<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1998
REGISTRATION NO. 333-39949
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
PRE-EFFECTIVE AMENDMENT NO. 2
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)
NEW YORK 6162 22-1842747
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR NUMBER)
ORGANIZATION)
6851 JERICHO TURNPIKE
SUITE 246
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.
SCOTT W. GOODMAN, ESQ.
RUSKIN, MOSCOU, EVANS
& FALTISCHEK, P.C.
170 OLD COUNTRY ROAD
MINEOLA, NEW YORK 11501
(516) 663-6600
(516) 663-6642 (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: [_]
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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 was paid in
connection with a total of 1,100,000 new shares of Common Stock that was
registered in the Pre-Effective Amendment No. 1 filed on March 17, 1998.
At this time no fee is due.
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 MAY 11, 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 the
minimum number of shares (i.e., 800,000 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. The Selling Stockholders' Common
Stock has been deposited with an escrow agent, and will not be released for
sale until the Company has completed the sale of the minimum number of shares
of Common Stock. See "Risk Factors--Shares Available for Future Sale;
Restrictions on Selling Stockholders", "Principal and Selling Stockholders" and
"Plan of Distribution."
Prior to the Offering, there has been a very limited public market for the
Common Stock, which is traded on the NASDAQ Stock Market Over-The-Counter-
Bulletin Board ("OTCBB") under the symbol "MPEH". The total volume of trading
of the Company's Common Stock on the OTCBB since January 1, 1998 has been 100
shares at $.25 per share and 100 shares at a price of $5.00 per share. 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. See "Risk Factors--Arbitrary Determination of Public Offering Price". 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 "MPEH". There can be no assurance that the Common Stock will be approved
for listing on the NASDAQ SmallCap Market. See "Risk Factors--No Assurance of
NASDAQ SmallCap Market Listing; Risk of Application of Penny Stock Rules".
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, at a
maximum compensation of 10%. 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. No existing
stockholders, and no affiliates thereof, will purchase any offered shares of
Common Stock so as to enable the Company to meet the requirement that a minimum
amount of Common Stock (i.e. 800,000 shares) be sold as a condition to closing.
No interest will accrue or be paid in amounts held in escrow, regardless of
whether the Offering is consummated or not. 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 8 AND "DILUTION" ON
PAGE 19.
----------
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 $--
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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
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</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 (up to 10%) 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 May 11, 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 8 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 OTCBB under the
symbol CPTT, and the high/low price through the date of the Merger was $.25 per
share. Since March 5, 1998, the volume of trading of the Company's Common Stock
(which is now traded on the OTCBB under the symbol "MPEH") has been 200 shares,
with one trade (100 shares) at a price of $.25 per share and one trade (100
shares) at a price of $5.00 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 8.
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
Minimum--9,194,142
Common Stock to be Outstanding After the Offering. shares.(/1/)(/2/)
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................... MPEH
</TABLE>
- --------
(1) The foregoing excludes an aggregate of up to 700,000 shares of Common Stock
reserved for issuance to employees upon the exercise of options which may be
granted pursuant to the 1995 Plan, 270,000 of which have been granted to
date, and up to 888,888 shares of Common Stock issuable pursuant to a warrant
granted to FC Capital Corp., as described in "Certain Transactions". The
outstanding options and warrants, and the average exercise prices thereof,
are as follows: for the 888,888 shares of Common Stock issuable pursuant to
the warrant granted to FC Capital Corp., the purchase price for each share
(the "Share Price") on or after the date of the Offering shall be an amount
equal to 85% of the price at which a share of Common Stock is sold in the
Offering.
(2) The prices of the 270,000 options issued are as follows:
(i) 35,000 were issued at One ($1.00) Dollar per share, of which 8,750
are vested; and
(ii) 235,000 options were issued at Three ($3.00) Dollars per share, of
which none are vested.
Following the Offering, the remaining options shall be granted at fair
market value on the date of grant.
6
<PAGE>
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 17,624,729 20,314,729
Borrowings............................... 12,996,941 12,996,941 12,118,941
Stockholders' equity..................... 444,470 1,852,366 5,452,366
</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."
7
<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 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 warehouse financing facility (the
"Warehouse Facility") which provided up to $12 million through April 30, 1998,
and currently provides for $10 million through July 31, 1998, 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 Company does not obtain commitments from purchasers of
loans prior to origination. The Warehouse Facility expires on July 31, 1998.
The borrowings thereunder are collateralized by specific mortgage loans held
for sale to institutional investors. The amount outstanding under the
Warehouse Facility at December 31, 1997 was $10,532,994. The amount
outstanding under the Warehouse Facility at May 1, 1998 was $13,842,968.
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. In April,
1998 the Warehouse Lender determined that the Company was in default, but
8
<PAGE>
waived the default and extended the expiration date of the Warehouse Facility
to July 31, 1998. The Warehouse Facility is personally guaranteed by Steven
Latessa and Cary Wolen, the Company's President and Chief Operating Officer,
respectively. Any failure 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 Company has obtained an additional $5 million Warehouse Facility as of
March 20, 1998.
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.
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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 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.
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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.
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."
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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 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
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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."
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.
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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 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.
BENEFITS TO AFFILIATED PARTIES
The Company will use approximately $298,000 (8.3%) of the net proceeds of
this Offering to pay an unsecured subordinated debenture held by a corporation
owned by Messrs. Latessa, Wolen and the Estate of Anthony Saffotti, a former
officer of the Company. In addition, upon completion of this Offering, Messrs.
Latessa and Wolen are expected to be released as personal guarantors under the
Company's Warehouse Facility and an equipment lease.
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 (net income before taxes) of the
Company.
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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.
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 5,800,000 shares (see "Principal
and Selling Shareholders") of the Company's outstanding Common Stock, which
will represent approximately 63.1% 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, 61.5% 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."
ARBITRARY DETERMINATION OF PUBLIC OFFERING PRICE
Prior to the Offering there has been a very limited public market for the
Common Stock. 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, because of the limited trading
volume, was not based upon the OTCBB's price of stock. The Offering price of
the Common Stock by the Company and the Selling Stockholders does not 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, although no assurance can be given that such listing
will be obtained. 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 not a condition of the Escrow Agreement and not 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, 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, if it is listed, will continue to satisfy the
requirements for maintaining a NASDAQ SmallCap Market listing. If the Common
Stock is denied listing or is delisted from the NASDAQ SmallCap Market
trading, if any, in the Common Stock would thereafter continue to be conducted
in the OTCBB, and it would be more difficult to dispose of, or to obtain as
favorable a price for, the Common Stock. Thus, the liquidity of the Securities
could be impaired not only in the number of Common Stock that could be bought
and sold at a given price, but also through delays in the timing of
transactions. In addition, there could be a reduction in security analysts'
and the
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news media's coverage of the Company, which could result in lower prices for
the Common Stock than might otherwise be attained and in a larger spread
between the bid and asked prices for the Common Stock.
If the Company is denied listing or is subsequently 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. There are 8,750 shares subject to
option that have vested and if all of the dilutive securities currently
exercisable were to be exercised, there would be no impact on dilution. 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."
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
16
<PAGE>
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 September 3, 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.
There are 270,000 options, of which there are a total of 8,750 options that
are currently exercisable. Additionally, there are currently 888,888 warrants
outstanding, which are held by FC Capital Corporation and have registration or
piggyback rights as follows: At any time commencing one year after the
Offering, 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), 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 (i) 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.
Pursuant to an agreement dated May 1, 1998, (the "Saffiotti Agreement"), the
Estate of Anthony Saffiotti (the "Estate") has one demand registration right
for a period commencing one (1) year after the date of the Saffiotti
Agreement, but not later than three (3) years from such date. Under the
Saffiotti Agreement, the Estate may compel the Company, upon written request,
and so long as the Estate owns at least fifty (50%) percent of the shares of
the Common Stock of the Company held on the date hereof, to prepare and file
with the Commission a registration statement covering the registrable
securities which are the subject of such request.
17
<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).... 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>
- --------
(1) The Company anticipates using Working Capital for general corporate
purposes, which may include strategic alliances and/or acquisitions, loan
product development and general marketing expenses.
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.
18
<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
OTCBB under the symbol "CPTT". 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. Since March
5, 1998, the volume of trading of the Company's Common Stock (which is now
traded on the OTCBB under the symbol "MPEH") has been 200 shares, with one
trade at a price of $.25 per share and one trade (100 shares) at a price of
$5.00 per share.
As of March 1, 1998 there were approximately 745 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. There are 8,750 shares subject to option that have
vested, and if all of the dilutive securities currently exercisable were to be
exercised, there would be no impact on dilution. 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........................ 0.39
-----
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> <C>
Existing stockholders....... 8,394,142 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.
19
<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 1,920,674 5,519,874
Accumulated deficit.................... (76,702) (76,702) (76,702)
----------- ----------- -----------
Total stockholders' equity............. 444,470 1,852,366 5,452,366
----------- ----------- -----------
Total capitalization................ $13,441,411 $14,849,307 $17,571,307
=========== =========== ===========
</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.
20
<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>
21
<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.
22
<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.
23
<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 July 31, 1998 and is
generally renewable on an annual basis. On April 28, 1998, in connection with
the lender's waiver of default of certain covenants as of December 31, 1997,
the lender reduced the warehouse line of credit from $12 million to $10
million and extended the expiration date to July 31, 1998. 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. The Company has obtained an additional Warehouse Facility, with a
maximum borrowing limit of $5 million, as of March 20, 1998.
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
24
<PAGE>
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.
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). Pursuant to an agreement dated May 1, 1998,
the estate of Anthony Saffiotti has waived its rights under the Shareholders
Agreement. (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.
25
<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
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<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
27
<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,
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<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.
29
<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.
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<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
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<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
32
<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
33
<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>
34
<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.
35
<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.
36
<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.
37
<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.
38
<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 (net income before taxes) 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.
39
<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. Pursuant to an agreement dated
May 1, 1998, the estate of Anthony Saffioti has agreed to waive its rights
under the Shareholders Agreement.
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 $4.25 per share. The
exercise period for this warrant is for three years, commencing on the
effective date.
40
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of May 1, 1998,
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)..................... 900,000 10.7% 900,000 0 0
New Millenium(5)(4)........... 50,000 .6% 50,000 0 0
Cary Wolen(4)................. 2,343,390 27.9% 50,000 2,293,390 24.9%
Steven Latessa(4)............. 2,343,390 27.9% 50,000 2,293,390 24.9%
Jon Blasi(2)(4)............... 1,113,220 13.3% 50,000 1,063,220 11.6%
Daniel Intermann.............. -- -- -- -- --
Estate of Anthony Saffiotti... 1,200,000 14.3% -- 1,200,000 13.1%
All officers and directors as
a group...................... 5,800,000 69.1% 150,000 5,650,000 61.5%
</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) WLB beneficially owns 420,220 shares of Common Stock. Notwithstanding that
Steven Latessa, Cary Wolen and Jon Blasi are the three (3) general
partners of WLB, Jon P. Blasi is the only general partner who has voting
and investment power with respect to the Common Stock.
(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, 23.7%;
Steven Latessa, 23.7%; Jon Blasi, 11% and all officers and directors as a
group, 61.5%.
(7) Does not include 888,888 shares issuable to FC Corp. pursuant to an option
to purchase such shares at $4.25 per share, commencing on May 14, 1998.
(See "Certain Transactions")
41
<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.
42
<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
43
<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.
44
<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.
45
<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 up to a maximum of
10% of the Offering 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. Selling
Stockholders may not sell their shares of Common Stock until the Company sells
the minimum number of shares required by the Offering.
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
shares of Common Stock 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. No interest will be
paid on amounts deposited with the Escrow Agent.
46
<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.
47
<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 ended 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 25, 1998
With respect to Note 17
May 1, 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 mortgage loan 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........................................ $10,532,994
Loans closed to be disbursed.................................... 1,989,264
Notes payable................................................... 1,392,763
Subordinated debt............................................... 878,000
Obligation under capital lease.................................. 193,184
Accounts payable and accrued expenses........................... 786,158
-----------
Total liabilities........................................... 15,772,363
-----------
Commitments (Note 16)
Stockholders' equity:
Preferred stock--$.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 mortgage loan 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 on a non-recourse basis 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 carrying 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 16).
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
$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 11).
Advertising expenses:
The Company expenses advertising costs which consist primarily of
promotional items and print media. Total advertising expense for the years
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 (see Note 15)................ $1,000,000
Deferred origination costs on loans in process (see Note 1 reve-
nue origination)................................................ 269,641
Due from employees............................................... 150,538
Mortgage fees receivable......................................... 146,853
Other............................................................ 117,644
----------
$1,684,676
==========
</TABLE>
3. DUE FROM STOCKHOLDERS
At December 31, 1997, certain stockholders had been advanced $263,646. These
advances are non-interest bearing and due on demand.
4. 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.
5. WAREHOUSE LINE 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 mortgage loan
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, the Company has received a waiver from the lender of certain defaults of
restrictive covenants in the credit agreement (See Note 17).
As of December 31, 1997, based upon the most restrictive covenants, the
Company is precluded from declaring or paying any cash dividends.
6. 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)
7. 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 $397,593, respectively.
8. 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 1997, the $400,000
obligation was repaid with a portion of the proceeds of the $1,500,000 note
payable (see Note 7). In October 1997, the Company borrowed $500,000 from an
affiliate of certain principal stockholders. This borrowing, due July 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)
9. 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 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.
10. RELATED PARTY TRANSACTIONS
The Company subleases certain of its offices from an affiliate (see Note
16). 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 8).
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.
11. 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)
11. INCOME TAXES (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.
12. 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)
12. STOCKHOLDER'S EQUITY/CAPITAL DEFICIENCY (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 (see Note 17). 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>
13. 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)
14. 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.
15. OTHER INCOME
Other income represents proceeds due the Company as beneficiary under an
officer's key man term life insurance policy as a result of the death of the
officer in October 1997.
16. COMMITMENTS 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
F-14
<PAGE>
MORTGAGE PLUS EQUITY AND LOAN CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
16. COMMITMENTS AND OTHER (CONTINUED)
1994. This assessment totaled approximately $233,000 for employment taxes as
if the independent contractors were classified as employees during the period.
On March 25, 1998, the Company and IRS reached an agreement whereby the
Company agreed to pay the amount accrued as of December 31, 1997
(approximately $33,000).
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
had been committed and rate-locked. For approximately $31.0 million of
mortgage loans held for sale and loans in process, the Company had 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 the mortgage loan 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)
16. COMMITMENTS 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 mortgage loan 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 MORTGAGE LOAN 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.
17. 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 had 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 purchase of CTSI by the Company. The 338,142
shares of CTSI outstanding have been valued at $1,407,896. 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)
17. SUBSEQUENT EVENTS (CONTINUED)
WAREHOUSE LINES OF CREDIT
On March 20, 1998, the Company entered into a $5 million warehouse line of
credit with a lender. This warehouse line of credit is personally guaranteed
by the Company's principal stockholders and may be canceled by the lender upon
30 days notice.
On April 28, 1998, the warehouse line of credit outstanding at December 31,
1997 was reduced from $12 million to $10 million and the expiration date was
extended to July 31, 1998 (see Note 5).
STOCKHOLDERS' EQUITY
In October 1997, a stockholder owning 1,620,220 shares died and under the
terms of the stockholders' agreement, the Company was obligated to repurchase
the stock. In the Company's opinion, the purchase price was the book value of
the shares (approximately $90,000). 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
stockholders. The stockholders have agreed, should the Company be required to
pay more than $90,000, to surrender some or all of these shares. Accordingly,
these shares have been placed in an escrow account. In April 1998, the estate
informed the Company that it believed that it was entitled to more than book
value for these shares.
In settlement of the matter an agreement dated May 1, 1998 was entered into
pursuant to which the stockholders' agreement was terminated and the estate
sold 420,220 shares to the Company's principal stockholders (who are also
officers of the Company) for total consideration of $551,646. Additionally
options on 126,138 shares of the Company's Common Stock sold by the estate
have been canceled (See Note 12). As a result of this transaction, on May 1,
1998, the Company will recognize a compensation charge and credit to
additional paid in capital of approximately $780,000 representing the excess
of the fair value of the shares acquired by the officers over the purchase
price. In addition on May 1, 1998, the stock dividend referred to above was
rescinded.
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.............................................................. 8
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 19
Price Range of Common Stock............................................... 19
Dilution.................................................................. 19
Capitalization............................................................ 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 26
Management................................................................ 37
Certain Relationships and Related Party Transactions...................... 40
Principal and Selling Stockholders........................................ 41
Description of Securities................................................. 42
Shares Eligible for Future Sale........................................... 45
Plan of Distribution...................................................... 46
Summary of Escrow Agreement............................................... 46
Legal Matters............................................................. 47
Experts................................................................... 47
Additional Information.................................................... 47
Index to Financial Statements............................................. F-1
</TABLE>
Until , 1998 (40 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, 50,000
shares were sold to New Millenium, LP, an investment partnership and 50,000
shares were sold to Timothy Mayette, an accredited investor. The Company's
sale of shares of Common Stock to Melville Ventures & Associates, L.P., an
investment committee partnership, to New Millenium, LP, an investment
partnership and to Timothy Mayette was exempt from registration requirements
pursuant to Section 4(2) of the Securities Act, since these shares were sold
to sophisticated and accredited investors who had done business with the
Company on prior occasions.
In December 1997, the Company issued warrants to purchase 888,888 shares of
Common Stock to FC Capital Corporation. These warrants are exercisable the
earlier of August 1998 or the effective date of a public offering, and expire
three (3) years later. The exercise price is 85% of the public offering price,
provided, however, that if the Company has not accomplished a public offering
by August, 1998, the option price drops to $1.00 per share.
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.
II-2
<PAGE>
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
**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
10.12 Mortgage Warehouse Loan and Security Agreement between Contimortgage
Corporation and Mortgage Plus Equity and Loan Corp.
10.13 Escrow Agreement
10.14 Melville Ventures & Associates, LP Limited Partnership Agreement
+10.15 Merger and Reorganization Agreement by and among Mortgage Plus Equity
and Loan Corporation, Vertex Industries, Inc. and Computer
Transceiver Systems, Inc., dated March 3, 1998
10.16 Settlement Agreement, dated May 1, 1998
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)
23.4 Consent of Daniel Intemann
***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.
*** Previously filed.
+ Incorporated by reference from Exhibit No. 1 to the Form 8-K filed by
Computer Transceiver Systems, Inc. with the Securities and Exchange
Commission on March 10, 1998.
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
II-3
<PAGE>
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.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) that, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
iii. To include any additional or changed material information
with respect to the plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at
the termination of the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(5) i. That, for the purpose of determining liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
ii. That, for the purpose of determining liability under the
Securities Act of 1933, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions or
otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-4
<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 May 7, 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, Cary Wolen and Jon P. Blasi 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, Cary Wolen and Jon P. Blasi 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 May 7, 1998
____________________________________ Officer, Chairman of the
Board, Director
/s/ Cary Wolen Chief Operating Officer, May 7, 1998
____________________________________ Chief Executive Officer,
Chief Financial Officer,
Secretary, Director
/s/ Jon P. Blasi Chief Operating Officer, B/C May 7, 1998
____________________________________ Lending Division, Director
</TABLE>
II-5
<PAGE>
TABLE OF CONTENTS
MORTGAGE WAREHOUSE LOAN AND SECURITY AGREEMENT
BETWEEN
CONTIMORTGAGE CORPORATION
AND
MORTGAGE PLUS EQUITY AND LOAN CORP.
