________________ Chief Executive Officer,
Chief Financial Officer,
Secretary, Director
/s/ Jon P. Blasi Chief Operating Officer, B/C March 12, 1998
____________________________________ Lending Division, Director
</TABLE>
II-4
<PAGE>
EXHBIT 10.8
RESTATED SHAREHOLDERS AGREEMENT
-------------------------------
RESTATED SHAREHOLDERS AGREEMENT, made on 8/27, 1996, among Cary Wolen,
having an address at 49 Irving Drive, Woodbury, New York 11797, Steven Latessa,
having an address at 83 Bayberry Lane, Smithtown, New York 11787 and Anthony
Saffiotti, having an address at 63 Amhurst Road, Albertson, New York 11507,
(each separately referred to as a Shareholder and collectively referred to as
the Shareholders), and Mortgage Plus Equity & Loan Corporation, a New York
corporation, with offices located at 6851 Jericho Turnpike, Syosset, New York
11791 (the Corporation).
I.
RECITALS
--------
A. The Shareholders together own all of the issued and outstanding
shares of the Corporation.
B. The Shareholders have conducted, and will continue to conduct, the
Corporation as a closed corporation and want to provide for share ownership and
control of the Corporation, and other matters, as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties agree to the
following terms and conditions.
<PAGE>
II.
TERMS AND CONDITIONS
--------------------
SECTION 1. CAPITALIZATION.
--------------
The Corporation has 200 authorized shares of voting common
stock, of which 100 shares are issued and outstanding. The shares are owned as
set forth on Schedule A attached to and made a part of this agreement.
SECTION 2. CONTRIBUTIONS TO CAPITAL.
------------------------
The Shareholders have contributed to the capital of the
Corporation in the amounts stated on Schedule B attached to this Agreement. In
the event that additional capital is required, each Shareholder shall contribute
its pro rata portion of the required amount based on percentage of "voting"
share ownership.
SECTION 3. ELECTION OF OFFICERS AND DIRECTORS.
----------------------------------
3.1 Election of Directors. The Shareholders shall elect a Board
---------------------
of Directors consisting of Cary Wolen, Steven Latessa and Anthony Saffiotti or
one designee of each of them.
3.1 Election of Officers. The officers of the Corporation shall
--------------------
be:
SHAREHOLDERS AGREEMENT -- PAGE 2
- --------------------------------
<PAGE>
President - Steven Latessa
Chief Financial Officer - Cary Wolen
Vice President - Anthony Saffiotti
Secretary - Cary Wolen
Treasurer - Cary Wolen
SECTION 4. MANAGEMENT OF THE BUSINESS OF THE CORPORATION.
---------------------------------------------
The Shareholders shall devote such time and attention to the
business of the Corporation as is necessary and all shall use their best efforts
to promote the business of the Corporation. Each shall keep the others
currently apprised of all matters affecting the business of the Corporation,
cause all financial matters to be entered in the appropriate books and records
and consult with one another on all business matters.
SECTION 5. RESTRICTION ON SALE OF SHARES.
-----------------------------
No Shareholder shall assign, encumber, transfer or otherwise
dispose of all or any portion of his shares, by sale or otherwise, to any person
or entity except as provided in this Agreement. The Corporation shall not issue
any previously unissued or treasury shares of the outstanding shares.
The Corporation shall not recognize any sale, assignment,
transfer, pledge, mortgage, encumbrance, or other
SHAREHOLDERS AGREEMENT -- PAGE 3
- -------------------------------
<PAGE>
disposition of any shares in accordance with the provisions of this Agreement
and shall not issue or transfer any shares to any person or entity unless and
until such person or entity has executed and delivered to the Corporation a
counterpart of this Agreement.
SECTION 6. SALE OF SHARES DURING LIFETIME.
------------------------------
6.1 Notice. Any Shareholder desiring to sell his shares during
------
his lifetime shall so notify the Corporation and non-selling Shareholders in
writing (Notice).
6.2 Option to Purchase.
------------------
6.2.1 The Corporation shall have an option to purchase all, but
not less than all, of the shares, which option shall be exercisable by written
notification to the selling Shareholder no later than 30 days after receipt of
Notice (the Initial Option Period). The selling shareholder shall abstain from
voting as Shareholder or Director with respect to the exercise of the Option by
the Corporation.
6.2.2 If, upon expiration of the Initial Option Period, the
Corporation has not notified the selling Shareholder of its intention to
purchase all of the shares, the non-Selling Shareholders shall have an
additional option to purchase all, but not less than all, of the unsold shares,
which shall be exercisable by written notification to the selling
SHAREHOLDERS AGREEMENT -- PAGE 4
- --------------------------------
<PAGE>
Shareholder no later than 15 days after the expiration of the Initial Option
Period (the Additional Option Period). If more than one Shareholder wishes to
purchase the shares, then each purchasing Shareholder shall purchase his pro
rata portion, based on the aggregate number of shares owned by all the
purchasing Shareholders. In the event that any non-selling Shareholder wishes
to purchase fewer than his pro rata portion of the unsold shares, the others may
purchase their pro rata portions of the remaining shares.
6.3 Purchase Price. The purchase price for shares purchased
--------------
pursuant to this Section shall be the Agreed Value, as provided in this
Agreement.
6.4 Payment of Purchase Price. The purchase price for shares
-------------------------
purchased under any purchase provison of this Agreement shall be paid at the
closing, or the purchaser may elect to pay 25% percent of the purchase price at
the closing, with the balance payable over 3 years in 36 equal monthly
installments. The obligation to pay the balance of the purchase price shall be
evidenced by a promissory note bearing interest at a rate per annum equal to the
prime rate for commercial loans announced by the bank used by the Corporation's
principal office on the date the note is issued. The note shall provide that
(i) in the event of default in payment of any installment, the entire unpaid
principal amount
SHAREHOLDERS AGREEMENT -- PAGE 5
- --------------------------------
<PAGE>
shall become due and payable immediately and (ii) the principal amount of the
note may be prepaid at any time, with interest accrued to the date of payment,
in whole or in part without penalty or premium.
6.5 Closing. The closing of any purchase pursuant to this
-------
Section shall take place within 60 days of the termination of the Initial Option
Period or the Additional Option Period, as the case may be, at the office of the
Corporation's attorneys, or at such other location as the parties may agree. At
the closing, the selling Shareholder shall deliver (i) the stock certificates
representing the shares being sold, duly endorsed for transfer to the purchaser,
(ii) his written resignation as an officer, director and, if applicable,
employee of the Corporation and (iii) the written agreement of the selling
Shareholder that he shall not, for a period of 2 year from the closing date,
directly or indirectly, enter into any business similar to or in competition
with the business conducted by the Corporation at the time of closing, whether
as an owner, stockholder, partner, officer, director, agent or employee, within
New York, Missouri, Pennsylvania or Florida, nor will he serve or solicit any
customers or accounts of the Corporation which were served by the Corporation
within the 12 months immediately preceding the closing.
SHAREHOLDERS AGREEMENT -- PAGE 6
- --------------------------------
<PAGE>
6.6 Failure to Exercise Option. In the event that neither the
--------------------------
Corporation nor the non-selling Shareholders have exercised the option to
purchase all of the shares of the selling Shareholder, within the applicable
option period, the selling Shareholder shall be free to sell such shares to a
third party provided (i) such party agrees to be bound by the terms and
conditions of this Agreement and executes and delivers a counterpart of this
Agreement to the Corporation and (ii) such transfer shall not have the effect of
preventing the Corporation from qualifying for Subchapter "S" status pursuant to
Internal Revenue Code (S)1361 et. seq.
-- ---
SECTION 7. PURCHASE OF STOCK ON DEATH OF A SHAREHOLDER.
-------------------------------------------
On the death of any Shareholder, their respective estates shall
sell to the Corporation, and the Corporation shall purchase, all of the shares
owned by that Shareholder, on the date of his or her death.
7.1 Purchase Price. For purposes of this Section, the purchase
--------------
price of the shares shall be the greater of the amount of the proceeds of all
life insurance policies (if any) held by the Corporation on the life of the
deceased Shareholder (the Insurance Policies), or the Agreed Value, as provided
in Section 8 of this Agreement.
SHAREHOLDERS AGREEMENT -- PAGE 7
- --------------------------------
<PAGE>
7.2 Payment of the Purchase Price. The purchase price shall be
-----------------------------
paid no later than 60 days after the later of the qualification of the legal
representative of the estate of the deceased Shareholder, and receipt by the
Corporation of the proceeds of the Insurance Policies, as follows: if the
insurance proceeds are sufficient to pay the full purchase price, then the full
purchase price shall be paid immediately; if the purchase price exceeds the
insurance proceeds, the excess, or if no insurance has been maintained by the
Corporation, the entire purchase price, shall be paid as provided in Section 6.4
of this Agreement.
7.3 Transfer of Shares. Upon payment of the purchase price and,
------------------
if applicable, execution and delivery of the promissory note, the legal
representative shall execute and deliver all instruments necessary to transfer
the shares to the Corporation. If such instruments have not been delivered
within 120 days of the date of death, then the remaining Shareholders shall have
the right, until the shares of the deceased Shareholder have been duly
transferred, to vote such shares, pro-rata on the basis of their share
ownership, on all matters requiring the approval of Shareholders.
SECTION 8. AGREED VALUE OF SHARES.
----------------------
SHAREHOLDERS AGREEMENT -- PAGE 8
- --------------------------------
<PAGE>
8.1 Certificate of Value. Each year, no later than 60 days
--------------------
after the last day of the Corporation's fiscal year (the Valuation Date), the
Shareholders shall establish a value (the Agreed Value) for each share, either
by affirmation of the value established for the year immediately preceding or by
establishment of a new value. The Certificate of Value is attached to this
Agreement as Schedule C. If the parties fail in any one year to so establish a
value, the value established for the immediately preceding year shall control.
8.2 Book Value. In the event the Shareholders fail to value the
----------
shares as provided in Section 8.1, for 2 consecutive Valuation Dates, then the
Agreed Value of the shares shall be their book value. For purposes of this
Agreement, "book value" shall mean: (a) the net worth of the shares as of the
applicable date as determined by the Corporation's usual accountant, which
determination when made and delivered to the Corporation shall be binding upon
the parties to this Agreement, to which net worth shall be added, as good will,
(b) an amount equal to the average annual net profit, after deducting any
applicable state, federal and local taxes, for the 3 fiscal years preceding the
year in which such determination is made.
SECTION 9. INSUFFICIENT SURPLUS.
--------------------
SHAREHOLDERS AGREEMENT -- PAGE 9
- --------------------------------
<PAGE>
If, at the time that the Corporation is required to purchase a
Shareholder's shares, the Corporation's surplus is insufficient for such
purpose, then the entire available surplus shall be used to purchase the
shares, and the Corporation and the Shareholders shall promptly act to reduce
the stated capital or otherwise increase the surplus of the Corporation to the
extent necessary for the purchase, including, if possible, the revaluation of
corporate assets to reflect the market value of such assets on the books of the
Corporation.
SECTION 10. TERM.
----
This Agreement shall terminate upon the occurrence of any of the
following events:
A. Bankruptcy, receivership, or dissolution of the Corporation;
B. Mutual agreement in writing of the parties to this
Agreement; or
C. Acquisition of a majority of the Corporation's shares by a
third party, merger, or sale of all or substantially all of the Corporation's
assets.
Upon the termination of this Agreement, each Shareholder shall
surrender to the Corporation his stock certificates and the Corporation shall
issue to the Shareholder, in
SHAREHOLDERS AGREEMENT -- PAGE 10
- ---------------------------------
<PAGE>
lieu thereof, new certificates for an equal number of shares without the
endorsement set forth thereon.
SECTION 11. INSURANCE POLICIES.
------------------
11.1 Maintenance. The Corporation may purchase and maintain a
-----------
policy or policies naming the Corporation as beneficiary, insuring the life of
each Shareholder in an amount equal to the Agreed Value of such Shareholder's
shares. The amount of coverage shall be reviewed annually and adjusted to
reflect adjustments in the Agreed Value as provided in this Agreement.
11.2 Option to Purchase on Termination. If any Shareholder ceases
---------------------------------
to be a Shareholder of the Corporation for any reason, the Shareholder or his
spouse or other interested person shall have the right within 6 months from the
date thereof to purchase from the Corporation any or all of the policies upon
his life held by the Corporation by paying for each policy an amount equal to
its cash surrender value, if any, as of the date of such purchase, plus the
portion of the most recently paid premium applicable to the period commencing on
the date of purchase. The Corporation shall take all necessary action to
effectuate the transfer of such policies.
SECTION 12. DISABILITY PAYMENTS TO A SHAREHOLDER.
------------------------------------
In the event a Shareholder becomes partially or permanently
disabled prior to the age of 65, so that he is not able
SHAREHOLDERS AGREEMENT -- PAGE 11
- ---------------------------------
<PAGE>
to perform his normal and customary duties for the Corporation for a period of
45 consecutive days, then, in that event, the Shareholder shall continue to
receive from the Corporation an amount of money equal to the full salary he was
receiving during the previous 12 calendar months (the Disability Payments). The
Disability Payments shall be paid by the Corporation to the Shareholder on a
weekly basis for 6 months or until the Shareholder is no longer disabled in that
he can again perform his normal and customary duties for the Corporation.
SECTION 13. PAYMENTS UPON DEATH OF A SHAREHOLDER.
------------------------------------
In the event a Shareholder dies, the Corporation shall pay to the
Shareholder's spouse (or in the absence of a spouse, to the Shareholder's
estate) an amount of money equal to 100% of the salary the Shareholder was
receiving during the 12 months prior to his death (the Payments). The Payments
shall be paid by the Corporation to the Shareholder's spouse (or estate, as the
case may be) on a weekly basis for 6 months.
SECTION 14. DECEASED SHAREHOLDER'S SHARES.
-----------------------------
In the event (a) a Shareholder dies (the Deceased Shareholder), and
(b) the Deceased Shareholder's shares in the Corporation are redeemed by the
Corporation pursuant to the terms of this Agreement, and (c) within a 2 year
period after the Deceased Shareholder's death a majority of the Corporation's
shares
SHAREHOLDERS AGREEMENT -- PAGE 12
- ---------------------------------
<PAGE>
are acquired by a third party, or the Corporation merges with another entity, or
all (or substantially all) of the assets of the Corporation are sold, or the
Corporation's shares are the subject of a private placement offering or a public
offering (all collectively referred to as the Sale), then the Deceased
Shareholder's heirs shall be entitled, as soon as practicable, to the benefit of
the Sale to be paid in stock, stock options or cash, or a combination of two or
more of them, the form of which shall be the same as offered to the other
Shareholders (the Sale Benefit). The Sale Benefit shall be in an amount equal to
the difference between (a) the value of the Deceased Shareholder's shares at the
time of his death, and (b) the value the Deceased Shareholder's shares would
have had at the time of the Sale if the Deceased Shareholder's shares had not
been redeemed by the Corporation.
SECTION 15. ENDORSEMENT ON STOCK CERTIFICATES.
---------------------------------
Each stock certificate issued by the Corporation shall be endorsed
as follows:
"The shares represented by this certificate are subject to the
terms of a shareholders agreement, a copy of which is on file at
the office of the Corporation."
SECTION 16. RATIFICATION OF AGREEMENT.
-------------------------
The Shareholders shall execute, acknowledge, verify and deliver any
and all documents or affidavits and shall take such
SHAREHOLDERS AGREEMENT -- PAGE 13
- ---------------------------------
<PAGE>
other actions, requisite or appropriate to effectuate the provisions and
purposes of this Agreement.
SECTION 17. MISCELLANEOUS
-------------
17.1 Notices. All notices called for in this Agreement shall be
-------
deemed to have been given when mailed by certified mail, return receipt
requested, with a copy mailed by regular first class mail, to the parties at the
addresses listed above, or to such other addresses as the parties may designate
in writing.
17.2 Construction. This Agreement shall be governed by and
------------
construed in accordance with the laws of the State of New York. The invalidity
or unenforceability of any provision or provisions of this Agreement shall not
affect the other provisions of this Agreement, which shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.
17.3 Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties to this Agreement with respect to the subject
matter contained in this Agreement. Any and all prior Shareholder agreements, or
memoranda of understanding, are canceled, terminated, made null and void and are
of no further force and effect.
17.4 Modification. No modification or waiver of any provision of
------------
this Agreement shall be valid unless made in writing signed by all parties to
this Agreement.
SHAREHOLDERS AGREEMENT -- PAGE 14
- ---------------------------------
<PAGE>
17.5 Benefits and Burdens. This Agreement shall be binding upon and
--------------------
shall inure to the benefit of the Corporation and its Shareholders, their heirs,
legal representatives, successors and assigns.
17.6 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, and such counterparts shall
together constitute one and the same agreement.
17.7 Arbitration. Any disagreement between the parties to this Agreement
-----------
shall be submitted to Arbitration in Nassau County, New York and shall be
determined by and in accordance with the rules and regulations of the American
Arbitration Association then in effect.
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of 8/27, 1996.
Mortgage Plus Equity & Loan
Corporation
/s/ Cary Wolen By: /s/ Steven Latessa
- ------------------------------ ------------------------------
Cary Wolen Name: Steven Latessa
Title: CEO
/s/ Steven Latessa
- ------------------------------
Steven Latessa
/s/ Anthony Saffiotti
- ------------------------------
Anthony Saffiotti
SHAREHOLDERS AGREEMENT -- PAGE 15
- ---------------------------------
<PAGE>
SCHEDULE A
----------
STOCK OWNERSHIP
---------------
CERTIFICATE %
SHAREHOLDER NO. # OF SHARES OWNERSHIP
- --------------------------------------------------------------------------
Cary Wolen 1 33 1/3 33 1/3
Steven Latessa 2 33 1/3 33 1/3
Anthony Saffiotti 3 33 1/3 33 1/3
SHAREHOLDER'S AGREEMENT -- PAGE 16
- ----------------------------------
<PAGE>
SCHEDULE B
----------
Shareholder Amount of Capital
- ----------- -----------------
Contribution
------------
Cary Wolen
Steven Latessa
Anthony Saffiotti
SHAREHOLDERS AGREEMENT -- PAGE 17
- ---------------------------------
<PAGE>
SCHEDULE C
----------
CERTIFICATE OF VALUE
--------------------
The Agreed Value of each share of issued and outstanding stock of the
Corporation shall be $_______________ per share as of the date written below.
Dated: ________________, 199_
--------------------------------
--------------------------------
SHAREHOLDERS AGREEMENT -- PAGE 18
- ---------------------------------
<PAGE>
FIRST AMENDMENT TO
------------------
RESTATED SHAREHOLDERS
---------------------
AGREEMENT
---------
FIRST AMENDMENT TO RESTATED SHAREHOLDERS AGREEMENT, made on August 27,
1996, among Cary Wolen, having an address at 49 Irving Drive, Woodbury, New York
11797, Steven Latessa having an address at 83 Bayberry Lane, Smithtown, New York
11787, Anthony Saffiotti, having an address at 63 Amhurst Road, Albertson, New
York 11507 and Lydia Blasi, having an address at 3 Barton Drive, West Orange,
New Jersey 07052 (each separately referred to as a Shareholder and collectively
referred to as the Shareholders), and Mortgage Plus Equity and Loan Corporation,
a New York corporation, with offices located at 6851 Jericho Turnpike, Syosset,
New York 11791 (the Corporation).
I
RECITALS
--------
A. The Corporation and Messrs. Wolen, Latessa and Saffiotti executed a
Restated Shareholders Agreement.
B. Lydia Blasi has since become a Shareholder of the Corporation.
C. The Shareholders together own all the issued and outstanding shares of
the Corporation.
D. The Shareholders want to amend the Restated Shareholders Agreement to
reflect Lydia Blasi as a new Shareholder and to elect a new Board of Directors.
<PAGE>
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this First Amendment, and other good and valuable consideration,
the receipt and sufficiency of which are acknowledged, the parties agree to the
following terms and conditions.
II.
TERMS AND CONDITIONS
--------------------
1. Section 3.1 of the Restated Shareholders Agreement is amended to
reflect the election of a Board of Directors consisting of Cary Wolen, Steven
Latessa, Anthony Saffiotti and Jon P. Blasi.
2. Supplementing the provisions of Section 6 of the Restated Shareholders
Agreement, a new Section 6.7 is added as follows:
6.7 Right of Jon P. Blasi to Purchase Lydia Blasi's Shares.
------------------------------------------------------
Notwithstanding anything contained in this Agreement to the contrary, upon the
death of Lydia Blasi, her husband, Jon P. Blasi, if he is alive, shall have the
option to purchase all, but not less than all, of the Shares owned by Lydia
Blasi at the time of her death (Jon P. Blasi's Option). Jon P. Blasi's Option
shall be exercisable prior to the option of the Corporation and the non-selling
shareholders to purchase Lydia Blasi's shares, as set forth in this Section 6,
all in the same manner, and upon the same notice, purchase and other terms, as
set forth in this Section 6.
3. Schedule A of the Restated Shareholders Agreement is amended to reflect
the stock ownership of the Corporation as follows:
FIRST AMENDMENT TO RESTATED SHAREHOLDERS AGREEMENT -- PAGE 2
- ------------------------------------------------------------
<PAGE>
Shareholder Certificate # of %
No. Shares Ownership
- --------------------------------------------------------------------------------
Cary Wolen 4 33.477 33.477
Steven Latessa 5 33.477 33.477
Anthony Saffiotti 6 23.146 24.146
Lydia Blasi 7 9.900 9.900
4. All the other terms and conditions of the Restated Shareholders
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this First Amendment to
Restated Shareholders Agreement to be duly executed as of August 27, 1996.
Mortgage Plus Equity and Loan
Corporation
/s/ Cary Wolen By: /s/ Steven Latessa CEO
- ------------------------- -----------------------------
Cary Wolen Name: Steven M. Latessa
Title: CEO
/s/ Steven Latessa
- -------------------------
Steven Latessa
/s/ Anthony Saffiotti
- -------------------------
Anthony Saffiotti
/s/ Lydia Blasi
- -------------------------
Lydia Blasi
FIRST AMENDMENT TO RESTATED SHAREHOLDERS AGREEMENT -- PAGE 3
- -------------------------------------------------------------
<PAGE>
EXHIBIT 10.9
WORKING CAPITAL FINANCING AGREEMENT
-----------------------------------
between
-------
FC CAPITAL CORP.,
-----------------
as the Lender
-------------
and
---
MORTGAGE PLUS EQUITY AND LOAN CORP.
-----------------------------------
as the Borrower
---------------
$250,000
--------
Dated as of December __, 1997
-----------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS 1
ARTICLE II. THE WORKING CAPITAL LOANS 5
Section 2.01. Conditions Precedent and Other Provisions Applicable to All Obligations 5
Section 2.02. Additional Provisions and Conditions Precedent to Working Capital Advances 6
Section 2.03. Application of Payments 6
Section 2.04. Interest Payments 6
Section 2.05. Principal Payments 7
Section 2.06. Renewal Notice 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES 7
Section 3.01. Representations and Warranties of the Borrower 7
Section 3.02. Representations and Warranties of the Lender 10
ARTICLE IV. COVENANTS OF THE BORROWER 11
Section 4.01. Affirmative Covenants of the Borrower 11
Section 4.02. Negative Covenants of the Borrower 14
ARTICLE V. SECURITY AGREEMENT 16
Section 5.01. Grant of Security Interest 16
Section 5.02. Security for the Borrower's Obligations 17
Section 5.03. Intention of Parties 17
ARTICLE VI. INDEMNIFICATION 17
ARTICLE VII. EVENTS OF DEFAULT 18
Section 7.01. Occurrence of an Event of Default 18
Section 7.02. Effect of an Event of Default 19
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII. GENERAL PROVISIONS 19
Section 8.01. Cooperation, Confidentiality. Etc. 19
Section 8.02. Amendment; Waivers 20
Section 8.03. Taxes 20
Section 8.04. Other Transactions 20
Section 8.05. Opinion of Counsel to the Borrower 20
Section 8.06. Costs and Expenses 20
ARTICLE IX. CONSTRUCTION 21
Section 9.01. Entire Agreement 21
Section 9.02. Severability Clause 21
Section 9.03. Counterparts 21
Section 9.04. Governing Law; Agreement Constitutes Security Agreement; Consent to
Forum; Immunities 21
Section 9.05. Recitals 22
Section 9.06. Rules of Interpretation 22
Section 9.07. Good Faith 22
Section 9.08. Waiver of Trial by Jury and Other Waivers by Borrower 22
ARTICLE X. MISCELLANEOUS 23
Section 10.01. Notices 23
Section 10.02. Further Agreements 24
Section 10.03. Third-Party Rights; Assignment 24
Section 10.04. Summary Judgment 24
Section 10.05. Reproduction of Documents 24
Section 10.06. Right of Set-Off 24
Section 10.07. Advice from Independent Counsel 25
</TABLE>
<PAGE>
EXHIBITS
Exhibit A Working Capital Note
Exhibit B Form of Borrower's Counsel Opinion
Exhibit C Form of Working Capital Advance Request
SCHEDULES
Schedule I Annual Operating and Capital Budget
<PAGE>
WORKING CAPITAL FINANCING AGREEMENT
-----------------------------------
This WORKING CAPITAL FINANCING AGREEMENT (this "Agreement"), dated as of
December __, 1997, between Mortgage Plus Equity and Loan Corp., a New York
corporation, as the Borrower and FC Capital Corp., a New York corporation, as
the Lender.