1. DEFINITIONS.
2. ADVANCES.
3. SALE OF MORTGAGE LOANS ADVANCED UNDER THE AGREEMENT.
4. CONDITIONS PRECEDENT TO ADVANCES.
5. REPRESENTATIONS AND WARRANTIES.
6. INTEREST, FEES AND OTHER PAYMENTS.
7. REPAYMENT OF ADVANCES.
8. SECURITY.
9. COVENANTS OF BORROWER.
10. EVENTS OF DEFAULT AND REMEDIES.
11. INDEMNIFICATIONS.
12. NOTICES.
13. ACCESS TO BORROWER DOCUMENTS AND INFORMATION.
14. TERMINATION.
15. MISCELLANEOUS PROVISIONS.
EXHIBIT A- PROMISSORY NOTE
EXHIBIT B- ESSENTIAL MORTGAGE FILE DOCUMENTS
EXHIBIT C- FORM OF REQUEST FOR BORROWING
EXHIBIT D- GENERAL UNDERWRITING GUIDELINES AND
PRODUCT DESCRIPTIONS
EXHIBIT E- CLOSING AGENT INSTRUCTION LETTER
EXHIBIT F- GUARANTEE AGREEMENT
EXHIBIT G- LISTING OF OTHER CREDIT FACILITIES OF
BORROWER
EXHIBIT H- OFFICER'S CERTIFICATE
EXHIBIT I- WIRING INSTRUCTIONS
EXHIBIT J- LISTING OF QUALIFIED INVESTORS
EXHIBIT K- UCC-1 SCHEDULE A
<PAGE>
EXHIBIT 10.12
MORTGAGE WAREHOUSE LOAN AND SECURITY AGREEMENT
----------------------------------------------
THIS MORTGAGE WAREHOUSE LOAN AND SECURITY AGREEMENT made this 20TH
----
day of MARCH, 1998 by and between CONTIMORTGAGE CORPORATION, a Delaware
-----
corporation, with its principal address at One ContiPark, 338 South Warminster
Road, Hatboro, PA 19040-3430 ("Lender") and MORTGAGE PLUS EQUITY AND LOAN CORP.,
a New York corporation, with its principal address at 6851 Jericho Turnpike,
Ste. 246, Syosset, NY 11791 ("Borrower").
RECITALS
--------
WHEREAS, Lender wishes to lend, and Borrower wishes to borrow,
subject to the terms and conditions stated below, money in connection with a
mortgage warehouse funding facility for certain mortgage loans originated by
Borrower.
WHEREAS, Borrower expects to use this mortgage warehouse facility to
fund the origination of certain mortgage loans and Lender expects to fund such
activities of Borrower through advances of money under this Agreement.
WHEREAS, Lender expects repayment of such advances made under this
Agreement from the subsequent sale by Borrower of the mortgage loans originated
by Borrower.
PROVISIONS
----------
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, and in consideration of the premises and of the covenants and agreements
hereinafter contained, agree as follows:
1. DEFINITIONS.
-----------
1.1. Whenever used in this Agreement the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
Advance: Any advance of money by Lender to Borrower made
-------
under this Agreement.
Advance Date: Any Business Day on which Lender makes on
------------
Advance, which shall be no earlier than one (1) Business Day prior to the date
on which the proceeds of the Mortgage Loan for which such funds are to be
advanced is required to be disbursed under the terms of the Mortgage Loan and
applicable law.
Advance Repayment Date: The date not later than thirty
----------------------
(30) calendar days following an Advance Date, or the next Business Day after
such date if such date does not fall on a Business Day.
Agreement: This Mortgage Warehouse Loan and Security
---------
Agreement, including all exhibits and schedules attached or delivered pursuant
hereto, and as the same may be amended, extended and supplemented from time to
time.
Approved Title Underwriter: Any title underwriter that is
--------------------------
authorized to issue title policies in the state where the subject Mortgage Loan
is to be originated and is either (a) expressly approved by Lender in writing,
or (b) currently rated by LACE Title Rating Corporation as C+ or better with
assets in excess of $10 million, unless such title underwriter is expressly
disapproved by Lender in writing.
<PAGE>
Business Day: Any day that is not a Saturday, Sunday or
------------
other day on which commercial banking institutions in the City of New York are
authorized or obligated by law to be closed.
Closing Agent: Any party other than the Borrower, or an
-------------
entity controlled by or affiliated with Borrower, approved by Lender to receive
Advances on behalf of Borrower.
Closing Agent Instruction Letter: A letter agreement in
--------------------------------
the form of Exhibit "E" attached hereto to be executed and delivered in
-----------
accordance with Section 4.2(c) of this Agreement for each Mortgage Loan that is
not subject to a recision period under applicable law.
Collateral: The property described in Section 8.1 below.
----------
Commitment Amount: The total amount of Advances that may be
-----------------
outstanding at any time under this Agreement, which amount shall be $5,000,000
or such lesser amount as provided for below. Notwithstanding the foregoing to
the contrary, in the event that Borrower fails to borrow at least 125% of the
then applicable Commitment Amount in each of any two consecutive calendar
months, the then applicable Commitment Amount may be unilaterally reduced by
Lender, in its sole discretion and upon written notice to Borrower, to a new
Commitment Amount which shall be equal to 80% of the average amount of all
borrowings made by Borrower during the subject two consecutive calendar months.
ContiMortgage Qualified Mortgage Loan: A Mortgage Loan
-------------------------------------
meeting that portion of the Underwriting Guidelines designated as the
"ContiMortgage Underwriting Guidelines".
Core Documents: As to each Mortgage Loan:
--------------
(a) the original Note, endorsed in blank;
(b) either (i) the original Mortgage with official evidence
of recording, or (ii) a copy of the original Mortgage, certified to Lender as a
true and correct copy by an officer of Borrower or by the Closing Agent;
(c) an original executed assignment of mortgage (as well as
all intervening assignments, if any) assigning in blank the Mortgage, which
assignment(s) of mortgage shall be in form and substance acceptable for
recording in the State in which the Mortgaged Property is located;
(d) a title insurance policy, including all required
endorsement, or a "marked-up" title commitment, underwritten by an Approved
Title Underwriter, insuring the lien of the Mortgage has the appropriate lien
priority, with the insured identified as the Borrower and its successors and
assigns as their interests may appear; and
(e) if applicable, the Closing Agent Instruction Letter
signed by an authorized representative of the Closing Agent.
Essential Mortgage File Documents: As to each Mortgage
---------------------------------
Loan, the (a) the Core Documents, (b) the Related Assets, and (c) the additional
documents described on Exhibit "B" attached hereto as are applicable.
-----------
Event of Default: Any event of default set forth in Section
----------------
10.1 below.
Facility Expiration Date: That date which is the earlier to
------------------------
occur of (a) the effective date of a termination of this facility under Section
14 below, and (b) the occurrence of an Event of Default under Section 10.1
below.
Final Payment Date: That date defined as the "Final Payment
------------------
Date" in Section 7.1 below.
<PAGE>
Guarantee: The Guarantee as defined in Section 4.1(g)
---------
below.
Guarantors: Steven M. Latessa, Cary Wolen, and Jon Blasi
----------
Interest Penalty: The "Interest Penalty" rate defined in
----------------
Section 6.1 below.
Interest Rate: The base "Interest Rate" as defined in
-------------
Section 6.1 below.
Late Fee: The "Late Fee" defined in Section 6.3(c) below.
--------
Mortgage: The deed of trust, mortgage, mortgage warranty,
--------
extension agreement, assumption of indebtedness, assignment and any other
documents constituting the basic instruments for obtaining a lien upon, or
interest, in real property to secure an obligation owed by the Mortgagor in the
State in which the Mortgaged Property is located.
Mortgage Loan: A loan originated by Borrower for which an
-------------
Advance is made hereunder, which loans shall meet all of the qualifications and
requirements of Lender set forth in the Underwriting Guidelines and which shall
be evidenced by a Note and secured by a Mortgage and the Related Assets;
Mortgage Loans shall include those loans set forth on Schedule 1 of each Request
for Borrowing.
Mortgaged Property: The residential real property subject
------------------
to the Mortgage which secures the Mortgage Loan.
Mortgagor: The obligor/mortgagor under a Mortgage Loan.
---------
Note: The original Note, bond or other evidence of the
----
repayment obligation of the Mortgagor to repay the Mortgage Loan.
Prime Rate: The domestic prime rate of interest as
----------
published in THE WALL STREET JOURNAL effective for the first Business Day of the
applicable month.
Promissory Note: The promissory note in the form of Exhibit
--------------- -------
"A" attached hereto to be executed and delivered by Borrower.
- ---
Qualified Investor: Any party preapproved in writing by
------------------
Lender to whom Borrower intends to sell Mortgage Loans; provided, however, that
Lender may rescind such approval for any or no reason upon 45 days advance
notice to Borrower, or immediately in the case of the insolvency of the intended
purchaser or the failure of the intended purchaser to honor any purchase
commitment. All parties included on Exhibit "J" hereto are hereby approved by
-----------
Lender.
Related Assets: For each Mortgage Loan, any and all
--------------
documents, instruments, collateral agreements, and any assignments and
endorsements for all documents, instruments and collateral agreements, referred
to in the Notes and/or Mortgages or related thereto, including, without
limitation, current insurance policies (private mortgage insurance, if
applicable; flood insurance, if applicable; hazard insurance; title insurance
and other applicable insurance policies) covering or related to the Mortgaged
Property or the Mortgage Loan, the Notes, and all files, books, papers, ledger
cards, reports and records including, without limitation, loan applications,
Borrower financial statements, separate assignment of rents, if any, credit
reports and appraisals. In all cases, the Related Assets shall be the original
documents.
Request for Borrowing: A written request, substantially in
---------------------
the form of Exhibit "C" hereto, executed by Borrower and delivered to Lender in
-----------
accordance with Section 4.2(a) hereto.
Underwriting Guidelines: Those underwriting guidelines set
-----------------------
forth on Exhibit "D" attached hereto as may from time to time be amended by
-----------
Lender.
<PAGE>
Uniform Commercial Code: The Pennsylvania Commercial Code,
-----------------------
Title 13, Pennsylvania Consolidated Statutes, 1979, November 1, P.L. 255, Act
No. 86, as codified at 13 Pa. C.S.A. e1101, et. seq., as the same may be amended
from time to time.
2. ADVANCES.
--------
2.1. Subject to the terms and conditions set forth in this Agreement,
including without limitation that no Event of Default exists and that the terms
of Section 4 below have been met, Lender hereby agrees to make Advances under
Section 2.2 below from time to time to Borrower, and Borrower hereby agrees to
borrow Advances from Lender, in accordance with the terms of the Promissory Note
and this Agreement; provided, however, that:
-------- -------
(a) the amount of an Advance shall be 100% of the unpaid
principal balance of a ContiMortgage Qualified Mortgage Loan and, to the extent
non-ContiMortgage Qualified Loans are permitted under this Agreement (including
the applicable Underwriting Guidelines on Exhibit "D"), 95% of the unpaid
principal balance of a Mortgage Loan that is not a ContiMortgage Qualified
Mortgage Loan;
(b) within the limits of the Commitment Amount, as the same may
change from time to time, Borrower may borrow, repay and reborrow pursuant to
this Section 2.1; and
(c) no Advance will be made on or after the Facility Expiration
Date.
2.2. Subject to Section 2.1 above and the other applicable terms and
conditions of this Agreement, Lender shall make Advances to Borrower on each
Advance Date. All Advances shall be made by wire transfer in immediately
available funds to the pre-approved Closing Agent.
3. SALE OF MORTGAGE LOANS ADVANCED UNDER THE AGREEMENT.
---------------------------------------------------
3.1. Borrower may sell any Mortgage Loan for which Advances are made
hereunder; provided that Borrower instructs the purchaser in writing to wire
-------------
transfer the sale proceeds directly to the Lender's account as designated on
Exhibit "I" attached hereto for the repayment of the Advance received from
- -----------
Lender to fund such Mortgage Loan.
4. CONDITIONS PRECEDENT TO ADVANCES.
--------------------------------
4.1. Initial Advance. The Lender's obligation to make the initial
---------------
Advance hereunder shall be subject to the fulfillment of the following
conditions precedent:
(a) Delivery of Promissory Note. Borrower shall have
---------------------------
executed and delivered Borrower's Promissory Note to Lender.
(b) Corporate Proceedings. Borrower and each corporate
---------------------
Guarantor, if any, shall have furnished to Lender a copy, certified by a
secretary or an assistant secretary of Borrower and each Guarantor, of the
resolution of the Board of Directors of Borrower and each corporate Guarantor
authorizing the execution, delivery and performance by each Guarantor of its
Guarantee and by Borrower of this Agreement, the Promissory Note and the other
matters contemplated hereby.
(c) Representation and Warranties. The representations and
-----------------------------
warranties contained in Section 5 hereof shall be true and correct as of the
date of this Agreement and the initial Advance.
(d) Financing Statements and Financing Statement Searches.
-----------------------------------------------------
(i) Borrower shall have executed and
delivered to Lender, in the form appropriate for filing with the appropriate
state and local governmental authorities designated by Lender, Uniform
<PAGE>
Commercial Code financing statements, including any continuation statements, as
are necessary and appropriate, describing the Collateral as security for
Advances in order to create a first priority security interest in favor of
Lender in such Collateral. The description of the Collateral shall be in form of
Exhibit "K" attached hereto and made a part hereof.
(ii) Borrower shall provide to Lender satisfactory
searches of all Uniform Commercial Code financing statement filing offices
required by Lender showing no financing statements filed against Borrower, as
debtor, for collateral which is part of the Collateral.
(e) Corporation's Designation of Authorized Corporate
-------------------------------------------------
Officers. The Borrower shall have delivered to Lender an officer's certificate,
- --------
attested to by the secretary or an assistant secretary of the Borrower, stating
the names, titles and showing the facsimile signatures of the officers of
Borrower authorized to execute and deliver this Agreement, the Promissory Note,
Requests for Borrowing and any other documents, agreements or certificates
contemplated hereby in the form attached hereto as Exhibit "H". Lender may
-----------
conclusively rely on such a certificate until Lender receives a further
certificate executed by the secretary or an assistant secretary of Borrower
amending or superseding the prior certificate. Additionally, each corporate
Guarantor, if any, shall deliver to Lender an officer's certificate, attested by
the secretary or assistant secretary of each Guarantor, stating the names,
titles and showing the facsimile signatures of the officers of each Guarantor
authorized to execute and deliver the Guarantee.
(f) Legal Matters. All other instruments and legal and
-------------
corporate proceedings in connection with the transactions contemplated by this
Agreement shall be satisfactory in form and substance to Lender and its counsel,
and Lender shall have received copies of all documents which it may have
requested in connection herewith.
(g) Guarantees. The Guarantor(s) shall have each delivered
----------
their joint and several Guarantee Agreement (the "Guarantee") in the form of
Exhibit "F" hereto, which shall "guarantee" the Borrower's obligations under the
- -----------
Promissory Note and this Agreement, including repayment of interest, fees and
other sums as set forth in Section 6 and of Advances as set forth in Section 7.
(h) Corporation's Articles of Incorporation/Good Standing
-----------------------------------------------------
Certificate/Authorization to do Business. Borrower and each corporate Guarantor,
- ----------------------------------------
if any, shall have delivered to Lender (i) each of their articles of
incorporation, certified as true and correct by the Secretaries of State for the
states of their incorporation, (ii) current good standing certificates issued by
the Secretaries of State for the states of their incorporation, and (iii) good
standing certificates and/or qualifications to do business in each other state
in which Borrower does business and is required under the laws of such state to
be qualified to do business as a foreign corporation.
(i) Licenses. Borrower shall have delivered to Lender all
--------
governmental licenses, permits and approvals required to be obtained or
maintained by Borrower by any governmental authorities to solicit, document,
originate, close and fund Mortgage Loans.
4.2. The Lender's obligation to make each Advance (including the
initial Advance) hereunder shall be subject to the fulfillment of the following
additional conditions precedent:
(a) Delivery of Request for Borrowing to Lender. Borrower
-------------------------------------------
shall have delivered to Lender in accordance with the notice provision in
Section 12.2 below, a complete and duly executed Request for Borrowing no later
than one (1) Business Day prior to the requested Advance Date;
(b) Commitment from Qualified Investor. Borrower shall have
----------------------------------
delivered to Lender a firm, binding commitment from a Qualified Investor, pre-
approved by Lender, to purchase the Mortgage Loan if the Mortgage Loan is not a
ContiMortgage Qualified Mortgage Loan;
(c) No Event of Default. No Event of Default exists;
-------------------
<PAGE>
(d) Delivery of Mortgage Loan Documents and Files. Borrower
---------------------------------------------
shall have delivered, or caused to be delivered, to Lender the Core Documents
(including without limitation the sole, original Note) with respect to each
Mortgage Loan for which an Advance is to be made by Lender; provided, however,
if a Mortgage Loan is not subject to a rescission period under applicable law,
then:
(i) Borrower shall initially deliver to Lender, in
place of the executed Core Documents, copies of the Core Documents which are to
be executed at the Mortgage Loan settlement, and
(ii) Borrower shall provide Lender with a copy of the
Closing Agent Instruction Letter in the form of Exhibit "E" attached hereto
executed by an authorized representative of the Closing Agent and shall
cooperate fully with Lender in assuring the Closing Agent's compliance with
same.
Lender, at its sole discretion, may require the
delivery of all the Essential Mortgage File Documents prior to making any
Advance and may require that Borrower deliver to Lender all of the Essential
Mortgage File Documents related to any outstanding Advances within two business
days of Lender's written request for delivery of such Essential Mortgage File
Documents.
(e) Representations and Warranties. The representations and
------------------------------
warranties contained in Section 5 below remain true and correct.
(f) Approval of Closing Agent. Lender shall have approved
-------------------------
the Closing Agent to be used by Borrower to receive the Advance and/or to
disburse funds for the Mortgage Loan.
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
5.1. Representations and Warranties of the Borrower and, if
------------------------------------------------------
Applicable, Guarantors - General. It is understood and agreed by Borrower that
- --------------------------------
as a material inducement to Lender to enter into this Agreement and to make
Advances, Borrower hereby represents and warrants to Lender the accuracy of each
of the following as of the date of this Agreement and as of each Advance Date:
(a) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly qualified as a foreign corporation in all jurisdictions wherein the
character of the property owned or leased, or the nature of the business
transacted by it, makes qualification as a foreign corporation necessary ;
(b) The execution and delivery of this Agreement, the
Promissory Note and all other documents contemplated hereby by Borrower and the
performance by Borrower of the obligations to be performed by it hereunder and
thereunder have been duly authorized by all necessary corporation or other
similar action;
(c) The execution and delivery of this Agreement, the
Promissory Note and the other documents contemplated hereby by Borrower and the
performance by Borrower of the obligations to be performed by it hereunder and
thereunder do not, and will not, violate any provision of any law, rule,
regulation, agreement, order, writ, judgment, injunction, decree, determination
or award presently in effect having applicability to Borrower or to the charter,
bylaws, certificate of organization or formation, operating agreement, or other
organizational, governing or operational documents of the Borrower;
(d) Borrower, and all other parties which have had any
interest in the Mortgage Loans, whether as mortgagee, assignee (other than
Lender or assignee of Lender) or pledgee are (or during the period in which they
held and disposed of such interest, were) in compliance with all applicable
licensing requirements of the federal, state and local governments wherein the
Mortgage Property is located or originated;
(e) The execution and delivery of this Agreement, the
Promissory Note and the other documents contemplated hereby by Borrower and the
performance by Borrower of the obligations to be performed by it hereunder and
thereunder do not, and will not, result in a breach of or constitute a default
under any indenture
<PAGE>
or loan or credit agreement or any other agreement, lease or instrument to which
Borrower is a party or by which it or its properties may be bound or affected;
(f) This Agreement, the Promissory Note and the other
documents contemplated hereby constitute, when duly executed and delivered by
Borrower, the legal, valid and binding obligation of Borrower, enforceable
against Borrower according to their respective terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, receivership,
moratorium or similar laws affecting creditors' rights in general, including
equitable remedies;
(g) There are no actions, suits or proceedings pending or,
to the knowledge of Borrower, threatened against or affecting Borrower or the
properties of Borrower or the Collateral before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which, if determined adversely to Borrower, would have a material
adverse effect on the financial condition, properties or operations of Borrower;
(h) Borrower has no other credit facilities, including
other mortgage warehousing loan facilities, except as disclosed on Exhibit "G"
-----------
attached hereto;
(i) Borrower has made no other assignments or pledges of,
or granted security interests, in the Collateral;
(j) Borrower's "chief executive office", as defined in the
Uniform Commercial Code, is at its address set forth in Section 12.3 below;
(k) Borrower trades under no tradename or fictitious names
other than as disclosed or identified in the first paragraph of this Agreement;
and
(l) Borrower has no setoffs, defenses or counterclaims to
any of its obligations hereunder under the Promissory Note.