WHEREAS, the Borrower wishes to obtain a working capital financing facility
from the Lender and the Lender wishes to make available such facility, subject
to the terms and conditions set forth herein; and
WHEREAS, the Borrower intends to pledge certain of its assets from time to
time to secure the financing facility described herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be legally bound, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Unless otherwise specified, the following terms shall have the following
meanings when used in this Agreement:
"Accrual Period" means, with respect to any Advance, (i) with respect to
the initial Accrual Period relating thereto, the period commencing on the date
of the initial Funding Date and ending on the last day of the calendar month in
which such initial Funding Date occurs and, (ii) with respect to any subsequent
Accrual Period, the calendar month following the calendar month of the prior
Accrual Period; provided, however, that for any Accrual Period in which the
Working Capital Advance Balance was equal to zero for at least one full Business
Day during such Accrual Period the actual number of days from the date of the
previous Accrual Period ending on the day the Working Capital Advance Balance is
paid in full.
"Advance" means a Working Capital Advance.
"Affiliate" means any Person: (a) which directly or indirectly controls, or
is controlled by, or is under common control with the Borrower; (b) which
directly or indirectly beneficially owns or holds five percent (5%) or more of
the voting stock of the Borrower; or (c) five percent (5%) or more of the voting
stock of which is directly or indirectly beneficially owned or held by the
Borrower. The term control means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Aggregate Working Capital Advance Balance" means, with respect to any date
of determination, the aggregate amount of all Working Capital Advances at such
date.
"Borrower" means Mortgage Plus Equity and Loan Corp., a New York
corporation.
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"Business Day" means any day on which commercial banks are open in New York
for the transaction of business other than a Saturday or Sunday, that is neither
a legal holiday, nor a day on which banking institutions are authorized or
required by Law or regulation to close, in the City of New York.
"Closing Date" means December _______, 1997.
"Collateral" has the meaning as set forth Section 5.01.
"Consolidated Tangible Equity" means the aggregate "assets" of the Borrower
and its Subsidiaries less the aggregate "liabilities" of the Borrower and its
Subsidiaries and less all intangible assets, with the term "asset" having the
meaning ascribed to such term by GAAP and the term "liability" being those
obligations or liabilities of the Borrower and its Subsidiaries which, in
accordance with GAAP, would be included in the liability side of the Borrower's
balance sheet (either long-term or short term) on a consolidated basis.
"Default Rate" means the related Interest Rate plus 5.00%.
"Determination Date" means, with respect to any Accrual Period, the second
Business Day following the end of such Accrual Period.
"Event of Default" has the meaning set forth in Article VII hereof.
"FHA" means the Federal Housing Administration.
"FHLMC" means the Federal Home Loan Mortgage Corporation or any successor
thereto.
"FNMA" means The Federal National Mortgage Association or any successor
thereto.
"Funding Date" means, with respect to any Advance, the date on which such
Advance is made.
"GAAP" means generally accepted accounting principles in the United States,
consistently applied.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guaranty Agreement" means a guaranty agreement between the Lender and the
Guarantor.
"Guarantor" means Mortgage Plus Equity and Loan Holdings Corp.
"HUD" means the United States Department of Housing and Urban Development.
"Indemnified Party" has the meaning ascribed thereto in Article 6 of this
Agreement.
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"Interest Rate" means, with respect to any Accrual Period, the Prime Rate
with respect to such Accrual Period, determined as the Prime Rate on the first
Business Day of such period, plus 3.00%.
"IPO" means the first public offering by the Guarantor of Guarantor's
common stock pursuant to a registration statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, which is an
offering of no fewer than 1 million shares of common stock generating at least 3
million dollars in net proceeds to Guarantor.
"Law" means any federal, state or local statute, law, rule, regulation,
ordinance, order, code, policy or rule of common law, now or hereafter in
effect, and in each case, as amended, and any judicial or administrative
interpretation thereof by a Governmental Authority or otherwise, including any
judicial or administrative order, consent, decree or judgment.
"Lender" means FC Capital Corp., a New York corporation, its successors in
interest and its permitted assigns.
"Maximum Working Capital Advance Aggregate Amount" means $250,000.00.
"Monetary Default" means:
(a) a failure to pay interest due on any Payment Date as required by
Section 2.04 of this Agreement;
(b) a failure to pay any amount due on any date as required by Section 2.05
of this Agreement;
(c) a breach of the covenant set forth in Section 4.01(a) of this
Agreement;
(d) a failure by the Borrower to pay any Taxes and a failure to reimburse
the Lender for any losses due to Taxes as required by Section 8.03 of this
Agreement; and/or
(e) a breach of any of the representations or warranties set forth in
Section 3.01 herein which causes the Borrower to be unable to make any payments
due under this Agreement.
"Mortgage Warehouse Credit Agreement" means that certain credit agreement
to be executed by and between Lender and Borrower for the purpose of financing
various mortgage loans.
"New York UCC" means the Uniform Commercial Code of the State of New York.
"Non-Monetary Default" means:
(a) a breach of any of the representations and warranties set forth in
Section 3.01 of this Agreement (other than a breach that causes the Borrower to
be unable to make any payments due under this Agreement); and/or
(b) a breach of any of the covenants set forth in Section 4.01 or 4.02
of this Agreement (other than the covenant set forth in Section 4.01(a)).
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"Obligation" means the Working Capital Loan and all other loans, advances,
debts, liabilities, and obligations for the performance of covenants, tasks, or
duties or for payments of monetary amounts owing now or in the future by the
Borrower to Lender, and all covenants and duties regarding such amounts, of any
kind or nature present and future, whether or not evidenced by any note,
agreement, or other instrument. This term includes, without limitation, all
principal and interest (including, without limitation, interest which accrues
after the commencement of any case or proceeding referred to in SECTION 7.01(D)
on the Working Capital Loan, all charges, expenses, attorneys' fees and any
other sum chargeable to the Borrower under any agreement.
"Payment Date" means, with respect to any Accrual Period, the fifth
Business Day of the month following the month in which such Accrual Period ends.
"Person" means an individual, general partnership, limited partnership,
limited liability partnership, corporation, business trust, joint stock company,
limited liability company, trust, unincorporated association, joint venture,
Governmental Authority, or other entity of whatever nature.
"Prime Rate" means the interest rate set forth in the Wall Street Journal
as the prime rate.
"Shareholders" means each of Jon P. Blasi, Lydia Blasi, Cary Wolen, Steven
M. Latessa and Anthony Saffioti.
"Significant Documents" means this Agreement, the Guaranty Agreements and
the Working Capital Note.
"Stated Working Capital Maturity Date" means the earliest to occur of the
(x) first anniversary of the issuance date of the Working Capital Note or (y)
date on which any person (other than the Lender or any Affiliate of Lender or
any person who was a shareholder of the Borrower as of the date of this
Agreement) (i) acquires all or a majority of the issued and outstanding capital
stock of the Borrower, (ii) acquires all or substantially all of the assets of
Borrower or (iii) obtains, whether by contract or any other means, effective
control over the operations and management of Borrower or (z) the date which is
30 days after the date hereof if, by such date, Lender shall not have obtained a
first priority security interest in all of the assets of the Borrower other than
the Mortgage Obligations, the collateral securing such loans and related
documentation pledged to Summit Bank pursuant to the warehouse facility with
Summit Bank.
"Subsidiaries" means those entities in which any Person has an ownership
interest sufficient to cause the assets and liabilities of such entities to be
consolidated with those of such Person in the preparation of a consolidated
balance sheet of such Person in accordance with GAAP.
"Taxes" has the meaning set forth in Section 8.03 hereof.
"Term Loan and Security Agreement" means that certain agreement by and
between Lender and Borrower, dated as of the date hereof.
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"Working Capital Advance" means an amount of funds borrowed by the Borrower
pursuant to the provisions relating to the Working Capital Loan as provided in
this Agreement, which is secured through the grant to the Lender by the Borrower
of a general security interest in the assets of the Borrower.
"Working Capital Advance Balance" means, with respect to any Working
Capital Advance and any date of determination, the sum of (a) the outstanding
principal balance of such Advance, determined as the difference between (i) all
amounts of principal lent by the Lender to the Borrower with respect to such
Working Capital Advance through the close of the date of determination and (ii)
the sum of all amounts of principal repaid by the Borrower with respect to such
Working Capital Advance through the close of the date prior to the date of
determination, (b) the interest accrued and unpaid on such Working Capital
Advance which is due and payable prior to such date of determination, and (c)
all reasonable attorneys' fees and other reasonable costs incurred in the
enforcement or collection thereof.
"Working Capital Advance Maturity Date" means the earliest to occur of (a)
the Stated Working Capital Maturity Date or (b) the date of a declaration of
acceleration by the Lender pursuant to Section 7.02(a).
"Working Capital Loan" means the aggregate of the sums borrowed by the
Borrower from the Lender pursuant to all Working Capital Advances Balances which
remain unpaid, together with accrued and unpaid interest thereon.
"Working Capital Note" means any secured promissory note evidencing the
Working Capital Loan, in the form attached hereto as Exhibit B hereto.
ARTICLE II.
THE WORKING CAPITAL LOANS
Section 2.01. Conditions Precedent and Other Provisions Applicable to All
Obligations. With respect to each Advance, the following conditions precedent
shall have been met as of the related Funding Date:
(a) the Borrower shall have executed each of the Significant Documents;
(b) all of the representations and warranties of the Borrower in this
Agreement shall be true and correct in all material respects as of such Funding
Date;
(c) neither a Monetary Default nor a Non-Monetary Default shall have
occurred and be continuing and no Events of Default shall have occurred;
(d) prior to requesting an Advance hereunder, the Borrower shall have
delivered to the Lender an annual operating and capital budget acceptable to
Lender in full compliance with Section 4.01(s);
(e) the Borrower shall have executed and delivered that certain Warrant
Agreement for Common Stock of Mortgage Plus Equity and Loan Holdings Corp. in
favor of Lender, dated as of the date hereof.
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(f) the Borrower shall have delivered to the Lender such documents as the
Lender shall deem necessary or convenient to perfect its first priority security
interest in the Collateral, including, without limitation, the filing or
amendment of all necessary UCC Statements in all applicable jurisdictions and
any signature guarantees and such other documents as the Lender shall deem
necessary or convenient to perfect its security interest in the Collateral
including, without limitation the filing or amendment of all necessary UCC
Statements in all applicable jurisdictions and any signature guarantees; and
(g) the Borrower hereby acknowledges that, notwithstanding the fact that
the Working Capital Note is secured by the Collateral, the obligations of the
Borrower under the Working Capital Note are recourse obligations of the
Borrower.
Section 2.02. Additional Provisions and Conditions Precedent to Working
Capital Advances.
(a) Lender's obligation to make Working Capital Advances to the Borrower
shall terminate on the Working Capital Advance Maturity Date.
(b) The Borrower shall not request a Working Capital Advance from the
Lender with an initial Working Capital Advance Balance less than $25,000.
(c) The Lender shall be obligated to make each such Advance not more than
two Business Days following the date of receipt by the Lender of a written
request of such Advance from the Borrower, substantially in the form of Exhibit
C, and satisfaction of the requirements of Sections 2.01 and 2.02.
(d) A Working Capital Advance hereunder may only be requested if the
Borrower certifies in the request relating to such Working Capital Advances that
the proceeds of such Working Capital Advances will be used for a purpose within
the scope of the annual operating and capital budget attached hereto as Schedule
I.
(e) The Lender shall not be obligated to make a Working Capital Advance if
the aggregate amount due to Lender under all outstanding Working Capital
Advances together with the requested Working Capital Advance would exceed the
Maximum Working Capital Advance Aggregate Amount.
(f) The Borrower shall not request a Working Capital Advance more
frequently than once a week.
Section 2.03. Application of Payments.
Any payment made under this Agreement shall, unless otherwise specified
herein, be applied (i) first, to pay any unpaid fees, costs, expenses or
obligations which (A) arise hereunder, (B) are to be paid by the Borrower, and
(C) are due and payable, (ii) second, to pay any accrued and unpaid interest on
the Advances pursuant to Section 2.04 which is due and payable on or prior to
the date of such payment, and (iii) third, to reduce the Working Capital Advance
Balance pursuant to Section 2.05.
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Section 2.04. Interest Payments.
(a) Interest shall accrue daily with respect to each Working Capital
Advance on each day during each Accrual Period at a rate equal to the product of
(i) 1/360, (ii) the related Interest Rate, and (iii) the related Working Capital
Advance Balance on such day. With respect to each Accrual Period, the Lender
shall notify the Borrower on the related Determination Date of the amount of
interest which accrued on the Working Capital Advances during such Accrual
Period and such accrued interest shall be due and payable on the related Payment
Date. The Lender's failure to notify the Borrower of the accrued interest due
on any Determination Date shall not affect the Borrower's obligation to pay the
interest due on the related Payment Date.
(b) If any payment with respect to any Working Capital Advance which is due
under the terms of this Agreement is not paid when due, then commencing on the
day such payment is not made and continuing until the day such payment is
finally made, all interest payments thereon shall be calculated using the
Default Rate rather than the Interest Rate.
(c) It is intended that the rate of interest on any Working Capital Advance
hereunder shall never exceed the maximum rate, if any, which may be legally
charged on Working Capital Loans, and if the provisions for interest hereunder
would result in a rate higher than such maximum rate, interest shall
nevertheless be limited to such maximum rate and any amounts which may be paid
toward interest in excess of such maximum rate shall be applied to the reduction
of principal, or, at the option of the Lender, returned to the Borrower.
Section 2.05. Principal Payments.
(a) Each Working Capital Advance shall mature and the related Working
Capital Advance Balance shall be due and payable, together with all interest
accrued and unpaid thereon, on the Working Capital Advance Maturity Date.
(b) The Borrower may at any time voluntarily prepay any Working Capital
Advance from its own funds; provided that if such prepayment is not made on a
Payment Date the amount of prepayment must be $25,000 or greater unless the
Working Capital Advance Balance is being reduced to zero.
(c) The principal amount of any Working Capital Advance prepaid by the
Borrower shall once again be available for borrowing until the Working Capital
Advance Maturity Date, subject to the terms and conditions of this Working
Capital Financing Agreement and the Working Capital Note.
Section 2.06. Renewal Notice. The Lender shall give the Borrower prior
written notice, at least 30 days prior to the Stated Working Capital Maturity
Date, of its intention to renew or not renew the Working Capital Loan prior to
the Stated Working Capital Maturity Date. If no such notice is given by Lender
to Borrower, the Working Capital Advance Balance shall be due and payable,
together with all accrued and unpaid interest, and other expenses, on the
Working Capital Advance Maturity Date. If Borrower wants to request a renewal,
the Borrower shall give the Lender written notice at least 60 days prior to the
Stated Working Capital Maturity Date of its request that the Working Capital
Loan be renewed.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties of the Borrower.
(a) The Borrower hereby makes the following representations and warranties,
as of the date of this Agreement and as of each Funding Date:
(i) the Borrower has been duly organized and is validly existing as a
corporation under the Laws of the State of New York;
(ii) the Borrower is duly licensed where required as a "Licensee" or
is otherwise qualified in each state in which it transacts business and is
not in default of such state's applicable Laws, rules and regulations;
(iii) subject to Section 5.01, the Borrower has the requisite power
and authority and legal right to own and grant a lien on all of its right,
title and interest in and to the Collateral and the Borrower has the
requisite power and authority and legal right to execute and deliver,
engage in the transactions contemplated by, and perform and observe the
terms and conditions of, the Significant Documents;
(iv) the Borrower is able to meet its obligations when they become due
and is not in default (beyond any applicable cure period) under any
mortgage, borrowing agreement or other instrument or agreement pertaining
to indebtedness for borrowed money, and the execution and delivery by the
Borrower of the Significant Documents will not result in any violation of
any such mortgage, instrument or agreement to which the Borrower is a party
or by which its property is bound;
(v) (A) all audited and unaudited financial statements, budgets and
certificates of the Borrower or any of its officers furnished to the Lender
are true and complete and do not omit to disclose any material liabilities,
contingent or otherwise, or other-facts relevant to the condition of the
Borrower; and (B) all such audited financial statements have been prepared
in accordance with GAAP;
(vi) no consent, approval, authorization or order of, registration or
filing with, or notice to any Governmental Authority or court is required
under applicable Law in connection with the execution, delivery and
performance by the Borrower of the Significant Documents;
(vii) there is no action, proceeding or investigation pending or, to
the best knowledge of the Borrower, threatened against it before any court,
administrative agency or other tribunal (A) asserting the invalidity of any
of the Significant Documents, (B) seeking to prevent the consummation of
any of the transactions contemplated by any of the Significant Documents,
or (C) which might materially and adversely affect the performance by the
Borrower of its obligations under, or the validity or enforceability of,
any of the Significant Documents;
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(viii) since the date of this Agreement, there has been no material
adverse change in the business, operations, financial condition, properties
or business plan of the Borrower, taken as a whole;
(ix) the person or persons signatory to this Agreement and any
document executed pursuant to it on behalf of the Borrower have full power
and authority to bind the Borrower;
(x) each of the Significant Documents has been duly authorized and
executed by the Borrower and is a legal, valid and binding agreement and is
enforceable against the Borrower in accordance with its terms;
(xi) the execution, delivery and performance of any of the Significant
Documents, and the exhibits attached thereto, if any, and the other
documents contemplated herein, and the performance by it of all
transactions contemplated herein and therein, (A) have been duly authorized
by all necessary and appropriate corporate action on the part of the
Borrower, (B) will not violate any provision of the Certificate of
Incorporation or Bylaws of the Borrower, (C) does not conflict with any
term or provision of any other agreement to which the Borrower is a party,
and (D) will not cause a breach of any applicable federal, state or
municipal governmental Law or regulations, or any order, judgment, writ,
award, injunction or decree of any court or Governmental Authority which is
binding upon the Borrower;
(xii) the Borrower has not pledged the Collateral to any entity or
person other than to the Lender except for the Collateral pledged to Summit
Bank as provided in Section 9.1(d)(ii) of the Mortgage Warehouse Loan and
Security Agreement, dated as of __________________, 19____, between the
Lender and the Borrower;
(xiii) there has been no (A) filing against the Borrower of a
petition for liquidation, reorganization, arrangement or adjudication as a
bankrupt or similar relief under the bankruptcy, insolvency or similar laws
of the United States or any state or territory thereof or of any foreign
jurisdiction as to which the Borrower fails to secure dismissal within 60
days of such filing, or (B) commencement by the Borrower of a voluntary
case under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or the consent by the Borrower to the entry of an
order for relief in an involuntary case under any such law or to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the
Borrower or of any substantial part of its property, or the making by the
Borrower of any general assignment for the benefit of creditors, or the
failure of the Borrower generally to pay its debts as such debts become
due, or the taking of corporate action by the Borrower in furtherance of
any of the foregoing.
(xiv) all business correspondence of the Borrower and other
communications are conducted in the Borrower's own name, on its own
stationery and through a separately listed telephone number;
(xv) all representations and warranties made pursuant to this
Agreement, the Term Loan and Security Agreement, the Mortgage Warehouse
Credit Agreement (if applicable), and any Significant Documents are and
will be true and correct at the time
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when made and at all times thereafter, whether or not such specific
agreement is still in effect (so long as any Obligation of Borrower remains
outstanding) or, if limited to a specific date, as of the date to which
they refer;
(xvi) to the knowledge of the Borrower, all written information and
documents or copies of documents furnished to the Lender pursuant to or in
connection with this Agreement and any Significant Documents are and will
be true and correct in all material respects at the time when made and at
all times thereafter under this Agreement and any Significant Documents or,
if limited to a specific date, as of the date to which they refer; and
(xvii) except as permitted by Section 5.01, immediately after the
pledge, assignment and transfer to the Lender as herein contemplated, all
necessary action will have been taken to grant a valid and enforceable
first priority perfected security interest in the Collateral (including the
filing or amendment of UCC Statements in all applicable jurisdictions, if
necessary) free and clear of all liens and encumbrances, except for those
subsequent liens which, by operation of law take priority over a previously
perfected security interested.
(b) The Borrower agrees and acknowledges that each of the representations
and warranties set forth in subsection (a) hereof (i) is material and being
relied upon by the Lender, (ii) is true in all respects as of the date of this
Agreement, and (iii) shall survive the execution, termination and expiration of
this Agreement.
Section 3.02. Representations and Warranties of the Lender.
(a) The Lender hereby makes the following representations and warranties as
of the date of this Agreement:
(i) the Lender has been duly organized and is validly existing as a
corporation under the Laws of the State of New York;
(ii) the Lender has the requisite power and authority and legal right
to execute and deliver, engage in the actions contemplated by, and perform
and observe the terms and conditions of, this Agreement to be performed by
it;
(iii) no consent, approval, authorization or order of, registration
or filing with, or notice to any Governmental Authority or court is
required under applicable Law in connection with the execution and delivery
by the Lender of this Agreement;
(iv) the person or persons signatory to this Agreement and any
document executed pursuant to it on behalf of the Lender have full power
and authority to bind the Lender;
(v) this Agreement is valid, binding and enforceable against the
Lender in accordance with its terms; and
(vi) the execution, delivery and performance of this Agreement, and
the exhibits attached hereto and the other documents contemplated herein to
which the
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Lender is a party, and the performance by the Lender of all transactions
contemplated herein and therein (A) have been duly authorized by all
necessary and appropriate corporate action on the part of the Lender, (B)
will not violate any provision of the Certificate of Incorporation of the
Lender, (C) does not conflict with any term or provision of any other
agreement to which the Lender is a party, and (D) will not cause a breach
of any applicable federal, state or municipal governmental Law or
regulations, or any order, judgment, writ, award, injunction or decree of
any court or Governmental Authority which is binding upon the Lender.
(b) The Lender agrees and acknowledges that each of the representations and
warranties set forth in subsection (a) hereof (i) is material and being relied
upon by the Borrower, (ii) is true in all respects as of the date of this
Agreement, and (iii) shall survive the execution and termination of this
Agreement.
ARTICLE IV.
COVENANTS OF THE BORROWER
Section 4.01. Affirmative Covenants of the Borrower. The Borrower
covenants and agrees with the Lender as follows:
(a) the Borrower shall timely make any payment of interest, principal, or
fees and expenses, or any other sum, which has become due whether by
acceleration or otherwise (including the failure to make a mandatory
prepayment), under the terms of this Agreement and the Working Capital Note and
under any other document evidencing or securing indebtedness of the Borrower to
the Lender or any of its Affiliates;
(b) the Borrower shall on a quarterly basis following the initial Funding
Date, as long as any principal or interest amount is outstanding on the
Obligation, deliver a completed certificate, executed by the President or the
Chief Financial Officer of the Borrower which states the current assets to
current liabilities ratio of the Borrower under GAAP for such month;
(c) the Borrower will notify the Lender in writing of any of the following
within one Business Day after a responsible officer of the Borrower learns of
the occurrence thereof, but in no event later than three Business Days following
the occurrence thereof, describing the same and, if applicable, further
notifying the Lender, within two Business Days after learning of the occurrence
thereof, of any remedial steps being taken with respect thereto:
(i) the occurrence or likelihood of occurrence of an Event of Default
hereunder;
(ii) the institution of any litigation, arbitration proceeding or
governmental proceeding with the amount in contest being greater than
$10,000 in the aggregate;
(iii) the entry of any judgment or decree against the Borrower if the
aggregate amount of all judgments and decrees then outstanding against the
Borrower exceeds $10,000 after deducting (i) the amount with respect to
which the Borrower is insured and with respect to which the insurer has
assumed responsibility in writing, and
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(ii) the amount for which the Borrower is otherwise indemnified if the
terms of such indemnification are reasonably satisfactory to the Lender; or
(iv) an event of default under any material agreement of the Borrower
if such event of default could materially and adversely affect the
condition (financial or otherwise) or the operation of the Borrower or its
assets or could materially and adversely affect the performance of its
obligations and duties hereunder;
(d) in the event of a filing against the Borrower of a petition for
liquidation, reorganization, arrangement or adjudication as a bankrupt or
similar relief under the bankruptcy, insolvency or similar Laws of the United
States or any state or territory thereof or of any foreign jurisdiction or there
shall be appointed a receiver, conservator, liquidator, assignee, custodian,
trustee, sequestrator or other similar official of the Borrower or any
substantial part of the property of the Borrower or the ordering of the winding-
up or liquidation of the Borrower's affairs, dismissal of such filing,
appointment or order shall be secured within 30 days of such filing;
(e) the Borrower shall maintain, at all times, Consolidated Tangible Equity
at an amount greater than: (i) $300,000 before the occurrence of an IPO and (ii)
$3,000,000 after the occurrence of an IPO, from the date of execution of this
Agreement through the Working Capital Advance Maturity Date and the Borrower
shall certify to the Lender on a quarterly basis, within 30 days following each
such quarter, in the form of a certificate from the chief financial officer or
chief executive officer of the Borrower, that the Borrower satisfies such
Consolidated Tangible Equity requirement as set forth herein in this clause (e);
(f) (i) the Borrower shall, promptly upon preparation, but in no event
later than 15 days following the end of each month, deliver to the Lender its
unaudited company-prepared consolidated and consolidating financial statements
as of the end of such month, prepared in accordance with GAAP consistently
applied and certified by the chief financial officer of the Borrower; (ii) the
Borrower shall, promptly upon preparation, but in no event later than 90 days
following the end of its fourth fiscal quarter, deliver to the Lender (A) its
audited and certified consolidated and consolidating financial statements,
including the consolidated and consolidating balance sheets of the Borrower and
the related statements of income and cash flows and stating in comparative form
the figures for the corresponding date and period in the previous fiscal year,
all in reasonable detail and prepared in accordance with GAAP consistently
applied, as of the end of the most recently ended fiscal year, and (B) a
certificate from the accountants preparing the Borrower's audited financial
statements stating that in the course of preparing the audited financial
statements nothing came to their attention indicating that the Borrower was not
in compliance with the terms of this Agreement; and (iii) in all cases,
consolidated and consolidating financial statements shall include, without
limitation, balance sheets, profit and loss statements and statements of cash
flows;
(g) the Borrower shall in writing, promptly upon a responsible officer of
the Borrower learning of any breach of any representation, warranty, covenant or
material obligation under this Agreement, notify the Lender thereof;
(h) as requested by the Lender by written notice from time to time, the
Borrower shall, promptly upon filing, deliver to the Lender such requested
copies of all public filings made by the Borrower with any Governmental
Authority or quasi-governmental body;
<PAGE>
(i) the Borrower shall comply with all Laws, ordinances, governmental rules
and regulations to which the Borrower is subject, and obtain and keep in force
any and all licenses, permits, franchises, or other governmental authorizations
from, give all such notices promptly to, register, enroll or file promptly all
such agreements, instruments or documents required by applicable Laws with, and
promptly take all such other legally required action with respect to, any
Governmental Authority or regulatory authority, agency or official, as is
required under any provision of any applicable Law and that it is necessary (i)
for the continued operation of any of the Borrower's activities or business or
the performance by the Borrower of any of its agreements or obligations under
this Agreement or (ii) to ensure the continuing legality, validity, binding
effect or enforceability of this Agreement or any of the obligations hereunder
of the Borrower necessary to the ownership of its properties or to the conduct
of its businesses;
(j) the Borrower shall do all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation, in its
jurisdiction of incorporation and maintain all requisite authority to conduct
its business in each jurisdiction in which its business is conducted, except
where the failure to maintain such authority would not have a material adverse
effect on the ability of the Borrower to conduct its business or to perform its
obligations under the Significant Documents in the reasonable judgment of the
Lender;
(k) at all times during which this Agreement is in effect, the Borrower
shall possess sufficient net capital and liquid assets to satisfy its
obligations as they become due in the normal course of business;
(l) upon five days' prior written notice (or on the next business day if an
Event of Default exists), the Borrower shall permit the Lender or its
accountants, attorneys or other agents access to all of its books and records
for inspection and copying, at the Lender's expense, during normal business
hours at all places where the Borrower conducts business. During the term of
this Agreement, the Borrower shall furnish the Lender such periodic, special or
other reports or information, whether or not provided for herein, as shall be
necessary, reasonable and appropriate in respect of the purposes of this
Agreement;
(m) the Borrower shall pay and discharge all taxes, assessments and
governmental charges upon it, its income and properties as and when such taxes,
assessments and charges are due and payable, except and to the extent only that
such taxes, assessments and charges are being actively contested in good faith
and by appropriate proceedings, and the Borrower shall maintain adequate
reserves on its books therefor;
(n) the Borrower shall furnish to Lender all necessary information to
enable the Lender to prepare all federal, state and local Tax returns and other
reports that the Borrower is required by Law to file and maintain adequate
reserves for the payment of all taxes, assessments, governmental charges, and
levies imposed upon it, its income, or its profits, or upon any property
belonging to it;
(o) the Borrower shall maintain thereafter, at its own expense, an errors
and omissions policy of insurance and a blanket fidelity bond with broad
coverage on all officers, directors, employees and agents of the Borrower or its
Affiliates with responsible companies with a rating of "A" or better by AM Best.
Any such fidelity bond shall protect the Borrower and the Lender against losses,
including forgery, theft, embezzlement and fraud of such persons.
<PAGE>
The insurance policy and the bond shall each show the Lender as an additional
insured and shall provide that the insurers or bonding company shall give the
Lender thirty (30) days' written notice prior to any cancellation. This
provision shall not diminish or relieve the Borrower from its duties and
obligations as set forth in this Agreement. The minimum coverage under (i) any
such errors and omissions policy of insurance shall be two hundred fifty
thousand dollars ($250,000), or such greater coverage amount as FNMA or FHLMC
may require for the Borrower and (ii) any such fidelity bond shall be at least
equal to two hundred fifty thousand dollars ($250,000), or such greater coverage
amount as FNMA or FHLMC may require for the Borrower. The deductible amount on
such errors and omissions policy of insurance and such fidelity bond shall not
exceed $25,000, without the written consent of the Lender;
(p) the Borrower shall furnish to the Lender, periodically upon request,
good standing certificates and officer's certificates to assure the Lender of
the Borrower's continued authority to perform the Borrower's obligations under
this Agreement;
(q) the Borrower shall at all times maintain the ratio of its current
assets to its current liabilities at 1.05 or greater (each as determined by
GAAP);
(r) except for the indebtedness to Summit Bank that is permitted to be
incurred pursuant to Section 4.02(r), which indebtedness shall rank pari passu
with all indebtedness of Borrower to Lender, the Borrower shall (i) subordinate
any other debt (the "Subordinated Debt") to the Obligation and all other
indebtedness due from Borrower to Lender under any other agreement, either
individually or collectively, so long as the Obligation and such other debt is
outstanding; and (ii) not make any payments of principal (and, if the Obligation
and such other debt is in default, interest, premium or penalty) with respect to
any Subordinated Debt so long as the Obligation and such other debt is
outstanding;
(s) the Borrower shall prepare annual operating and capital budgets for its
operations, and the Borrower shall promptly furnish copies of such budgets to
the Lender each year at least ninety (90) days before the commencement of any of
the Borrower's fiscal years;
(t) the Borrower shall at all times comply with all representations,
warranties, and covenants (affirmative and negative) set forth in the Term Loan
and Security Agreement and the Mortgage Warehouse Credit Agreement (if
applicable), whether or not such agreement is still in full force and effect, so
long as any Obligation of Borrower remains outstanding; and
(u) the Borrower shall take all actions reasonably requested by the Lender,
from time to time, as the Lender may request in order to perfect, maintain or
release any security interest of the Lender.
Section 4.02. Negative Covenants of the Borrower. The Borrower covenants
and agrees with the Lender as follows:
(a) the Borrower shall not (i) assign or attempt to assign this Agreement
or any rights hereunder, without first obtaining the specific written consent of
the Lender, or (ii) grant any security interest, lien or other encumbrance on
any Collateral, (A) to the Lender or any of its Affiliates or (B) with respect
to taxes and assessments related thereto which are not yet due and payable, or
which are being contested in good faith;
<PAGE>
(b) the Borrower shall not commence a voluntary case under any applicable
bankruptcy, insolvency or other similar Law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such Law or to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Borrower, or of any substantial part of its property, and the
Borrower shall not make any general assignment for the benefit of creditors, or
fail generally to pay debts as such debts become due, and shall not take
corporate action in furtherance of any of the foregoing;
(c) the Borrower shall not amend its Certificate of Incorporation or
Bylaws, without the prior written consent of the Lender;
(d) the Borrower shall not suffer any materially adverse change in its
financial condition, operations, business, properties or business plan, or the
existence of any other condition which, in the Lender's sole judgment,
constitutes an impairment of the Borrower's ability to perform its obligations
under any of the Significant Documents and which condition is not remedied
within 10 days after written notice to the Borrower thereof or, if the condition
cannot be fully remedied within said ten days, substantial progress (which shall
be in the Lender's sole judgment) has not been made within said ten days, or
such other period as may be mutually agreed upon, toward remedy of the
condition;
(e) the Borrower shall not default under any term or provision of any other
agreement between (i) the Borrower and (ii) the Lender or any of its Affiliates
or any third parties, which default shall not have been cured within an
applicable cure period, if any, and which default has, or with the passage of
time will have, a material adverse effect on the Borrower or its business. For
the purposes of this subsection, both (x) a final judgement for the payment of
money in excess of $10,000 in the aggregate rendered against the Borrower and
remaining in force unpaid, unbonded, undismissed, undischarged and unstayed
after the expiration of the period which is the longer of ten days or the
payment plan for such judgment and (y) the failure to make any payment in excess
of $10,000 to a third party pursuant to the terms of any other agreement, and
such failure is not cured within any applicable cure period, shall be deemed
material;
(f) except for mortgage loans acquired with the intent of sale the Borrower
shall not purchase, lease or otherwise acquire all or substantially all of the
assets or properties of, or acquire any capital stock, equity interest, debt or
other securities of any other entity without the prior written consent of the
Lender, which consent shall not be unreasonably withheld;
(g) the Borrower shall not, in the aggregate, make or commit to make
capital expenditures in excess of ten percent (10%) over the budgets submitted
to the Lender in accordance with Section 4.01(s) hereof;
(h) the Borrower shall not enter into any transaction, including, without
limitation, the purchase, sale, or exchange of property or the rendering of any
service, with any Affiliate, except as the Lender may otherwise approve through
prior written notice;
(i) the Borrower shall not, except as the Lender may otherwise approve
through prior written notice, guarantee, endorse or otherwise in any way become
or be responsible for any obligations of any other person, entity or Affiliate,
including, without limitation, whether directly or indirectly by agreement to
purchase the indebtedness of any other person or through
<PAGE>
the purchase of goods, supplies or services, or maintenance of working capital
or other balance sheet covenants or conditions, or by way of stock purchase,
capital contribution, advance or loan for the purposes of paying or discharging
any indebtedness or obligation of such other person or otherwise; provided,
however, that nothing contained herein shall prevent the Borrower from
indemnifying its officers, directors and agents pursuant to its bylaws and its
articles of incorporation;
(j) the Borrower will not commit any act in violation of applicable Laws,
or regulations promulgated pursuant thereto that relate to the Borrower or that
materially and adversely affect the operations or financial condition of the
Borrower;
(k) the Borrower shall not pledge or transfer any of its securities other
than to the Lender, except as the Lender may otherwise approve through prior
written notice;
(1) during the term of this Agreement, the Borrower shall not engage in any
business other than as a residential mortgage or consumer loan originator or as
a provider of related ancillary services or products;
(m) the Borrower shall not adopt annual operating and capital budgets for
its operations that are materially different than the operating and capital
budgets in effect on the date hereof as such operating and capital budgets may
be adjusted to reflect the IPO;
(n) the Borrower shall not change its current accounting firm unless such
firm is replaced by another nationally-recognized accounting firm acceptable to
Lender;
(o) the Borrower shall not declare or authorize any dividends or other
distributions on any capital stock or other securities of the Borrower to any
Person;
(p) the Borrower shall not do anything which is prohibited in the Term Loan
and Security Agreement or the Mortgage Warehouse Credit Agreement (if
applicable) whether or not such agreement is still in full force and effect, so
long as any Obligation of Borrower remains outstanding;
(q) the Borrower shall not pay aggregate bonuses in any twelve month period
to its employees in excess of 20% of the pre-tax income of the Borrower
(determined in accordance with GAAP) during such period; and
(r) the Borrower shall not borrow from anyone other than Lender except for
borrowings pursuant to a warehouse facility from Summit Bank, provided such
facility is for less than $15 million dollars and further provided that, within
30 days of the date hereof, only the mortgage loans, the collateral securing
such loans and related documentation are secured under such facility.
ARTICLE V.
SECURITY AGREEMENT
Section 5.01. Grant of Security Interest.
<PAGE>
(a) To secure the repayment of the Obligation (subject to Section 5.01(b)
below), the Borrower hereby grants a first priority security interest to the
Lender, in all of the Borrower's right, title and interest in all assets of the
Borrower (the "Collateral") (and such grant shall survive the Working Capital
Advance Maturity Date until such time as all Obligations of Borrower to Lender
under this Agreement or any other agreement are fully repaid) including, without
limitation, the following:
(i) all mortgage loans and other loans originated or purchased by the
Borrower other than the mortgage loans pledged to Summit Bank pursuant to
its warehouse facility with Borrower;
(ii) all securities held by the Borrower, including, without
limitation, the securities of any subsidiary of the Borrower;
(iii) all equipment in all of its forms, wherever located, including,
without limitation, all furniture, furnishings, fixtures, office supplies
and all other similar types of tangible personal property and all parts
thereof and all accessions thereto, together with all parts, fittings,
alterations, substitutions, additions, accessories, replacements and
accessions thereto (any and all such equipment, parts and accessions being
the "Equipment");
(iv) all approvals, permits, licenses, franchises, certificates that
are, by their terms or pursuant to applicable Law, assignable without the
consent of the Governmental Authority or the counter party thereto, as the
case may be;
(v) all contracts or agreements to which the Borrower is a party;
(vi) all leases, real property and leasehold interests;
(vii) all general intangibles, including, but not limited to,
goodwill and tax refunds;
(viii) all bank accounts now or hereafter held by the Borrower and
all funds in such accounts together with all monies (other than monies used
to pay taxes), proceeds or sums due or to become due thereon or therefrom
(all such bank accounts, the "Bank Accounts"), and all documents or
instruments (including, but not limited to, passbooks, certificates of
deposit and receipts necessary to be presented to withdraw funds or
investments held in the Bank Accounts (the "Account Documents"); and
(ix) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute property of the
types described in any of the paragraphs of this Section 5.01 and, to the
extent not otherwise included, all payments under insurance (whether or not
the Lender is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect
to any of the foregoing Collateral.
(b) With respect to the assets set forth in clauses (ii) through (ix) of
Section 5.01(a), during the 30 days immediately following the date of this
Agreement Lender shall only hold a security interest subject only to the
interests, if any, of Summit Bank in such Collateral, and from
<PAGE>
and after such 30-day period Lender shall hold a first priority security
interest in all such Collateral.
Section 5.02. Security for the Borrower's Obligations'. Pursuant to this
Agreement, the Collateral secures the prompt and complete payment when due of
the Obligation, including the Working Capital Loan outstanding under this
Agreement.
Section 5.03. Intention of Parties. This Agreement is intended by the
parties hereto to constitute a security agreement within the meaning of the New
York UCC.
ARTICLE VI.
INDEMNIFICATION
If, in connection with the matters that are the subject of this Agreement,
the Lender becomes involved in any capacity in any action or legal proceeding
involving claims by any third party, the Borrower agrees to reimburse the
Lender, its Affiliates and their respective directors, officers, employees,
agents and controlling persons (each, an "Indemnified Party") promptly upon
request for all reasonable expenses (including the fees and disbursements of
legal counsel, and the cost of investigation and preparation) as they are
incurred, regardless of whether such actions or proceedings are brought by the
Borrower, its Affiliates or third parties. The Borrower also agrees to
indemnity and hold each Indemnified Party harmless against all losses, claims,
damages or liabilities of any kind, joint or several, which such Indemnified
Party may become subject to in connection with, or relating to, or arising out
of this Agreement or the Working Capital Notes, or any transactions contemplated
hereby; provided, however, that the Borrower shall not be liable under the
foregoing indemnity agreement in respect of any loss, claim, damage or liability
to the extent that a court having jurisdiction shall have determined by a final
judgment (not subject to further appeal) that such loss, claim, damage or
liability resulted primarily and directly from the willful misconduct or gross
negligence of such Indemnified Party.
The agreements of the Borrower in this Article 6 shall be in addition to
any liabilities that the Borrower may otherwise have and shall apply whether or
not the Lender or any other Indemnified Party is a formal party to any lawsuit,
claim or other proceeding. Solely for purposes of enforcing such agreements,
the Borrower hereby consents to personal jurisdiction, service and venue in any
court in which any claim or proceeding which relates to the services or matters
that are the subject of this Agreement is brought against the Lender or other
Indemnified Party.
Each Indemnified Party shall provide the Borrower written notice within 20
days after receipt of written notice of the commencement of any action, claim or
proceeding against such Indemnified Party in respect of which indemnity may be
sought from the Borrower, but the failure to notify the Borrower of the
commencement of any such action, claim or proceeding shall not relieve the
Borrower from any liability it may have to such Indemnified Party except to the
extent that its rights hereunder may be materially and adversely prejudiced by
such failure.
<PAGE>
ARTICLE VII.
EVENTS OF DEFAULT
Section 7.01. Occurrence of an Event of Default. An "Event of Default"
shall occur:
(a) immediately upon the occurrence of a Monetary Default; provided,
however, that if the Borrower fails to pay the interest due on any Payment Date,
an "Event of Default" shall occur only if the Borrower has not paid such
interest within one Business Day following such Payment Date;
(b) five days after the occurrence of a Non-Monetary Default; provided,
however, that an "Event of Default" will not occur until ten calendar days after
the occurrence of a Non-Monetary Default if the ability to cure, and substantial
effort towards curing, such Non-Monetary Default can be demonstrated in writing
satisfactory to the Lender in its sole discretion; provided, further, that if it
is not possible or practicable within ten calendar days to cure a Non-Monetary
Default, an "Event of Default" shall be deemed to have occurred immediately upon
the occurrence of such Non-Monetary Default; or
(c) immediately upon the declaration (i) by the Lender of a breach by the
Borrower (or any Shareholders, as applicable), or Guarantor under any of the
Significant Documents (other than this Agreement) or any other agreement,
instrument or note evidencing any portion of the Obligation; or (ii) by the
Lender of an event of default under the Term Loan and Security Agreement, the
Mortgage Warehouse Credit Agreement (if applicable) or any other agreement which
may in the future be executed by Borrower in favor of Lender; or (iii) by any
other lender to the Borrower of an "event of default" under any other material
agreement, including, but not limited to, any warehouse agreement, credit
agreement, custody agreement, or financing agreement to which the Borrower is a
party; or
(d) immediately, if the Borrower, any Shareholder, or Guarantor shall
generally not pay any of its or his respective debts as such debts become due,
or the Borrower, any Shareholder, or Guarantor shall admit in writing its or his
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against the
Borrower, any Shareholder, or Guarantor seeking to adjudicate it or him a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or any of its
or his debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order of relief or the
appointment of a conservator, receiver, trustee, custodian or other similar
official for it or him or for any substantial part of its or his property, or
any of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or the Borrower or Guarantor shall take any corporate
action to authorize any of the actions set forth in this subsection.
Section 7.02. Effect of an Event of Default. Upon the occurrence of an
Event of Default:
<PAGE>
(a) the Lender may declare the principal of the Working Capital Note then
outstanding, together with all interest accrued thereon and any other amounts
accruing under this Agreement, to be immediately due and payable, and all such
amounts shall become immediately due and payable without presentation, demand or
further notice of any kind to the Borrower;
(b) the Lender shall have the right to obtain physical possession of the
Collateral, all files of the Borrower relating to the Collateral and all
documents relating to the Collateral which are then or may thereafter come into
the possession of the Borrower or any third party acting for the Borrower and
the Lender shall be entitled to specific performance of all agreements of the
Borrower contained in this Agreement; and
(c) the Lender shall have the right to dispose of the Collateral as
provided herein, or as provided in the other documents executed in connection
herewith, or in any commercially reasonable manner, or as provided by Law. Once
the Lender has been reimbursed for all principal and interest on the Obligation
and any related expenses, any amounts remaining shall be transferred to the
Borrower.
ARTICLE VIII.
GENERAL PROVISIONS
Section 8.01. Cooperation, Confidentiality. Etc.
(a) Upon reasonable notice, the Borrower shall furnish, and shall use its
best efforts to cause other relevant parties to furnish, the Lender with all
information and data reasonably requested by the Lender in connection with its
activities on the Borrower's behalf to carry out the terms of this Agreement,
and shall provide the Lender reasonable access to the Borrower's officers,
directors, employees and professional advisers.
(b) The Borrower recognizes and confirms that the Lender in acting pursuant
to this Agreement may use information in reports and other information provided
by others, including, without limitation, information provided by the Borrower,
and that the Lender does not assume responsibility for and may rely, without
independent verification, on the accuracy and completeness of any such reports
and information. The Borrower agrees that any advice or information rendered by
the Lender in connection with this Agreement is for the confidential use of the
Borrower only and, except as otherwise required by Law or applicable regulatory
authority, the Borrower will not, and will not permit any third party to,
disclose such advice or information to others or summarize or refer to such
advice or information or to the Lender's engagement hereunder without, in each
case, the Lender's prior written consent. The Lender agrees to keep
confidential any information furnished to it by the Borrower which is clearly
labeled as proprietary to the Borrower, is not otherwise publicly available to
the Lender and the disclosure of which is not required by applicable Law or
judicial or administrative process.
(c) Neither the Lender nor the Borrower may place public announcements or
advertisements describing this or any part of this Agreement without the prior
written consent of the other party.
Section 8.02. Amendment; Waivers. This Agreement may be amended from time
to time only by written agreement of the parties. No failure on the part of the
Lender to exercise,
<PAGE>
and no delay in exercising, any right, power, or remedy under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right under this Agreement preclude any other or further exercise thereof or
the exercise of any other right. No term or provision of this Agreement may be
waived or modified unless such waiver or modification is in writing and signed
by the party against whom such waiver or modification is sought to be enforced.
Section 8.03. Taxes. All payments made by the Borrower to the Lender on
account of any Obligation which are due hereunder shall be made free and clear
of, and without reduction by reason of, any taxes, levies, imposts, deductions,
charges or withholdings of any nature, including, without limitation, any
withholding taxes (but excluding any taxes imposed on the overall net income of
the Lender) and all liabilities with respect thereto (all such taxes, levies,
imposts, deductions, charges, withholding and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by Law to deduct any
Taxes from or in respect of any sum payable hereunder or under any Working
Capital Note, the sum payable shall be increased as may be necessary so that
after making all required deductions (including as applicable to additional sums
payable under this subsection) the Lender receives an amount equal to the sum it
would have received had no such deductions been made.
Section 8.04. Other Transactions. The Borrower acknowledges that the
Lender and its Affiliates compete, directly and indirectly in the business in
which the Borrower engages and proposes to engage; provided, however, that the
Borrower shall not compete with respect to any transaction, the terms of which
are revealed to the Borrower by the Lender. The Borrower acknowledges that the
Lender and its Affiliates have and will in the future have business dealings
with parties other than the Borrower, which parties compete, directly or
indirectly with the Borrower. Although the Lender and its Affiliates may, in
their normal course of business, acquire information about the mortgage market,
particular transactions or such other parties, the Lender shall have no
obligation to disclose such information to the Borrower. The Borrower
acknowledges that the Lender and its Affiliates may engage in their businesses
and otherwise compete with the Borrower without regard to their relationship to
the Borrower hereunder.
Section 8.05. Opinion of Counsel to the Borrower. Upon the execution of
this Agreement, the Borrower shall deliver to the Lender a legal opinion from
their special counsel in the form attached hereto as Exhibit C hereto, together
with such other certificates and documents as the Lender shall require.
Section 8.06. Costs and Expenses. The Lender and the Borrower will each
be solely responsible for and bear all of their own respective expenses
(including, without limitation, the expenses of legal counsel), including,
without limitation, accountants and other advisers, incurred at any time in
connection with pursuing or consummating the Significant Documents and the
transactions contemplated thereby.
ARTICLE IX.
CONSTRUCTION
Section 9.01. Entire Agreement. This Agreement, together with the
Significant Documents, including the Exhibits and the Schedules thereto,
contains the entire agreement of
<PAGE>
the parties with respect to the subject matter hereof, and supersedes all prior
agreements between them, whether oral or written, of any nature whatsoever with
respect to such subject matter.
Section 9.02. Severability Clause. Any part or provision of this
Agreement that is prohibited or that is held to be void or unenforceable shall
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any part or provision of this
Agreement that is prohibited or unenforceable or is held to be void or
unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction,
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable Law, the parties
hereto waive any provision of Law that prohibits or renders void or
unenforceable any provision hereof. If the invalidity of any part or provision
of this Agreement shall deprive any party of the economic benefit intended to be
conferred by this Agreement, the parties shall negotiate, in good faith, to
develop a structure, the economic effect of which is as close as possible to the
economic effect of this Agreement, without regard to such invalidity.
Section 9.03. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts. Each counterpart shall be deemed to be an
original, and all such counterparts shall constitute one and the same
instrument.
Section 9.04. Governing Law; Agreement Constitutes Security Agreement;
Consent to Forum; Immunities. This Agreement has been negotiated, executed and
delivered at and shall be deemed to have been made in New York, New York. This
Agreement shall be governed by and construed in accordance with the internal
Laws of the State of New York, without giving effect to the conflict of laws
rules therein, and shall constitute a security agreement within the meaning of
the New York UCC. The parties hereto hereby consent and agree that the Supreme
Court of New York County, New York or, at the Lender's option, the United States
District Court for the Southern District of New York, shall have exclusive
jurisdiction to hear and determine any claims or disputes between the parties
hereto pertaining to this Agreement or to any matter arising out of or related
to this Agreement. The parties hereto expressly submit and consent in advance
to such jurisdiction in any action or suit commenced in any such court, and
hereby waive any objection which it may have based upon lack of personal
jurisdiction, improper venue or forum non conveniens and hereby consent to the
granting for such legal or equitable relief as is deemed appropriate by such
court. Each party hereto irrevocably consents to the service of process by
registered or certified mail, postage prepaid, to it at its address given
pursuant to Section 10.01 hereof. Nothing in this Agreement shall be deemed or
operate to affect the right of the Lender to serve legal process in any other
manner permitted by Law, or to preclude the enforcement by the Lender of any
judgement or order obtained in such forum or the taking of any action under this
Agreement to enforce the same in any other appropriate forum or jurisdiction.
To the extent that the Borrower has or may hereafter acquire any immunity
from the jurisdiction of any court or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to the Borrower or the Borrower's property,
the Borrower hereby irrevocably waives such immunity in respect of its
obligations under this Agreement. The parties hereto waive any and all
consequential, punitive, exemplary or similar damages arising out of or related
to this Agreement.
<PAGE>
Section 9.05. Recitals. The recitals of this Agreement are not intended
to constitute substantive provisions hereof.
Section 9.06. Rules of Interpretation. Except as otherwise expressly
provided in this Agreement, the following rules shall apply hereto:
(a) the singular includes the plural and the plural includes the singular;
(b) "or" is not exclusive and "include" and "including" are not limiting;
(c) a reference to any agreement or other contract includes permitted
supplements, amendments and other modifications;
(d) a reference to a law (or Law) includes any amendment or modification of
such law (or Law) and the rules or regulations issued thereunder;
(e) a reference to a Person includes its permitted successors and assigns
in the applicable capacity;
(f) a reference in this Agreement to an Article, Section, clause, recital
or Exhibit is to the Article, Section, clause, recital or Exhibit of this
Agreement unless otherwise expressly provided;
(g) words such as "hereunder," "hereto," "hereof," and "herein" and other
words of like import shall, unless the context clearly indicates to the
contrary, refer to the whole of this Agreement and not to any particular
Article, Section or clause hereof;
(h) all obligations under this Agreement are continuing obligations
throughout the term of this Agreement;
(i) any right in this Agreement may be exercised at any time and from time
to time;
(j) the headings of the Articles and Sections are for convenience and shall
not affect the meaning of this Agreement; and
(k) time is of the essence in performing all obligations.