5.2. Representations and Warranties of the Borrower As to Each
---------------------------------------------------------
Mortgage Loan. It is understood and agreed by Borrower that as a material
- -------------
inducement to Lender to make each Advance, the Borrower represents and warrants
to the Lender as of each Advance Date with respect to each Mortgage Loan the
accuracy of each of the following:
(a) The Note is a "negotiable instrument" as defined in the
Uniform Commercial Code, the Borrower is a "holder-in-due-course" of each Note
as defined in the Uniform Commercial Code, the Borrower is the sole owner of the
Mortgage Loan and has the right to pledge, assign and transfer the Mortgage Loan
and its related Collateral to the Lender. The Note, Mortgage and other documents
executed by the Mortgagor relating to the Mortgage Loans were complete when so
executed, with all blanks and missing information inserted and, if applicable,
any completions after execution were authorized by the Mortgagor. The Borrower
has not sold, assigned or otherwise transferred any right or interest in or to
the Mortgage Loan or any of the Collateral and has not pledged the Mortgage Loan
or any of the Collateral as collateral for any loan or obligation of Borrower or
other purpose, except pursuant to this Agreement. The pledge of the Mortgage
Loan and Collateral by the Borrower to Lender validly pledges such Mortgage Loan
and Collateral to Lender free and clear of any pledges, liens, claims,
encumbrances, mortgages, charges, exceptions and/or security interests of any
third parties;
(b) Except as expressly disclosed to and agreed by the
Lender in writing prior to making the relevant Advance, the Mortgage Loan
conforms to: (i) the Underwriting Guidelines and the other applicable terms and
conditions of this Agreement; and (ii) the conditions of any written investor
approval advice which modifies or requires additional conditions (if
applicable);
<PAGE>
(c) All information set forth in the Request for Borrowing
and attached schedules provided to Lender is true and correct in all respects,
and all other information furnished to Lender by Borrower with respect to the
Mortgage Loan is true and correct;
(d) The Note and Mortgage and the other Essential Mortgage
File Documents are in every respect genuine, are the valid instrument they
purport on their face to be, are the legal, valid, binding and enforceable
obligation of the Mortgagor thereunder and not subject to any discount,
allowance, setoff, counterclaim, presently pending bankruptcy or other defense;
the Note, Mortgage and other Essential Mortgage File Documents are not forged or
have affixed thereto any unauthorized signature or have been entered into by any
persons without the required legal capacity; and no foreclosure (including any
non-judicial foreclosure) or any other legal action has been brought by the
Borrower or any senior lienholder in connection therewith;
(e) No instruments other than those delivered herewith to
Lender are required under applicable law to evidence the indebtedness
represented by the Mortgage Loan or to perfect the lien of the Mortgage;
(f) Except as has been disclosed to and agreed to by the
Lender in writing, there is no agreement with the Mortgagor regarding any
variation of the interest rate and schedules of payment (except as described in
the Note and Mortgage) or other terms and conditions of the Mortgage Loan, the
Mortgagor has not been released from liability on the Note, and the Mortgaged
Property has not been released from the Mortgage. If the Mortgage Loan is a
variable rate loan, the Borrower represents and warrants as of the Advance Date
that all applicable notices required by law or regulation have been provided to
the Mortgagor and that the right to future changes in the interest rate and
payment schedules has not been waived by the Borrower or any previous holder of
the Mortgage Loan;
(g) The Mortgage Loan is secured by a valid Mortgage, of
the agreed-upon priority, on real property, and such Mortgage has been properly
received by the appropriate public recording official to be filed, recorded or
otherwise perfected in due course in accordance with applicable law in the
appropriate jurisdiction;
(h) The origination, solicitation, documentation,
execution, delivery, closing, servicing, funding and other aspects of the
Mortgage Loan were not and are not in violations of any applicable federal or
state laws or regulations, including, without limitation, Fair Credit Reporting
Act and its Regulations, the Federal Truth-in-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Federal Real Estate
Settlement Procedures Act and Regulation X, the Federal Debt Collection
Practices Act, and any federal or state consumer protection and/or usury laws
and regulations. All disclosures for the Mortgage Loan required to be given to
Mortgagor with law, federal, state or local, were properly made by the Borrower,
or its predecessor in interest, when and as required by such federal, state and
local laws. At all times relevant, Borrower, or its predecessor in interest as
mortgagee, if any, maintained all necessary governmental permits, approvals and
licenses necessary to solicit, originate, document, close and fund the Mortgage
Loan;
(i) The Borrower, or the Closing Agent, holds a title
insurance policy or a marked-up title commitment, title insurance binder or
title certificate which is in full force and effect; which has an insurance
limit at least as great as the outstanding principal balance of the Mortgage
Loan; which names the Borrower, its successors and assigns, as the insured party
and which is issued by an Approved Title Underwriter that is qualified to do
business in the jurisdiction where the Mortgaged Property is located. Said
policy shall:
(i) Insure the lien of the Mortgage consistent with
the agreed-upon lien priority;
(ii) Insure the absence of any prior lien of taxes or
other assessments;
(iii) Disclose whether all taxes and other lienable
assessments due as of the date of the policy have been paid-in-full; and
(iv) Disclose all other matters to which the Mortgaged
Property is subject.
<PAGE>
(j) The Note and Mortgage contain customary, valid, legal
and enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization against the Mortgaged Property of
the benefits of the security created thereby;
(k) The proceeds of the Mortgage Loan have been fully
disbursed, or will be fully disbursed, in accordance with the terms of the
Mortgage Loan and applicable law within one (1) Business Day of the Advance
Date, and any and all requirements as to completion of on-site and off-site
improvements and disbursement of any escrow funds therefore have been complied
with or will be complied with prior to the disbursement of the Mortgage Loan
proceeds;
(l) There are no mechanic's lien or similar liens or claims
which have been or can be filed for work, labor or material affecting the
Mortgaged Property which are or may be liens prior to or equal with the lien
priority of the Mortgage and any senior mortgage(s);
(m) The Mortgaged Property is free of material damage and
waste and is in good repair and there is no proceeding pending or, to Borrower's
knowledge, threatened for the total or partial condemnation of the Mortgaged
Property;
(n) All matured obligations pursuant to the Note and
Mortgage have been paid or performed and the Borrower has not waived any
defaults, breach, violation or event of acceleration;
(o) The Borrower has no knowledge of any fact as to the
Mortgage Loan, the other Collateral or Mortgaged Property which it has failed to
disclose in writing to Lender which would materially and adversely affect the
value or marketability of the Mortgage Loans, the other Collateral or the
Mortgaged Property, as the case may be;
(p) The Borrower has no knowledge of any impediments to
title that adversely affect the value, use or marketability of the Mortgage Loan
or the Mortgaged Property;
(q) Where permitted or required by state law, the Borrower
has filed of record a request for notice of action by a senior lienholder under
a senior lien, and the Borrower has notified any senior lienholder in writing of
the existence of the Mortgage Loan and requested notification of any action to
be taken against the Borrower or Lender by the senior lienholder. The Borrower
shall, upon request of the Lender, cooperate in recording a new request for
action in favor of the Lender and in providing superior lienholders with written
requests for notification to the Lender of action against the Mortgagor;
(r) Where permitted or required by local state law, the
proper "Notice of Settlement" or other similar notice has been filed of record
putting third parties on notice of the closing of the Mortgage Loan;
(s) There is no default, breach, violation or event of
acceleration existing under any senior mortgage which, with notice, and the
expiration of any grace or cure period, constitutes a default, breach, violation
or event of acceleration;
(t) The Note and Mortgage contain provisions for the
acceleration of the payment of the unpaid principal balance of the Mortgage Loan
in the event the Mortgaged Property is sold without the prior consent of the
mortgagee thereunder;
(u) The real estate appraisals made in connection with the
Mortgage Loan have been performed in accordance with industry standards in the
appraising industry in the area where the appraised property is located;
(v) To the best of Borrower's knowledge, no hazardous or
toxic materials or wastes or products regulated by law or ordinance, asbestos or
asbestos products or materials, polychlorinated biphenyls, lead
<PAGE>
or urea formaldehyde insulation have ever been used or employed in the
construction, use or maintenance of the Mortgaged Property, or have ever been
stored, treated at or disposed of in, on or about the Mortgaged Property;
(w) To the best of Borrower's knowledge, there has not
occurred nor has any person or entity alleged that there has occurred, upon the
Mortgaged Property any spillage, leakage, discharge or release into the air,
soil or groundwater of any hazardous materials, contaminants or regulated
wastes;
(x) A hazard insurance policy covering the Mortgaged
Property in an amount not less than the amount of the Mortgage Loan, plus any
senior liens, is in full-force and is not scheduled to expire within forty-five
(45) days of the Advance Date;
(y) If the Mortgage Loan has not been or is not being
closed directly by an officer of Approved Title Underwriter, the Mortgage Loan
has been or will be closed under a valid and binding insured closing protection
letter, or other applicable protection letter, benefiting Lender from an
Approved Title Underwriter. However, if the issuance of such protection letters
are specifically prohibited by state law, the Closing Agent is covered for a
minimum of $500,000 per occurrence in fidelity coverage either through insurance
or a bond issued by an acceptable underwriter;
(z) The Note is the only original Note evidencing the
Mortgage Loan to which it relates and all other copies thereof have been marked
or stamped "COPY".
5.3. Survival. To induce Lender to provide each Advance, Borrower
--------
makes the representations and warranties set forth in Sections 5.1 and 5.2, each
and all of which shall: (i) survive the execution and delivery of this Agreement
and the making of each Advance; (ii) inure to the benefit of Lender, and its
successor and assigns; and (iii) be deemed to have been relied upon in making
each Advance hereunder regardless in each case of any investigation or review
Lender may have or shall hereafter make.
6. INTEREST, FEES AND OTHER PAYMENTS.
---------------------------------
6.1. Interest on Advances. Except as otherwise provided herein or in
--------------------
the Promissory Note, Borrower shall pay to Lender interest on all Advances
outstanding during each calendar month at the rate of 1.0% per annum in excess
of the Prime Rate ("Interest Rate"); provided, however, in the event any Advance
is not repaid on or before the Advance Repayment Date, the interest payable to
Lender on such Advance in accordance with this Section 6.1 shall instead be
calculated at the rate of 5.0% per annum in excess of the Prime Rate,
retroactive to the beginning of the monthly billing period for which interest on
the Advance is being invoiced ("Interest Penalty").
6.2. Computation of Interest. Interest shall be computed on the basis
-----------------------
of a 360-day year and the actual number of days elapsed in the period during
which it accrues. In computing the interest on each Advance, the date of making
the Advance shall be included and the date of repayment shall be excluded;
provided, if an Advance is repaid on the same day on which it is made, one day's
interest shall be paid on that Advance.
6.3. Fees. Borrower shall pay Lender the following fees:
----
(a) Funding Fee. For each Advance made under this
-----------
Agreement, Borrower shall pay Lender a transaction fee of $50.00.
(b) Shipping Fee. For each Advance that is repaid by the
------------
Borrower other than through the purchase of the related Mortgage Loan by Lender,
Borrower shall pay Lender a fee of $50.00.
(c) Late Fee. For each Advance that is not repaid by the
--------
Final Payment Date, Borrower shall pay a late fee ("Late Fee") of .50% of the
----------
outstanding amount of such Advance, and said Late Fee shall be reassessed on
each monthly anniversary of the Final Payment Date that the Advance remains
outstanding.
<PAGE>
(d) Audit Fee. Borrower shall pay Lender an Audit Fee of
---------
$1,200 annually, payable in twelve (12) equal installment of $100.
(e) Setup Fee. Borrower shall pay Lender a Setup Fee of
---------
$1,000. This fee is a one time charge payable at signing of contract.
6.4 Payment of Interest and Fees: Borrower shall pay Lender for all
----------------------------
interest and fees provided for under this Section 6 within ten (10) business
days of the date of Lender's monthly invoice, or as otherwise provided for in
the Promissory Note.
6.5. Automatic Waiver of Late Fees and Interest Penalty on Delinquent
----------------------------------------------------------------
Advances In Certain Limited Circumstances: Notwithstanding the terms of Section
- -----------------------------------------
6.1 pertaining to the Interest Penalty on delinquent Advances and of Section
6.3(c) pertaining to Late Fees, the Interest Penalty and Late Fees shall be
waived automatically for any Advance that is repaid within fifteen (15) calendar
days of the Advance Repayment Date, provided that the Final Payment Date has not
otherwise occurred under Sections 7.1(b), (c) or (d) below, and further provided
that during the calendar month for which such fees and interest are being
calculated, the total amount of Advances that were not repaid by the Advance
Repayment Date did not exceed twenty percent (20%) of the then outstanding
Commitment Amount.
7. REPAYMENT OF ADVANCES.
---------------------
7.1. Repayment of Advances. Borrower shall repay the full amount of
---------------------
each outstanding Advance made under this Agreement, without notice, demand,
offset or counterclaim, on the earlier to occur of (the "Final Payment Date"):
(a) The Advance Repayment Date for each Advance made under
this Agreement;
(b) The date the related Mortgage Loan is sold by the
Borrower;
(c) If the Mortgage Loan does not disburse by the date
required under the terms of the Note and applicable law, then that day which is
no later than the next succeeding Business Day after which the proceeds of such
Mortgage Loan should have disbursed to or on behalf of the Mortgagor; or
(d) One (1) Business Day after any event that results in
the cancellation, payoff or other liquidation of the related Mortgage Loan .
Such repayment shall be paid to Lender by wire transfer, to
Lender's account designated on Exhibit "I" attached hereto, in immediately
available funds, on the Final Payment Date.
8. SECURITY.
--------
8.1. Grant of Security Interest. To secure the repayment of Advances
--------------------------
and the performance of Borrower's obligations hereunder, under the Promissory
Note and under any other documents executed and delivered in connection
herewith, Borrower hereby assigns, transfers and pledges to Lender, and grants
Lender a security interest in, all of Borrower's right, title and interest,
powers, privileges and other benefits under, in and to the following (the
"Collateral") wherever located and whether now existing or hereafter acquired,
together with all of the proceeds thereof:
(a) All Mortgage Loans, Mortgages, Notes, the remaining
portion of the Essential Mortgage File Documents for all Mortgage Loans and any
other documents and property as shall be deposited with, or held by, or come
into the possession of Lender pursuant to this Agreement;
(b) All payments and prepayments of principal, interest,
penalties and other income due or to become due on all Mortgages Loans,
Mortgages and Notes referred to in Section 8.1(a) above; all the right, title
and
<PAGE>
interest of every nature whatsoever of Borrower in and to the Collateral
described in Sections 8.1(a) and (b) and all property used in connection
therewith (subject to Borrower's revocable license granted under this Agreement
to collect certain payments so long as no Event of Default shall have occurred
and be continuing) including, without limitation, the following:
(i) All rights, liens and security interests existing
with respect to, or as security for, all such Mortgage Loans;
(ii) All hazard insurance policies, title insurance
policies or, private mortgage insurance policies, condemnation proceeds with
respect to each such Mortgage Loan;
(iii) All insurance and guaranties provided by the FHA
or VA, as the case may be, with respect to each such Mortgage Loan; and
(iv) All private mortgage insurance policies with
respect to each such Mortgage Loan; and
(c) All files, surveys, certificates, correspondence,
appraisals, computer programs, tapes, discs, cards, accounting records and other
records and data of Borrower related to the Mortgage Loans.
8.2. Revocable License to Collect Debt Service Payments. So long as
--------------------------------------------------
no Event of Default shall have occurred and is continuing, Borrower shall have
the revocable license right to collect for its own account all regularly
--------- -------
scheduled payments of principal and interest, as well as penalties and other
amounts due or to become due on Mortgage Loans and pledged under this Agreement
(but not proceeds from the sale of the Mortgage Loans).
8.3. Lender Appointed Attorney-in-Fact. Borrower hereby appoints any
---------------------------------
officer, employee or other person so designated by Lender from time to time as
Borrower's attorney-in- fact, with full power of substitution, for the purpose
of taking such action, and executing such documents, in the name of Borrower or
otherwise, as Lender may deem necessary or advisable to accomplish the purposes
of this Agreement, which appointment is coupled with an interest and is
irrevocable. The foregoing power shall include the power to endorse Notes,
execute and deliver assignments of mortgages, endorse checks from Mortgagors in
payment of principal, interest or other sums due under the Mortgage Loans and to
effect dispositions and transfers of the Collateral.
9. COVENANTS OF BORROWER.
---------------------
9.1. So long as the Promissory Note remains unpaid or Borrower has
any obligations under this Agreement, unless Lender otherwise consents in
writing, Borrower agrees as follows:
(a) Use of Advances. Advances will only be used by Borrower
---------------
to originate Mortgage Loans which meet the Underwriting Guidelines and the other
terms and conditions of this Agreement.
(b) Encumbrances. Borrower shall not create, incur, assume
------------
or suffer to exist, any mortgage, pledge, lien or other encumbrance of any kind
upon, or any security interest in, any of the Mortgage Loans and other
Collateral.
(c) Compliance with Laws. Borrower shall comply in all
--------------------
material respects with all laws and regulations applicable to it in the
operation of its business, including without limitation, its solicitation,
origination, documentation, closing and servicing of the Mortgage Loans.
(d) Other Mortgage Warehouse Borrowing. Borrower shall not
----------------------------------
borrow on any other mortgage warehousing lending facility or other similar lines
of credit beyond those set forth on Exhibit "G" or as may hereafter be approved
-----------
in writing by Lender.
<PAGE>
(e) Reports of Default of Mortgage Loans. Borrower shall
------------------------------------
furnish to Lender as soon as possible, and in any event within two (2) Business
Days after Borrower becomes aware of, the occurrence of a default under any
Mortgage Loan for which an Advance has been made and remains outstanding.
(f) Additional Documents or Actions. If at any time Lender
-------------------------------
shall deem or shall be advised that any further instruments, documents or acts
or things are necessary or desirable to vest or confirm any right or remedy
herein granted or required, Borrower will execute or cause to be executed and
deliver any such instruments or documents and do or cause to be done any act or
thing deemed necessary or desirable by Lender for such purpose.
(g) Tradenames. Borrower shall not trade under any
----------
tradename or fictitious names except as otherwise stated in this Agreement.
(h) Updated Information. Upon the request of Lender,
-------------------
Borrower shall deliver to Lender updated good standing certificates/subsistence
certificates/qualifications to do business, licenses, permits and approvals
applicable to Borrower's business activities.
(i) Actions To Maintain Representations And Warranties As
-----------------------------------------------------
Accurate. Borrower shall promptly, and completely, take all actions necessary so
- --------
that the representations and warranties given by Borrower in Section 5 remain
true and correct at all times.
10. EVENTS OF DEFAULT AND REMEDIES.
------------------------------
10.1. Event of Default. The occurrence of any of the following
----------------
conditions or events shall constitute an "Event of Default" hereunder and under
the Promissory Note:
(a) Failure to Make Payments When Due. Failure to pay any
---------------------------------
sum due hereunder or under the Promissory Note when and as due, taking into
account any extension of an Advance Repayment Date granted by Lender; or
(b) Default in Other Agreements. The failure of Borrower to
---------------------------
pay any indebtedness for borrowed money due to any third person, or the
existence of any other "event of default" under any loan, security agreement,
mortgage or other agreement pertaining thereto binding Borrower, after the
expiration of any notice and/or grace periods permitted in such documents if the
effect of such failure, default or breach is to cause, or to permit the holder
or holders of that indebtedness (or a trustee on behalf of such holder or
holders) to cause indebtedness of Borrower in the aggregate amount of $10,000 or
more to become or be declared due prior to its stated maturity (upon the giving
or receiving of notice, lapse of time, both, or otherwise); or
(c) Breach of Warranty. Any representations or warranties
------------------
made herein by Borrower or any Guarantor, or in any statement or certificate at
any time given by Borrower to Lender pursuant hereto or in connection herewith,
shall be false or incomplete in any material respect on the date it is made; or
(d) Unsatisfactory Audit. The Borrower's annual financial
--------------------
statements are not given an unqualified opinion by a Certified Public
Accountant, or results of the Lender's audit of Borrower's books and records
reveal irregularities or material control weaknesses unacceptable to Lender; or
(e) Other Defaults. Borrower shall fail to perform or
--------------
comply with any of the terms contained in this Agreement, which default is not
otherwise an Event of Default provided for in this Section 10.1, by the date or
within the time period for performance specified in this Agreement. In all other
situations when a date or time period for performance is not specified in this
Agreement, and which is not otherwise an Event of Default provided for in this
Section 10.1, Borrower shall fail to perform or comply with such terms contained
in this Agreement and such failure to perform or comply has not been cured by
Borrower, or waived by Lender, within fifteen (15) days after Borrower's receipt
of a written notice of default from Lender; or
<PAGE>
(f) Bankruptcy; Appointment of Receiver, etc. The
----------------------------------------
adjudication of Borrower or any Guarantor as a bankrupt or insolvent, or the
entry of an Order for Relief against Borrower or any Guarantor or the entry of
an order appointing a receiver or trustee for Borrower or any Guarantor of any
of their respective properties or approving a petition seeking reorganization or
other similar relief under the bankruptcy or other similar laws of the United
States or any state or any other competent jurisdiction; or
(g) Voluntary Bankruptcy; Appointment of Receiver, etc. A
--------------------------------------------------
proceeding under any bankruptcy, reorganization, arrangement of debt,
insolvency, readjustment of debt or receivership law is filed by or against
Borrower or any Guarantor or Borrower or any Guarantor makes an assignment for
the benefit of creditors, or Borrower or any Guarantor takes any action to
authorize any of the foregoing; or
(h) Judgments and Attachments. The entry of a judgment for
-------------------------
the payment of money against Borrower or any Guarantor which, within ten (10)
days after such entry, shall not have been discharged or execution thereof
stayed pending appeal or shall not have been discharged within five (5) days
after the expiration of any such stay; or
(i) Dissolution; Liquidation. Borrower or any Guarantor
------------------------
voluntarily or involuntarily dissolves or is dissolved, terminates or is
terminated; or
(j) Suspension of Operations; Inability To pay Debts; Debt
------------------------------------------------------
Restructuring. The suspension of the operation of Borrower's present business,
- -------------
or Borrower becoming unable to meet its debts as they mature, or the admission
in writing by Borrower to such effect, or Borrower calling any meeting of all or
any material portion of its creditors for the purpose of debt restructure; or
(k) Seizure of Assets. All or any part of the Collateral or
-----------------
the assets of Borrower are attached, seized, subjected to a writ or distress
warrant, or levied upon, or come within the possession or control of any
receiver, trustee, custodian or assignee for the benefit of creditors; or
(l) Injunctions. Borrower is enjoined, restrained, or in
any way prevented by the order of any court or any administrative or regulatory
agency, the effect of which order restricts Borrower from conducting all or any
material part of its business; or
(m) Loss of Licenses. The loss, suspension, revocation or
----------------
failure to renew any license or permit now held or hereafter acquired by
Borrower, which loss, suspension, revocation or failure to renew might have a
material adverse effect on the business profits, assets or financial condition
of Borrower or makes the solicitation, documentation, closing or funding of
Mortgage Loans by Borrower illegal.
10.2. Remedies
--------
(a) Upon the occurrence of any Event of Default, the unpaid
principal amount of all outstanding Advances, and the accrued interest thereon,
and all fees and costs, payable or otherwise outstanding hereunder or under the
Promissory Note shall automatically become due and payable in full, without
notice, presentment, demand or other requirements of any kind, all of which are
hereby expressly waived by Borrower, and the obligation of Lender to make
Advances under this Agreement shall terminate.
(b) Upon the occurrence of any Event of Default, and in
addition to any other rights, remedies or privileges which are or may be
available to Lender under the Promissory Note and under any applicable rule or
law, Lender may exercise any and all rights and remedies available under the
Uniform Commercial Code, and Lender shall also have the following rights,
remedies and privileges:
(i) Lender may: (A) revoke Borrower's revocable license
to collect sums due under the Mortgage Loans and notify all Mortgagors and other
obligors of Collateral that the Collateral has been assigned to Lender and that
all payments thereon are to be made directly to Lender or to such other party as
may be designated by Lender; (B) settle, extend, modify, compromise or release,
in whole or in part, any amounts outstanding or to become due under the Notes
and Mortgages, as well as any other portion of the Collateral; (C)
<PAGE>
enforce payment and prosecute any action or proceeding with respect to any and
all Mortgage Loans; and (D) where any such Mortgagor is in default, foreclose
on, and enforce security interests in, granted pursuant to the Mortgage Loans by
any available judicial procedure or without judicial process and sell property
acquired as a result of any such foreclosure.
(ii) If notice is given of the public sale of any of
the Collateral, it is agreed that notice shall be satisfactorily given for all
purposes if such notice is published at least once in a newspaper of general
circular in the vicinity of Borrower and in the regional edition of THE WALL
STREET JOURNAL, not less than ten (10) Business Days prior to such sale. A sale
of the Collateral in accordance with such notice shall be deemed a disposal of
the Collateral in a commercially reasonable manner.
(iii) Take possession of all or any portion of the
Collateral that is not already in possession of Lender and Borrower agrees to
assemble and make available the Collateral to Lender, at a place designed by
Lender, which is reasonably convenient to Lender and Borrower.
(iv) Require Borrower to transfer to Lender all prepaid
interest, escrowed sums and other sums held by Borrower under any Mortgage
Loans.
(c) All remedies may be exercised cumulatively,
concurrently and in such order as Lender shall determine. Any failure on the
part of Lender to exercise or any delay in exercising any right or remedy
hereunder shall not operate as a waiver thereof, nor shall any single or partial
exercise by Lender of any right or remedy hereunder preclude any other exercise
thereof or the exercise of any other right.
10.3. Application of Proceeds. Any money collected by Lender pursuant
-----------------------
to this Section 10 shall be applied by Lender as follows, unless otherwise
required by provisions of applicable law:
(a) First, to the payment of all expenses incurred by
Lender under this Agreement or under the Promissory Note in enforcing its rights
hereunder or thereunder, including all costs and expenses of collection,
attorneys' fees, court costs, foreclosure expenses, and Collateral liquidation
costs;
(b) Next, to the payment of all interest and principal on
Advances payable under the Promissory Note or hereunder in such order and in
such amounts as Lender shall determine; and
(c) Next, if available, to Borrower.
11. INDEMNIFICATIONS.
----------------
11.1 Borrower Indemnification:
(a) Borrower hereby agrees to protect, indemnify, defend
and hold harmless Lender, its subsidiaries, affiliates, successors and assigns,
and all of their respective agents, employees, officers, shareholders and
directors (collectively the "Lender Indemnitees") from and against any and all
liabilities, costs, expenses, judgments, damages, losses, claims, demands,
offsets, defenses, counterclaims, actions, or proceedings, by whomsoever
asserted, arising from, connected with, or resulting from any Event of Default
or due to any act of Borrower or omission by Borrower where Borrower has a duty
to act; provided, however, that Borrower's obligation to indemnify pursuant to
this Section 11.1(a) shall not extend to any liability arising from the gross
negligence or willful misconduct of any Lender Indemnitee.
(b) If any legal proceeding shall be instituted, or any
claim asserted with respect to which a Lender Indemnitee may seek
indemnification from Borrower, the Lender Indemnitee shall have the right to be
represented by counsel of its choice and to defend against, negotiate, settle,
or otherwise deal with such proceeding or claim.
11.2 Lender Indemnification:
<PAGE>
(a) Lender hereby agrees to protect, indemnify, defend and
hold harmless Borrower, its subsidiaries, affiliates, successors and assigns,
and all of their respective agents, employees, officers, shareholders and
directors (collectively, the "Borrower Indemnitees") from and against any and
all liabilities, costs, expenses, judgments, damages, losses, claims, demands,
offsets, defenses, counterclaims, actions, or proceedings, by whomsoever
asserted, arising from, connected with, or resulting from any breach by Lender
of any agreement, covenant, representation, or warranty contained herein or any
act of Lender or omission by Lender where Lender has a duty to act; provided,
however, that Lender's obligation to indemnify pursuant to this Section 11.2(a)
shall not extend to any liability arising from the gross negligence or willful
misconduct of any Borrower Indemnitee.
(b) If any legal proceeding shall be instituted, or any
claim asserted with respect to which a Borrower Indemnitee may seek
indemnification from Lender, the Borrower Indemnitee shall have the right to be
represented by counsel of its choice and to defend against, negotiate, settle,
or otherwise deal with such proceeding or claim.
12. NOTICES.
-------
12.1. General Notices and Communications. All notices or other
----------------------------------
communications provided for herein (but specifically excluding Requests for
---------
Borrowing) shall be in writing to the addresses set forth in Section 12.3 below
(or to such other addresses as may hereafter be designated by the parties hereto
by prior written notice properly given hereunder) by Certified Mail, Return
Receipt Requested, postage prepaid. Such notices and other communications shall
be deemed effective when received by the recipient.
12.2. Requests for Borrowing. All Requests for Borrowing shall be
----------------------
sent to Lender at the telefacsimile number set forth in Section 12.3 below (or
to such other telefacsimile number as may hereafter be designated by Lender to
Borrower by a notice given under Section 12.1 above) by telefacsimile
transmission only. Requests for Borrowing given by telefacsimile transmissions
shall only be effective when received by Lender (against evidence of a full and
clear transmission and receipt) between 9:00 A.M. and 3:00 P.M. prevailing time
in Philadelphia, Pennsylvania on a Business Day; otherwise, the receipt of the
Request for Borrowing shall not be effective or deemed received by Lender until
the next succeeding Business Day.
12.3. Addressees, etc. The addressees and telefacsimile number of the
---------------
parties are:
Lender: Request for Borrowing:
------ ---------------------
Telefax No. (215) 347-3199
Attn: Warehouse Lending Group
All Other Notices:
-----------------
ContiMortgage Corporation
One ContiPark
338 South Warminster Road
Hatboro, PA 19040-3430
Attn: Mr. Joseph D. Meehan, Vice President
and Treasurer
Borrower: Mortgage Plus Equity and Loan Corp.
-------- 6851 Jericho Turnpike, Ste. 246
Syosset, NY 11791
Attn: Steven M. Latessa
13. ACCESS TO BORROWER DOCUMENTS AND INFORMATION.
--------------------------------------------
13.1. Borrower will maintain the books of record and account in which
full, correct and current entries in accordance with Generally Accepted
Accounting Principles (GAAP) will be made of all of its dealings, business and
affairs, and Borrower will deliver to Lender the following:
<PAGE>
(a) Annual Audited Financial Statements. As soon as
-----------------------------------
available, and in any event within ninety (90) days after the end of each fiscal
year of Borrower, Borrower shall provide to Lender its annual audited financial
statements, prepared in accordance with GAAP, for the preceding fiscal year of
Borrower, all in reasonable detail and including all supporting schedules and
comments; and
(b) Quarterly Statements. As soon as available, and in any
--------------------
event within forty five (45) days after the close of each fiscal quarter of
Borrower, Borrower shall provide to Lender its quarterly unaudited financial
statements, balance sheet, income statement and statement of retained earnings,
prepared in accordance with GAAP, for the preceding fiscal quarter and certified
as true and correct by the chief financial officer of Borrower.
Borrower shall provide to Lender, and its appointed agents,
employees, or designees access to documentation and information related to the
Collateral and the Borrower as Lender may request, including, but not limited
to, the Mortgage Loans and any and all accounting records and financial
statements of Borrower, such access being afforded without charge upon
reasonable request and during normal business hours at the offices of the
Borrower designated by it.
14. TERMINATION.
-----------
Lender may terminate its obligations under this Agreement in its sole
discretion, and for any or no reason whatsoever, upon thirty (30) days prior
written notice to the Borrower. Upon such termination, or upon a termination
under Section 10.2(a) above, Lender's obligation to make Advances under this
Agreement shall cease. In the case of termination due to an Event of Default,
all outstanding Advances, interest and fees under the Promissory Note and this
Agreement shall become immediately due and payable as provided for in Section
10.2(a) above. In the case of termination under this Section 14, and absent an
Event of Default, all outstanding Advances, to the accrued and unpaid interest
therein and fees, shall be due and payable as otherwise provided in this
Agreement and the Promissory Note.
15. MISCELLANEOUS PROVISIONS.
------------------------
15.1. Costs and Expenses. Except as explicitly provided herein,
------------------
Borrower and Lender shall each fulfill its obligations pursuant hereto at its
own cost and expense.
15.2. Agency; Joint Venture. Neither this Agreement nor any action
---------------------
taken pursuant hereto shall make either party an agent or representative of the
other or be deemed to create a partnership or joint venture between Borrower and
Lender.
15.3. Approval of Qualified Investors, Closing Agents, Third-Party
------------------------------------------------------------
Originators and Quality Control Procedures. Lender's approval, and any
- ------------------------------------------
subsequent revocation of an approval, of Qualified Investors, Closing Agents,
third-party Mortgage Loan originators and Borrower's quality control procedures
shall be at Lender's sole and absolute discretion.
15.4. Complete Agreement; Modification; Assignment. This Agreement,
--------------------------------------------
and the documents attached hereto or executed in connection herewith, constitute
the complete agreement between Borrower and Lender with respect to the subject
matter hereof and shall not be modified, altered, or amended except by a writing
signed by both Borrower and Lender. Borrower shall not assign or transfer any of
its rights or obligations hereunder to a third party except with the written
consent of Lender and any attempt to do so shall be null and void and of no
effect. Lender may, without notice to or the consent of Borrower or any
Guarantor, assign, sell, transfer, convey, pledge or encumber, to another
lender, or to any other third party, any or all of Lender's interest in the
Promissory Note, the Guaranty, the Collateral and any or all of the rights,
remedies and benefits of Lender hereunder or thereunder or under the other
documents executed and delivered in connection with this Agreement.
15.5. No Waiver. No undertaking, agreement, covenant, representation
---------
or warranty of Borrower contained herein shall be deemed to have been waived by
Lender, unless such waiver is by an instrument in writing signed by Lender. Any
such waiver by Lender shall not be deemed to be waiver of any other undertaking,
<PAGE>
agreement, covenant, representation or warranty. Lender's failure, at any time,
to require strict performance of any provision hereof shall not waive, affect or
diminish any right of Lender thereafter to demand strict compliance therewith or
performance thereof.
15.6. Parties. Subject to the terms of Section 15.4 above, this
-------
Agreement shall be binding upon, and inure to the benefit of, the successors and
assigns of Borrower and Lender.
15.7. Governing Law. This Agreement shall, in all respects, be
-------------
governed by, and construed in accordance with, the laws of the Commonwealth of
Pennsylvania applicable to contracts made and performed in such state without
regard to the conflict of laws provisions of such jurisdiction and the laws of
the United States of America.
15.8. Severability; Section Headings. Any invalidity of any provision
------------------------------
of Promissory Note or this Agreement shall not affect the validity of any other
provision hereof. The section headings contained herein shall be without
substantive meaning and shall not be deemed to be a part of this Agreement.
15.9. Construction. Wherever from the context it appears appropriate,
------------
each term stated in either the singular or plural shall include the singular and
plural, and pronouns stated in the masculine, feminine, or neuter gender shall
include the masculine, feminine, and the neuter. The words "herein," "hereof,"
"hereto," "hereby," and other words of similar import shall be deemed to refer
to this Agreement as a whole and not to any particular section, subsection, or
clause of this Agreement.
15.10. Litigation.
----------
(a) Borrower consents to the in personam jurisdiction of
the courts of the Commonwealth of Pennsylvania and the United States District
Court for the Eastern District of Pennsylvania in connection with any claim or
dispute arising under or in connection with this Agreement, the Promissory Note,
the Guarantee or any other instrument or document delivered hereunder. If any
action in connection with any such claim is commenced by Lender against Borrower
in any such court Borrower also agree that service or process may be made on
Borrower by certified or registered mail addressed to Borrower at its address
specified in Section 12(c) above.
(b) Borrower waives trial by jury and the right to
interpose any defense based on any statute of limitations or claim of laches in
any action by or against Borrower in connection with any claim or dispute
arising under or in connection with this Agreement, the Promissory Note, or the
Guarantee.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties intending to be legally bound hereby, as of the date
first written above.
ATTEST: CONTIMORTGAGE CORPORATION
________________________________ BY:_______________________________
Name: Name: Joseph D. Meehan
Title: Title: Vice President and Treasurer
ATTEST/WITNESS: MORTGAGE PLUS EQUITY AND LOAN CORP.
/s/ Cary Wolen By: /s/ Steven M. Latessa
- -------------------------------- -------------------------------
Name: Cary Wolen Name: Steven M. Latessa
Officers Title: Chief Operating Officer Officers Title: President/CEO
<PAGE>
FORM OF PROMISSORY NOTE
$5,000,000
Syosset, NY
March 20, 1998
FOR VALUE RECEIVED, Mortgage Plus Equity and Loan Corp., a
corporation, having its principal place of business at 6851 Jericho Turnpike,
Ste. 246, Syosset, NY 11791 ("Borrower"), hereby promises to pay to the order of
ContiMortgage Corporation ("Lender") the lesser of the principal sum of
$5,000,000 or the unpaid principal amount of all Advances made by Lender to
Borrower under the terms of that certain Mortgage Warehouse Loan and Security
Agreement dated as of March 20, 1998, among Borrower and Lender (as the same may
be extended and amended from time to time, the "Loan Agreement"), together with
interest on the unpaid balance thereof at the rates and at the times and in the
amounts and manner provided in the Loan Agreement.
This Note is issued pursuant to and entitled to the benefits of the
Loan Agreement and the security interests granted therein, to which reference is
hereby made, and the terms of which are hereby incorporated by reference, for a
more complete statement of the terms and conditions under which the Advances
evidenced hereby are made and are to be repaid. Capitalized terms used herein
without definition shall have the meanings set forth in the Loan Agreement.
Reference is made to the Loan Agreement for provisions as to payment, interest,
Collateral, defaults, remedies and acceleration. In the event any of the terms
of this Note are inconsistent with the terms of the Loan Agreement, the terms of
the Loan Agreement shall control.
All payments of principal and interest in respect of this Note shall
be made in lawful money of the United States of America, in immediately
available funds, at the office of Lender located at One ContiPark, 338 South
Warminster Road, Hatboro, PA 19040-3430, or at such other place as shall be
designated in writing for such purpose in accordance with the terms of the Loan
Agreement. Until notified in writing of the transfer of this Note, Borrower
shall be entitled to deem Lender, or such other person who has been so
identified by the transferor in writing to Borrower as the holder of this Note,
as the owner and holder of this Note.
Whenever any payment on this Note shall be stated to be due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
The Agreement and this Note shall be governed by, and shall be
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
Upon occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note shall become due and payable in full in the
manner, upon the conditions and with the effect provided in the Loan Agreement,
and the Lender shall have the rights, remedies and privileges set forth in the
Loan Agreement.
The terms of this Note are subject to amendment only in the manner
provided in the Loan Agreement.
No reference herein to the Loan Agreement, and no provision of this
Note or the Loan Agreement, shall alter or impair the obligation of Borrower,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
<PAGE>
Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note.
Borrower and endorsers of this Note hereby consent to renewals and extensions of
time.
From the occurrence of an Event of Default until final payment of all
sums evidenced hereby interest payable hereunder on the outstanding principal
balance and all other sums due hereunder or under the Loan Agreement shall bear
interest at the Interest Penalty rate set forth in Section 6.1 of the Loan
Agreement. Notwithstanding the provisions of any applicable law to the contrary,
the Interest Penalty rate shall apply to all sums evidenced hereby after an
Event of Default and also after entry of a judgment or judgments against
Borrower. Said judgment(s) shall bear interest at the Interest Penalty rate
until it is satisfied in full.