Section 9.07. Good Faith. The Borrower and the Lender shall implement the
terms and provisions of this Agreement in good faith in accordance with
applicable Law.
Section 9.08. Waiver of Trial by Jury and Other Waivers by Borrower. The
Borrower waives (i) the right to trial by jury (which Lender hereby also waives)
in any action, suit, proceeding or counterclaim of any kind arising out of or
related to this Agreement; (ii) presentment, demand and protest and notice of
presentment, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all accounts, contract rights,
documents, instruments, chattel paper and guaranties any time held by Lender on
which Borrower may in any way be liable and hereby ratifies and confirms
whatever Lender may do in this regard; (iii) notice prior to taking possession
or control of the Collateral or any bond or
<PAGE>
security which might be required by any court prior to allowing Lender to
exercise any of Lender's remedies; (iv) the benefit of all valuation,
appraisement and exemption laws; and (v) notice of acceptance hereof. Borrower
each acknowledges that the foregoing waivers are a material inducement to
Lender's entering into this Agreement and that Lender is relying upon the
foregoing waivers in its future dealings with Borrower. Borrower warrants and
represents that it has knowingly and voluntarily waived its jury trial rights
following consultation with legal counsel. In the event of litigation, this
Agreement may be filed as a written consent to a trial by the court.
ARTICLE X.
MISCELLANEOUS
Section 10.01. Notices. All demands, notices, requests for consent and
other communications hereunder shall be in writing and personally delivered,
mailed by certified mail, return receipt requested, or telecopied, and shall be
deemed to have been duly given upon receipt;
if to the Borrower:
Mortgage Plus Equity and Loan Corp.
6851 Jericho Turnpike
Suite 246
Syosset, New York 11791
Attention: Chief Financial Officer
Tel: 516-364-2700
Fax: 516-364-2876
with a copy to:
Leonard M. Ridini, Esq.
45 Crossways Parks Drive
Woodbury, New York 11797
Tel: 516-364-8671
Fax: 516-864-8667
if to the Lender:
FC Capital Corp.
400 Columbus Avenue
Valhalla, NY 10595
Attention: Christopher J. Morrissey
Tel: 888-539-4300
Fax: 914-694-3470
<PAGE>
with a copy to:
Haynes and Boone, L.L.P.
901 Main Street
Suite 3100
Dallas, Texas 75202
Attn: Paul H. Amiel, Esq.
Telephone Number: (214) 651-5605
Telecopy Number: (214) 200-0555
or, as to any party, at such other address or telecopy number as shall be
designated by such party in a written notice to each other party.
Section 10.02. Further Agreements. The Borrower and the Lender each agree
to execute and deliver to the other such additional documents, instruments or
agreements as may be necessary or appropriate to effectuate the purposes of this
Agreement.
Section 10.03. Third-Party Rights; Assignment. This Agreement is for the
exclusive benefit of the parties hereto and their respective successors and
assigns and shall not be deemed to give any legal or equitable right to any
other Person. The Borrower may neither assign its rights nor delegate its
obligations under this Agreement without the prior written consent of the
Lender. The Lender may assign its rights and/or delegate its obligations under
this Agreement to an Affiliate or to any successor to all or substantially all
of the Lender's or such Affiliates business, in each case, without the consent
of the Borrower.
Section 10.04. Summary Judgment. The Borrower hereby acknowledges and
agrees that any enforcement action relating to this Agreement or any Working
Capital Note may be brought by motion for summary judgment in lieu of a
complaint pursuant to Section 3213 of the New York Civil Practice Law and Rules.
Section 10.05. Reproduction of Documents. This Agreement and all
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications which may hereafter be executed, (b) documents received by any
party at the closing, and (c) financial statements, certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
Section 10.06. Right of Set-Off. Upon the occurrence of any Event of
Default hereunder, the Lender is hereby authorized then or at any time or times
thereafter, without notice to the Borrower (any such notice being expressly
waived by the Borrower), to set-off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness (including without limitation whole loan premiums) at any time
owing by the Lender to or for the credit or the account of the Borrower against
any and all of the obligations of the Borrower now or hereafter existing
hereunder, irrespective of whether or not the Lender shall have made any demand
hereunder. The Lender agrees promptly to notify the
<PAGE>
Borrower after any such set-off and application made by the Lender; provided
that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of the Lender under this Section 10.07
are in addition to other rights and remedies which the Lender may have.
Section 10.07. Advice from Independent Counsel. The parties hereto
understand that this Agreement and each of the other Significant Documents to
which either of them is a party are legally binding agreements that may affect
such party's rights. Each party represents to the other that it has received
legal advice from counsel of its choice regarding the meaning and legal
significance of this Agreement and each of the other Significant Documents to
which it is a party and that it is satisfied with its legal counsel and the
advice received from such counsel.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
representative to execute this Agreement as of the date first above written.
MORTGAGE PLUS EQUITY AND LOAN CORP.
By:
-----------------------------------------
Name:
Title:
FC CAPITAL CORP.
By:
-----------------------------------------
Name:
Title:
[Signature Page to Working Capital Financing Agreement]
<PAGE>
EXHIBIT A
WORKING CAPITAL NOTE
Maximum Working Capital
Advance Aggregate Amount: $250,000 December _____, 1997
FOR VALUE RECEIVED, the undersigned, MORTGAGE PLUS EQUITY AND LOAN CORP., a
New York corporation, whose address is 6851 Jericho Turnpike, Suite 246,
Syosset, New York 11791 (the "Borrower"), promises to pay to the order of FC
CAPITAL CORP., a New York corporation, whose address is 400 Columbus Avenue,
Valhalla, New York 10595 (the "Lender"), on or before the Working Capital
Advance Maturity Date (as defined herein), in lawful money of the United States
of America, the principal sums plus interest at the times and in the amounts and
manner as provided in the Agreement (as defined herein).
MAXIMUM RATE OF INTEREST: It is intended that the rate of interest hereon
shall never exceed the maximum rate, if any, which may be legally charged on
this Obligation evidenced by this Working Capital Note ("Maximum Rate"), and if
the provisions for interest contained in this Working Capital Note would result
in a rate higher than the Maximum Rate, interest shall nevertheless be limited
to the Maximum Rate and any amounts which may be paid toward interest in excess
of the Maximum Rate shall be applied to the reduction of principal, or, at the
option of the Lender, returned to the Borrower.
DUE DATE: All indebtedness evidenced hereby not paid before the Working
Capital Advance Maturity Date shall be due and payable on the Working Capital
Advance Maturity Date.
PLACE OF PAYMENT: All payments hereon shall be made, and all notices to
the Lender required or authorized hereby shall be given, at the office of the
Lender at the address designated in the heading of this Working Capital Note, or
to such other place as the Lender may from time to time direct by written notice
to the Borrower.
PAYMENT AND EXPENSES OF COLLECTION: All amounts payable hereunder are
payable by wire transfer in immediately available funds to the account number
specified by the Lender, in lawful money of the United States. Payments
remitted by the Borrower via wire transfer initiated after 2:00 p.m. New York
City time shall be deemed to be received on the next Business Day. The Borrower
agrees to pay all costs of collection when incurred, including, without limiting
the generality of the foregoing, reasonable attorneys' fees through appellate
proceedings, and to perform and comply with each of the covenants, conditions,
provisions and agreements contained in every instrument now evidencing or
securing said indebtedness. If any suit or action be instituted to enforce this
Working Capital Note, the Borrower promises to pay, in addition to the cost and
disbursements otherwise allowed by Law, such sums as the court may adjudge
reasonable attorneys' fees in such suit or action.
SECURITY: This Working Capital Note is issued pursuant to that certain
Working Capital Financing Agreement, dated as of December ______, 1997 (the
"Agreement") between the Lender and the Borrower, and is secured by a security
interest in the Collateral pledged under the
<PAGE>
Agreement and described therein. Notwithstanding the pledge of the Collateral,
Borrower hereby acknowledges, admits and agrees that Borrower's obligations
under this Working Capital Note are recourse obligations of the Borrower to
which the Borrower pledges its full faith and credit. Any capitalized term used
herein and not otherwise defined herein shall have the meaning for such term set
forth in the Agreement.
DEFAULTS: Upon the happening of an Event of Default (as defined in
the Agreement), the Lender shall have all rights and remedies set forth in the
Agreement.
The failure to exercise any of the rights and remedies set forth in the
Agreement shall not constitute a waiver of the right to exercise the same or any
other option at any subsequent time in respect of the same event or any other
event. The acceptance by the Lender of any payment hereunder which is less than
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to exercise any of the foregoing rights and
remedies at that time or at any subsequent time or nullify any prior exercise of
any such rights and remedies without the express consent of Lender, except as
and to the extent otherwise provided by Law.
WAIVERS: The Borrower waives diligence, presentment, protest and
demand and also notice of protest, demand, dishonor and nonpayment of this
Working Capital Note, and expressly agrees that this Working Capital Note, or
any payment hereunder, may be extended from time to time, and consents to the
acceptance of further Collateral from Borrower by the Lender, the release of any
Collateral for this Working Capital Note, the release of any party primarily or
secondarily liable hereon, and that it will not be necessary for the Lender, in
order to enforce payment of this Working Capital Note, to first institute or
exhaust Lender's remedies against the Borrower or any other party liable hereon
or against any Collateral for this Working Capital Note. None of the foregoing
shall affect the liability of the Borrower and any endorsers or guarantors
hereof. No extension of time for the payment of this Working Capital Note, or
any installment hereof, made by agreement by the Lender with any person now or
hereafter liable for the payment of this Working Capital Note, shall affect the
liability under this Working Capital Note of the Borrower, even if the Borrower
is not a party to such agreement; provided, however, the Lender and the
Borrower, by written agreement between them, may affect the liability of the
Borrower.
TERMINOLOGY: Any reference herein to the Lender shall be deemed to
include and apply to every subsequent holder of this Working Capital Note.
Words of masculine or neuter import shall be read as if written in the neuter or
masculine or feminine when appropriate.
SUMMARY JUDGMENT: The Borrower hereby acknowledges and agrees that any
enforcement action relating to this Working Capital Note or any Working Capital
Note may be brought by motion for summary judgment in lieu of a complaint
pursuant to Section 3213 of the New York Civil Practice Law and Rules.
AGREEMENT: Reference is made to the Agreement for provisions as to
payments, collateral and acceleration.
THIS WORKING CAPITAL NOTE IS GOVERNED BY THE PROVISIONS OF THE AGREEMENT WHICH
IS INCORPORATED HEREIN BY REFERENCE, AND IN THE EVENT ANY TERMS OF THIS WORKING
CAPITAL NOTE ARE INCONSISTENT WITH
<PAGE>
THE TERMS OF THE AGREEMENT, THE TERMS OF THE AGREEMENT SHALL GOVERN THIS WORKING
CAPITAL NOTE. NOTWITHSTANDING THE FOREGOING SENTENCE, NO REFERENCE HEREIN TO THE
AGREEMENT AND NO PROVISION OF THIS WORKING CAPITAL NOTE OR OF THE AGREEMENT
SHALL ALTER OR IMPAIR THE OBLIGATION OF THE BORROWER WHICH IS ABSOLUTE AND
UNCONDITIONAL, TO PAY THE PRINCIPAL OF AND INTEREST ON THIS WORKING CAPITAL NOTE
AT THE RESPECTIVE TIMES AND AT THE RATES HEREIN PRESCRIBED.
APPLICABLE LAW: This Working Capital Note has been negotiated, executed and
delivered at and shall be deemed to have been made in New York, New York. This
Working Capital Note shall be governed by and construed in accordance with the
internal Laws of the State of New York, without giving effect to the conflict of
laws rules therein. The parties hereto hereby consent and agree that the
Supreme Court of New York County, New York or, at the Lender's option, the
United States District Court for the Southern District of New York, shall have
exclusive jurisdiction to hear and determine any claims or disputes between the
parties hereto pertaining to this Working Capital Note or to any matter arising
out of or related to this Working Capital Note. The parties hereto expressly
submit and consent in advance to such jurisdiction in any action or suit
commenced in any such court, and hereby waive any objection which it may have
based upon lack of personal jurisdiction, improper venue or forum non conveniens
and hereby consent to the granting for such legal or equitable relief as is
deemed appropriate by such court. Each party hereto irrevocably consents to the
service of process by registered or certified mail, postage prepaid, to it at
its address given pursuant to Section 10.01 of the Agreement. Nothing in this
Working Capital Note shall be deemed or operate to affect the right of the
Lender to serve legal process in any other manner permitted by Law, or to
preclude the enforcement by the Lender of any judgement or order obtained in
such forum or the taking of any action under this Working Capital Note to
enforce same in any other appropriate forum or jurisdiction.
To the extent that the Borrower has or may hereafter acquire any immunity
from the jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgement, attachment in aid of
execution, execution or otherwise) with respect to the Borrower or the
Borrower's property, the Borrower hereby irrevocably waives such immunity in
respect of its obligations under this Working Capital Note.
Each party hereto waives the right to trial by jury in any action, suit,
proceeding or counterclaim of any kind arising out of or related to this Working
Capital Note. In the event of litigation, this Working Capital Note may be
filed as a written consent to a trial by the court.
MORTGAGE PLUS EQUITY AND LOAN CORP.
By:
----------------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
[REVISE TO INCORPORATE OPINIONS WITH RESPECT TO THE TERM LOAN AGREEMENT, TERM
NOTE, FINANCING STATEMENT, GUARANTY AND THE GUARANTOR]
FORM OF BORROWER'S COUNSEL OPINION
December ____, 1997
FC Capital Corp.
400 Columbus Avenue
Valhalla, New York 10595
Re: Working Capital Financing Agreement
-----------------------------------
Ladies and Gentlemen:
We are counsel to Mortgage Plus Equity and Loan Corp. ("Borrower") and have
examined an executed copy of the Working Capital Financing Agreement, between
Borrower and you, dated as of December ____, 1997 (the "Agreement").
Capitalized terms used herein, but not defined, shall have the meanings
assigned to them in the Agreement.
We have further examined original, photostatic or certified copies of all
such corporate records of Borrower, and such certificates of public officials,
certificates of corporate officers, and other documents, and such questions of
law, as we have deemed relevant and necessary as a basis for the opinions
hereinafter expressed. In making my examinations and rendering the opinions
herein expressed I have made the following assumptions:
(1) The parties to the Agreement (other than Borrower) have the power
to enter into and perform all of their obligations thereunder;
(2) The due authorization, execution and delivery of the Agreement by
the parties thereto (other than Borrower), and the validity and
binding effect on the parties thereto (other than Borrower) of the
Agreement;
(3) The genuineness of all signatures;
(4) The authenticity of all documents submitted to us as originals and
the conformity to originals of all documents submitted to us as
copies.
The opinions expressed in numbered paragraph 2 below with respect to the
enforceability of the Agreement are subject to the following additional
qualifications:
<PAGE>
(a) The effect of bankruptcy, insolvency, reorganization, moratorium,
receivership, or other similar laws of general applicability relating to or
affecting creditors' rights generally; and
(b) The application of general principles of equity, including, but not
limited to, the right to specific performance (regardless of whether
enforceability is considered in a proceeding in equity or at law).
Based upon the foregoing and subject to the last paragraph hereof, we are
of the opinion that:
(1) Borrower has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware
and is qualified to do business in each state necessary to enable it
to perform its obligations under the Agreement. Borrower has the
requisite power and authority to execute and deliver, engage in the
transactions contemplated by, and perform and observe the conditions
of, the Agreement.
(2) The Agreement and each of the other Significant Documents
have been duly and validly authorized, executed and delivered by
Borrower, all requisite corporate action has been taken with respect
thereto, and the Agreement and each of the other Significant Documents
constitute valid, legal and binding agreements of Borrower,
enforceable against Borrower in accordance with their respective
terms.
(3) The execution, delivery or performance by Borrower of the
Agreement and each of the other Significant Documents does not
conflict or will not conflict with or result in a breach of, or does
not constitute or will not constitute a default under (i) any term or
provision of the certificate of incorporation or bylaws of Borrower;
(ii) any term or provision of any agreement, contract, instrument or
indenture, to which Borrower is a party or is bound; or (iii) any
order, judgment, writ, injunction or decree of any court or
governmental agency or body or other tribunal having jurisdiction over
Borrower.
(4) No consent, approval, authorization or order of, registration
or filing with, or notice to, any court, governmental agency or body
or other tribunal is required for the execution, delivery and
performance by Borrower of the Agreement or any of the other
Significant Documents or the consummation of any other transactions
contemplated by the Agreement or any of the other Significant
Documents, except such which have been obtained.
(5) There are no actions, proceedings or investigations pending
or, to our knowledge, threatened against Borrower before any court,
governmental agency or body or other tribunal asserting the
invalidity of the Agreement or any of the other Significant Documents
which would materially and adversely affect the performance by
Borrower of its obligations under, or the validity or enforceability
of, the Agreement or any of the other Significant Documents.
<PAGE>
This Opinion is furnished at the request of the Company and is being
delivered solely for the benefit of the addressee hereof. It may not be relied
upon by or distributed to any other person or for any other purpose without our
prior written consent.
Very truly yours,
<PAGE>
EXHIBIT C
FORM OF WORKING CAPITAL ADVANCE REQUEST
FC Capital Corp.
400 Columbus Avenue
Valhalla, New York 10595
Attention: ____________________
Pursuant to the Working Capital Financing Agreement dated as of December
______, 1997 between FC Capital Corp. (the "Lender") and the undersigned (as
amended from time to time, the "Agreement"), the undersigned hereby gives notice
of its election to borrow from the Lender a Working Capital Advance (each
capitalized term used herein shall have the meaning specified therefor in the
Agreement):
1. The Funding Date of this Working Capital Advance shall be ,
199___.
2. The amount of this Working Capital Advance shall be $ .
The undersigned hereby certifies (i) that each of the conditions precedent
to a Working Capital Advance listed in Sections 2.01, 2.02 and 3.01 of the
Agreement are true and correct on the date hereof and shall be true and correct
on the date of the Working Capital Advance requested herein, before and after
giving effect thereto, (ii) that such Working Capital Advance is within the
scope of the annual operating and capital budget approved by the Lender pursuant
to Section 4.01(s) of the Agreement and (iii) that such Working Capital Advance
is to be used for one or more of the purposes set forth on Schedule I to the
Agreement.
MORTGAGE PLUS EQUITY AND LOAN CORP.
By:
----------------------------------------
Name:
Title:
Date: , 199
------------ --
<PAGE>
ACKNOWLEDGED:
FC CAPITAL CORP.
By:
----------------------------
Name:
Title:
Date:
<PAGE>
Schedule I
ANNUAL OPERATING AND CAPITAL BUDGET
<PAGE>
EXHIBIT 10.10
TERM LOAN AND SECURITY AGREEMENT
--------------------------------
between
-------
FC CAPITAL CORP.,
-----------------
as the Lender
-------------
and
---
MORTGAGE PLUS EQUITY AND LOAN CORP.
-----------------------------------
as the Borrower
---------------
$1,500,000
----------
Dated as of December 18, 1997
-----------------------------
<PAGE>
TERM LOAN AND SECURITY AGREEMENT
--------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<C> <S> <C>
1. AMOUNT AND TERMS OF TERM LOAN 1
1.1 Term Loan 1
1.2 Use of Proceeds 2
1.3 Interest 2
1.4 Receipt of Payments 2
1.5 Application and Allocation of Payments 3
1.6 Records 3
1.7 Indemnity 3
1.8 Access 3
1.9 Taxes 4
1.10 Security Interest in the Collateral 4
1.11 Definitions; Schedules; Annexes and Exhibits 5
2. CONDITIONS PRECEDENT 6
2.1 Conditions to the Term Loan 6
3. REPRESENTATIONS AND WARRANTIES 6
3.1 Corporate Existence; Compliance with Law 7
3.2 Executive Offices; Corporate or Other Names 7
3.3 Corporate Power; Authorization; Enforceable Obligations 7
3.4 Financial Statements 7
3.5 Material Adverse Change 7
3.6 Ownership of Property; Liens 8
3.7 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness 8
3.8 Government Regulation 8
3.9 Margin Regulations 8
3.10 Taxes 8
3.11 ERISA 9
3.12 No Litigation 9
3.13 Brokers 9
3.14 Full Disclosure 9
3.15 Hazardous Materials 10
3.16 Representations and Warranties Regarding the Collateral 10
4. FINANCIAL STATEMENTS AND INFORMATION 10
4.1 Reports and Notices 10
4.2 Communication with Accountants 10
5. AFFIRMATIVE COVENANTS 11
5.1 Maintenance of Existence and Conduct of Business 11
5.2 Payment and Discharge of Charges 11
5.3 Insurance, Casualties or Condemnation of Collateral 11
5.4 Compliance with Laws 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
5.5 Agreements 12
5.6 Supplemental Disclosure 12
5.7 Covenants Regarding the Collateral 12
5.8 Lender's Appointment as Attorney-in-Fact 13
5.9 Consolidated Tangible Equity 13
5.10 Compliance with Other Agreements 13
6. NEGATIVE COVENANTS 14
6.1 Liens 14
6.2 Sale of Assets 14
6.3 Accounting Firm 14
6.4 Dividends 14
6.5 Compensation 14
6.6 Bonuses 14
6.7 Borrowing 14
6.8 Other Prohibitions 14
7. TERM 14
7.1 Duration 14
7.2 Survival of Obligations 14
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES 15
8.1 Events of Default 15
8.2 Remedies 17
8.3 Waivers 18
9. SUCCESSORS AND ASSIGNS 18
9.1 Successors and Assigns 18
10. ASSIGNMENTS 18
11. MISCELLANEOUS 19
11.1 Complete Agreement; Modification of Agreement 19
11.2 Fees and Expenses 19
11.3 No Waiver 19
11.4 Remedies 19
11.5 Severability 20
11.6 Right of Set-off 20
11.7 Authorized Signature 20
11.8 Governing Law 20
11.9 Notices 21
11.10 Section Titles 22
11.11 Counterparts 22
11.12 Time of the Essence 22
11.13 Waiver of Jury Trial 22
11.14 Press Releases 22
11.15 Reinstatement 23
11.16 Advice of Counsel 23
11.17 No Strict Construction 23
11.18 Dating 23
</TABLE>
<PAGE>
TERM LOAN AND SECURITY AGREEMENT
--------------------------------
This TERM LOAN AND SECURITY AGREEMENT, dated as of December 18, 1997,
between MORTGAGE PLUS EQUITY AND LOAN CORP., a New York corporation (the
"Borrower"), and FC CAPITAL CORP., a New York corporation, as lender hereunder
(the "Lender").
RECITAL
The Borrower desires to borrow a term loan in the amount of $1,500,000 from
the Lender, and the Lender is willing to make such term loan to the Borrower
upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
I. AMOUNT AND TERMS OF TERM LOAN
A. Term Loan.
1. Upon and subject to the terms and conditions hereof, the Lender agrees
to make available to the Borrower, on the Closing Date, and the Borrower hereby
requests from the Lender, the Term Loan in an original principal amount of ONE
MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000). The Term Loan made by the
Lender shall be evidenced by a single promissory note of Borrower substantially
in the form of Exhibit A hereto, dated the Closing Date, payable to the Lender
in the original principal amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000). The date and the amount of the Term Loan made by Lender and each
payment of principal with respect thereto shall be recorded on the books and
records of the Lender, which books and records shall, absent manifest error,
constitute prima facie evidence of the accuracy of the information therein
recorded.
1. The Borrower unconditionally promises to pay to the Lender monthly
installments of principal in an amount equal to the greater of (i) $100,000.00
and (ii) the Premium Repayment Amount for the immediately preceding calendar
month for which the principal payment is due, which principal payments shall
commence on February 5, 1998, and shall continue to be due on the fifth (5th)
day of each calendar month thereafter together with a final installment of
principal on the Term Loan which shall be due on the Termination Date in an
amount equal to the entire aggregate remaining unpaid principal balance of the
Term Loan. Borrower hereby authorizes and directs Lender for so long as the
Master Purchase and Sale Agreement is in effect, and Lender purchases any
mortgage thereunder for which it is required to pay any premium or other amounts
to Borrower, to (i) retain the Premium Repayment Amount from any and all such
payments which Lender would otherwise be required to pay to Borrower under the
terms of the Master Purchase and Sale Agreement and (ii) apply such amounts
against any principal due Lender under this Agreement; provided, further, that
notwithstanding any such retention and application of funds by Lender, Borrower
shall remain obligated to pay to Lender the entire amount of any monthly
principal installment required pursuant to this Section 1.1(b) to the extent not
satisfied in full by such withholding, including, without limitation, any
shortfall
<PAGE>
between the amount of funds retained and applied by Lender pursuant to the
foregoing proviso and the full amount of principal due pursuant to this Section
1.1(b).
1. The Borrower shall have the right at any time to voluntarily prepay
the Term Loan in whole or in part without any penalty or premium.
A. Use of Proceeds. The Borrower shall use the proceeds of the Term Loan
for the financing of the Borrower's ordinary working capital needs.
A. Interest.
1. The Borrower shall pay interest on the Term Loan to the Lender until
the Termination Date (or through any prepayment date, as the case may be) on the
unpaid principal balance of the Term Loan, from and including the Closing Date,
at the Interest Rate as accrued during the applicable Accrual Period. Interest
for each Accrual Period shall be payable in arrears on the fifth (5th) day of
each calendar month, commencing on February 5, 1998, and continuing to be due on
the fifth (5th) day of each succeeding calendar month thereafter; provided,
however, that in all cases accrued interest on the Term Loan shall be payable by
the Borrower to the Lender on the Termination Date (or through any prepayment
date, as the case may be). If any interest on the Term Loan accrues or remains
payable after the Termination Date, such interest shall be payable by the
Borrower upon demand.