Borrower waives presentment for payment, protest and demand, notice
of protest, demand and dishonor and non-payment of this Note, and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of the payment of this Note, and agrees that its liability shall be
unconditional, without regard to any extension of time, renewal, waiver or
modification granted or consented to by Lender. No extension of the time for the
payment of this Note or any installment hereof made by agreement with any person
or entity now or hereafter liable for the payment of this Note shall operate to
release, discharge, modify, change or effect the original liability under this
Note, either in whole or in part, of any person or entity not a party to such
agreement. Lender shall not be deemed, by any act of omission or commission, to
have waived any of its rights or remedies hereunder unless such waiver is in
writing and signed by Lender, and then only to the extent specifically set forth
in writing. A waiver of one event shall not be construed as continuing or as a
bar to our waiver of any right or remedy to a subsequent event.
The use of the words "Borrower" and "Lender" shall be deemed to
include the successors and assigns of the party or parties, the use of any
gender shall include all genders, the singular number shall include the plural,
or the plural, the singular, as the context may require; and if there shall be
more than one Borrower or party constituting the Borrower, the obligation of
each shall be joint and several.
WITNESS/ATTEST: MORTGAGE PLUS EQUITY AND LOAN CORP.
/s/ Cary Wolen By: /s/ Steven M. Latessa
- ---------------------------------- ---------------------------------
Name: Cary Wolen Name: Steven M. Latessa
Officer's Title: Chief Operating Officer Officer's Title: President/CEO
<PAGE>
EXHIBIT 10.12
EXHIBIT "A"
PROMISSORY NOTE
5,000,000
Syosset, NY
March 20, 1998
FOR VALUE RECEIVED, Mortgage Plus Equity and Loan Corp., a
corporation, having its principal place of business at 6851 Jericho Turnpike,
Ste. 246 Syosset, NY 11791 ("Borrower"), hereby promises to pay to the order of
ContiMortgage Corporation ("Lender") the lesser of the principal sum of
$5,000,000 or the unpaid principal amount of all Advances made by Lender to
Borrower under the terms of that certain Mortgage Warehouse Loan and Security
Agreement dated as of March 20, 1998, among Borrower and Lender (as the same may
be extended and amended from time to time, the "Loan Agreement"), together with
interest on the unpaid balance thereof at the rates and at the times and in the
amounts and manner provided in the Loan Agreement.
This Note is issued pursuant to and entitled to the benefits of the
Loan Agreement and the security interests granted therein, to which reference is
hereby made, and the terms of which are hereby incorporated by reference, for a
more complete statement of the terms and conditions under which the Advances
evidenced hereby are made and are to be repaid. Capitalized terms used herein
without definition shall have the meanings set forth in the Loan Agreement.
Reference is made to the Loan Agreement for provisions as to payment, interest,
Collateral, defaults, remedies and acceleration. In the event any of the terms
of this Note are inconsistent with the terms of the Loan Agreement, the terms of
the Loan Agreement shall control.
All payments of principal and interest in respect of this Note shall
be made in lawful money of the United States of America, in immediately
available funds, at the office of Lender located at One ContiPark, 338 South
Warminster Road, Hatboro, PA 19040-3430, or at such other place as shall be
designated in writing for such purpose in accordance with the terms of the Loan
Agreement. Until notified in writing of the transfer of this Note, Borrower
shall be entitled to deem Lender, or such other person who has been so
identified by the transferor in writing to Borrower as the holder of this Note,
as the owner and holder of this Note.
Whenever any payment on this Note shall be stated to be due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
The Agreement and this Note shall be governed by, and shall be
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
Upon occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note shall become due and payable in full in the
manner, upon the conditions and with the effect provided in the Loan Agreement,
and the Lender shall have the rights, remedies and privileges set forth in the
Loan Agreement.
The terms of this Note are subject to amendment only in the manner
provided in the Loan Agreement.
No reference herein to the Loan Agreement, and no provision of this
Note or the Loan Agreement, shall alter or impair the obligation of Borrower,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
<PAGE>
Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note.
Borrower and endorsers of this Note hereby consent to renewals and extensions of
time.
From the occurrence of an Event of Default until final payment of all
sums evidenced hereby interest payable hereunder on the outstanding principal
balance and all other sums due hereunder or under the Loan Agreement shall bear
interest at the Interest Penalty rate set forth in Section 6.1 of the Loan
Agreement. Notwithstanding the provisions of any applicable law to the contrary,
the Interest Penalty rate shall apply to all sums evidenced hereby after an
Event of Default and also after entry of a judgment or judgments against
Borrower. Said judgment(s) shall bear interest at the Interest Penalty rate
until it is satisfied in full.
Borrower waives presentment for payment, protest and demand, notice
of protest, demand and dishonor and non-payment of this Note, and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of the payment of this Note, and agrees that its liability shall be
unconditional, without regard to any extension of time, renewal, waiver or
modification granted or consented to by Lender. No extension of the time for the
payment of this Note or any installment hereof made by agreement with any person
or entity now or hereafter liable for the payment of this Note shall operate to
release, discharge, modify, change or effect the original liability under this
Note, either in whole or in part, of any person or entity not a party to such
agreement. Lender shall not be deemed, by any act of omission or commission, to
have waived any of its rights or remedies hereunder unless such waiver is in
writing and signed by Lender, and then only to the extent specifically set forth
in writing. A waiver of one event shall not be construed as continuing or as a
bar to our waiver of any right or remedy to a subsequent event.
The use of the words "Borrower" and "Lender" shall be deemed to
include the successors and assigns of the party or parties, the use of any
gender shall include all genders, the singular number shall include the plural,
or the plural, the singular, as the context may require; and if there shall be
more than one Borrower or party constituting the Borrower, the obligation of
each shall be joint and several.
WITNESS/ATTEST: MORTGAGE PLUS EQUITY AND LOAN CORP.
/s/ Cary Wolen By: /s/ Steven M. Latessa
- --------------------------------- ---------------------------------
Name: Cary Wolen Name: Steven M. Latessa
Officer's Title: Chief Operating Officer Officer's Title: President/CEO
<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK :
------------------
: SS.
COUNTY OF NASSAU :
------------------
On this 20th day of March, 1998, before me, a Notary Public,
personally appeared Steven M. Latessa who acknowledged himself/herself to be the
President of Mortgage Plus, executed the foregoing instrument for the purposes
therein contained by signing the name of the _____________ by himself/herself as
such __________________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Corinne M. Foster
---------------------
Notary Public
CORINNE M. FOSTER
NOTARY PUBLIC STATE OF NEW YORK
NO.01FO6023296
QUALIFIED IN NASSAU COUNTY
COMMISSION EXPIRES JANUARY 31, 2000
<PAGE>
EXHIBIT 10.12
EXHIBIT "B"
ESSENTIAL MORTGAGE FILE DOCUMENTS
---------------------------------
1. Original Mortgage Note.
2. Executed endorsement in blank of the Note.
3. Loan Application.
4. Verification of Employment and Income as expressed in the
"Product Descriptions."
5. Credit Reports as expressed in the "Product Descriptions."
6. Appraisal Report.
7. All necessary and legally required disclosure Statement,
Federal and State.
8. Rescission Documents, if applicable.
9. Fair Lending and Equal Credit Notices, Federal and State.
10. Note and Disclosure Riders, when applicable.
11. Certified Copy of the Mortgage or Deed of Trust.
12. Original, recordable Assignment of the Mortgage.
13. Preliminary Title Report and evidence that an ALTA
policy has been ordered.
14. Evidence of Hazard Insurance and documentation
showing proper coverage and loss payable
endorsement has been ordered.
15. Evidence of Flood Insurance with loss payable
endorsement in effect or ordered. (Only if the
Subject Property is in Flood Zone "A".)
16. Authorization to Release Information.
17. Balloon Rider, if applicable.
<PAGE>
EXHIBIT 10.12
EXHIBIT "C"
FORM OF REQUEST FOR BORROWING
-----------------------------
Telefax No. __________________
ContiMortgage Corporation
One ContiPark
338 South Warminster Road
Hatboro, PA 19040-3430
Attention: ___________________
Ladies and Gentlemen:
This letter constitutes our request to borrow on [Date] , $ [amount]
under the terms of the Mortgage Warehouse Loan and Security Agreement dated as
of ____, 19__ (the "Loan Agreement") among ContiMortgage Corporation ("Lender")
and [ Borrower ]. Such borrowing shall bear interest at the Interest Rate as
set forth in the Loan Agreement.
The proceeds of the borrowing are to be disbursed by Lender for each
designated Mortgage Loan in accordance with the applicable terms of the Loan
Agreement.
The undersigned officer of Borrower certifies that: (i) the representations and
warranties of Borrower contained in the Loan Agreement are true, correct and
complete in all material respects on and as of the date hereof to the same
extent as though made on and as of the date hereof; (ii) no Event of Default has
occurred and is continuing under the Loan Agreement or will result from the
proposed borrowing; (iii) the principal amount of the proposed borrowing, when
added to the principal amount of the Advances outstanding as of this date, does
not exceed Commitment Amount set forth in the Loan Agreement; and (iv) Borrower
has performed in all material respects all agreements and satisfied all
conditions under the Loan Agreement required to be performed by it on or before
the date hereof. After application of the proceeds of the Borrowing requested
hereunder, the amount outstanding under the Loan Agreement will be $ _________.
The Mortgage Loans, which are being funded by this request, are as set forth in
Schedule 1 hereto.
Any capitalized terms used herein shall the meanings set forth in the Agreement.
Very truly yours,
[BORROWER]
BY:_______________________________
NAME:_____________________________
OFFICER'S TITLE:__________________
<PAGE>
SCHEDULE 1 TO REQUEST FOR BORROWING
SCHEDULE OF MORTGAGE LOANS
Attached
<PAGE>
EXHIBIT 10.12
EXHIBIT "D"
UNDERWRITING GUIDELINES
-----------------------
Underwriting Guidelines attached:
. ContiMortgage Underwriting Guidelines
a) General Underwriting Guidelines - 17 Pages
. Other acceptable Underwriting Guidelines - NOT APPLICABLE
<PAGE>
EXHIBIT 10.12
EXHIBIT "E"
FORM OF CLOSING AGENT INSTRUCTION LETTER
----------------------------------------
Re: _____________________________
[Account Name and Number]
_____________________________
[description of loan]
[Name/Address of Closing Agent]
- ---------------------------------
- ---------------------------------
- ---------------------------------
Dear _______________:
This Letter Agreement shall set forth the responsibilities of [Name of Closing
Agent], as agent for closing purposes of [Name of Borrower] in connection with
the funding of certain [Borrower's] loans.
With regard to the above described mortgage loan, ContiMortgage Corporation
("CMC") will wire transfer to your account ______% of the mortgage loan, with
[Borrower] supplying you the remainder of the funds necessary to fund the
subject mortgage loan. You will oversee disbursement of the mortgage loan
proceeds and will take control of the documentation executed at the mortgage
loan closing, ensuring that only one set of original documents is signed by the
mortgagor and that any duplicates are clearly labeled "Copy." YOU WILL FORWARD
THE ORIGINAL DOCUMENTATION VIA OVERNIGHT MAIL DIRECTLY TO CMC, TO BE RECEIVED BY
CMC NO LATER THAN ONE (1) BUSINESS DAY AFTER THE CLOSING. Simultaneous with the
loan closing, you will transmit via facsimile to CMC a copy of this Closing
Agent Instruction Letter signed by an officer, a copy of the original fully
executed note endorsed in blank, a copy of the original mortgage marked by you
as a true and correct copy, a copy of the executed assignment of mortgage and
marked-up title commitment. In the event the loan does not disburse, you will
notify CMC immediately, and you will return the funds by wire transfer to CMC
within twenty-four (24) hours unless instructed in writing to do otherwise by
CMC.
In the event that our funds are mishandled or misappropriated, CMC will look to
you and or the title company insuring the closing for protection and
reimbursement. You will also be liable to CMC for the mishandling or
misappropriation of the original loan documents.
By executing and returning this Closing Agent Instruction Letter to CMC, as
required below, you agree to be the "bailee" of CMC and will hold and possess
the note, mortgage and other documents executed in connection with the loan in
trust for and on behalf of CMC as CMC has an assignment of, and security
interest in the Loan and its documents.
The mailing address for CMC is:
ContiMortgage Corporation
One ContiPark
338 South Warminster Road
Hatboro, PA 19040
Attn: Warehouse Lending Group
Telefax: (215) 347-3199
ACCEPTED AND AGREED, WITH THE INTENT TO BE LEGALLY BOUND, THIS DAY OF
--------
, 19__.
- -----------
[Name of Closing Agent]
By: ______________________________
Name: ____________________________
Officer's Title:
<PAGE>
EXHIBIT 10.12
EXHIBIT "F"
FORM OF GUARANTEE AGREEMENT
THIS GUARANTEE made this 20th day of March, 1998 by and between
Steven M. Latessa, Cary Wolen, Anthony Saffiotti and Jon Blasi (hereinafter
called the "Guarantor(s)") and ContiMortgage Corporation, a Corporation having
its principal place of business at One ContiPark, 338 South Warminster Road,
Hatboro, PA 19040-3430 (hereinafter called the "Company").
WITNESSETH:
----------
WHEREAS, the Company and Mortgage Plus Equity and Loan Corp.
(hereinafter referred to as "Borrower") propose to enter into a Mortgage
Warehouse Loan and Security Agreement as of the date hereof (as the same may be
extended and amended from time to time, the "Loan Agreement"), pursuant to which
the Company will provide a revolving mortgage warehouse loan facility to
Borrower for advances of funds to be used by Borrower to originate or purchase
certain Mortgage Loans, and
WHEREAS, the Borrower will issue to the Company a promissory note (as
the same may be extended and amended from time to time, the "Promissory Note")
to evidence the obligation of Borrower to repay advances, and the interest
accrued thereon, under the warehouse facility in accordance with the terms of
the Loan Agreement, and
WHEREAS, the Guarantors are affiliated with or related to the
Borrower and are desirous of having the Company enter into the Loan Agreement
with Borrower and offers to guarantee the obligations of Borrower, and
WHEREAS, the Company is willing to accept Promissory Note and enter
into the Loan Agreement only if the Guarantors, jointly and severally, guarantee
the full, prompt, faithful and complete performance of the terms and conditions
thereof.
NOW, THEREFORE, in consideration of the sum of $1.00 paid by the
Company to the Guarantors, the receipt and sufficiency of which is hereby
acknowledged, the execution of said Agreement by the Company, and intending to
be legally bound hereby, the Guarantors do hereby agree as follows:
1. The Guarantors do, jointly and severally, hereby
absolutely and unconditionally guarantee to Lender the full, prompt, faithful
and complete performance and satisfaction by Borrower when due of the
obligations of Borrower under the Promissory Note as well as all of the terms,
covenants, warranties and conditions of the Loan Agreement, including all sums
that may become due to the Company from Borrower pursuant to the terms and
conditions of Promissory Note and the Loan Agreement.
2. This Guarantee is not limited to any particular period
of time but shall continue, and shall not be revoked, until all of the terms,
covenants, warranties and conditions of Promissory Note and the Loan Agreement
have been fully and completely performed by Borrower or otherwise discharged by
the Company in writing, and the Guarantors shall not be released of any
obligation or liability hereunder so long as there is any claim of the Company
against the Borrower arising out of Promissory Note or the Loan Agreement that
has not been settled or discharged in full in writing.
3. Payment by Guarantors is due upon demand by the Company
and is payable in immediately available lawful Funds of the United States of
America.
4. The Guarantors hereby waive notice of acceptance of this
Guarantee.
<PAGE>
5. This Guarantee shall be enforceable by the Company
without regard to, and without the necessity of the Company resorting to, any
property or property interest therein held by Company at any time or from time
to time as security for the performance of any of the terms, covenants,
warranties and/or conditions of Promissory Note or the Loan Agreement guaranteed
hereby, without regard to and without necessity for resorting to Borrower or any
other guarantors for the full, prompt and complete performance by Borrower of
all the terms, covenants, warranties, and conditions of Promissory Note and the
Loan Agreement.
6. Guarantors unconditionally consent to, and waive as a
defense to liability hereunder, each of the following: (a) any waiver, inaction,
delay or lack of diligence by Company in enforcing its rights against Borrower,
any other guarantor of the obligations of Borrower, or in any property, or the
unenforceability of any such rights, including any failure to perfect, protect
or preserve any lien or security interest which may be intended directly or
indirectly to secure any of the obligations of Borrower, and the absence of
notice thereof to any Guarantors, (b) any action, and the absence of notice
thereof to any Guarantors, taken by Company with respect to any of the
obligations of Borrower, including any release, subordination or substitution of
any collateral or release, termination, compromise, modification or amendment of
any instrument executed by or applicable to Borrower or of any claim, right or
remedy against any Borrower or any property, (c) any impairment of Guarantors
right to reimbursement by way of subrogation, indemnification or contribution,
(d) any other action taken or omitted by Company in good faith with respect to
the obligations of Borrower, (e) the absence or inadequacy of any formalities of
every kind in connection with enforcement of the obligations of Borrower,
including presentment, demand, notice and protest, (f) the waiver of any rights
of Company under or any action taken or omitted by Company with respect to any
other guaranty of the obligations of Borrower, and (g) all defenses arising out
of suretyship. Without limiting the generality of the foregoing, each Guarantors
hereby (a) waive all notices of the present existence or future incurrence of
obligations of Borrower, the amount thereof, terms and conditions thereof, and
any default thereon, and (b) waive all right to stay of execution and exemption
of property in any action to enforce the each Guarantor's liability hereunder.
7. Guarantors agree that there shall be no requirement that
Company document its acceptance of this Guarantee, evidence its reliance
thereon, or that Company take any action against any person or any property
prior to taking action against any Guarantors. Guarantors further agree that
Company's rights and remedies hereunder shall not be impaired or subject to any
stay, suspension or other delay as a result of Borrower's, or other guarantor's
insolvency, or as a result of any proceeding applicable to Borrower, other
guarantor or their respective property under any bankruptcy or insolvency law.
Each Guarantors also agree that payments and other reductions on the obligations
of Borrower may be applied to such of the obligations of Borrower and in such
order as Company may elect.
8. Guarantors will not exercise any rights with respect to
Company or Borrower related to or acquired in connection with or as a result of
its making of this Guarantee which it may acquire by way of subrogation,
indemnification or contribution, by reason of payment made by it hereunder or
otherwise, until after the date on which all of the obligations of Borrower
shall have been satisfied in full. Until such time any such rights against the
Borrower shall be fully subordinate in lien and payment to any claim in
connection with the obligations of Borrower which Company now or hereafter has
against the Borrower.
9. The provisions of this Guarantee are cumulative and
concurrent with Company's rights and remedies against Guarantors and Borrower.
If Company holds any other guaranty or surety agreement applicable to any of the
obligations of Borrower, the liability of each Guarantors hereunder shall be
joint and several with each party obligated on such other guaranty or surety
agreement, unless otherwise agreed by Company in writing.
10. Guarantors represent and warrant that this Guarantee
was not given for a "consumer credit transaction" (a credit transaction in which
the party to whom credit is offered or extended is a natural person and this
money is primarily for personal, family or household purposes). Guarantors
represent and warrant that the representations and warranties made in Section 5
of the Loan Agreement applicable to the Guarantors are true and correct.
<PAGE>
11. No amendment of any provision of this Guarantee shall
be effective unless it is in writing and signed by each Guarantors and Company,
and no waiver of any provisions of this Guaranty, and no waiver or consent to
any departure by the Guarantors therefrom, shall be effective unless it is in
writing and signed by Company, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
12. Any provision of this Guarantee which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
13. The obligations of Guarantors hereunder, if more than
one, shall be joint and several and shall not be subject to any counterclaim,
setoff, deduction or defense based upon any related or unrelated claim which
Guarantors may now or hereafter have against Company or Borrower, except payment
of the obligations of Borrower, and shall not be affected by any change in
Borrower's legal status or ownership or by any change in corporate, partnership
or other organizational structure applicable to Borrower.
14. This Guarantee: (i) shall be binding upon the
Guarantors, their heirs, personal representatives, successors and assigns; (ii)
shall inure to the benefit of the Company, its successors and assigns; and (iii)
shall be governed by and construed and in accordance with the laws of the
Commonwealth of Pennsylvania and all judicial proceedings among the parties to
this guarantee agreement shall be brought only in a court of competent
jurisdiction in the Commonwealth of Pennsylvania.
15. Guarantors hereby represent and warrant to the Company
the truth and accuracy of each of the following:
(a) The Guarantors are adults and legally competent;
(b) The execution and delivery of this Guarantee by
Guarantors and the performance hereunder does not, and will not, violate any
provision of any law, rule, regulation, agreement, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Guarantors;
(c) The execution and delivery of this Guarantee by
Guarantors and the performance by Guarantors of the obligations to be performed
hereunder do not, and will not, result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which Guarantors are a party or by which their properties may be
bound or affected;
(d) This Guarantee, when duly executed and delivered by
Guarantors, constitutes the legal, valid and binding obligation of Guarantors,
enforceable against Guarantors according to its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or similar laws affecting creditors' rights in general,
including equitable remedies;
(e) There are no actions, suits or proceedings pending
or, to the knowledge of Guarantors, threatened against or affecting Guarantors
or the properties of Guarantors before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to Guarantors, would have a material adverse
effect on the financial condition, properties or operations of Guarantors; and
(f) Guarantors have no setoffs, defenses or
counterclaims to any of their obligations hereunder under this Guarantee.
16. Consent To Jurisdiction And Venue. In any legal
---------------------------------
proceeding involving, directly or indirectly, any matter arising out of or
related to this Guarantee or the relationship evidenced hereby, Guarantors
hereby irrevocably submit to the in personam jurisdiction of Courts of the
Commonwealth of Pennsylvania and the Federal District Court for the Eastern
District of Pennsylvania and agrees not to raise any objection to such
<PAGE>
jurisdiction or to the laying or maintaining of the venue of any such proceeding
in such county. Guarantors agree that service or process in any such proceeding
may be duly effected upon Guarantors by mailing a copy thereof, by certified or
registered mail, processed to Guarantors at the address noted below.
WAIVER OF JURY TRIAL. GUARANTORS HEREBY WAIVE TRIAL BY JURY AND THE
--------------------
RIGHT TO INTERPOSE ANY DEFENSE BASED ON ANY STATUTE OF LIMITATIONS OR CLAIM OF
LACHES IN ANY ACTION BY OR AGAINST GUARANTORS IN ANY WAY ARISING OUT OF OR
RELATED TO THIS GUARANTEE OR THE RELATIONSHIP EVIDENCED HEREBY.
IN WITNESS WHEREOF, the undersigned have executed and delivered the
Guarantee the day and year first above written.
WITNESS: INDIVIDUAL GUARANTORS
/s/ Donna M. Celeste By: /s/ Steven M. Latessa
- -------------------------------- --------------------------
Name: Steven M. Latessa
In his or her individual capacity
Address of Guarantors: 83 Bayberry Lane
-----------------------
Smithtown, NY 11787
-----------------------
WITNESS: INDIVIDUAL GUARANTORS
/s/ Donna M. Celeste By: /s/ Cary Wolen
- -------------------------------- --------------------------
Name: Cary Wolen
In his or her individual capacity
Address of Guarantors: 49 Irving Drive
-----------------------
Woodbury, NY 11797
-----------------------
WITNESS: INDIVIDUAL GUARANTORS
/s/ Susan B. Kennedy By: /s/ Jon Blasi
- -------------------------------- --------------------------
Name: Jon Blasi
In his or her individual capacity
Address of Guarantors: 3 Bonton Dr.
-----------------------
West Orange, NJ 07052
-----------------------
<PAGE>
GUARANTEE AGREEMENT
-------------------
THIS GUARANTEE made this 20th day of March, 1998 by and between
Steven M. Latessa, Cary Wolen, Anthony Saffiotti and Jon Blasi (hereinafter
called the "Guarantor") and ContiMortgage Corporation, a Corporation having its
principal place of business at One ContiPark, 338 South Warminster Road,
Hatboro, PA 19040-3430 (hereinafter called the "Company").
WITNESSETH:
WHEREAS, the Company and Mortgage Plus Equity and Loan Corp.
(hereinafter referred to as "Borrower") propose to enter into a Mortgage
Warehouse Loan and Security Agreement as of the date hereof (as the same may be
extended and amended from time to time, the "Loan Agreement"), pursuant to which
the Company will provide a revolving mortgage warehouse loan facility to
Borrower for advances of funds to be used by Borrower to originate or purchase
certain Mortgage Loans, and
WHEREAS, the Borrower will issue to the Company a promissory note (as
the same may be extended and amended from time to time, the "Promissory Note")
to evidence the obligation of Borrower to repay advances, and the interest
accrued thereon, under the warehouse facility in accordance with the terms of
the Loan Agreement, and
WHEREAS, the Guarantors are affiliated with or related to the
Borrower and are desirous of having the Company enter into the Loan Agreement
with Borrower and offers to guarantee the obligations of Borrower, and
WHEREAS, the Company is willing to accept Promissory Note and enter
into the Loan Agreement only if the Guarantors, jointly and severally, guarantee
the full, prompt, faithful and complete performance of the terms and conditions
thereof.
NOW, THEREFORE, in consideration of the sum of $1.00 paid by the
Company to the Guarantors, the receipt and sufficiency of which is hereby
acknowledged, the execution of said Agreement by the Company, and intending to
be legally bound hereby, the Guarantors do hereby agree as follows:
1. The Guarantors do, jointly and severally, hereby
absolutely and unconditionally guarantee to Lender the full, prompt, faithful
and complete performance and satisfaction by Borrower when due of the
obligations of Borrower under the Promissory Note as well as all of the terms,
covenants, warranties and conditions of the Loan Agreement, including all sums
that may become due to the Company from Borrower pursuant to the terms and
conditions of Promissory Note and the Loan Agreement.
2. This Guarantee is not limited to any particular period
of time but shall continue, and shall not be revoked, until all of the terms,
covenants, warranties and conditions of Promissory Note and the Loan Agreement
have been fully and completely performed by Borrower or otherwise discharged by
the Company in writing, and the Guarantors shall not be released of any
obligation or liability hereunder so long as there is any claim of the Company
against the Borrower arising out of Promissory Note or the Loan Agreement that
has not been settled or discharged in full in writing.
3. Payment by Guarantors is due upon demand by the Company
and is payable in immediately available lawful Funds of the United States of
America.
4. The Guarantors hereby waive notice of acceptance of this
Guarantee.
<PAGE>
5. This Guarantee shall be enforceable by the Company
without regard to, and without the necessity of the Company resorting to, any
property or property interest therein held by Company at any time or from time
to time as security for the performance of any of the terms, covenants,
warranties and/or conditions of Promissory Note or the Loan Agreement guaranteed
hereby, without regard to and without necessity for resorting to Borrower or any
other guarantors for the full, prompt and complete performance by Borrower of
all the terms, covenants, warranties, and conditions of Promissory Note and the
Loan Agreement.
6. Guarantors unconditionally consent to, and waive as a
defense to liability hereunder, each of the following: (a) any waiver, inaction,
delay or lack of diligence by Company in enforcing its rights against Borrower,
any other guarantor of the obligations of Borrower, or in any property, or the
unenforceability of any such rights, including any failure to perfect, protect
or preserve any lien or security interest which may be intended directly or
indirectly to secure any of the obligations of Borrower, and the absence of
notice thereof to any Guarantors, (b) any action, and the absence of notice
thereof to any Guarantors, taken by Company with respect to any of the
obligations of Borrower, including any release, subordination or substitution of
any collateral or release, termination, compromise, modification or amendment of
any instrument executed by or applicable to Borrower or of any claim, right or
remedy against any Borrower or any property, (c) any impairment of Guarantors
right to reimbursement by way of subrogation, indemnification or contribution,
(d) any other action taken or omitted by Company in good faith with respect to
the obligations of Borrower, (e) the absence or inadequacy of any formalities of
every kind in connection with enforcement of the obligations of Borrower,
including presentment, demand, notice and protest, (f) the waiver of any rights
of Company under or any action taken or omitted by Company with respect to any
other guaranty of the obligations of Borrower, and (g) all defenses arising out
of suretyship. Without limiting the generality of the foregoing, each Guarantors
hereby (a) waive all notices of the present existence or future incurrence of
obligations of Borrower, the amount thereof, terms and conditions thereof, and
any default thereon, and (b) waive all right to stay of execution and exemption
of property in any action to enforce the each Guarantors's liability hereunder.
7. Guarantors agree that there shall be no requirement that
Company document its acceptance of this Guarantee, evidence its reliance
thereon, or that Company take any action against any person or any property
prior to taking action against any Guarantors. Guarantors further agree that
Company's rights and remedies hereunder shall not be impaired or subject to any
stay, suspension or other delay as a result of Borrower's, or other guarantor's
insolvency, or as a result of any proceeding applicable to Borrower, other
guarantor or their respective property under any bankruptcy or insolvency law.
Each Guarantors also agree that payments and other reductions on the obligations
of Borrower may be applied to such of the obligations of Borrower and in such
order as Company may elect.
8. Guarantors will not exercise any rights with respect to
Company or Borrower related to or acquired in connection with or as a result of
its making of this Guarantee which it may acquire by way of subrogation,
indemnification or contribution, by reason of payment made by it hereunder or
otherwise, until after the date on which all of the obligations of Borrower
shall have been satisfied in full. Until such time any such rights against the
Borrower shall be fully subordinate in lien and payment to any claim in
connection with the obligations of Borrower which Company now or hereafter has
against the Borrower.
9. The provisions of this Guarantee are cumulative and
concurrent with Company's rights and remedies against Guarantors and Borrower.
If Company holds any other guaranty or surety agreement applicable to any of the
obligations of Borrower, the liability of each Guarantors hereunder shall be
joint and several with each party obligated on such other guaranty or surety
agreement, unless otherwise agreed by Company in writing.
10. Guarantors represent and warrant that this Guarantee
was not given for a "consumer credit transaction" (a credit transaction in which
the party to whom credit is offered or extended is a natural person and this
money is primarily for personal, family or household purposes). Guarantors
represent and warrant that the representations and warranties made in Section 5
of the Loan Agreement applicable to the Guarantors are true and correct.
<PAGE>
11. No amendment of any provision of this Guarantee shall
be effective unless it is in writing and signed by each Guarantors and Company,
and no waiver of any provisions of this Guaranty, and no waiver or consent to
any departure by the Guarantors therefrom, shall be effective unless it is in
writing and signed by Company, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
12. Any provision of this Guarantee which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
13. The obligations of Guarantors hereunder, if more than
one, shall be joint and several and shall not be subject to any counterclaim,
setoff, deduction or defense based upon any related or unrelated claim which
Guarantors may now or hereafter have against Company or Borrower, except payment
of the obligations of Borrower, and shall not be affected by any change in
Borrower's legal status or ownership or by any change in corporate, partnership
or other organizational structure applicable to Borrower.
14. This Guarantee: (i) shall be binding upon the
Guarantors, their heirs, personal representatives, successors and assigns; (ii)
shall inure to the benefit of the Company, its successors and assigns; and (iii)
shall be governed by and construed and in accordance with the laws of the
Commonwealth of Pennsylvania and all judicial proceedings among the parties to
this guarantee agreement shall be brought only in a court of competent
jurisdiction in the Commonwealth of Pennsylvania.
15. Guarantors hereby represent and warrant to the Company
the truth and accuracy of each of the following:
(a) The Guarantors are adults and legally competent;
(b) The execution and delivery of this Guarantee by
Guarantors and the performance hereunder does not, and will not, violate any
provision of any law, rule, regulation, agreement, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Guarantors;
(c) The execution and delivery of this Guarantee by
Guarantors and the performance by Guarantors of the obligations to be performed
hereunder do not, and will not, result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which Guarantors are a party or by which their properties may be
bound or affected;
(d) This Guarantee, when duly executed and delivered by
Guarantors, constitutes the legal, valid and binding obligation of Guarantors,
enforceable against Guarantors according to its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or similar laws affecting creditors' rights in general,
including equitable remedies;
(e) There are no actions, suits or proceedings pending
or, to the knowledge of Guarantors, threatened against or affecting Guarantors
or the properties of Guarantors before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to Guarantors, would have a material adverse
effect on the financial condition, properties or operations of Guarantors; and
(f) Guarantors have no setoffs, defenses or
counterclaims to any of their obligations hereunder under this Guarantee.
16. Consent To Jurisdiction And Venue. In any legal
---------------------------------
proceeding involving, directly or indirectly, any matter arising out of or
related to this Guarantee or the relationship evidenced hereby, Guarantors
hereby irrevocably submit to the in personam jurisdiction of Courts of the
Commonwealth of Pennsylvania and the Federal District Court for the Eastern
District of Pennsylvania and agrees not to raise any objection to such
<PAGE>
jurisdiction or to the laying or maintaining of the venue of any such proceeding
in such county. Guarantors agree that service or process in any such proceeding
may be duly effected upon Guarantors by mailing a copy thereof, by certified or
registered mail, processed to Guarantors at the address noted below.
WAIVER OF JURY TRIAL. GUARANTORS HEREBY WAIVE TRIAL BY JURY AND THE
--------------------
RIGHT TO INTERPOSE ANY DEFENSE BASED ON ANY STATUTE OF LIMITATIONS OR CLAIM OF
LACHES IN ANY ACTION BY OR AGAINST GUARANTORS IN ANY WAY ARISING OUT OF OR
RELATED TO THIS GUARANTEE OR THE RELATIONSHIP EVIDENCED HEREBY.
IN WITNESS WHEREOF, the undersigned have executed and delivered the
Guarantee the day and year first above written.
WITNESS: INDIVIDUAL GUARANTORS
/s/ Donna M. Celeste By: /s/ Steven M. Latessa
- -------------------------------- --------------------------
Name: Steven M. Latessa
In his or her individual capacity
Address of Guarantors: 83 Bayberry Lane
-----------------------
Smithtown, NY 11787
-----------------------
WITNESS: INDIVIDUAL GUARANTORS
/s/ Donna M. Celeste By: /s/ Cary Wolen
- -------------------------------- --------------------------
Name: Cary Wolen
In his or her individual capacity
Address of Guarantors: 49 Irving Drive
-----------------------
Woodbury, NY 11797
-----------------------
WITNESS: INDIVIDUAL GUARANTORS
/s/ Susan B. Kennedy By: /s/ Jon Blasi
- -------------------------------- --------------------------
Name: Jon Blasi
In his or her individual capacity
Address of Guarantors: 3 Bonton Dr.
-----------------------
West Orange, NJ 07052
-----------------------
<PAGE>
INDIVIDUAL ACKNOWLEDGEMENT
STATE OF NEW YORK :
---------------
COUNTY OF NASSAU :
---------------
On this 2Oth day of March, 1998, I state that Steven M. Latessa of
Smithtown, an individual of the State of New York, appeared before me, a Notary
Public for the State of New York, and is/are known to me (satisfactory proven)
to be the person(s) whose name(s) is/are subscribed to the within Guarantee
Agreement and acknowledged that he/she/they executed the same for the purposes
therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and seal.
/s/ Corinne M. Foster
---------------------
NOTARY PUBLIC
CORINNE M. FOSTER
NOTARY PUBLIC STATE OF NEW YORK
NO.01FO6023296
QUALIFIED IN NASSAU COUNTY
COMMISSION EXPIRES JANUARY 31, 2000
INDIVIDUAL ACKNOWLEDGEMENT
STATE OF NEW YORK :
-------------
COUNTY OF NASSAU :
------------
On this 20 day of March, 1998, I state that Cary Wolen of Woodbury,
an individual of the State of New York, appeared before me, a Notary Public for
the State of New York, and is/are known to me (satisfactory proven) to be the
person(s) whose name(s) is/are subscribed to the within Guarantee Agreement and
acknowledged that he/she/they executed the same for the purposes therein
contained.
IN WITNESS WHEREOF, I have hereunto set my hand and seal.
/s/ Corinne M. Foster
---------------------
NOTARY PUBLIC
CORINNE M. FOSTER
NOTARY PUBLIC STATE OF NEW YORK
NO.01FO6023296
QUALIFIED IN NASSAU COUNTY
COMMISSION EXPIRES JANUARY 31, 2000
<PAGE>
INDIVIDUAL ACKNOWLEDGEMENT
STATE OF NEW JERSEY :
--------------
COUNTY OF ESSEX :
-------------
On this 23rd day of March, 1998, I state that Jon P. Blasi of West
Orange, an individual of the State of New Jersey , appeared before me, a Notary
Public for the State of New Jersey, and is/are known to me (satisfactory proven)
to be the person(s) whose name(s) is/are subscribed to the within Guarantee
Agreement and acknowledged that he/she/they executed the same for the purposes
therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and seal.
/s/ Susan B. Kennedy
--------------------
NOTARY PUBLIC
SUSAN B. KENNEDY
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES MARCH 1, 2001
INDIVIDUAL ACKNOWLEDGEMENT
STATE OF :
--------------
COUNTY OF :
-------------
On this _________ day of _____________, 19__, I state that ________
of ____, an individual of the State of _______ , appeared before me, a Notary
Public for the State of _______ , and is/are known to me (satisfactory proven)
to be the person(s) whose name(s) is/are subscribed to the within Guarantee
Agreement and acknowledged that he/she/they executed the same for the purposes
therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and seal.
____________________________
NOTARY PUBLIC
<PAGE>
EXHIBIT 10.12
EXHIBIT "G"
LISTING OF OTHER CREDIT FACILITIES OF BORROWER
----------------------------------------------
1.) THE SUMMIT TRUST COMPANY $12,000,000.00
<PAGE>
EXHIBIT 10.12
EXHIBIT "H"
OFFICER'S CERTIFICATE
---------------------
The undersigned, Secretary [title] of Mortgage Plus Equity and Loan Corp., a
corporation ("Borrower"), hereby certifies in connection with that certain
Mortgage Warehouse Loan and Security Agreement dated March 20, 1998 (the "Loan
and Security Agreement") by and between ContiMortgage Corporation, a Delaware
corporation, and Borrower that the following individuals are authorized on
behalf of Borrower to execute and deliver Requests for Borrowing, endorse Notes,
assign Mortgages, and execute and deliver other documents binding Borrower.
Name: Steven M. Latessa
--------------------------------------
Title: President/CEO
-------------------------------------
Facsimile Signature: /s/ Steven M.Latessa
-----------------------
Authority Levels: *
--------------------------
Name: Cary Wolen
--------------------------------------
Title: Chief Operating Officer
-------------------------------------
Facsimile Signature: /s/ Cary Wolen
-----------------------
Authority Levels: *
--------------------------
Name: Jon Blasi
--------------------------------------
Title: Chief Operating Officer of B/C
-------------------------------------
Facsimile Signature: /s/ Jon P. Blasi
-----------------------
Authority Levels: Chief Operating Officer, Home Equity Servicer*
----------------------------------------------
*List all authorized activities for each individual by the following
code numbers: Authorized to: 1 = Execute the Loan and Security Agreement, the
Promissory Note, the UCC-1 Financing Statements and any other documents
necessary to effectuate the terms of the Loan and Security Agreement; 2 =
Endorse Notes; 3 = Assign Mortgages; 4 = Designate Controlled Disbursement
Accounts; 5 = Execute Requests for Borrower; 6 = [other - specify ]
IN WITNESS WHEREOF, the undersigned has executed this certificate,
this 20th day of March, 1998.
Mortgage Plus Equity and Loan Corp.