1. All computations of interest hereunder shall be made by the Lender on
the basis of a three hundred and sixty (360) day year, in each case for the
actual number of days occurring in the Accrual Period for which such interest is
payable. Each determination by the Lender of an interest rate hereunder shall
be conclusive and binding for all purposes, absent manifest error.
1. So long as any Default shall have occurred and be continuing, the
interest rate applicable to the Term Loan or other Obligations shall be
increased by the Lender by five percentage points (5%) per annum above the
Interest Rate otherwise applicable thereto (the "Default Rate").
1. Notwithstanding anything to the contrary set forth in this Section
1.3, if, at any time until payment in full of all of the Obligations, the
Interest Rate payable hereunder by the Borrower exceeds the highest rate of
interest permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto (the "Maximum Lawful
Rate"), then in such event and so long as the Maximum Lawful Rate would be so
exceeded, the rate of interest payable hereunder by the Borrower shall be equal
to the Maximum Lawful Rate; provided, however, that if at any time thereafter
the rate of interest payable by the Borrower hereunder is less than the Maximum
Lawful Rate, the Borrower shall continue to pay interest hereunder at the
Maximum Lawful Rate until such time as the total interest received by the Lender
from the making of advances hereunder to the Borrower is equal to the total
interest which the Lender would have received had the interest rate payable-
hereunder by the Borrower been (but for the operation of this paragraph) the
interest rate payable since the Closing Date as otherwise provided in this
Agreement. Thereafter, the interest rate payable by the Borrower hereunder
shall be the Interest Rate otherwise provided in this Section 1.3, unless and
until the Interest Rate again exceeds the Maximum Lawful Rate, in which event
this paragraph shall again apply. In the event the Maximum Lawful Rate is
calculated
<PAGE>
pursuant to this paragraph, such interest shall be calculated at a daily rate
equal to the Maximum Lawful Rate divided by the number of days in the year in
which such calculation is made.
A. Receipt of Payments. The Borrower shall make each payment under this
Agreement not later than 11:00 a.m. (New York time) on the day when due in
lawful money of the United States of America by wire transfer in immediately
available funds to the Lender. Amounts received after 11:00 A.M. (New York
time) on any day shall be deemed received on the next succeeding Business Day.
Whenever any payment to be made by the Borrower shall be stated to be due on a
day that is not a Business Day, such payment may be made on the next succeeding
Business Day. Any such adjustment of the time of payment shall correspondingly
increase the amount of accrued interest.
A. Application and Allocation of Payments. The Borrower irrevocably
waives the right to direct the application of any and all payments at any time
or times hereafter received from or on behalf of the Borrower, and the Borrower
irrevocably agrees that the Lender shall have the continuing exclusive right to
apply any and all such payments against the then due and payable obligations of
the Borrower as the Lender may deem advisable.
A. Records. The Lender shall maintain accounts in which it will record
(i) the amount of the Term Loan made hereunder and the interest rate applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to the Lender hereunder and (iii) the
amount of any sum received by the Lender hereunder from the Borrower. The
entries made in such accounts shall be prima facie evidence of the existence and
amounts of the obligations therein recorded; provided, however, that the failure
of the Lender to maintain such accounts or any error therein shall not in any
manner affect the obligations of the Borrower to repay the Term Loan in
accordance with their terms.
A. Indemnity. The Borrower shall indemnify and hold the Lender and its
Affiliates, officers, directors, employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any and all suits, actions,
costs, fines, deficiencies, penalties, proceedings, claims, damages, losses,
liabilities and expenses (including reasonable attorneys' fees and disbursements
and other costs of investigations or defense, including those incurred upon any
appeal) (each, a "Claim") which may be instituted or asserted against or
incurred by such Indemnified Person as the result of credit having been extended
under this Agreement or in connection with or arising out of the transactions
contemplated hereunder, including any and all environmental liabilities and
costs, provided, that the Borrower shall not be liable for any indemnification
to such Indemnified Person with respect to any portion of any such claim which
results solely from such Indemnified Person's gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER
PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON
OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR
INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A
RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS.
A. Access. The Borrower shall (unless a Default shall have occurred and
be continuing, in which event no notice shall be required and the Lender shall
have access at any and all times): (i) provide access during normal business
hours to the Lender and any of its
<PAGE>
officers, employees and agents, as frequently as the Lender determines to be
appropriate in Lender's reasonable discretion, upon reasonable advance notice to
the properties and facilities of the Borrower; (ii) permit the Lender and any of
its officers, employees and agents to inspect, audit and make extracts from all
of the Borrower's records, files and books of account; and (iii) permit the
Lender to conduct audits to inspect, review and evaluate the Collateral, and the
Borrower agrees to render to the Lender at the Borrower's cost and expense, such
clerical and other assistance as may be reasonably requested with regard
thereto. Borrower shall make available to the Lender and its counsel, as quickly
as practicable under the circumstances, originals or copies of all books,
records, board minutes, contracts, insurance policies, environmental audits,
business plans, files, financial statements (actual and pro forma), filings with
federal, state and local regulatory agencies, and other instruments and
documents which the Lender may reasonably request. Borrower shall deliver any
document or instrument reasonably necessary for the Lender, as it may from time
to time request, to obtain records from any service bureau or other Person which
maintains records for Borrower, and shall maintain duplicate records or
supporting documentation on media, including computer tapes and discs owned by
Borrower. Borrower shall instruct its certified public accountants and its
banking and other financial institutions to make available to the Lender such
information and records as the Lender may reasonably request.
A. Taxes.
1. Any and all payments by or on behalf of the Borrower hereunder or
under the Term Note shall be made, in accordance with this Section 1.9, free and
clear of and without deduction for any and all present or future Taxes. If
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under the Term Note to the Lender, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 1.9) the Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law. Within 30
days after the date of any such payment of Taxes, the Borrower shall furnish to
the Lender the original or a certified copy of a receipt evidencing payment
thereof.
1. The Borrower shall indemnify and pay, within ten (10) days of demand
therefor, the Lender for the full amount of Taxes (including any Taxes imposed
by any jurisdiction on amounts payable under this Section 1.9) paid by the
Lender and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto.
A. Security Interest in the Collateral.
1. To secure the prompt and complete payment, performance and observance
of all of the Obligations, and to induce the Lender to enter into this Agreement
and to make the Term Loan available to the Borrower, the Borrower hereby grants
to the Lender (and such grant shall survive the Termination of this Agreement
until such time as all Obligations of Borrower to Lender under this Agreement or
any other agreement are fully repaid) a first priority security interest,
subject to 1.10(b) below in all of the Borrower's right, title and interest in,
to and under the following, whether now owned or hereafter acquired by the
Borrower, and regardless of where located (all of which being hereinafter
collectively referred to as the "Collateral"):
<PAGE>
a) all mortgage loans and other loans originated or purchased
by the Borrower other than those mortgage loans pledged to
Summit Bank pursuant to its warehouse facility with
Borrower;
a) all securities held by the Borrower, including, without
limitation, the securities of any subsidiary of the
Borrower;
a) all equipment in all of its forms, wherever located,
including, without limitation, all furniture, furnishings,
fixtures, office supplies and all other similar types of
tangible personal property and all parts thereof and all
accessions thereto, together with all parts, fittings,
alterations, substitutions, additions, accessories,
replacements and accessions thereto;
a) all approvals, permits, licenses, franchises, and
certificates that are, by their terms or pursuant to
applicable law, assignable without the consent of the
Governmental Authority or the counterparty thereto, as the
case may be;
a) all contracts or agreements to which the Borrower is a
party;
a) all leases, real property and leasehold interests;
a) all general intangibles, including, but not limited to,
goodwill and tax refunds;
a) all bank accounts now or hereafter held by the Borrower and
all funds in such accounts together with all monies (other
than monies used to pay taxes), proceeds or sums due or to
become due thereon or therefrom, and all documents or
instruments (including, but not limited to, passbooks,
certificates of deposit and receipts necessary to be
presented to withdraw funds or investments held in the bank
accounts; and
a) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute
property of the types described in any of the paragraphs of
this Section) and, to the extent not otherwise included, all
payments under insurance (whether or not the Lender is the
loss payee thereof, or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral).
1. With respect to the assets set forth in clauses (ii) through (ix) of
Section 1.10(a), during the 30 days immediately following the date of this
Agreement, Lender
<PAGE>
shall only hold a second priority security interest subject only to the liens in
favor of Summit Bank, and from and after such 30-day period Lender shall hold a
first priority security interest.
A. Definitions; Schedules; Annexes and Exhibits. Capitalized terms used
herein shall have the meanings ascribed to them on Annex A hereto. All
Schedules, Annexes and Exhibits hereto, or expressly identified to this
Agreement, are incorporated herein by reference, and taken together, shall
constitute but a single agreement. Unless otherwise expressly set forth herein,
or in a written amendment referring to such Schedules and Annexes, all Schedules
and Annexes referred to herein shall mean the Schedules and Annexes as in effect
at the Closing Date. As used herein, the plural shall include the singular, the
singular includes the plural, and pronouns in any gender (masculine, feminine or
neuter) apply to all genders.
I. CONDITIONS PRECEDENT
A. Conditions to the Term Loan. Notwithstanding any other provision of
this Agreement and without affecting in any manner the rights of the Lender
hereunder, the Borrower shall have no rights under this Agreement (but shall
have all applicable obligations hereunder, and the Lender shall not be obligated
to make the Term Loan or to take, fulfill, or perform any other action
hereunder, until the following conditions have been fulfilled to the
satisfaction of the Lender:
1. Borrower's representations and warranties contained herein shall be
true and correct on and as of such date, as though made on and as of such date,
except to the extent that any such representation or warranty expressly relates
to an earlier date;
1. No event shall have occurred and be continuing, or would result from
the making of the Term Loan which constitutes a Default;
1. The Lender shall have received this Agreement and all other documents,
instruments, agreements and other materials listed in the Schedule of Documents,
each duly executed and delivered and in form and substance satisfactory to the
Lender including, but not limited to, that certain Warrant Agreement of Common
Stock of Mortgage Plus Equity and Loan Holdings Corp. in favor of Lender dated
as of the date hereof;
1. Evidence satisfactory to the Lender that Borrower has obtained
consents and acknowledgments of all Persons whose consents and acknowledgments
may be required, and all requisite Governmental Authorities, to the terms and to
the execution and delivery, of this Agreement and the consummation of the
transactions contemplated hereby and thereby;
1. No action, proceeding, investigation, regulation or legislation shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain or prohibit, or to obtain damages
in respect of, or which is related to or arises out of this Agreement or the
consummation of the transactions contemplated hereby and which, in the Lender's
sole judgment, would make it inadvisable to consummate the transactions
contemplated by this Agreement;
<PAGE>
1. The Lender, in its sole judgment, shall not have determined that a
Material Adverse Effect shall have occurred since the date of the Borrower's
most recent audited financial statements; and
1. The Lender shall be satisfied, in its sole judgment, with the
corporate, capital, tax, legal and management structure of Borrower, and shall
be satisfied, in its sole judgment exercised reasonably, with the nature and
status of all contractual obligations, securities, labor, tax, ERISA, employee
benefit, environmental, health and safety matters involving or affecting
Borrower.
I. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, Borrower represents and
warrants to the Lender that:
A. Corporate Existence; Compliance with Law. Borrower (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is duly qualified to do business
and is in good standing in each other jurisdiction where its ownership or lease
of property or the conduct of its business requires such qualification; (ii) has
the requisite power and authority and the legal right to execute, deliver and
perform its obligations under this Agreement and the Term Note and to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease, and to conduct its business as now, heretofore
and proposed to be conducted; (iii) has all material licenses, permits, consents
or approvals from or by, and has made all filings with, and has given all
notices to, all Governmental Authorities having jurisdiction, to the extent
required for such ownership, operation and conduct; (iv) is in compliance with
its certificate or articles of incorporation and by-laws and (v) is in
compliance in all material respects with all applicable provisions of law.
A. Executive Offices; Corporate or Other Names. The current locations of
the Borrower's executive office and principal place of business is set forth in
Schedule 3.2, and, except as set forth on Schedule 3.2, such location has not
changed during the preceding twelve months. During the prior five years, except
as set forth on Schedule 3.2, the Borrower had not been known as or used any
corporate, fictitious or trade name other than the names set forth on Schedule
3.2.
A. Corporate Power; Authorization; Enforceable Obligations. The
execution, delivery and performance by the Borrower of this Agreement and the
Term Note and all other instruments and documents to be delivered by Borrower
hereunder and the creation of all Liens provided for herein: (i) have been duly
authorized by all necessary corporate and shareholder action; (ii) are not in
contravention of any provision of Borrower's certificate or articles of
incorporation or by-laws; (iii) will not violate any law or regulation, or any
order or decree of any court or governmental instrumentality; (iv) will not
conflict with or result in the breach or termination of, constitute a default
under or accelerate any performance required by, any material indenture,
mortgage, deed of trust, lease, agreement or other instrument to which Borrower
is a party or by which Borrower or any of its property is bound; (v) will not
result in the creation or imposition of any Lien upon any of the property of
Borrower other than those in favor of the Lender, all pursuant to this Agreement
and (vi) do not require the consent or approval of any Governmental Authority or
any other Person. At or prior to the Closing Date,
<PAGE>
this Agreement, the Term Note and each other document or instrument delivered
hereunder shall have been duly executed and delivered by the Borrower and shall
then constitute a legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting
creditors, rights and to equitable principles of general applicability.
A. Financial Statements. The Borrower has delivered the Financial
Statements identified on Schedule 3.4, and such Financial Statements present
fairly the financial condition and results of operations of the Borrower as of
and for the periods reflected therein.
A. Material Adverse Change. From the date of Borrower's last audit: (a)
Borrower has not incurred any obligations, contingent or non-contingent
liabilities, or liabilities for Charges or long-term commitments which could,
alone or in the aggregate, reasonably be expected to have a Material Adverse
Effect; (b) no contract, lease, agreement or other instrument to which Borrower
has become a party or by which it or any of its properties or assets is bound or
affected, and no provision of applicable law or governmental regulation has had
or could reasonably be expected to have a Material Adverse Effect; (c) Borrower
is not in default, and to Borrower's knowledge no third party is in default,
under or with respect to any Material Contract; and (d) no event has occurred,
and Borrower will not permit or suffer to occur any event or events, which alone
or in the aggregate could reasonably be expected to have a Material Adverse
Effect.
A. Ownership of Property; Liens. Borrower holds (i) good and insurable
fee simple title to all of its real estate, (ii) valid leasehold interests in
all of its leases of real property (both as lessor and lessee, sublessee or
assignee) and (iii) good and insurable title to, or valid leasehold interests
in, all of its other properties and assets. None of the properties and assets
of Borrower are subject to any Liens, except (x) Permitted Encumbrances and
Liens set forth on Schedule 3.6 and (y) from and after the Closing Date, the
Lien in favor of the Lender pursuant to this Agreement. Borrower is not in
default under any of its leases, and to Borrower's knowledge, no other party to
any such leases is in default of any of its material obligations thereunder or
has delivered or received any notice of default under any such leases, and no
event has occurred which, with the giving of notice, the passage of time, or
both, would constitute a default under any such Lease.
A. Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness. Except as set forth on Schedule 3.7(a), Borrower does not have
any Subsidiaries and is not engaged in any joint venture or partnership with any
other Person. Borrower is the record and beneficial owner of all of the issued
and outstanding Stock of each Subsidiary set forth on Schedule 3.7(a), and such
Stock is free and clear of any all Liens. Schedule 3.7(a) sets forth a list of
all Indebtedness of Borrower and the party to whom such Indebtedness is owed.
A. Government Regulation. Borrower is not (i) an "investment company" or
an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended; (ii) subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or any
other federal or state statute that restricts or limits Borrower's ability to
incur Indebtedness, pledge its assets, or to perform its obligations hereunder.
<PAGE>
A. Margin Regulations. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying Margin Stock and no
proceeds of the Term Loan will be used to purchase or carry any Margin Stock or
to extend credit to others for the purpose of purchasing or carrying any Margin
Stock. Borrower will not take or permit to be taken any action which might
cause this Agreement or any document or instrument delivered pursuant hereto to
violate any regulation of the Board of Governors of the Federal Reserve Board.
A. Taxes. All federal, state, local and foreign tax returns, reports and
statements, required to be filed by Borrower, have been filed with the
appropriate Governmental Authority and all Charges and other impositions shown
thereon to be due and payable have been paid prior to the date on which any
fine, penalty, interest or late charge may be added thereto for nonpayment
thereof (after taking into account any applicable extensions), or any such fine,
penalty, interest, late charge or loss has been paid. Borrower has paid when
due and payable (after taking into account any applicable extensions) all
material Charges required to be paid by it. Proper and accurate amounts have
been withheld by Borrower from its employees for all periods in full and
complete compliance with the tax, social security and unemployment withholding
provisions of applicable federal, state, local and foreign law and such
withholdings have been timely paid to the respective Governmental Authorities.
Schedule 3.10 sets forth those taxable years for which any of the tax returns of
Borrower are currently being audited by the IRS or any other applicable
Governmental Authority; and any assessments or threatened assessments in
connection with such audit or otherwise currently outstanding. Except as
described in Schedule 3.10, Borrower has not executed or filed with the IRS or
any other Governmental Authority any agreement or other document extending, or
having the effect of extending, the period for assessment or collection of any
Charges.
A. ERISA. (a) Schedule 3.11 lists and separately identifies all Title IV
Plans, Multiemployer Plans, ESOPs and Retiree Welfare Plans. Copies of all such
listed Plans, together with a copy of the latest form 5500 for each such Plan,
have been delivered to Lender. Each Qualified Plan has been determined by the
IRS to qualify under Section 401 of the IRC, and the trusts created thereunder
have been determined to be exempt from tax under the provisions of Section 501
of the IRC, and nothing has occurred which would cause the loss of such
qualification or tax-exempt status. Each Plan is in compliance with the
applicable provisions of ERISA and the IRC, including the filing of reports
required under the IRC or ERISA. Neither Borrower nor any ERISA Affiliate has
failed to make any contribution or pay any amount due as required by either
Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan.
Neither Borrower nor any ERISA Affiliate has engaged in a prohibited
transaction, as defined in Section 4975 of the IRC, in connection with any Plan,
which would subject Borrower to a material tax on prohibited transactions
imposed by Section 4975 of the IRC.
(b) Except as set forth in Schedule 3.11: (i) no Title IV Plan has any
Unfunded Pension Liability; (ii) no ERISA Event or event described in Section
4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably
expected to occur; (iii) there are no pending, or to the knowledge of Borrower,
threatened claims (other than claims for benefits in the normal course),
sanctions, actions or lawsuits, asserted or instituted against any Plan or any
Person as fiduciary or sponsor of any Plan; (iv) neither Borrower nor any ERISA
Affiliate has incurred or reasonably expects to incur any liability as a result
of a complete or partial withdrawal from a Multiemployer Plan; (v) within the
last five years no Title IV Plan
<PAGE>
with Unfunded Pension Liabilities has been transferred outside of the
"controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of
Borrower or any ERISA Affiliate and (vi) no liability under any Title IV Plan
has been satisfied with the purchase of a contract from an insurance company
that is not rated AAA by the Standard & Poors Corporation or the equivalent by
another nationally recognized rating agency.
A. No Litigation. Except as set forth on Schedule 3.12, no action, claim
or proceeding is now pending or, to Borrower's knowledge, threatened against
Borrower, at law, in equity or otherwise, before any court, board, commission,
agency or instrumentality of any federal, state, or local government or of any
agency or subdivision thereof, or before any arbitrator or panel of arbitrators,
(i) which challenges Borrower's right, power, or competence to enter into or
perform any of its obligations hereunder or the validity or enforceability of
this Agreement or any action taken hereunder or (ii) which if determined
adversely, could have or result in a Material Adverse Effect.
A. Brokers. No broker or finder acting on behalf of Borrower brought
about the obtaining, making or closing of the credit extended pursuant to this
Agreement or the transactions contemplated and Borrower does not have any
obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
A. Full Disclosure. No information contained in this Agreement, the
Financial Statements or any written statement furnished by or on behalf of
Borrower or any Affiliate thereof pursuant to the terms of this Agreement, which
has previously been delivered to the Lender, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.
A. Hazardous Materials. All real property owned, leased or operated by
Borrower is free of any Hazardous Material. Schedule 3.15 discloses existing or
potential environmental liabilities of Borrower which could constitute or result
in a Material Adverse Effect. Borrower has not caused or suffered to occur any
Release at, under, above or within any such real property.
A. Representations and Warranties Regarding the Collateral.
1. The Borrower is the sole owner of each item of the Collateral in which
it purports to grant a security interest hereunder, having good and marketable
title thereto free and clear of any and all Liens except the security interest
granted to the Lender under this Agreement or any other financing agreement with
Lender and those Liens described on Schedule 3.6 attached hereto. The Borrower
will warrant and defend the Collateral against all claims and demands of all
Persons at any time claiming the same or any interest thereon. No Person other
than the Borrower has any right, title or interest in or to any of the
Collateral.
1. No effective security agreement, financing statement, equivalent
security or Lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except (i) such
as have been filed in favor of the Lender pursuant to this Agreement or any
other agreements between the Lender and Borrower, (ii) which are being
terminated and released on the Closing Date or (iii) pursuant to those Liens
described on Schedule 3.6.
<PAGE>
1. As a result of the filing of appropriate financing statements in the
jurisdictions listed on Schedule 3.16(c) hereto and payment of any filing fees
relating thereto, this Agreement is effective to create a valid and continuing
Lien on and perfected security interest in favor of the Lender in the Collateral
with respect to which a security interest may be perfected by filing pursuant to
the Code, which lien and security interest is prior to all other Liens except
those described in Schedule 3.6, and is enforceable as such as against creditors
of and purchasers from the Borrower. All action (including all filings,
registrations and recordings and the filing of UCC-1 financing statements by
Lender) necessary or desirable to create, protect and perfect the security
interest granted to the Lender hereby in respect of each item of the Collateral
has been duly accomplished. The Borrower shall mark its books and records
pertaining to the Collateral to evidence this Agreement and the Liens granted
hereunder.
1. The location of Borrower's chief executive office, principal place of
business, corporate offices, all warehouses and premises within which Collateral
is stored or located, and the locations of all of its records concerning the
Collateral are set forth on Schedule 3.16(d). Such Schedule 3.16(d) correctly
identifies any of such facilities or locations that are not owned by the
Borrower and sets forth the names of the owners and lessors of, and the holders
of any mortgages on, such facilities and locations.
I. FINANCIAL STATEMENTS AND INFORMATION
A. Reports and Notices. The Borrower covenants and agrees that from and
after the Closing Date and until the Termination Date, it shall deliver to the
Lender monthly Financial Statements and notices at the times and in the manner
set forth on Annex C hereto.
A. Communication with Accountants. Borrower authorizes the Lender to
communicate directly with Borrower's independent certified public accountants
and tax advisors and authorizes those accountants to disclose to the Lender any
and all financial statements and other supporting financial documents and
schedules including copies of any management letter with respect to the
business, financial condition and other affairs of Borrower.
I. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, unless the Lender shall otherwise
consent in writing, from and after the date hereof and until the Termination
Date:
A. Maintenance of Existence and Conduct of Business. Borrower shall (a)
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and its rights and franchises; (b) continue
to conduct its business substantially as now conducted or as otherwise permitted
hereunder; and (c) at all times maintain, preserve and protect all of its
property in use or useful in the conduct of its business and keep the same in
good repair, working order and condition (taking into consideration ordinary
wear and tear) and from time to time make, or cause to be made, all necessary or
appropriate repairs, replacements and improvements thereto consistent with
industry practices, so that the business carried on in connection therewith may
be properly and advantageously conducted at all times. The Borrower shall
transact business only under the names set forth on Schedule 3.2.
<PAGE>
A. Payment and Discharge of Charges. Borrower shall pay and discharge or
cause to be paid and discharged promptly all Charges payable by it, including
(A) Charges imposed upon it, its income and profits, or any of its property
(real, personal or mixed) and all charges with respect to tax, social security
and unemployment withholding with respect to its employees, and (B) lawful
claims for labor, materials, supplies and services or otherwise, before any
thereof shall become past due (taking into account any lawful extensions of the
due date); provided, however, that Borrower may in good faith contest, by
appropriate proceedings, the validity or amount of any Charges or claims
described if (i) at the time of commencement of any such contest no Event of
Default shall have occurred and be continuing, (ii) adequate reserves with
respect to such contest are maintained on Borrower's books in accordance with
GAAP, (iii) such contest is maintained and prosecuted continuously and with
diligence and operates to suspend collection of enforcement of such Charges or
claims or any Lien in respect thereof and (iv) Lender has not advised the
Borrower in writing that the Lender reasonably believes that nonpayment or
nondischarge thereof could have or result in a Material Adverse Effect.
A. Insurance, Casualties or Condemnation of Collateral.
1. Borrower shall, at its sole cost and expense, maintain policies of
insurance of a type customary and usual for comparable businesses. If Borrower
at any time or times hereafter shall fail to obtain or maintain any of the
policies of insurance required or to pay all premiums relating thereto, the
Lender may at any time or times thereafter obtain and maintain such policies of
insurance and pay such premiums and take any other action with respect thereto
which the Lender deems advisable in Lender's reasonable discretion. All sums so
disbursed, including reasonable attorneys' fees, court costs and other charges
related thereto, shall be payable on demand by the Borrower to the Lender and
shall be additional obligations hereunder secured by the Collateral.
1. All Proceeds which are to be made available to the Borrower to
replace, repair, restore or rebuild the Collateral shall be held by the Lender
as additional Collateral. Thereafter, such funds shall be made available to the
Borrower to provide funds to replace, repair, restore or rebuild the Collateral
as follows: (i) the Borrower shall request such funds be made to the Borrower in
the amount requested to be released; and (ii) so long as no Default has occurred
and is continuing the Lender shall make such funds available to the Borrower.
To the extent not used to replace, repair, restore or rebuild the Collateral,
such proceeds shall be applied to prepayment of the Term Loan as provided above.
A. Compliance with Laws. Borrower shall comply in all material respects
with all federal, state and local laws, permits and regulations applicable to
it, including those relating to licensing, Environmental, ERISA and labor
matters.
A. Agreements. Borrower shall perform, within all required time periods
(after giving effect to any applicable grace periods), all of its obligations
and enforce all of its rights under each agreement, contract, instrument or
other document to which it is a party, including any leases and customer
contracts to which it is a party where the failure to so perform and enforce
could have or result in a Material Adverse Effect. Borrower shall not terminate
or modify any provision of any agreement, contract, instrument or other document
to which it is a party which termination or modification could have or result in
a Material Adverse Effect.
<PAGE>
A. Supplemental Disclosure. From time to time as may be requested by the
Lender (which request will not be made more frequently than once each year
absent the occurrence and continuance of a Default), Borrower shall supplement
each Schedule hereto, or any representation herein, with respect to any matter
hereafter arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in such Schedule or as an
exception to such representation or which is necessary to correct any
information in such Schedule or representation which has been rendered
inaccurate thereby (and, in the case of any supplements to any Schedule, such
Schedule shall be appropriately marked to show the changes made therein);
provided that (a) no such supplement to any such Schedule or representation
shall be or be deemed a waiver of any Default resulting from the matters
disclosed therein, except as consented to by the Lender in writing; and (b) no
supplement shall be required as to representations and warranties that relate
solely to the Closing Date. The Borrower shall, if so requested by the Lender,
furnish to the Lender as often as it reasonably requests, statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Lender may reasonably request,
all in reasonable detail, and, the Borrower shall advise the Lender promptly, in
reasonable detail, of (i) any Lien, other than as permitted pursuant to this
Agreement, attaching to or asserted against any of the Collateral, (ii) any
material change in the composition of the Collateral and (iii) the occurrence of
any other event which would have a Material Adverse Effect upon the Collateral
and/or the Lender's Lien thereon.
A. Covenants Regarding the Collateral.
1. Further Assurances. At any time and from time to time, upon the
written request of the Lender and at the sole expense of the Borrower, Borrower
shall promptly and duly execute and deliver any and all such further instruments
and documents and take such further action as the Lender may reasonably deem
desirable to obtain the full benefits of this Agreement and of the rights and
powers herein granted including (i) filing any financing or continuation
statements under the Code with respect to the liens and security interests
granted hereunder or under any other Loan Document and (ii) transferring
Collateral to the Lender's possession (if a security interest in such Collateral
can be perfected only by possession). The Borrower also hereby authorizes the
Lender to file any such financing or continuation statement without the
signature of the Borrower to the extent permitted by applicable law.
1. Change of Corporate Name or Location. The Borrower shall not (a)
change its corporate name or (b) change its chief executive office, principal
place of business, corporate offices or locations at which Collateral is held or
stored, or the location of its records concerning the Collateral, in any case
without at least thirty (30) days prior written notice to the Lender and after
the Lender's written consent thereto, which consent shall not be unreasonably
withheld or delayed, and acknowledgment that any reasonable action requested by
the Lender in connection therewith, including to continue the perfection of any
Liens in favor of the Lender in any Collateral, has been completed or taken.
Without limiting the foregoing, the Borrower shall not change its name, identity
or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-402(7) of the Code or any other then applicable
provision of the Code except upon prior written notice to the Lender and after
the Lender's written acknowledgment, which shall not be unreasonably withheld or
delayed, that any reasonable action requested by the Lender in connection
therewith, including to continue the perfection of any Liens in favor of the
Lender in any Collateral, has been completed or taken.
<PAGE>
A. Lender's Appointment as Attorney-in-Fact.
(a) The Borrower hereby irrevocably constitutes and appoints the
Lender and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Borrower and in the name of the Borrower or in its
own name, from time to time in the Lender's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action
and to execute and deliver any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement.
(b) The Borrower hereby ratifies, to the extent permitted by law, all
that said attorneys shall lawfully do or cause to be done by virtue hereof. The
power of attorney granted pursuant to this Section 5.8 is a power coupled with
an interest and shall be irrevocable until the Termination Date.
(c) The powers conferred on the Lender hereunder are solely to protect
the Lender's security interests in the Collateral and shall not impose any duty
upon it to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers and
none of its officers, directors, employees, agents or representatives shall be
responsible to the Borrower for any act or failure to act, except for their own
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
A. Consolidated Tangible Equity. Borrower shall maintain, at all times,
Consolidated Tangible Equity at an amount greater than: (i) $300,000 before the
occurrence of an IPO and (ii) $3,000,000 after the occurrence of an IPO, from
the date of execution of this Agreement through the Termination Date and the
Borrower shall certify to the Lender on a quarterly basis, within 30 days
following each such quarter, in the form of a certificate from the chief
financial officer or chief executive officer of the Borrower, that the Borrower
satisfies such Consolidated Tangible Equity requirement as set forth herein in
this Section 5.9.
A. Compliance with Other Agreements. Borrower shall, at all times,
remain in compliance with all representations, warranties, and covenants
(negative and affirmative), set forth in the Working Capital Financing
Agreement, the Mortgage Warehouse Credit Agreement (if applicable), and any
other agreement between Borrower and Lender, whether or not such agreement is
still in full force and effect, so long as any portion of the Obligation is owed
to Lender by Borrower.
I. NEGATIVE COVENANTS
The Borrower covenants and agrees that, without the Lender's prior written
consent, from and after the date hereof and until the Termination Date:
A. Liens. Borrower shall not create or permit to exist any Lien on any
of its properties or assets (other than the Collateral), except for (i)
presently existing or hereafter created Liens in favor of the Lender to secure
the obligations or any other obligations of Borrower to Lender under any other
agreements with Lender, (ii) Permitted Encumbrances and
<PAGE>
(iii) those Liens described in Schedule 3.6 which Liens will only continue to
exist subsequent to 30 days from the date hereof with respect to Mortgage Loans
Pledged to Summit Bank under the Summit Bank warehouse facility.
A. Sale of Assets. Borrower shall not sell, transfer, convey, assign or
otherwise dispose of any of its assets or properties, including any Collateral;
provided, however, that the foregoing shall not prohibit the sale of mortgage
loans in the ordinary course of business.
A. Accounting Firm. Borrower shall not change its current accounting
firm unless such firm is replaced by another accounting firm of nationally-
recognized standing, acceptable to Lender.
A. Dividends. Borrower shall not declare or authorize any dividends or
other distributions on any capital stock or other securities of the Borrower to
any Person.
A. Compensation. Borrower shall not increase the salary, benefits or
other compensation of any of the shareholders referenced in the Change of
Control definition by more than 10% of that existing on the date hereof.
A. Bonuses. Borrower shall not pay aggregate bonuses in any twelve month
period to its employees in excess of 20% of the pre-tax income of the Borrower
(determined in accordance with GAAP) during such period.
A. Borrowing. Borrower shall not borrow from any person other than Lender
except for borrowings pursuant to a warehouse facility with Summit Bank,
provided such facility is for less than $15 million dollars.
A. Other Prohibitions. Borrower shall not do anything which is prohibited
under the Working Capital Financing Agreement, the Mortgage Warehouse Credit
Agreement (if applicable) or any other agreement between Borrower and Lender,
whether or not such agreement is still in full force and effect, so long as any
Obligation remains outstanding from Borrower to Lender.
I. TERM
A. Duration. On the Termination Date, the Term Loan and all other
Obligations shall immediately become due and payable in full, in cash.
A. Survival of Obligations. Except as otherwise expressly provided for
herein, no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
Obligations, duties, indemnities, and liabilities of Borrower or Guarantor, or
the rights of the Lender relating to any obligations, due or not due,
liquidated, contingent or unliquidated or any transaction or event occurring
prior to such termination, or any transaction or event, the performance of which
is not required until after the Termination Date. Except as otherwise expressly
provided herein, all undertakings, agreements, covenants, warranties and
representations of or binding upon Borrower, and all rights of the Lender, all
as contained herein shall not terminate or expire, but rather shall survive such
termination or cancellation and shall continue in full force and effect
<PAGE>
until such time as all of the obligations have been indefeasibly paid in full in
accordance with the terms of the agreements creating such Obligations.
I. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
A. Events of Default. The occurrence of any one or more of the following
events (regardless of the reason therefor) shall constitute an "Event of
Default" hereunder:
(a) Borrower shall fail to make any payment in respect of any principal of
or interest on the Term Loan or any other Obligations when due and payable or
declared due and payable.
(b) Borrower shall fail to perform, keep or observe any term or provision
of this Agreement (other than any such provision referred to in paragraph (a)
above), and the same shall remain unremedied for a period ending on the first to
occur of ten (10) Business Days after the Borrower shall receive written notice
of any such failure from the Lender or thirty (30) days after Borrower shall
become aware thereof.
(c) A default shall occur under any other agreement, document or instrument
to which Borrower or Guarantor is a party or by which Borrower, or Guarantor, or
its respective property is bound, and such default (i) involves the failure to
make any payment (whether of principal, interest or otherwise) due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) in
respect of any Indebtedness of Borrower in an aggregate amount exceeding
$25,000, (ii) permits any holder of such Indebtedness or a trustee to cause such
Indebtedness, or a portion thereof in an aggregate amount exceeding $25,000, to
become due prior to its stated maturity or prior to its regularly scheduled
dates of payment, (iii) causes any Indebtedness of the Borrower in an aggregate
amount exceeding $1,000,000 to become due prior to its stated maturity or prior
to its regularly scheduled dates of payment, or (iv) permits Lender to cause any
Indebtedness of Borrower to Lender to become due prior to its stated maturity or
prior to its regularly scheduled dates of payment.
(d) Borrower shall fail to fulfill any of its obligations to Lender under
Article III, Section (A)(1) of the First Amendment.
(e) Any representation or warranty herein or in any written statement
pursuant hereto, any report, financial statement or certificate made or
delivered to the Lender by Borrower shall be untrue or incorrect in any material
respect as of the date when made.
(f) Any of the assets of Borrower or Guarantor shall be attached, seized,
levied upon or subjected to a writ or distress warrant, or come within the
possession of any receiver, trustee, custodian or assignee for the benefit of
creditors and shall remain unstated or undismissed for sixty (60) consecutive
days; or any Person shall apply for the appointment of a receiver, trustee or
custodian for any Borrower's assets and shall remain unstayed or undismissed for
sixty (60) consecutive days; or Borrower or Guarantor shall have concealed,
removed or permitted to be concealed or removed, any part of its property, with
intent to hinder, delay or defraud its creditors or any of them or made or
suffered a transfer of any of its property or the incurring of an obligation
which may be fraudulent under any bankruptcy, fraudulent conveyance or other
similar law.
<PAGE>
(g) A case or proceeding shall have been commenced against Borrower or
Guarantor in a court having competent Jurisdiction seeking a decree or order (i)
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy or other
similar law, (ii) appointing a custodian, receiver, liquidator, assignee,
trustee or sequestrator (or similar official) of Borrower or Guarantor or of any
substantial part of its properties or (iii) ordering the winding up or
liquidation of the affairs of Borrower or Guarantor and such case or proceeding
shall remain undismissed or unstayed for sixty (60) consecutive days or such
court shall enter a decree or order granting the relief sought in such case or
proceeding.
(h) Borrower or Guarantor shall (i) file a petition seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or foreign bankruptcy or other similar law,
(ii) consent to the institution of proceedings thereunder or to the filing of
any such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official) of
Borrower or of any substantial part of Borrower's properties, (iii) fail
generally to pay its debts as such debts become due, (iv) take any corporate
action in furtherance of any such action or (v) shall admit in writing its
inability to, or shall be generally unable to, pay its debts as such debts
become due.
(i) Final judgment or judgments (after the expiration of all times to
appeal therefrom) for the payment of money in excess of $25,000 in the aggregate
shall be rendered against Borrower, unless the same shall be (i) fully covered
by insurance (after taking into account any applicable policy deductible) or
(ii) vacated, stayed, bonded, paid or discharged within a period of thirty (30)
days from the date of such judgment.
(j) There shall occur any Material Adverse Effect since December 31, 1996
which shall not have been cured (or waived by the Lender) within thirty (30)
days of notice thereof from the Lender to the Borrower.
(k) Any material provision of this Agreement shall for any reason cease to
be valid, binding and enforceable in accordance with its terms (or Borrower
shall challenge the enforceability of this Agreement or shall assert in writing,
or engage in any action or inaction based on any such assertion, that any
provision of this Agreement has ceased to be or otherwise is not valid, binding
and enforceable in accordance with its terms), or any security interest created
under this Agreement shall cease to be a valid and perfected first priority
security interest or Lien (except as otherwise permitted herein) in any of the
Collateral purported to be covered thereby.
(l) There shall occur a Change of Control.
(m) There shall occur an event of default or default under the Working
Capital Financing Agreement, the Mortgage Warehouse Credit Agreement (if
applicable) or any other agreement between Borrower and Lender.
<PAGE>
(n) The Mortgage Warehouse Credit Agreement is not in full force and effect
by February 20, 1998.
A. Remedies.
(a) If any Default shall have occurred and be continuing, the rate of
interest applicable to the Term Loan may, at the Lender's sole discretion, be
increased, effective as of the date of the occurrence of such Default, to the
Default Rate. If any Event of Default shall have occurred and be continuing,
the Lender may, without notice, take any one or more of the following actions:
(a) declare all or any portion of the obligations to be forthwith due and
payable whereupon such Obligations shall become and be due and payable or (b)
exercise any rights and remedies provided to the Lender under this Agreement
and/or at law or in equity, including all remedies provided under the Code;
provided, however, that upon the occurrence of an Event of Default specified in
Section 8.1 (e), (f) or (g), the rate of interest applicable to all Obligations
shall be increased automatically to the Default Rate, and the Term Loan and the
other obligations shall become immediately due and payable, in each case,
without declaration, notice or demand by any Person.
(b) Without limiting the generality of the foregoing, Borrower expressly
agrees that in any such event the Lender without demand of performance or other
demand (except as otherwise required hereunder), advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale) to or upon Borrower or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent
permitted by the Code and other applicable law), may forthwith enter upon the
premises of the Borrower where any Collateral is located through self-help,
without judicial process, without first obtaining a final judgment or giving
Borrower notice and opportunity for a hearing on the Lender's claim or action,
and without paying rent to Borrower, and collect, receive, assemble, process,
appropriate and realize upon the Collateral, or any part thereof, and may
forthwith sell, lease, assign, give an option or options to purchase, or sell or
otherwise dispose of and deliver the Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. The Lender shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase for its benefit the whole or any
part of the Collateral so sold, free of any right or equity of redemption, which
equity of redemption the Borrower hereby releases. Such sales maybe adjourned
or continued from time to time with or without notice. The Lender shall have
the right to conduct such sales on Borrower's premises or elsewhere and shall
have the right to use Borrower's premises without charge for such sales for such
time or times as the Lender deems necessary or advisable.
(c) The Borrower further agrees, at the Lender's request, to assemble the
Collateral and make it available to the Lender at places which the Lender shall
reasonably select, whether at the Borrower's premises or elsewhere. Until the
Lender is able to effect a sale, lease, or other disposition of the Collateral,
the Lender shall have the right to use or operate the Collateral on behalf of
the Lender, or any part thereof, to the extent that it deems appropriate for the
purpose of preserving the Collateral or its value or for any other purpose
deemed appropriate by the Lender. The Lender shall have no obligation to
maintain or preserve the rights of the Borrower as against third parties with
respect to the Collateral while the Collateral is in the possession of the
Lender. The Lender may, if it so elects, seek the appointment of a receiver or
keeper to take
<PAGE>
possession of the Collateral and to enforce any of the Lender's remedies with
respect to such appointment without prior notice or hearing. The Lender shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale against any outstanding Obligations, with the Borrower
remaining liable for any unpaid deficiency after such application, and only
after so paying over such net proceeds and after the payment by the Lender of
any other amount required by any provision of law, including Section 9-
504(l)(c) of the Code (but only after the Lender has received what the Lender
considers reasonable proof of a subordinate party's security interest), need the
Lender account for the surplus, if any, to the Borrower. To the maximum extent
permitted by applicable law, Borrower waives all claims, damages, and demands
against the Lender arising out of the, repossession, retention or sale of the
Collateral except such which may arise out of the gross. negligence or willful
misconduct of such party. The Borrower agrees that ten (10) days' prior notice
by the Lender of the time and place of any public sale or of the time after
which a private sale may take place is reasonable notification of such matters.
The Borrower shall remain liable for any deficiency if the proceeds of any sale
or disposition of the Collateral are insufficient to pay all amounts to which
the Lender is entitled, the Borrower also being liable for any reasonable
attorneys, fees incurred by the Lender to collect such deficiency.
(d) The Borrower agrees to pay any and all costs of the Lender, including
reasonable attorneys, fees, incurred in connection with the enforcement of any
of its rights and remedies hereunder.
(e) Except as otherwise specifically provided herein, the Borrower hereby
waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Agreement or
any Collateral.
A. Waivers. Except as otherwise provided for in this Agreement and
applicable law to the full extent permitted by applicable law, Borrower waives
(i) presentment, demand and protest and notice of presentment, dishonor, notice
of intent to accelerate, notice of acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of this
Agreement, notes, commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by the Lender on
which Borrower may in any way be liable, and Borrower hereby ratifies and
confirms whatever the Lender may do in this regard, (ii) all rights to notice
and a hearing prior to the Lender's taking possession or control of, or to the
Lender's replevin, attachment or levy upon, the Collateral or any bond or
security which might be required by any court prior to allowing the Lender to
exercise any of their remedies, and (iii) the benefit of any right of redemption
and all valuation, appraisal and exemption laws. Borrower acknowledges that it
has been advised by counsel of its choice with respect to this Agreement and the
transactions contemplated by this Agreement.
I. SUCCESSORS AND ASSIGNS
A. Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the Borrower, the Lender and their respective successors
and assigns, except as otherwise provided herein or therein. Borrower may not
assign, delegate, transfer, hypothecate or otherwise convey its rights,
benefits, obligations or duties hereunder without the prior express written
consent of the Lender. Any such purported assignment, transfer, hypothecation
or other conveyance by Borrower without such prior express written consent shall
be void. The terms and provisions of this Agreement are for the purpose of
defining the relative
<PAGE>
rights and obligations of the Borrower and the Lender with respect to the
transactions contemplated hereby and there shall be no third party beneficiaries
of any of the terms and provisions of this Agreement.
I. ASSIGNMENTS
(a) The Lender (without the Borrower's consent) may assign to one or more
assignees all or a portion of its rights and obligations under this Agreement
(including all or a part of the Term Note).
(b) In the case of an assignment by the Lender under this Section 10, the
assignee shall have, to the extent of such assignment, the same rights, benefits
and obligations as it would if it were the Lender hereunder. The Borrower
hereby acknowledges and agrees that any assignment will give rise to a direct
obligation of the Borrower to the assignee and that the assignee shall be
considered to be a "Lender."
I. MISCELLANEOUS
A. Complete Agreement; Modification of Agreement. This Agreement and the
Term Note constitutes the complete agreement between the parties with respect to
the subject matter hereof and supersedes all prior agreements, commitments,
understandings or inducements (oral or written, expressed or implied). Neither
this Agreement or the Term Note nor any terms hereof or thereof may be changed,
waived, discharged or terminated unless such change, waiver, discharge or
termination is in writing signed by the Lender and the Borrower.
Upon indefeasible payment in full in cash and performance of all of the
Obligations (other than indemnification obligations under Section 1.8) and so
long as no suits, actions proceedings, or claims are pending or threatened
against any Indemnified Person asserting any damages, losses or liabilities that
are Indemnified Liabilities, the Lender shall deliver to the Borrower
termination statements and other documents necessary or appropriate to evidence
the termination of the Liens securing payment of the Obligations.
A. Fees and Expenses. The Borrower shall reimburse the Lender for all
fees, costs and expenses, including the fees, costs and expenses of counsel or
other advisors (including environmental and management consultants and
appraisers) for advice, assistance, or other representation in connection with
(i) any amendment, modification or waiver of, or consent with respect to, this
Agreement, (ii) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by the Lender or any other Person) in any way relating to
the Collateral or (iii) any attempt to enforce any remedies of the Lender
hereunder, including, in each case, all attorneys' and other professional and
service providers' fees arising from such services, including those in
connection with any appellate proceedings; and all expenses, costs, charges and
other fees incurred by such counsel and others in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 11.2 shall be payable, on demand, by the Borrower to the Lender.
A. No Waiver. No failure on the part of the Lender, at any time or
times, to require strict performance by Borrower of any provision of this
Agreement shall waive, affect or diminish any right of the Lender thereafter to
demand strict compliance and performance therewith. Any suspension or waiver of
a Default shall not suspend, waive or affect any other Default whether the same
is prior or subsequent thereto and whether of the same or of a different
<PAGE>
type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement and no Default by
Borrower shall be deemed to have been suspended or waived by the Lender, unless
such waiver or suspension is by an instrument in writing signed by an officer of
or other authorized employee of the Lender if required hereunder and directed to
the Borrower specifying such suspension or waiver.
A. Remedies. The rights and remedies of the Lender under this Agreement
shall be cumulative and nonexclusive of any other rights and remedies which the
Lender may have under any other agreement, including the Loan Documents, by
operation of law or otherwise. Recourse to the Collateral shall not be
required.
A. Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
A. Right of Set-off. Upon the occurrence and during the continuance of
any Event of Default, the Lender is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and
all deposits (generator special, time or demand, provisional or final) at any
time held and other indebtedness (including without limitation whole loan
premiums) at any time owing by the Lender to or for the credit or the account of
Borrower against any and all of the obligations now or hereafter existing
irrespective of whether or not the Lender shall have made any demand under this
Agreement and although such obligations may be unmatured. The rights of the
Lender under this Section 11.6 are in addition to the other rights and remedies
(including other rights of set-off) which the Lender may have.
A. Authorized Signature. Until the Lender shall be notified by the
Borrower to the contrary, the signature upon any document or instrument
delivered pursuant hereto and believed by the Lender or any of the Lender's
officers, the Lender, or employees to be that of an officer or duly authorized
representative of the Borrower listed on Schedule 11.7 shall bind the Borrower
and be deemed to be the act of the Borrower affixed pursuant to and in
accordance with resolutions duly adopted by the Borrower's Board of Directors,
and the Lender shall be entitled to assume the authority of each signature and
authority of the person whose signature it is or appears to be unless the person
acting in reliance of such signature shall have actual knowledge of the fact
that such signature is false or the person whose signature or purported
signature is presented is without authority.
A. Governing Law. THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. THE BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN NEW YORK COUNTY SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES PERTAINING TO THIS AGREEMENT OR TO ANY MATTER
ARISING OUT OF OR RELATED TO THIS AGREEMENT, PROVIDED, THAT THE LENDER AND
BORROWER ACKNOWLEDGE
<PAGE>
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF NEW YORK, YORK COUNTY AND, PROVIDED, FURTHER, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE LENDER FROM BRINGING SUIT
OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
LENDER. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE BORROWER HEREBY
WAIVES ANY OBJECTION WHICH THE BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE BORROWER AT THE ADDRESS SET FORTH IN SECTION 11.8 OF THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
BORROWER IS ACTUAL RECEIPT THEREOF OR FIVE (5) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
A. Notices. Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon either of the parties by
the other party, or whenever either of the parties desires to give or serve upon
the other party any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be deemed to have been validly served, given or
delivered (i) upon the earlier of actual receipt and five (5) days after deposit
in the United States Mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (ii) upon transmission, when sent by
telecopy or other similar facsimile transmission (with such telecopy or
facsimile promptly confirmed by delivery of a copy by personal delivery or
United States Mail as otherwise provided in this Section 11.9, (iii) one (1)
Business Day after deposit with a reputable overnight courier with all charges
prepaid or (iv) when delivered, if hand-delivered by messenger, all of which
shall be addressed to the party to be notified and sent to the address or
facsimile number indicated below or to such other address (or facsimile number)
as may be substituted by notice given as herein provided. The giving of any
notice required hereunder may be waived in writing by the party entitled to
receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than the Borrower or the Lender) designated below to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
(a) If to the Lender, at:
FC Capital Corp.
400 Columbus Avenue
Valhalla, New York 10595
Tel: (888) 539-4300
<PAGE>
Fax: (914) 749-3600
Attention: Joe Quarto, Vice President of Finance and Accounting
With copies to:
Haynes and Boone, L.L.P.
901 Main Street
3100 NationsBank Plaza
Dallas, Texas 75202
Tel: (214) 651-5605
Fax: 214-200-0555
Attn: Paul H. Amiel, Esq.
(b) If to Borrower, at:
Mortgage Plus Equity and Loan Corp.
6851 Jericho Turnpike
Suite 246
Syosset, New York 11791
Tel: 516 364-2700
Fax: 516 364-2876
Attention: Carey Wolen, CFO
With copies to:
Leonard M. Ridini., Esq.
45 Crossways Park Drive
Woodbury, NY 11797
Tel: (516) 364-8671
Fax: (516) 364-8667
A. Section Titles. The Section titles and Table of Contents contained
in this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of this Agreement.
A. Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
A. Time of the Essence. Time is of the essence of this Agreement.
A. Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY
<PAGE>
DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
A. Press Releases. Borrower agrees that neither it nor its Affiliates
will in the future issue any press releases or other public disclosure using the
name of FC Capital Corp. or its affiliates or referring to this Agreement
without at least five (5) Business Days' prior notice to FC Capital Corp. and
without the prior written consent of FC Capital Corp. unless (and only to the
extent that) Borrower or its Affiliate is required to do so under law and then,
in any event, Borrower or its Affiliate will consult with FC Capital Corp.
before issuing such press release or other public disclosure. Borrower consents
to the publication by the Lender of a tombstone or similar advertising material
relating to the financing transactions contemplated by this Agreement.
A. Reinstatement. This Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against Borrower
for liquidation or reorganization, should Borrower become insolvent or make an
assignment for the benefit of any creditor or creditors or should a receiver or
trustee be appointed for all or any significant part of Borrower's assets, and
shall continue to be effective or to be reinstated, as the case may be, if at
any time payment and performance of the obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
A. Advice of Counsel. Each of the parties represents to each other party
hereto that it has discussed this Agreement and, specifically, the provisions of
Sections 1.8 and 11.13, with its counsel.
A. No Strict Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
A. Dating. Although this Agreement is dated as of the date first written
above for convenience, this Agreement shall be effective on the Closing Date.
[REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES TO FOLLOW.]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
Borrower:
MORTGAGE PLUS EQUITY AND LOAN
CORP.
By:
Name:
Title:
Lender:
FC CAPITAL CORP.
By:
Name:
Title:
[SIGNATURE PAGE TO TERM LOAN AND SECURITY AGREEMENT]
<PAGE>
ANNEXES, SCHEDULES AND EXHIBITS
TO
TERM LOAN AND SECURITY AGREEMENT
Dated as of December 18, 1997
between
MORTGAGE PLUS EQUITY AND LOAN CORP.,
as Borrower,
and
FC CAPITAL CORP.,
as Lender
<PAGE>
ANNEX A
to
TERM LOAN AND SECURITY AGREEMENT
Dated as of December 18, 1997
DEFINITIONS
In addition to the defined terms appearing below, capitalized terms used in
this Agreement shall have (unless otherwise provided elsewhere in this
Agreement) the following respective meanings when used in this Agreement:
"Accrual Period" means,(i) with respect to the initial Accrual Period
relating thereto, the period commencing on the date of the initial funding and
ending on the last day of the calendar month in which such initial funding
occurs and, (ii) with respect to any subsequent Accrual Period, the calendar
month following the calendar month of the prior Accrual Period.
"Affiliate", shall mean, with respect to any Person, (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the Stock having
ordinary voting power in the election of directors of such Person, (ii) each
Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person or (iii) each of such Person's officers,
directors, joint ventures and partners. For the purpose of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Term Loan and Security Agreement to which this
Annex A is attached and of which it forms a part including all Annexes,
Schedules, and Exhibits attached or otherwise identified thereto, restatements
and modifications and supplements hereto and any appendices, attachments,
exhibits or schedules to any of the foregoing, and shall refer to this Agreement
as the same may be in effect at the time such reference becomes operative;
Provided, however that any reference to the Schedules to this Agreement shall be
deemed a reference to the Schedules as in effect on the Closing Date or in a
written amendment thereto executed by the Borrower and the Lender.
"Borrower" shall mean Mortgage Plus Equity and Loan Corp., a New York
corporation.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Capital Lease" shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise be
disclosed as such in a note to such balance sheet, other than, in the case of
the Borrower, any such lease under which the Borrower is the lessor.
<PAGE>
"Capital Lease Obligation" shall mean, with respect to any Capital Lease,
the amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a balance sheet of such lessee in respect of such Capital
Lease or otherwise be disclosed in a note to such balance sheet.
"Change of Control", shall mean any event, transaction or occurrence as a
result of which Steven M. Latessa, Jon P. Blasi, Lydia Blasi, Cary Wolen and the
Estate of Anthony Saffiotti and their respective Family Members (each "Permitted
Holders") cease to own and control all of the economic and voting rights
associated with ownership of fifty percent (50%) of the outstanding capital
stock of all classes of Borrower on a fully diluted basis, or (b) a majority of
the members of the board of directors of Borrower then in office are no longer
individuals elected or designated by the Permitted Holders. "Family Members"
shall mean, with respect to any Person, (i) members of such Person's immediate
family (including, parents, spouse, children and siblings) or (ii) a trust for
the benefit of such Person or members of such Person's immediate family, which
trust is under the control of such Person or members of such Person's immediate
family.
"Charges" shall mean all federal, state, county, city municipal, locale
foreign or other governmental taxes (including, without limitation, taxes owed
to PBGC at the time due and payable), levies, assessments, charges, liens,
claims or encumbrances upon or relating to (i) the Collateral, (ii) the
Obligations, (iii) the employees, payroll, income or gross receipts of Borrower,
(iv) Borrower's ownership or use of any of its assets or (v) any other aspect of
Borrower's business.
"Claim" shall have the meaning assigned to it in Section 1.8.
"Closing Date" shall mean the Business Day on which the conditions
precedent set forth in Section 2 have been satisfied or waived and the Term Loan
has been made.
"Code" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Lender's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "Code", shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
"Collateral", shall have the meaning provided in Section 1.10.
"Consolidated Tangible Equity" means the aggregate "assets" of the
Guarantor, Borrower and its subsidiaries less the aggregate "liabilities" of the
Borrower and its subsidiaries and less all intangible assets, with the term
"asset" having the meaning ascribed to such term by GAAP and the term
"liability" being those obligations or liabilities of the Borrower and its
subsidiaries which, in accordance with GAAP, would be included in the liability
side of the Borrower's balance sheet (either long-term or short-term) on a
consolidated basis.
"Default" shall mean any Event of Default or any event which, with the
passage of time or notice or both, would, unless cured or waived, become an
Event of Default.
<PAGE>
"Default Rate" shall have the meaning assigned to it in Section 1.3(c).
"Dollars" and "$" shall mean lawful money of the United States of America.
"Environmental Laws" shall mean all federal, state and local laws,
statutes, ordinances, orders and regulations, now or hereafter in effect, and in
each case as amended or supplemented from time to time, and any applicable
judicial or administrative interpretation thereof relating to the regulation and
protection of human health, safety, the environment and natural resources
(including, without limitation, ambient air, surface water, groundwater,
wetlands, land surface or subsurface strata, wildlife, aquatic species and
vegetation). Environmental Laws include, but are not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. (S)(S) 9601 et seq.) ("CERCLA"); the Hazardous Material
Transportation Act, as amended (49 U.S.C. 1801 et seq. the Federal Insecticide,
Fungicide, and Rodenticide Act, as amended (7 U.S.C. (S)(S) 136 et seq.); the
Resource Conservation and Recovery Act, as amended (42 U.S.C. (S)(S) 6901 et
seq.) ("RCRA"); the Toxic Substance Control Act, as amended (15 U.S.C. (S)(S)
2601 et seq.); the Clean Air Act, as amended (42 U.S.C. (S)(S) 740 et seq.); the
Federal Water Pollution Control Act, as amended (33 U.S.C. (S)(S) 1251 et seq.);
the Occupational Safety and Health Act, as amended (29 U.S.C. (S)(S) 651 et
seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 U.S.C. (S)(S)
300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state and local counterparts or equivalents and any transfer of
ownership notification or approval statutes.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time, and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to the Borrower, any trade or
business (whether or not incorporated) under common control with the Borrower
and which, together with the Borrower, is treated as a single employer within
the meaning of Section 414(b), (c), (m) or (o) of the IRC.
"ERISA Event" shall mean, with respect to Borrower or any ERISA Affiliate,
(i) a Reportable Event with respect to a Title IV Plan or a Multiemployer Plan;
(ii) the withdrawal of Borrower, any Subsidiary or any ERISA Affiliate from a
Title IV Plan subject to Section 4063 of ERISA during a plan year in which it
was a substantial employer, as defined in Section 4001(a) (2) of ERISA; (iii)
the complete or partial withdrawal of Borrower or any ERISA Affiliate from any
Multiemployer Plan; (iv) the filing of a notice of intent to terminate a Title
IV Plan or the treatment of a plan amendment as a termination under Section 4041
of ERISA; (v) the institution of proceeding to terminate a Title IV Plan or
Multiemployer Plan by the PBGC; (vi) the failure to make required contributions
to a Qualified Plan; or (vii) any other event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Title IV Plan
or Multiemployer Plan or the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA.
"Event of Default" shall have the meaning assigned to it in Section 8.1.
<PAGE>
"Executive officers" shall mean the Chairman, President, Chief Executive
officer, Chief Operating Officer, Chief Financial officer, Executive Vice
President(s), Senior Vice President(s), Vice President, Treasurer, Controller
and Secretary of Borrower.
"Financial Statements" shall mean the financial statements referred to in
Schedule 3.4.
"First Amendment" shall mean the First Amendment to the Master Purchase
Agreement for Sale and Purchase of Mortgages between the Borrower and the Lender
dated as of the date hereof.
"FC Capital Corp." shall mean FC Capital Corp., a New York corporation.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time as set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, which are applicable to the circumstances
as of the date of determination.
"Guarantor" means Mortgage Plus Equity and Loan Holdings Corp.
"Guaranty" means that certain Guaranty Agreement executed by Guarantor to
Lender dated as of the date hereof, as an unconditional guarantee of Borrower's
Obligations hereunder.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Hazardous Material" shall mean any (a) element, material, compound,
mixture, solution, chemical, substance, or pollutant within the definition of
"hazardous substance", under Section 101(14) of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 USC (S) 9601(14); petroleum or any
fraction, byproduct or distillation product thereof; asbestos, polychlorinated
biphenyls, or any radioactive substances; and any material regulated as a
hazardous substance by any jurisdiction in which Borrower owns or operates or
has owned or operated a facility and (b) element, pollutant, contaminate or
discarded material (including any radioactive material) within the definition of
Section 103(6) of the Resource Conservation and Recovery Act, 42 USCA (S)
6903(6); and any material regulated as a hazardous waste by any jurisdiction in
which Borrower owns or operates or has owned or operated a facility, or to which
Borrower sends material for. treatment, storage or disposal as waste.
"Indebtedness" of any Person shall mean (i) all indebtedness of such Person
for borrowed money or for the deferred purchase price of property or services
(including, without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers, acceptances, whether or
not matured, but not including obligations to trade creditors incurred in the
ordinary course of business), (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, (iii) all indebtedness created or arising
under any conditional sale or other title retention agreements with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (iv) all Capital Lease Obligations, (v)
all guaranteed Indebtedness, (vi) all Indebtedness referred to in clause (i),
(ii),
<PAGE>
(iii), (iv) or (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness, (vii) the Obligations,
and (viii) all liabilities under Title IV of ERISA.
"Indemnified Person" shall have the meaning assigned to it in Section 1.8.
"Interest Rate" means, with respect to any Accrual Period, the Prime Rate
with respect to such Accrual Period, determined as the Prime Rate on the first
Business Day of such period, plus 1%.
"IPO" means the initial public offering of Borrower's common stock.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and any
successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor thereto.
"Lender" shall have the meaning provided in the first paragraph of this
Agreement.
"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction).
"Margin Stock" shall have the meaning specified in Regulation G, T, U or X
of the Board of Governors of the Federal Reserve System, as in effect from time
to time.
"Material Adverse Effect" shall mean a material adverse effect on (i) the
business, assets, operations, prospects, or financial or other condition of the
Borrower, (ii) Borrowers ability to pay or perform its obligations under the
Agreement, (iii) the Collateral or Lender's Lien on the Collateral or the
priority of any such Lien or (iv) the rights and remedies of the Lender under
this Agreement.
"Material Contracts" shall mean each contract to which Borrower is now or
hereafter a party involving aggregate consideration payable to or by Borrower,
contingent or otherwise, in excess of $25,000, except contracts as to which the
remaining consideration payable to or by the Borrower is less than $25,000 in
the aggregate.
"Maximum Lawful Rate" shall have the meaning assigned to it in Section 1.3.
"Master Purchase and Sale Agreement" shall mean the Master Purchase and
Sale Agreement, dated December 7, 1995, between the Borrower and Lender,
relating to the offer for sale by Borrower of mortgages to Lender, as amended
and supplemented from time to time.
<PAGE>
"Mortgage Warehouse Credit Agreement" that certain credit agreement to be
executed by and between Borrower and Lender, for the purpose of financing
various mortgage loans.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a) (3) of ERISA, and to which the Borrower or any ERISA Affiliate
is making, is obligated to make, has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.
"Obligations" shall mean all loans, advances, debts, liabilities and
obligations for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or amounts are liquidated or determinable) owing by the Borrower to
the Lender, and all covenants and duties regarding such amounts, of any kind or
nature, present or future, whether or not evidenced by any note, agreement or
other instrument. This term includes, without limitation, all principal and
interest (including, without limitation, interest which accrues after the
commencement of any case or proceeding referred to in Section 8.1(f) or (g) on
the Term Loan, all Charges, expenses, attorneys' fees and any other sum
chargeable to the Borrower under any of the Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" shall mean an employee pension benefit plan, as defined in
Section (3) (2) of ERISA (other than a Multiemployer Plan), which is not an
individual benefit plan, as defined in Section 3 (34) of ERISA, and which the
Borrower or, if a Title IV Plan, any Subsidiary of the Borrower or any ERISA
Affiliate maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.
"Permitted Encumbrances" shall mean the following encumbrances: (i) Liens
for taxes or assessments or other governmental Charges or levies not yet due and
payable; (ii) pledges or deposits securing obligations under workers
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (iii) pledges or deposits securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which
Borrower is a party as lessee made in the ordinary course of business; (iv)
inchoate and unperfected workers', mechanics', suppliers, or similar liens
arising in the ordinary course of business; (v) carriers', warehousements or
other similar possessory liens arising in the ordinary course of business and
securing indebtedness not yet due and payable in an outstanding aggregate amount
not in excess of $10,000 at any time; (vi) any attachment or judgment lien not
constituting an Event of Default hereunder; and (viii) zoning restrictions,
easements, licenses, or other restrictions on the use of real property or
other minor irregularities in title (including leasehold title) thereto, so long
as the same do not materially impair the use, value, or marketability of such
real property, leases or leasehold estates.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Plan" shall mean, with respect to the Borrower or any ERISA Affiliate, at
any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which
the Borrower maintains,
<PAGE>
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them.
"Premium Repayment Amount" shall mean, as of any date of determination, an
amount equal to 50% of the whole loan premiums paid by Lender to Borrower in
connection with the purchase by Lender, during the immediately preceding
calendar month, of any loans originated by Borrower.
"Prepayment Fee" shall have the meaning given it in Section 1.4.
"Prime Rate" means the interest rate set forth in the Wall Street Journal
as the prime rate.
"Proceeds" shall mean "proceeds," as such term is defined in the Code and,
in any event, shall include, with respect to any Person, (i) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to such
Person from time to time with respect to any of its property or assets, (ii) any
and all payments (in any form whatsoever) made or due and payable to such Person
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of such Person's property
or assets by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), (iii)'any recoveries by such
Person against third parties with respect to any litigation or dispute
concerning any of such Person's property or assets, and (iv) any and all other
amounts from time to time paid or payable under or in connection with any of
such Person's property or assets, upon disposition or otherwise.
"Qualified Plan" shall mean an employee pension benefit plan, as defined in
Section 3(2) of ERISA, which is intended to be tax-qualified under Section
401(a) of the IRC, and which Borrower or any ERISA Affiliate maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them.
"Release" shall mean, as to any Person, any release or any spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, disposing or migration of a Hazardous Material into the
indoor or outdoor environment by such Person (or by a person under such Person's
direction or control), including the movement of a Hazardous Material through or
in the air, soil, surface water, ground water or property; but shall exclude any
release, discharge, emission or disposal in material compliance with a then
effective permit or order of a Governmental Authority.
"Reportable Event" shall mean any of the events described in Section
4043(b) (1), (2), (3), (5), (6), (8) or (9) of ERISA.
"Stock" shall mean all shares, options, warrants, general or limited
partnership interests, limited liability company, participation or other
equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or equivalent entity whether voting or nonvoting,
including, without limitation, common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended).
<PAGE>
"Subsidiary" shall mean, with respect to any Person, (i) any corporation of
which an aggregate of 50% or more of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of 50% or more of such Stock whether by proxy, agreement,
operation of law or other wise and (ii) any partnership in which such Person
and/or one or more Subsidiaries of such Person shall have an interest (whether
in the form of voting or participation in profits or capital contribution) of
50% or more or of which any such Person is a general partner or may exercise the
powers of a general partner.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding franchise
taxes and taxes imposed on or measured by the net income of the Lender by the
United States, the jurisdiction under the laws of which the Lender is organized
or the jurisdiction in which the Lender's applicable lending office is located
or, in each case, any political subdivision thereof.
"Term Loan" shall mean the Term Loan in the principal amount of $1,500,000
made by the Lender to the Borrower pursuant to Section 1.1(a) of the Agreement
and any renewals, extensions, modifications or replacements thereof.
"Term Note", shall mean the promissory note provided for by Section 1.1(a)
which evidence the Term Loan and all promissory notes delivered in substitution
or exchange therefor, in each case as the same shall be modified and
supplemented and in effect from time to time.
"Termination Date" shall mean the earliest to occur of (i) the date on
which all Obligations have been indefeasibly paid in full, provided that in no
event shall the Termination Date extend beyond April 15, 1999 at which time all
remaining unpaid principal and all accrued and unpaid interest shall mature and
be immediately due and payable or (ii) the date which is 30 days after the date
hereof if, by such date, Lender shall not have obtained a first priority
security interest in all of the assets of the Borrower other than the Mortgage
Loans, the collateral securing such loans and the related documentation Pledged
to Summit Bank pursuant to the warehouse facility with Summit Bank.
"Title IV Plan" shall mean a Pension Plan, other than a Multiemployer Plan,
which is covered by Title IV of ERISA.
"Unfunded Pension Liability" shall mean, at any time, the aggregate amount,
if any, of the sum of (i) the amount by which the present value of all accrued
benefits under each Title IV Plan exceeds the fair market value of all assets of
such Title IV Plan allocable to such benefits in accordance with Title IV of
ERISA, all determined as of the most recent valuation date for each such Title
IV Plan using the actuarial assumptions in effect under such Title IV Plan, and
(ii) for a period of five (5) years following a transaction reasonably likely to
be covered by Section 4069 of ERISA, the liabilities (whether or not accrued)
that could be avoided by Borrower or any ERISA Affiliate as a result of such
transaction.
"Welfare Plans" shall mean any welfare plan, as defined in Section 3(i) of
ERISA, which is maintained or contributed to by the Borrower or any ERISA
Affiliate.
<PAGE>
"Withdrawal Liability" shall mean, at any time, the aggregate amount of the
liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in
contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.
"Working Capital Financing Agreement" means that certain agreement between
Borrower and Lender dated as of the date hereof.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain items or computations are explicitly
modified by the phrase "in accordance with GAAP" shall in no way be construed to
limit the foregoing.
All other undefined terms contained in any of the Loan Documents shall,
unless the context indicates otherwise, have the meanings provided for by the
Code as in effect in the State of New York to the extent the same are used or
defined therein. Unless otherwise specified, references in this Agreement or
any of the Appendices to a Section, subsection or clause refer to such Section,
subsection or clause as contained in this Agreement. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole, including all Annexes, Exhibits and Schedules, as the same
may from time to time be amended, restated, modified or supplemented, and not to
any particular section, subsection or clause contained in this Agreement or any
such Annex, Exhibit or Schedule.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, And
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words "including", "includes" and
"include," shall be deemed to be followed by the words "without limitation";
references to Persons include their respective successors and assigns (to the
extent and only to the extent permitted by the Loan Documents) or, in the case
of governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of the same and any successor statutes and regulations. Whenever
any provision in any Loan Document refers to the knowledge (or an analogous
phrase) of Borrower, such words are intended to signify that Borrower has actual
knowledge or awareness of a particular fact or circumstance or that Borrower, if
it had exercised reasonable diligence, would have known or been aware of such
fact or circumstance.
<PAGE>
ANNEX B
to
TERM LOAN AND SECURITY AGREEMENT
Dated as of December 18, 1997
SCHEDULE OF CLOSING DOCUMENTS
In addition to, and not in limitation of, the conditions described in
Section 2.1 of this Agreement, pursuant to Section 2.1(c), the following items
must be received by the Lender in form and substance satisfactory to the Lender
on or prior to the Closing Date (each Capitalized term used but not otherwise
defined herein shall have the meaning ascribed thereto in Annex A to this
Agreement):
Term Note. A duly executed original of the Term Note dated the Closing
Date.
Guaranty Agreement. An unconditional guaranty of Guarantor, satisfactory
to Lender, executed and delivered as of the Closing Date.
Security Interests and Code Filings. Evidence satisfactory to the Lender
that the Lender has a valid and perfected first priority security interest in
the Collateral, including (i) such documents duly executed by the Borrower
(including financing statements under the Code and other applicable documents
under the laws of any jurisdiction with respect to the perfection of Liens) as
the Lender may request in order to perfect its security interests in the
Collateral and (ii) copies of Code search reports listing all effective
financing statements that name the Borrower as debtor, together with copies of
such financing statements, none of which shall cover the Collateral, except for
those relating to the Prior Lenders obligations (all of which shall be
terminated on the Closing Date).
* Board Resolutions and Incumbency Certificates. A certificate of the
Secretary or an Assistant Secretary of Borrower certifying (A) the resolutions
adopted by the Board of Directors or other applicable authority of Borrower
approving the Agreement and the transactions contemplated thereby, (B) all
documents evidencing other necessary corporate action by Borrower and required
governmental and third party approvals with respect to the Agreement and (C) the
names and true signatures of the authorized officers of Borrower.
* Articles of Incorporation; By-Laws and Good Standing Certificates. Each of
the following documents:
(i) the certificate of incorporation of Borrower as in effect on the
Closing Date, certified by the Secretary of State or other appropriate authority
of the State or country of its incorporation as of a recent date, together with
a bring-down certificate from such Secretary of State or other appropriate
authority in the form of a telex or telecopy dated the Closing Date, and
- --------------------------------
* Similar board resolutions and corporate documents will be required to be
provided for Guarantor.
<PAGE>
the by-laws of Borrower as in effect on the Closing Date, certified by the
Secretary, Assistant Secretary or other appropriate officer or director of
Borrower; and
(ii) a good standing certificate for the Borrower from the Secretary of
State of its incorporation as of a recent date, together with a bring-down
certificate in the form of a telex or telecopy dated the Closing Date.
* Officer's Certificate. The Lender shall have received duly executed
originals of a certificate of the Chief Executive Officer and Chief Financial
Officer of the Borrower, dated the Closing Date, stating that, since December
31, 1996, (a) no event or condition has occurred or is existing which could
reasonably be expected to have a Material Adverse Effect; (b) there has been no
material adverse change in the industry in which the Borrower operates; (c) no
litigation has been commenced which, if successful, would have a Material
Adverse Effect or could challenge any of the transactions contemplated by this
Agreement and (d) there has been no material increase in liabilities, liquidated
or contingent, and no material decrease in assets of the Borrower or any of the
other Loan Parties.
Financial Statements. Copies of the Financial Statements.
Legal Opinions. An opinion of Leonard M. Ridini, Esq., counsel to the
Borrower and Guarantor, in form and substance satisfactory to the Lender (which
shall include an opinion as to enforceability of the Agreement under New York
law) as to validity and perfection of Liens and other matters, and such other
matters incident to the transactions contemplated hereby as the Lender may
require.
Other Documents. Such other certificates, documents and agreements as the
Lender may, in its sole discretion, request.
<PAGE>
ANNEX C
to
TERM LOAN AND SECURITY AGREEMENT
Dated as of December 18, 1997
FINANCIAL STATEMENTS AND NOTICES
The Borrower shall deliver or cause to be delivered to the Lender the
following:
(a) Monthly Financials. Within thirty (30) days after the end of each
calendar month, consolidated and consolidating financial information regarding
the Borrower and its consolidated Subsidiaries, certified by the Chief Financial
Officer of the Borrower, including (i) unaudited balance sheets as of the close
of such month and the related statements of income and cash flow for that
portion of the fiscal year ending as of the close of such month and (ii)
unaudited statements of income and cash flows for such fiscal month, in each
case setting forth in comparative form the figures for the corresponding period
in the prior year, all prepared in accordance with GAAP (subject to normal year-
end adjustments).
(b) Annual Audited Financials. Within ninety (90) days after the end of
each fiscal year, audited Financial Statements for the Borrower and its
consolidated Subsidiaries on a consolidated and consolidating basis, consisting
of balance sheets and statements of income and retained earnings and cash flows,
setting forth in comparative form in each case, the figures for the previous
fiscal year, which Financial Statements shall be prepared in accordance with
GAAP, certified without qualification, by an independent certified public
accounting firm of national standing or otherwise acceptable to the Lender.
(c) Default Notices. As soon as practicable, and in any event within five
(5) Business Days after an executive officer of the Borrower has actual
knowledge of the existence of any Default or other event which has had a
Material Adverse Effect, telephonic or telecopied notice specifying the nature
of such Default or other event, including the anticipated effect thereof, which
notice, if given telephonically, shall be promptly confirmed in writing on the
next Business Day.
(d) Supplemental Schedules. Supplemental disclosures, if any, required by
Section 5.6 of this Agreement.
(e) Litigation. Promptly upon learning thereof, written notice of any
litigation commenced or threatened against Borrower that (i). seeks damages in
excess of $100,000, (ii) seeks injunctive relief, (iii) is asserted or
instituted against any Plan, its fiduciaries or its assets or against Borrower
or ERISA Affiliate in connection with any Plan, (iv) alleges criminal misconduct
by Borrower or (v) alleges the violation of any law regarding, or seeks remedies
in connection with, any environmental liabilities.
(f) Other Documents. Such other financial and other information as the
Lender shall, from time to time, request.