By: /s/ Cary Wolen
--------------------------------
Name: Cary Wolen
------------------------------
Title: Chief Operating Officer
-----------------------------
<PAGE>
EXHIBIT 10.12
EXHIBIT "I"
WIRING INSTRUCTIONS
-------------------
LENDER'S WIRING INSTRUCTIONS:
Bank: Chase Manhattan Bank
City, State New York, NY
ABA/Routing # 021000021
Account Name ContiMortgage Corporation Warehouse Advance
Recovery Account
Account # 304-100323
<PAGE>
EXHIBIT 10.12
EXHIBIT "J"
LISTING OF QUALIFIED INVESTORS
------------------------------
1.) CONTIMORTGAGE CORPORATION
2.) BENEFICIAL MORTGAGE CORPORATION
3.) INDUSTRY MORTGAGE
4.) THE C.I.T. GROUP
5.) FIRSTCITY CAPITAL CORPORATION
6.) G.E. CAPITAL
7.) DELTA FUNDING CORPORATION
8.) THE ASSOCIATES
<PAGE>
EXHIBIT 10.12
EXHIBIT "K"
SCHEDULE "A"
------------
(To UCC-1)
ContiMortgage Corporation, a Delaware corporation, is the "Secured
Party" in its capacity as lender under that certain Mortgage Warehouse Loan And
Security Agreement, dated 3/20/98 (as the same may be extended, amended and
renewed from time to time, the "Agreement"), by and between ContiMortgage
Corporation and Mortgage Plus Equity and Loan Corp., as borrower (the
"Borrower").
COLLATERAL
Borrower hereby assigns, transfers and pledges to ContiMortgage
Corporation, and grants ContiMortgage Corporation a security interest in, all of
Borrower's right, title and interest, powers, privileges and other benefits
under, in and to the following (the "Collateral") wherever located and whether
now existing or hereafter acquired, together with all of the proceeds thereof:
(a) All Mortgage Loans, Mortgages, Notes, the remaining portion of
the Essential Mortgage File Documents for all Mortgage Loans and any other
documents and property as shall be deposited with, or held by, or come into the
possession of ContiMortgage Corporation pursuant to the Agreement;
(b) All payments and prepayments of principal, interest, penalties
and other income due or to become due on all Mortgage Loans, Mortgages and Notes
referred to in paragraph (a) above; all the right, title and interest of every
nature whatsoever of Borrower in and to the Collateral described in paragraph
(a) above and this paragraph (b) and all property used in connection therewith
including, without limitation, the following:
(i) All rights, liens and security interests existing
with respect to, or as security for, all such Mortgage Loans;
(ii) All hazard insurance policies, title insurance
policies or, private mortgage insurance policies, condemnation proceeds with
respect to each such Mortgage Loan;
(iii) All insurance and guaranties provided by the FHA or
VA, as the case may be, with respect to each such Mortgage Loan; and
(iv) All private mortgage insurance policies with respect
to each such Mortgage Loan; and
(c) All files, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records and other records and
data of Borrower related to the Mortgage Loans.
All defined terms used herein not otherwise defined in this
description of the Collateral shall have the meanings given in the Agreement.
Copies of the Agreement are on file with ContiMortgage Corporation as
Secured Party.
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into and effective as of May _______,
1998, by and among MPEL Holdings Corp. (the "Company"), the Stockholders of the
Company who are listed on Schedule A attached hereto (the "Stockholders") and
American Stock Transfer and Trust Company (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Company is conducting an offering of a minimum of 800,000 (the
"Minimum") and a maximum of 1,300,000 (the "Maximum") shares of Common Stock,
$0.01 par value per share (the "Common Stock"), along with an aggregate of up to
1,100,000 shares of Common Stock to be sold by certain stockholders of the
Company (the "Stockholder Shares") at an offering price of $5.00 (the
"Offering"); and
WHEREAS, the Company has filed a Registration Statement on Form SB-2 to
register the Offering under the Securities Act of 1933, as amended (the "Act")
and has made the required "Blue Sky" filing to register the Offering in those
states in which the Offering is being made; and
WHEREAS, the Company proposes to establish an Escrow Account with the
Escrow Agent for the benefit of those persons subscribing for the Common Stock
in the Offering (the "Subscribers") to be designated as the "___________ -
Special Account" (the Escrow Account").
NOW, THEREFORE, in consideration of the mutual obligations hereunder, the
parties hereto agree as follows:
1.0 Appointment of Escrow Agent; Establishment of Account. The Company
hereby appoints the Escrow Agent to act as escrow agent in accordance with and
subject to the terms and conditions of this Agreement for the sole and exclusive
benefit of the Subscribers, and the Escrow Agent hereby accepts such appointment
and agrees to act in accordance with and subject to the terms and conditions
hereof. Escrow Agent further agrees to establish the Escrow Account.
2.0 Deposit of Proceeds. Upon its receipt of an acceptable subscription
for the Common Stock in the form of a duly completed subscription agreement
accompanied by payment in full of the applicable purchase price, the Company
will promptly deliver to the Escrow Agent the subscription amount received and
the name and address of the Subscriber. Upon receipt of any subscription amount
represented by a check, the Escrow Agent shall enter the check for collection
and hold the proceeds thereof in escrow subject to the terms and conditions of
this Agreement. All subscription amounts held by the Escrow Agent shall be
deemed the assets of the Subscribers, and not those of the Company, until
disbursement in accordance with Section 4. Subscription amounts may also be sent
by wire transfer directly to the Escrow Account, which payments the Escrow Agent
shall hold subject to the terms and conditions of this Agreement.
<PAGE>
3.0 Investment of Subscription Amounts. The Escrow Agent shall hold all
subscription amounts in the Escrow Account, which shall be a separate bank
account constituting a "deposit" (as that term is defined in Section 3(1) of the
Federal Deposit Insurance Act) established and maintained by the Escrow Agent in
accordance with the terms and conditions of this Agreement. The Escrow Agent
shall establish and maintain books and records indicating the name, address and
interest in the account of each Subscriber and all other records required by
law. All interest earned on the subscription amounts, if any, shall be held in
the Escrow Account until the subscription amounts are released in accordance
with the provisions of Section 4.
4.0 Release of Subscription Amounts and Securities.
4.1 If, on or before May __, 1999 (the "Termination Date"), the Company
has received, pursuant to the Offering, acceptable subscriptions for an
aggregate of not less than 800,000 shares ($4,000,000 in cash), then the Company
will deliver to the Escrow Agent (i) a certificate to that effect in
substantially the form of Exhibit A hereto and (ii) a letter from the Company's
legal counsel confirming the same (the "Letter") (collectively, the
"Disbursement Authorizations"). Upon, and only upon, receipt of the
aforementioned instructions, the Escrow Agent will release from escrow and
deliver to the Company all of the subscription amounts in the form of a check
payable to the order of the Company or by other transfer to or for the account
of the Company, as the Company may designate. Any income earned thereon shall
be retained by the Escrow Agent as set forth in Section 8.0 of this Agreement.
4.2 If, within five (5) business days after the Termination Date, the
Escrow Agent has not received the Disbursement Authorizations, then all
subscription amounts then held in escrow hereunder shall be disbursed by the
Escrow Agent to each Subscriber in the form of a check for such subscription
amount. Any income earned thereon shall be retained by the Escrow Agent as set
forth in Section 8.0 of this Agreement.
4.3 If after the release of funds as set forth in Section 4.1, the Company
has received, pursuant to the Offering, additional acceptable subscriptions for
Units, the Company will deliver to the Escrow Agent the Certificate and the
Letter. Upon receipt of the aforementioned Certificate and Letter, the Escrow
Agent will release from escrow and deliver to the Company at such time as
determined by the Board of Directors of the Company, all of the additional
subscription amounts in the form of a check payable to the order of the Company
or by other transfer to or for the account of the Company, as the Company may
designate.
2
<PAGE>
5.0 Deposit and Release of Stockholders' Shares of Common Stock
5.1 On the date hereof, the Stockholders are depositing their Stockholder
Shares with the Escrow Agent until such time as the Minimum amount of Common
Stock has been sold. When the Minimum is met and the funds have been released to
the Company pursuant to Section 4.1 hereof, the Escrow Agent shall release and
deliver all Stockholder Shares to the respective Stockholders.
6.0 Limitations of Escrow Agent' s Capacity.
6.1 This Agreement expressly and exclusively sets forth the duties of the
Escrow Agent with respect to any and all matters pertinent hereto and no implied
duties or obligations or any fiduciary relationship shall be read into this
Agreement against the Escrow Agent.
6.2 The Escrow Agent shall act hereunder as a depository only, and is not
responsible or liable in any manner whatsoever for the sufficiency, correctness,
genuineness or validity of the subject matter of this Agreement or any part
thereof, whether in form or substance, or for the form of execution thereof, or
for nay endorsement or lack of endorsement thereon or for any description
therein. It shall be sufficient if a writing purporting to be such instrument,
document, certificate, statement or notice is delivered to the Escrow Agent and
purports on its face to be correct in form and signed or otherwise executed by
the party or parties required to sign or execute the same under this Agreement.
The Escrow Agent shall not be required in any way to determine the identity or
authority of any person executing the same or the genuineness of such signature.
6.3 This Agreement as it presently exists or may hereafter be amended
constitutes the entire agreement between the Escrow Agent and any other parties
hereto in connection with the subject matter hereof, and no other as adopted or
binding, in whole or in part, upon the Escrow Agent notwithstanding that other
agreement may be deposited with the Escrow Agent or the Escrow Agent may have
knowledge thereof.
6.4 The Escrow Agent shall have no liability or obligation to notify any
party hereto or any other party interested in this Agreement of any payment
required or maturity occurring under this Agreement or under the terms of any
instrument deposited herewith unless such notice is explicitly provided for in
this Agreement.
6.5 The Escrow Agent shall not be charged with notice or knowledge of any
fact or information not herein set forth.
7.0 Authority of Escrow Agent.
7.1 The Escrow Agent is hereby authorized and directed by the undersigned
to deliver the subject matter of this Agreement only in accordance with the
provisions of Section 4 above.
7.2 The Escrow Agent, shall be protected in acting upon any written notice,
request, waiver, consent, certificate, receipt, authorization, power of attorney
or other paper or document which the Escrow Agent in good faith believes to be
genuine and what it purports to be, including but not limited to items directing
investment or non-investment of funds, items requesting or authorizing release,
disbursement or retainage of the subject matter of this Agreement and the items
amending the terms of this Agreement.
7.3 The Escrow Agent may consult with legal counsel in the event of any
3
<PAGE>
dispute or question as to the construction of any of the provisions hereof or
its duties hereunder, and shall incur no liability and shall be fully protected
in act and in accordance with the advise of such counsel.
7.4 In the event of any disagreement between any of the parties to this
Agreement, or between any of them and any other person, resulting in adverse
claims or demands being made in connection with the matters covered by this
Agreement, or in the event that the Escrow Agent, in good faith, shall be in
doubt as to what action it should take, the Escrow Agent may, at its option,
refuse to comply with any claims or demands on it, or refuse to take any other
action hereunder, so long as such disagreement continues or such doubt exists
and in any such event the Escrow Agent shall not be or become liable in any way
or to any person for its failure or refusal to act, and the Escrow Agent shall
be entitled to continue to refrain from acting until (I) the rights of all
interested parties shall have been fully and finally adjudicated by a court of
competent jurisdiction, or (ii) all differences shall have been adjudged and all
doubt resolved by agreement among all the interested persons, and the Escrow
Agent shall have been notified thereof in writing signed by all such persons.
Notwithstanding the preceding, the Escrow Agent may in its discretion obey the
order or judgment, decree or levy of any court, whether with or without
jurisdiction, and the Escrow Agent is hereby authorized in its sole discretion,
to comply with and obey (and shall have no liability to any person or party so
doing) any such orders, judgments, decrees or levies which the Escrow Agent is
advised by legal counsel of its own choosing is binding upon it. The rights of
the Escrow Agent under this subsection are cumulative with all other rights
which it may have by law or otherwise.
7.5 The Escrow Agent shall have no liability for any loss arising from any
cause beyond its control, including but not limited to the following (I) the
act, failure or negligence of any agent or correspondent selected by the Escrow
Agent for the remittance of funds (ii) any delay, error omission or default of
any mail, telegraph, cable or wireless agency or operator (iii) the acts or
edicts of any government or governmental agency or other group or entity
exercising governmental powers.
7.6 Without in any way limiting any other provision of this Agreement as
expressly understood and agreed that the Escrow Agent shall be under no duty or
obligation to give any notice or to do or to omit the doing of any action or
anything with respect to the subject matter hereof except to receive, hold and
deliver the same in accordance with the terms hereof. The Escrow Agent shall
not be liable for any error in judgment, or act or omission, or any mistake of
law or fact or for doing anything it may do or refrain from doing in connection
herewith, except for its own willful misconduct or gross negligence.
7.7 The Escrow Agent shall be indemnified and held harmless by the Company
from anything which the Escrow Agent may do or refrain from doing in connection
herewith or for any claims, demands or losses or for any damages mad e or
suffered by any party to this Agreement including any legal expenses incurred by
the Escrow Agent in defending any claim of liability in connection herewith
except such as may arise through or be caused by the Escrow Agent's willful
misconduct or gross negligence. The Company's obligation to indemnify the
Escrow Agent as set forth in this section 7.7 shall survive the termination of
this Escrow Agreement.
7.8 In the event that any controversy should arise among the parties with
respect to this Agreement, or should the Escrow Agent resign and the parties
fail to select another escrow agent to act in its stead, the Escrow Agent shall
have the right to institute a bill of interpleader in any court of competent
jurisdiction to determine the rights of the parties.
8.0 Compensation. The Escrow Agent shall be entitled to any and all income
earned on
4
<PAGE>
the subscription amounts held in the Escrow Account as well as reimbursement for
its reasonable costs and expenses incurred in connection with the performance by
it of services under this Agreement (including reasonable fees and expenses of
Escrow Agent's counsel.). The Company binds and obligates itself to pay to the
Escrow Agent on demand compensation to which it is entitled. The Escrow Agent's
compensation hereunder during the term of this Escrow Agreement shall be not
more than the Escrow Agent's normal fee for similar services.
9.0 Resignation. The Escrow Agent may resign at any time by giving written
notice to the parties hereto whereupon the parties hereto will appoint a
successor Escrow Agent within thirty (30) days thereafter. Until a successor
Escrow Agent has been named and accepted its appointment or until another
disposition of the subject matter of this Agreement has been agreed upon by all
the parties hereto, the Escrow Agent shall be discharged of all of its duties
hereunder save to keep the subject matter whole.
10.0 General Provisions.
10.1 Unless this Agreement is terminated earlier by the complete
disbursement of the subject matter of this Agreement, the duties of Escrow Agent
shall terminate December 31, 1998 (unless any party has sent notice to all other
parties that a dispute exists regarding any part of the subject matter hereof)
and upon such termination, the Escrow Agent is hereby directed to deliver any
subscription amounts then held in escrow to the Company.
10.2 The Escrow Agent upon the first to occur of the fixed termination
date set out in subsection 10.1 above, or the release of all of the subject
matter pursuant to the terms of this Agreement, shall be discharged from any
further obligation hereunder.
10.3 Where directions or instructions from more than one of the
undersigned are required, such directions or instructions may be given by
separate instruments of similar tenor. Any of the undersigned may act hereunder
through an agent or attorney-in-fact, provided satisfactory written evidence of
authority is first furnished to any party relying on such authority.
10.4 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York. The representations and warranties
contained in this Agreement shall survive the execution and deliver hereof and
any investigations made by any party. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect any of the
terms hereof.
10.5 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the same
instrument. This Agreement shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signature of all of the
parties reflected hereon as the signatures. This Agreement may be executed via
facsimile.
10.6 Any payment, notice, request for consent, report, or any other
communication required or permitted in this agreement shall be in writing and
shall be deemed to have been given when personally delivered to the party
hereunder specified against receipt therefor or when placed in the United States
Postal Service, registered or certified, with return receipt requested, postage
prepaid or by facsimile transmission (provided a copy is mailed by certified or
registered mail, return receipt requested) and addressed as follows:
American Stock Transfer and Trust Company
5
<PAGE>
40 Wall Street
46th Floor
New York, New York 10005
Fax: (718) 921-8209
If to the Company:
MPEL Holdings Corp.
6851 Jericho Turnpike
Suite 246
Syosset, NY 11791
Attn: Steven Latessa, President
Fax: (516)
With copy to:
Ruskin Moscou Evans & Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501
Attn: Norman M. Friedland, Esq.
Fax: (516) 663-6642
Any party may unilaterally designate a different address by giving
notice of each such change in the manner specified above to the other party.
10.7 This Agreement is being made in and is intended to be construed
according to the internal substantive laws of the State of Delaware applicable
to contracts executed, delivered and performed wholly within the State of
Delaware. It shall inure to and be binding upon the parties hereto and their
respective successors, receivers, personal representatives, trustees and
assigns.
10.8 Words used in the singular number may include the plural and the
plural may include the singular. The section headings appearing in this
instrument have been inserted for convenience only and shall be given no
substantive meaning or significance whatsoever in construing the terms and
conditions of this Agreement.
10.9 The terms of this Agreement may be altered, amended, modified or
revoked only by an instrument in writing signed by all the parties hereto and
each of the Purchasers.
10.10 If one or more of the provisions hereof shall for any reason be held
invalid, illegal or unenforceable in any respect under applicable law, such
invalidity, illegality or unenforceability shall not affect any other provisions
hereof and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
The parties below execute this Agreement on this __ day of May, 1998.
MPEL Holdings Corp.
By:_______________________________
Steven Latessa, President and
Chief Executive Officer
6
<PAGE>
AMERICAN STOCK TRANSFER AND
TRUST CO.
By:______________________________
Printed
Name:____________________________
Title:_____________________________
7
<PAGE>
EXHIBIT A
American Stock Transfer and Trust Company
____________________________________
____________________________________
Re: MPEL Holdings Corp.
Ladies and Gentlemen:
We hereby refer to the Escrow Agreement between MPEL Holdings Corp.
(the "Company") and American Stock Transfer and Trust Company, dated as of
____________, 19__ (the "Agreement"). In accordance with Section 4 of the
Agreement, we hereby certify to you that the Company has received acceptable
subscriptions for an aggregate of not less than 800,000 shares of Common Stock
and you have received cash related thereto of not less than $4,000,000.
Accordingly, you are instructed to deliver the entire amount held by you under
the Agreement to MPEL Holdings Corp., 6851 Jericho Turnpike, Suite 246, Syosset,
NY 11791, Attention: Cary Wolen, for deposit to such accounts as the Company
instructs ___________________.
Very truly yours,
MPEL Holdings Corp.
A New York corporation
By:_____________________________
Steven Latessa, President
and Chief Executive Officer
Date:___________________________
8
<PAGE>
MELVILLE VENTURES & ASSOCIATES, L.P.
LIMITED PARTNERSHIP AGREEMENT
Dated as of October 7, 1996
MELVILLE VENTURES & ASSOCIATES, L.P.