<PAGE>
EXHIBIT A
---------
FORM OF TERM NOTE
-----------------
New York, New York
$1,500,000 December 18, 1997
FOR VALUE RECEIVED, the undersigned MORTGAGE PLUS EQUITY AND LOAN CORP., a
New York corporation ("Borrower"), hereby promises to pay to the order of FC
CAPITAL CORP., a New York corporation ("Lender"), in lawful money of the United
States of America and in immediately available funds, the principal amount of
ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000). All capitalized terms,
unless otherwise defined herein, shall have the respective meanings assigned to
such terms in the Loan Agreement.
This Term Note is issued pursuant to that certain Term Loan and Security
Agreement, dated December 18, 1997, between the Borrower and Lender (as amended,
restated, supplemented or otherwise modified from time to time, the "Loan
Agreement"). This Term Note is the Term Note referred to in the Loan Agreement,
evidences the Term Loan made thereunder and is entitled to the benefit and
security of the Loan Agreement and reference is hereby made to the Loan
Agreement for a statement of all of the terms and conditions under which the
loan evidenced hereby was made.
The principal amount of the indebtedness evidenced hereby shall be payable
in United States Dollars in the amounts and on the dates specified in the Loan
Agreement. Interest thereon shall be paid until such principal amount is paid
in full at such interest rates and at such times as are specified in the Loan
Agreement. The outstanding principal and interest under this Term Note shall be
immediately due and payable on the Termination Date.
If any payment on this Term Note becomes due and payable on a day other
than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
Upon and after the occurrence of an Event of Default, this Term Note may,
as provided in the Loan Agreement, and without demand, notice or legal process
of any kind, be declared and immediately shall become due and payable.
To the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate protest, default, nonpayment, maturity, acceleration release,
compromise, settlement, extension or renewal of any or all Loan Documents or
this Term Note; (b) all rights to notice and a hearing prior to Lender's taking
possession or control of, or to Lenders replevy, attachment or levy upon, the
Collateral or any bond or security that might be Lender to exercise required by
any court prior to allowing any of its remedies; and (c) the benefit of all
valuation, appraisal and exemption laws.
<PAGE>
THIS TERM NOTE AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
MORTGAGE PLUS EQUITY AND LOAN
CORP.
By:
Name:
Title:
<PAGE>
EXHIBIT 10.11
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), NEITHER THIS WARRANT NOR SUCH SECURITIES MAY BE TRANSFERRED
EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR (B) UPON RECEIPT BY THE ISSUER OF AN OPINION
OF COUNSEL, WHICH OPINION OF COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE
ISSUER, TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
ACT AND SUCH STATE SECURITIES LAWS.
WARRANT AGREEMENT
FOR COMMON STOCK OF
MORTGAGE PLUS EQUITY AND LOAN HOLDINGS CORP.
Warrant No. I
THIS CERTIFIES that, for value received, FCCapital Corp. (the "Holder"), is
entitled to purchase from Mortgage Plus Equity and Loan Holdings Corp., a
Delaware corporation (the "Company"), at any time during the Exercise Period
(defined below) 888,888 shares (the "Shares") of fully paid and nonassessable
shares of common stock of the Company (the "Common Stock"). The purchase price
for each Share (the "Share Price") shall be (i) before the date that the
Company's Common Stock becomes publicly traded by means of merger, a
registration statement relating to the Common Stock and filed by the Company
with the Securities and Exchange Commission is declared effective by the
Securities and Exchange Commission, or otherwise (the "IPO"), $1.00 per share
and (ii) on and after the IPO, an amount equal to 85% of the price at which a
share of the Common Stock is sold in the IPO. Securities issuable upon exercise
of this Warrant and the Share Price payable therefor are subject to adjustment
from time to time as hereinafter set forth. As used herein, the term "Warrant"
shall include any warrant or warrants hereafter issued in consequence of the
exercise of this Warrant in part or transfer of this Warrant in whole or in part
to a permitted transferee.
1. Exercise, Payment for Ownership Interest. Upon the terms and subject to the
----------------------------------------
conditions set forth herein, this Warrant may be exercised in whole or in part
by the Holder hereof at any time, or from time to time, during the Exercise
Period by presentation and surrender of this Warrant to the principal office of
the Company, together with the Purchase Form annexed hereto, duly executed, and
accompanied by payment to the Company of an amount equal to the Share Price
multiplied by the number of Shares as to which this Warrant is then being
exercised. "Exercise Period" means a period of three years commencing on or
after the earlier to occur of (i) the date of an IPO and (ii) August 1, 1998.
Moreover, any transfer of Shares requested by Holder upon exercise of this
Warrant is subject to the requirement that such securities are registered under
the Securities Act of 1933, as amended (the "1933 Act") and applicable state
securities laws or are exempt from registration under such laws. The Holder of
<PAGE>
this Warrant shall be deemed to be an owner of the Shares as to which this
Warrant is exercised in accordance herewith effective immediately after the
close of business on the date on which the Holder shall have delivered to the
Company this Warrant in proper form for exercise and payment by certified or
official bank check or wire transfer of the cash purchase price for the number
of Shares as to which the exercise is being made. If this Warrant shall be
exercised in party only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Shares purchasable hereunder as to
which the Warrant has not been exercised. If this Warrant is exercised in
party, such exercise shall be for a whole number of Shares. Upon any exercise
and surrender of this Warrant, the Company (a) will issue and deliver to the
Holder a certificate or certificates in the name of the Holder for the largest
whole number of Shares to which the Holder shall be entitled and, if this
Warrant is exercised in whole, in lieu of any fractional Share to which the
Holder otherwise might be entitled, cash in an amount equal to the fair value of
such fractional share (determined in such reasonable and equitable manner as the
Board of Directors of the Company shall in good faith determine), and (b) will
deliver to the Holder such other securities, properties and cash which the
Holder may be entitled to receive upon such exercise, or the proportionate part
thereof if this Warrant is exercised in part, pursuant to the provisions of this
Warrant.
2. Agreement of Holder. This Holder acknowledges that this Warrant is
-------------------
unregistered and accordingly that it will not be transferred or sold except
pursuant to an effective registration statement under the 1933 Act, or an
exemption therefrom and in compliance with all state securities laws.
3. Adjustments. The Shares issuable upon exercise of this Warrant
-----------
and the Share Price shall be subject to adjustment from time to time as follows:
3.1 Reorganization, Reclassification, Consolidation, Merger
-------------------------------------------------------
or Sale; Distributions.
- ---------------------
(a) If any capital reorganization or reclassification of the
Company, or any consolidation or merger of the Company with another person, or
the sale, transfer or lease of all or substantially all of its assets to another
person shall be effected in such a way that holders of shares of Common Stock
shall receive stock, securities or assets with respect to or in exchange for
their shares, then provision shall be made, in accordance with this Section 3.1,
whereby the Holder hereof shall thereafter have the right to purchase at a price
equivalent to the Share Price and receive, upon the basis and upon the terms and
conditions specified in this Warrant Agreement and in lieu of the Shares
purchasable and receivable upon the exercise of the rights represented hereby,
such securities or assets as would have been issued or payable with respect to
or in exchange for the aggregate Shares immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby as if exercise of
the Warrant had occurred immediately prior to such reorganization,
reclassification, consolidation, merger of sale. The Company will not effect any
such consolidation, merger, sale, transfer or lease unless prior to the
consummation thereof the successor entity (if other than the Company) resulting
from such
2
<PAGE>
consolidation or merger or the entity purchasing or leasing such assets shall
assume by written instrument (i) the obligation to deliver to such Holder such
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase, and (ii) all other obligations of the
Company under this Warrant. The provisions of this Section 3.1(a) shall
similarly apply to successive consolidation, mergers, exchanges, sales,
transfers or leases.
(b) If, at any time or from time to time after the date of this
Warrant, the Company shall distribute to all holders of shares of Common stock
(i) securities, (ii) property, other than cash, or (iii) cash, in each case
without fair payment therefor, then, and in each such case, the Holder, upon the
exercise of this Warrant, shall be entitled to receive such securities, property
and cash which the Holder would hold on the date of such exercise if, on the
date of such event, the Holder had been the holder of record of the shares of
Common Stock subscribed for upon such exercise and had retained such shares of
Common Stock, subject, however, to the Holder agreeing to any conditions to such
------- -------
distribution as were required of all other holders of shares of Common Stock in
connection with such distribution. If the securities to be distributed by the
Company involve rights, warrants, options or any other form of convertible
securities and the right to exercise or convert such securities would expire in
accordance with its terms prior to the exercise of this Warrant, then the terms
of such securities shall provide that such exercise or convertibility right
shall remain in effect until thirty (30) days after the date the Holder of this
Warrant receives such securities pursuant to the exercise hereof.
3.2 Sale of Securities Below $1.00.
------------------------------
(a) If, at any time or from time to time after the date
of this Warrant, the Company shall issue or sell any shares of Common Stock for
a consideration per share less than $1.00, the Share Price shall be adjusted as
of the date of such issuance or sale so that the Share Price shall equal the
price determined by dividing (i) the sum of (A) the number of shares of Common
Stock outstanding immediately prior to such issuance or sale multiplied by the
Share Price plus (B) the consideration received by the Company upon such
issuance or sale by (ii) the total number of shares of Common Stock outstanding
after such issuance or sale.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or sell any rights, options, warrants or
other securities entitling the holders thereof to purchase Common Stock or to
convert such securities into Common Stock at a price per share (determined by
dividing (i) the total amount, if any, received or receivable by the securities
plus the total amount, if any, payable to the Company upon exercise or
conversion thereof (the "Total Consideration") by (ii) the number of additional
shares of Common Stock issuable upon exercise or conversion of such securities)
which is less than $1.00, the Share Price shall be adjusted as of the date of
such issuance or sale so that the same shall equal the price determined by
dividing (i) the sum of (A) the number of shares of Common Stock outstanding on
the date of such issuance or sale multiplied by the shares of Common Stock
outstanding on the date of such issuance or sale multiplied by the Share Price
in effect immediately prior thereto plus (B) the Total Consideration by (ii) the
number of shares of Common Stock outstanding on the date of such issuance or
sale plus the maximum number of
3
<PAGE>
additional shares of Common Stock issuable upon exercise or conversion or such
securities.
(c) Notwithstanding the provisions of this paragraph, the
Company may from time to time issue share of Common Stock pursuant to options
(the "Options") issued under stock option plans approved by the Company's
stockholders, provided, however, that (i) the aggregate amount of shares of
Common Stock issuable pursuant to such Options is less than 20% of the total
aggregate amount of shares of Common Stock issued and outstanding by the Company
at the time such Options are granted, and (ii) the exercise price of such
Options must at least equal the fair market value of the shares of Common Stock
underlying such Options on the date of grant as determined by the Company's
Board of Directors in good faith.
3.3 Other Notices. If at any time:
-------------
(a) the Company shall (i) offer for subscription pro rata
to the holders of shares of the Common Stock any additional equity in the
Company or other rights; (ii) pay a dividend in additional shares of the Common
Stock or distribute securities or other property to the holders of shares of the
Common Stock (including, without limitation, evidence of indebtedness and equity
and debt securities); or (iii) issue securities convertible into, or rights or
Warrants to purchase, securities of the Company;
(b) there shall be any capital reorganization or
reclassification or consolidation or merger of the Company with, or sale,
transfer or lease of all or substantially all of its assets to, another equity;
or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least 15 days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such subscription rights, dividend, distribution or
issuance, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 15
days' prior written notice of the date when the same shall take place if no
stockholder vote is required and at least 15 days' prior written notice of the
record date for stockholders entitled to vote upon such matter if a stockholder
vote is required. Such notice in accordance with the foregoing clause (a) shall
also specify, the case of any such subscription rights, the date on which the
holders of shares of Common Stock shall be entitled to exercise their rights
with respect thereto, and such notice in accordance with the foregoing clause
(b) shall also specify the date on which the holders of shares of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be.
4
<PAGE>
4. No Voting Rights. Except as otherwise provided herein, this Warrant
----------------
shall not be deemed to confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
5. Warrants Not Transferable. Subject to the provisions of Section 2,
-------------------------
this Warrant and all rights hereunder are not transferable, in whole or in part,
by the Holder hereof; provided however, that without the prior written consent
of the Company, this Warrant and all rights hereunder may by transferred only
to an Affiliate of the initial Holder hereof or to such successor Affiliate of
such initial Holder, provided, however, that such successor holder shall be
-------- -------
bound by all provisions hereof.
6. Warrants Exchangeable: Loss, Theft, Destruction, Etc.. This Warrant
------------------------------------------------------
is exchangeable, upon surrender hereof by the Holder hereof at the principal
offices of the Company, for new Warrants of like tenor representing in the
aggregate the right to subscribe for and purchase the Shares which may be
subscribed for and purchased hereunder, each such new Warrant to represent the
right to subscribe for and purchase such Shares (not to exceed the maximum
aggregate Shares which may be purchased hereunder) as shall be designated by
such Holder hereof at the time of such surrender. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction, upon
delivery of a bond or indemnity satisfactory to the Company, or, in the case of
any such mutilation, upon surrender or cancellation of this Warrant, the Company
will issue to the Holder hereof a new Warrant of like tenor, in lieu of this
Warrant, representing the right to subscribe for and purchase the Shares which
may be subscribed for and purchased hereunder.
7. Legends, Investment Representations. Any certificate evidencing the
-----------------------------------
securities issued upon exercise of this Warrant shall bear a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
SUCH SECURITIES MAY NOT BE TRANSFERRED EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR (B) UPON RECEIPT BY THE ISSUER OF AN OPINION OF
COUNSEL, WHICH OPINION OF COUNSEL SHALL BE REASONABLY SATISFACTORY TO
THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
8. Registration.
------------
8.1 Definitions. The following additional definitions shall
-----------
apply for purposes of this Section 8:
5
<PAGE>
(a) The term "Abbreviated Registration Statement" means a
registration statement on Form S-3 or any similar or successor form in which
financial statements and other detailed information about the issuer are
incorporated by reference from the issuer's periodic reports filed under
Securities Exchange Act of 1934.
(b) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
(c) The term "Registrable Securities" means (I) the Shares
issuable or issued upon exercise of this Warrant, and (2) any securities of the
Company issued as (or issuable upon the conversion or exercise of any Warrant,
right or other security which is issues Shares, excluding in all cases, however,
any Registrable Securities sold by a person in a transaction in which his rights
under this Section 8 are not assigned and any such securities as to which
restrictive legends restricting transfer under the 1933 Act are lifted pursuant
to Rule 144(k) under the 1933 Act (or any successor rule) or any other exemption
from registration under the 1933 Act in which the subsequent disposition of such
securities by the Holder does not require registration under the 1933 Act.
8.2 Right to Include Registrable Stock. At any time commencing
----------------------------------
one year after the IPO, if the Company proposes to register any of its
securities under the 1933 Act for its own account for sale for cash (other than
a registration on Form S-4 or Form S-8, or any successor or similar forms) (the
"Offering"), it will each such time promptly give written notice to the Holder.
Upon the written request of the Holder made within 15 days after the receipt of
any such notice (which request shall specify the Registrable Securities intended
to be disposed of by such Holder and the intended method of distribution
thereof), the Company will use its reasonable efforts to effect the registration
under the 1933 Act of all Registrable Securities which the Company has been
required to register by the Holder in accordance with the intended methods of
distribution specified in such request; provided that (1) if at any time after
--------
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company determines for any reason not to register such
securities, the Company may, at its election give written notice of such
determination to the Holder and, thereupon, will be relieved of its obligation
to register any Registrable Securities in connection with such registration, and
(ii) in case of a determination by the Company to delay registration of its
securities, the Company will be permitted to delay the registration of
Registrable Securities for the same period as the delay in registering such
other securities.
8.3 Priority. If the managing underwriter for a registration
--------
involving an underwritten offering advises the Company in writing that, in its
opinion, the number of securities of the Company (including Registrable
Securities) requested to be included in such registration by the holders thereof
exceeds the number of securities of the Company (the "Sale Number") which can be
sold in an orderly manner in such offering within a price range acceptable to
the
6
<PAGE>
Company, the Company will include (i) first, all securities of the Company that
the Company proposes to register for its own account and (ii) second, to the
extent that the number of securities of the Company to be included by the
Company is less than the Sale Number, a number of the Registrable Securities
equal to the number derived by multiplying (a) the difference between the Sale
Number and the securities proposed to be sold by the Company, and (b) a fraction
the numerator of which is the number of Registrable Securities originally
requested to be registered by the Holder and the denominator of which shall be
the aggregate number of all securities requested to be registered by all holders
of the Company's securities (other than securities being registered by the
Company itself). By way of example, if the Holder requests registration of 500
shares and only one other holder of shares of common Stock requests registration
and seeks to register 1000 shares and the Company seeks to register 3000 shares
and the Sale Number is 4200, then the Holder will be entitled to register 400
shares of Common Stock.
8.4 Obligation of the Company. Whenever required under this
-------------------------
Agreement to effect the registration of any Registrable Securities, the Company
will, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such of the Registrable Securities as are set forth in the
request as promptly as practicable following the date such obligation arises
(but in any event not later than 90 days following such date), use its
reasonable best efforts to cause such registration statement to become effective
and use its reasonable best efforts to keep such registration statement
effective for up to one year (nine months in the case of a registration
statement that is not an Abbreviated Registration Statement) but not after such
securities cease being Registrable Securities.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities covered by such registration statement.
(c) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as it may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by such Holder.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holder, provided that the Company shall not be required to qualify to do
business, subject itself to taxation or to file a general consent to service of
process in any such states or jurisdictions.
(e) Notify the Holder, at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act, of the
happening of any event as a result of which
7
<PAGE>
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
(f) Cause the securities of the Holder to be listed or
designated for trading on such securities exchange or automated quotation system
as any securities of the same class of the company are then listed or quoted or,
if no such listing or quotation then exits, as reasonably determined by the
Company.
(g) Make documents, files, books, records, officers,
directors and employees of the company available to the Holder and provided the
Holder's underwriters, if any, shall have agreed to be bound by the provisions
of this Section 8.4(g), to such underwriters, and make such other accommodations
as are reasonably necessary for the Holder and the Holder's underwriters, if
any, to perform a due diligence review of the Company; provided, however, that
all such information ("Confidential Information") will be kept confidential and
not utilized by Holder except as contemplated herein and except as required by
law or court order. The term "Confidential Information" does not include
information which (I) is already in possession of such other party (other than
that which is subject to another confidentiality agreement), (ii) becomes
generally available to the public, or (iii) becomes available on a non-
confidential basis from a source other than the Company.
(h) Provide such opinions, certifications, indemnifications,
and take such other actions, including, without limitation, entering into such
agreements (including underwriting agreements), as are reasonably required and
appropriate to permit the Holder to make a public offering of the Registrable
Securities requested to be registered.
8.5 Furnish Information. The Company's obligation to cause any
-------------------
registration statement to become effective in connection with distribution of
any Registrable Securities pursuant to this Agreement is contingent upon the
Holder, with reasonable promptness, furnishing to the Company such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities, as is required to effect the registration of
the Registrable Securities.
8.6 Indemnification. In the event of any registration under this
---------------
Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless the Holder and its officers, directors and
affiliates (and their officers and directors), any underwriter (as defined in
the 1933 Act) for the Holder and each person (and its officers and directors),
if any, who controls the Holder or underwriter within the meaning of the 1933
Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the 1933 Act, or the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
8
<PAGE>
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or (iii) any violation or alleged violation by the Company of
the 1933 Act, or the 1934 Act or any state securities law, and the Company will
pay to the Holder, underwriter or controlling person, as incurred, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection (a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor will the Company be liable in any such
case for any such loss, claim, damage, liability, or action of the written
information furnished expressly for use in connection with such registration by
the person of such Underwriter (and their respective officers and directors), a
Violation which results from the fact that there was not sent or given to a
person who bought Registrable Securities, at or prior to the written
confirmation of the sale, a copy of the final prospectus, as then amended or
supplemented, of the Company had previously furnished copies of such prospectus
hereunder and such prospectus corrected the misstatement or omission forming
the basis of the Violation.
(b) To the extent permitted by law, the Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed this registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter and any
controlling person of any such underwriter or other holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the 1933 Act or the 1934 Act or other federal
or state law, insofar as such losses, claims, damages, or liabilities (or action
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs solely as a
result of the written information furnished by the Holder expressly for use in
connection with such registration; and such Holder will pay, as incurred, any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subjection (b) in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the Holder's liability pursuant to this Section 8.6(b) shall be limited to
the amount of the net proceeds received by the Holder from the sale of the
Registrable Securities sold by it, and further provided that the indemnity
agreement contained in this subsection (b) does not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 8.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 8.6, deliver to
the indemnifying party a written notice of the commencement of such action and
the indemnifying party so desires, jointly with any other indemnifying party
9
<PAGE>
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) will have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of the indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between the indemnified party and any other party represented by such
counsel in the same proceedings. If the indemnifying party shall fail to defend
the action, or conducts a defense which is not reasonably adequate in light of
the circumstances, the indemnified party may conduct its own defense and shall
be entitled to reimbursement for the costs of such defense. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the indemnified party under this Section 8.6, except to the extent
that the indemnifying party is materially prejudiced by such failure. The
omission so to deliver written notice to the indemnifying party does not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Section 8.6. No indemnifying party under this Agreement will enter
into any settlement or consent to any entry of judgment which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to the
indemnified party of a release from all liability in respect of such claim or
litigation.
(d) If the indemnification provided for in this Section 8.6
is held by a court of competent jurisdiction to be unavailable to an indemnified
party or is insufficient to indemnify an indemnified party with respect to any
loss, liability, claim, damage, or expense referred to therein, then the
indemnifying party, in lieu of or in addition to, as appropriate, indemnifying
such indemnified party hereunder, will contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party will be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. The obligation of the Holder to make a contribution
pursuant to this Section 8.7(d) shall be limited to the net proceeds received by
the Holder from the sale of the Registrable Securities sold by it, less any
amounts paid pursuant to Section 8.6(b).
(e) The obligations of the Company and the Holder under this
Section 8.6 will survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement, and otherwise.
8.7 Expenses of Registration. All expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 8 of this Agreement, including,
10
<PAGE>
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the company will be borne by the
Company, except that the Company will not be required to pay underwriters'
discounts, commissions, or stock transfer taxes relating to the Registrable
Securities or the fees and disbursements of counsel to the Holder, other than as
set forth in this Section 8.
9. Miscellaneous. The Company shall pay all expenses and other charges
-------------
payable in connection with the preparation, issuance and delivery of this
Warrant and all substitute Warrants. The Holder shall pay all taxes (other than
any issuance taxes, including, without limitation, documentary stamp taxes,
transfer taxes and other governmental charges, which shall be paid by the
Company) in connection with such issuance and delivery of the Warrants and the
Shares.
10. Reservation of Shares. The Company will at all times reserve and
---------------------
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock or its authorized and issued Common Stock
held in its treasury, solely for the purpose of enabling it to satisfy any
obligation to issue Share upon exercise of this Warrant, the maximum number of
shares of Common Stock which may then be deliverable upon the exercise of this
Warrant.
The Company or, if appointed, the transfer agent for the Common Stock
(the "Transfer Agent") and every subsequent transfer agent for any shares of the
company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares and shall be required for such purpose.
The Company will keep a copy of this Warrant on file with the Transfer Agent and
with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by this
Warrant. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto transmitted to the Holder.
The Company covenants that all Shares which may be issued upon exercise
of this Warrant will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof.
11. Obtaining Stock Exchange Listings. The Company will, from time to
---------------------------------
time, take all actions which may be necessary so that the shares, immediately
upon their issuance upon the exercise of this Warrant, will be listed on the
principal securities exchanges and markets within the United States of America,
if any, on which other shares of common stock are then listed; provided,
however, that this provision will not be construed to require registration of
such shares except as otherwise provided in this Agreement and no listing will
be required to the extent such listing would violate applicable laws,
regulations and exchange regulations.
12. Descriptive Headings and Governing Law. The descriptive headings of
--------------------------------------
the several paragraphs of this Warrant are inserted for convenience only and do
not constitute a party of this Warrant. This Warrant shall be construed and
enforced in accordance with the laws of the State
11
<PAGE>
of Delaware, and the rights of the parties shall be governed by, the law of such
State.
12
<PAGE>
IN WITNESS WHEREOF, this Warrant Agreement has been executed as of the
18th day of December, 1997.
MORTGAGE PLUS EQUITY AND LOAN
HOLDINGS CORP.
By: /s/ Steven M. Latessa, Pres/CEO
---------------------------------
Its: Steven M. Latessa, Pres/CEO
13
<PAGE>
PURCHASE FORM
Dated: __________________, 19__
The undersigned hereby irrevocably elected to exercise the within
Warrant to the extent of purchasing ________ Shares and hereby makes payment of
$_______________ in payment of the exercise price thereof.
________________________________
14
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
MORTGAGE PLUS EQUITY AND LOAN
CORP. IS A WHOLLY-OWNED
SUBSIDIARY OF THE COMPANY.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form SB-2 of
our report dated February 6, 1998 (with respect to Note 16, March 5, 1998), on
the financial statements of Mortgage Plus Equity and Loan Corp. at December
31, 1997 and for each of the years in the two year period then ended. We also
consent to the reference to our firm under the caption "Experts."
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
March 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 342,881
<SECURITIES> 0
<RECEIVABLES> 12,694,101
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 541,872
<DEPRECIATION> 118,966
<TOTAL-ASSETS> 13,501,388
<CURRENT-LIABILITIES> 11,942,331
<BONDS> 1,131,594
0
0
<COMMON> 40,000
<OTHER-SE> 387,463
<TOTAL-LIABILITY-AND-EQUITY> 13,501,388
<SALES> 0
<TOTAL-REVENUES> 4,081,723
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,503,249
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 438,405
<INCOME-PRETAX> 140,069
<INCOME-TAX> 0
<INCOME-CONTINUING> 140,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,069
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