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I General Provisions Page
<S> <C> <C> <C>
Section 1.1 Partnership Name 1
Section 1.2 Fiscal Year 1
Section 1.3 Liability of Partners 1
Section 1.4 Purposes of Partnership 2
Section 1.5 Assignability of Interest 3
ARTICLE II Management of Partnership
Section 2.1 Management Generally 3
Section 2.2 Authority of Partners 3
Section 2.3 Reliance by Third Parties 4
Section 2.4 Activity of General Partner 4
Section 2.5 Exculpation 4
Section 2.6 Indemnification of General Partner 4
Section 2.7 Payment of Costs and Expenses 5
ARTICLE III Capital Accounts of Partners and Operation Thereof
Section 3.1 Definitions 5
Section 3.2 Capital Contributions 5
Section 3.3 Capital Accounts 6
Section 3.4 Partnership Percentages 6
Section 3.5 Allocation of Net Capital Appreciation or Net
Capital Depreciation 6
Section 3.6 Valuation of Assets 6
Section 3.7 Liabilities 7
Section 3.8 Allocation for Tax Purpose 7
Section 3.9 Determination by General Partner of Certain Matters 7
Section 3.10 Adjustments to Take Account of Interim Account
Period Events 7
ARTICLE IV Withdrawals and Distributions of Capital
Section 4.1 Withdrawals and Distributions in General 8
Section 4.2 Withdrawals 8
Section 4.3 Limitation on Withdrawals 8
Section 4.4 Salaries or Other Payments or
Allocations to the General Partner 9
</TABLE>
<PAGE>
ARTICLE V Admission of New Limited Partners
Section 5.1 New Limited Partner 9
ARTICLE VI Withdrawal, Death, Incompetency
Section 6.1 Withdrawal, Death, etc. of Limited Partners 9
Section 6.2 Required Withdrawals 10
Section 6.3 Effective Date of Withdrawal 10
Section 6.4 Limitations on Withdrawal of Capital Account 10
Section 6.5 Resignation, Dissolution, etc.
of the General Partner 11
ARTICLE VII Duration and Termination of Partnership
Section 7.1 Duration 11
Section 7.2 Termination 11
ARTICLE VIII Tax Returns; Reports to Partners
Section 8.1 Accountants 12
Section 8.2 Filing of Tax Returns 12
Section 8.3 Tax Matters Partner 12
Section 8.4 Reports to Current Partners 12
Section 8.5 Reports to Current and Former Partners 13
ARTICLE IX Miscellaneous
Section 9.1 General 13
Section 9.2 Method of Distribution 13
Section 9.3 Power of Attorney 13
Section 9.4 Amendments to Partnership Agreement 14
Section 9.5 Choice of Law 14
Section 9.6 Adjustment of Basis of
Partnership Property 14
Section 9.7 Notices 14
Section 9.8 Good Will 14
Section 9.9 Headings 14
MELVILLE VENTURES & ASSOCIATES, L.P.
LIMITED PARTNERSHIP AGREEMENT
<PAGE>
DATED AS OF OCTOBER 7, 1996
The undersigned (herein called the "Partners") hereby agree to form and
hereby form, as of the date and year first above written, a limited partnership
(herein called the "Partnership") I pursuant to the provisions of the New York
Revised Limited Partnership Act, which shall be governed by, and operated
pursuant to, the terms and provisions of this Limited Partnership Agreement
(herein called the "Agreement").
ARTICLE I
GENERAL PROVISIONS
Section 1. 1. PARTNERSHIP NAME. The Partnership shall do business under the
------------------
name of Melville Ventures & Associates, L.P.
Section 1.2. FISCAL YEAR. The fiscal year of the Partnership (herein called
-----------
the "fiscal year") shall end on December 31 of each year or on such other date
as the General Partner (as hereinafter defined) shall determine.
Section 1.3. LIABILITY OF PARTNERS. The names of all of the Partners and
-----------------------
the amounts of their respective contributions to the Partnership (herein called
the "Capital Contributions") and Partnership Percentages (as defined in Section
3.4) are set forth in a schedule entitled "Schedule of Capital Contributions and
Partnership Percentages" (herein called the "Schedule") which shall be filed
with the records of the Partnership and are hereby incorporated by reference and
made a part of this Agreement.
That one or more Partners designated in Part I of the Schedule as the
General Partner(s) (herein individually and collectively called the "General
Partner") shall have unlimited liability for the repayment and discharge of all
debts and obligations of the Partnership.
Those Partners who are designated in Part II of the Schedule as Limited
Partners (herein called the "Limited Partners")shall be liable for the repayment
and discharge of all debts and obligations of the Partnership attributable to
any fiscal year (or relevant portion thereof) during which they are or were
Limited Partners of the Partnership only to the extent of their respective
interests in the Partnership in the fiscal year (or relevant portion thereof) to
which any such debts and obligations are attributable and shall not otherwise
have any liability in respect of the debts and obligations of the Partnership.
The Partners shall share all losses, liabilities or expenses suffered or
incurred by virtue of the operation of the preceding paragraphs of this Section
1.3 in the proportions of their respective Partnership Percentages (determined
as provided herein) for the fiscal year (or relevant portion thereof) to which
any debts or obligations of the Partnership are attributable up to the limit of
their respective interests in the Partnership for such fiscal year (or relevant
portion thereof).
As used in this Section 1.3, the terms "Interests in the Partnership" and
Interest in the Partnership" shall mean with respect to any fiscal year (or
relevant portion thereof) and with respect to each Partner the Capital Account
that such Partner would have received (or in fact did receive) pursuant to the
terms and
<PAGE>
provisions hereof upon withdrawal from the Partnership as of the end of such
fiscal year (or relevant portion thereof)
Notwithstanding any other provision in this Agreement, in no event shall
any Limited Partner be obligated to make any additional contribution whatsoever
to the Partnership, or have any liability for the repayment and discharge of the
debts and obligations of the Partnership (apart from his or its interest in the
Partnership), except that a Limited Partner who has withdrawn funds or received
distributions from the Partnership representing in whole or in part, a return of
his or its capital contributions, shall be liable to the Partnership to the
extent required under the New York Revised Limited Partnership Act, as amended
from time to time.
Section 1.4. PURPOSES OF PARTNERSHIPS The Partnership is organized for the
-------------------------
primary purpose of realizing capital appreciation by investing and trading in
Securities (as hereinafter defined) and to engage in all activities and
transactions as the General Partner may deem necessary or advisable in
connection therewith, including, without limitation:
(a) to invest and trade, on margin or otherwise, directly or indirectly, in
capital stock, shares of beneficial interest, warrants, bonds, notes,
debentures, whether subordinated, convertible or otherwise, commercial paper,
and other obligations, and instruments or evidences of indebtedness commonly
referred to as securities of whatever kind or nature, issued by Mortgage Plus
Equity & Loan Corporation a New York corporation, ("MP"), whether readily
marketable or not, in rights and options relating thereto, including put and
call options written by the Partnership or by others, and other related
contracts (all such items being called herein a "Security" or "Securities", to
sell Securities short and cover such sales, and to lend funds or properties of
the Partnership, either with or without security;
(b) to possess, transfer, mortgage, pledge or otherwise deal in, and to
exercise all rights, powers, privileges and other incidents of ownership or
possession with respect to Securities and other property and funds held or owned
by the Partnership;
(c) to lend any of its Securities, provided however, that collateral at
least equal in value to the market value of such Securities is deposited by the
borrower thereof with the Partnership;
(d) to engage personnel, whether part-time or full-time, and do such other
acts as the General Partner may deem necessary or advisable in connection with
the maintenance and administration of the Partnership; and
(e) to engage attorneys, independent accountants or such other persons as
the General Partner may deem necessary or advisable.
SECTION 1.5. ASSIGNABILITY OF INTEREST. A Limited Partner may not assign
---------------------------
his or its interest, in whole or in part, to any person except by operation of
law, nor shall he or it be entitled to substitute for himself or itself as a
Limited Partner any other person, without the prior written consent of the
General Partner. Any attempted assignment or substitution not made in accordance
with the preceding sentence shall be void.
ARTICLE III
-2-
<PAGE>
MANAGEMENT OF PARTNERSHIP
Section 2. 1. MANAGEMENT GENERALLY The management of the Partnership shall
---------------------
be vested exclusively in the General Partner. Other than as expressly provided
herein, the Limited Partners shall have no part in the management of the
Partnership and shall have no authority or right to act on behalf of the
Partnership in connection with any matter.
Section 2.2. AUTHORITY OF PARTNERS. The General Partner shall have the sole
----------------------
power on behalf and in the name of the Partnership to carry out any and all of
the objects and purposes of the Partnership set forth in Section 1.4, and to
perform all acts and enter into and perform all contracts and other undertakings
which the General Partner may deem necessary or advisable or incidental thereto,
including, without limitation, the power to:
(a) within the limitations set forth in Section 1.4, determine which
Securities to purchase and sell on behalf of the Partnership and prepare,
execute and deliver any and all documents necessary in order to effect such
purchases and sales;
(b) open, maintain and close accounts with brokers and issue all
instructions and authorizations to brokers regarding the Securities and/or money
therein;
(c) open, maintain and close bank and money market accounts and draw
checks or other orders for the payment of monies;
(d) do any and all acts on behalf of the Partnership and exercise all
rights of the Partnership with respect to its interest in MP, including, without
limitation, the voting of Securities, participation in arrangements with
creditors, the institution and settlement or compromise of suits and
administrative proceedings and other like or similar matters;
(e) organize and/or engage one or more corporations formed to hold record
title, as nominee for the Partnership, to Securities or funds of the
Partnership;
(f) authorize any agent of the General Partner or agent or employee of the
Partnership to act for and on behalf of the Partnership in all matters
incidental to the foregoing; and
(g) retain such advisers to the Partnership, to provide research and
analysis and to direct the formulation of investment policies and strategies for
the Partnership as the General Partner shall determine; provided however, that
------------------
the general management and conduct of the activities of the Partnership shall
remain the sole responsibility of the General Partner.
Section 2.3. RELIANCE BY THIRD PARTIES. Persons dealing with the
---------------------------
Partnership are entitled to rely conclusively upon the certificate of the
General Partner to the effect that it is then acting as the General Partner and
upon the power and authority of the General Partner as herein set forth.
-3-
<PAGE>
SECTION 2.4. ACTIVITY OF GENERAL PARTNER: The General Partner shall
----------------------------
devote only so much time to the affairs of the Partnership as in the sole
judgment of the General Partner the conduct of the Partnership's business shall
reasonably require, and the General Partner shall not be obligated to do or
perform any act or thing in connection with the business of the Partnership not
expressly set forth herein. Nothing herein contained shall be deemed to preclude
the General Partner, agents and affiliates from engaging directly or indirectly
in any other business or from directly or indirectly purchasing, selling and
holding Securities for the account of any such other business, or for the
account of any of the foregoing. No Limited Partner shall, by reason of being a
Partner in the Partnership, have any right to participate in any manner in any
profits or income earned or derived by or accruing to the General Partner, its
agents and affiliates from the conduct of any business other than the business
of the Partnership or from any transaction in Securities effected by any of the
foregoing, for any account other than that of the Partnership.
Section 2.5. EXCULPATION. The General Partner, its agents and affiliates
-------------
shall not be liable to any Limited Partner or the partnership for mistakes of
judgment or for action or inaction which was reasonably believed to be in the
best interests of the Partnership, or for losses due to such mistakes, actions
or inactions or to the negligence, dishonesty or bad faith of any employee,
broker or other agent of the Partnership, provided that such employee, broker or
agent was selected, engaged or retained by the Partnership with reasonable care.
The General Partner may consult with counsel and accountants in respect of
Partnership affairs and be fully protected and justified in any action or
inaction which is taken in accordance with the advice or opinion of such counsel
or accountants, provided that they shall have been selected with reasonable
care.
Notwithstanding any of the foregoing to the contrary, the provisions of
this Section 2.6 shall not be construed so as to relieve (or attempt to relieve)
the General Partner of any liability, to the extent (but only to the extent)
that such liability may not be waived, modified or limited under applicable law,
but shall be construed so as to effectuate the provisions of this Section 2.6 to
the fullest extent permitted by law.
Section 2.6. INDEMNIFICATION OF GENERAL PARTNER. The Partnership shall
-----------------------------------
and hereby does indemnify and hold harmless the Partnership, the General Partner
and each other person, if any, who controls or is controlled by any thereof,
within the meaning of Section 15 of the Securities Act of 1933, as amended, from
and against any loss or expense suffered or sustained by him by reason of the
fact that he is or was, or is or was in control of or controlled by, the General
Partner of the Partnership, including without limitation, any judgment,
settlement, reasonable attorney's fees and other costs or expenses incurred in
connection with the defense of any actual or threatened action or proceeding,
provided that such loss or expense resulted from a mistake of judgment on the
part of the General Partner or such person, or from action or inaction which was
reasonably believed to be in the best interests of the partnership. The
Partnership shall advance to the indemnified party reasonable attorney's fees
and other costs and expenses incurred in connection with the defense of any
action or proceeding which arises out of such conduct. The General Partner
hereby agrees that in the event it receives any such advance, it shall reimburse
the Partnership for such fees, costs and expenses to the extent that it shall be
determined that the General Partner was not entitled to indemnification under
this Section 2.6
-4-
<PAGE>
Notwithstanding any of the foregoing to the Contrary, the provisions of this
Section 2.6 shall not be construed so as to provide for the indemnification for
any liability to the extent (but only to the extent) that such indemnification
would be in violation of applicable law or such liability may not be waived,
modified or limited. Under applicable law, but shall be construed so as to
effectuate the provisions of this Section 2.G to the fullest extent permitted by
law.
Section 2.7. PAYMENT OF COSTS AND EXPENSES. The Partnership shall bear all
-------------------------------
its operating expenses. The term "operating expenses" shall Section 2.7. include
all taxes and investment expenses (e.g. expenses which the General Partner
reasonably determines to be directly related to the investment of the
Partnership's assets such as brokerage commissions, etc.), legal expenses,
internal and external accounting, audit and tax preparation expenses and other
expenses associated with the operation of the Partnership.
ARTICLE III
CAPITAL ACCOUNTS OF PARTNERS
AND OPERATION THEREOF
Section 3. 1. DEFINITIONS. For the purposes of this Agreement, unless the
-------------
context otherwise requires:
(b) The term "Beginning Value" shall, with respect to any Accounting
Period, mean the value of the Partnership's Net Assets at the beginning of such
Accounting Period;
(c) The term "Ending Value" shall, with respect to any Accounting Period,
mean the value of the Partnership's Net Assets at the end of such Accounting
Period (before giving effect to withdrawals);
(d) The term "Net Assets" shall mean the excess of the Partnership's
assets over its liabilities including, but not limited to, liabilities for the
Management Fee of the General Partner;
(e) The term "Net Capital Appreciation" shall, with respect to any
Accounting Period, mean the excess, if any, of the Ending Value over the
Beginning Value;
(f) The term "Net Capital Depreciation" shall, with respect to any
Accounting Period, mean the excess, if any, of the Beginning Value over the
Ending Value.
Section 3.2. CAPITAL CONTRIBUTIONS. Each Partner has made a cash
-----------------------
contribution to the Partnership in the amount set forth opposite such Partner's
name in Parts I or II of the Schedule. Additional contributions may be made by
Partners only in accordance with the provisions of Section 3.3. The cash
contribution made by a Partner upon his or its admission to the Partnership is
referred to herein as such Partner's "Initial Capital Contribution".
Section 3.3 CAPITAL ACCOUNTS A capital account (herein called the "Capital
-----------------
Account") shall be established on the books of the Partnership for each Partner.
The Capital Account of each Partner shall be in an amount equal to such
Partner's Initial Capital Contribution, adjusted as hereinafter provided. The
Capital Account of each Partner shall be increased by the amount of any Capital
Contributions to the Partnership made by such Partner as of the date any such
additional contribution is accepted by the General Partner. At the end of each
Accounting Period, the Capital Account of each Partner shall be (i) increased or
decreased by the amount
-5-
<PAGE>
credited or debited to the Capital Account of such Partner pursuant to Section
3.5 and (ii) decreased by the amount of any withdrawals made by such Partner as
of the end of such Accounting Period pursuant to Section 4.2.
Additional contributions to the Partnership may be made by a Partner by
notifying the General Partner of his or its desire to do so. The General Partner
shall have the right to accept or decline to accept any such additional
contributions.
Section 3.4. PARTNERSHIP PERCENTAGES. A partnership percentage (herein
-------------------------
called the "Partnership Percentage") shall be determined for each Limited
Partner as of the beginning of each Accounting Period by dividing the amount of
each Limited Partner's Capital Account at the beginning of such Accounting
Period by the sum of all of the Limited Partners' Capital Accounts at the
beginning of such Accounting Period. The sum of the Partnership Percentages of
the Limited Partners shall at all times equal 99 percent. The sum of the
Partnership Percentages shall equal 100 percent. The Partnership Percentages
shall be set forth in the Schedule.
Section 3.5. ALLOCATION OF NET CAPITAL APPRECIATION OR NET CAPITAL
-----------------------------------------------------
DEPRECIATION At the end of each Accounting Period, the Capital Account of each
- -------------
Partner (including the General Partner) for such Accounting Period shall be
adjusted by crediting (in the case of Net Capital Appreciation) or debiting (in
the case of Net Capital Depreciation) all Net Capital Appreciation or all Net
Capital Depreciation, as the case may be, to the Capital Accounts of all the
Partners (including the General Partner) in proportion to their respective
Partnership Percentages for such Accounting Period.
Section 3.6. VALUATION OF ASSETS.
--------------------
(a) Securities (including stock options) listed or traded on a national
securities exchange or the National Market System of NASDAQ ("NMS") will be
valued at the last sale price on the exchange or market where they are primarily
traded, or if there has been no sale on that date, at the closing bid price with
respect to long positions and the closing asked price with respect to short
positions.
(b) Securities not traded on a national securities exchange or NMS for
which over-the-counter market quotations are available will be valued at the
last current bid quotation, provided that such Securities sold short will be
valued at the last current asked quotation.
(c) Securities that are not registered under the Securities Act of 1933 as
amended or are otherwise subject to restrictions on transferability shall be
valued at such discount from the values otherwise determined in accordance with
Section 3.6 (a) - (b) as the General Partner may reasonably determine.
(d) All other assets of the Partnership (except good will, which shall not
be taken into account) shall be assigned such value as the General Partner may
reasonably determine. Anything in the foregoing to the contrary notwithstanding,
assets of the Partnership invested in other partnerships or other entities or
managed by other asset managers will be valued as provided by such other
partnerships or- other entities or other asset managers.
(e) If the General Partner determines that the valuation of any
Securities or other property pursuant to
-6-
<PAGE>
Section 3.6 (a)-(c) does not fairly represent market value, the General Partner
shall value such Securities or other property as the General Partner reasonably
determines and shall set forth the basis of such valuation in writing in the
Partnership's records.
(f) All values assigned to Securities and other assets by the General
Partner pursuant to this Article III shall be final and conclusive as to all of
the Partners.
Section 3.7. LIABILITIES. Liabilities shall be determined in accordance
-------------
with generally accepted accounting principles applied on a consistent basis,
provided, however, that the General Partner in its discretion, may provide
reserves for contingencies.
Section 3.8. ALLOCATION FOR TAX PURPOSES. In the event the fair market
-----------------------------
value of any Partnership asset is adjusted pursuant to Section 3.6, subsequent
allocations of income, gain, loss and deduction with respect to such asset shall
take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its fair market value in the same manner as
under Section 704(c) of the Code and the Regulations thereunder.
Any decisions relating to such allocations shall be made by the General
Partner in any manner that reasonably reflects the purpose and intention of this
Agreement. Allocations pursuant to this Section 3.8 are solely for purposes of
federal, state and local income taxes and shall not affect, or in any way be
taken into account in computing, any Partner's Capital Account or Partnership
Percentage pursuant to any provision of this Agreement.
Section 3.9. DETERMINATION BY GENERAL PARTNER OF CERTAIN MATTERS. All
-----------------------------------------------------
matters concerning the valuation of Securities and other assets of the
Partnership, the allocation of profits, gains and losses among the Partners,
including taxes thereon, and accounting procedures not expressly provided for by
the terms of this Agreement shall be determined by the General Partner, whose
determination shall be final and conclusive as to all of the Partners.
Section 3.10. ADJUSTMENTS TO TAKE ACCOUNT OF INTERIM ACCOUNTING PERIOD
--------------------------------------------------------
EVENTS If a Partner shall make additional Capital Contributions to the
- -------
Partnership, withdraw from the Partnership or make a withdrawal from his or its
Capital Account as of a date other than the last day of an Accounting Period, or
if a Limited Partner is admitted to the Partnership as of a date other than the
first day of an Accounting Period, the General Partner shall make such
adjustments in the determination and allocation among the Partners of Net
Capital Appreciation, Net Capital Depreciation, Capital Accounts, Partnership
Percentages, items of income, deduction, gain, loss or credit for tax purposes
and accounting procedures as shall equitably take into account such interim
Accounting Period event and applicable provisions of law, and the determination
thereof by the General Partner shall be final and conclusive as to all of the
Partners.
ARTICLE IV
WITHDRAWALS AND DISTRIBUTIONS
OF CAPITAL
-7-
<PAGE>
Section 4. 1. WITHDRAWALS AND DISTRIBUTIONS IN GENERAL Other than as
-----------------------------------------
provided in this Agreement, no Partner shall be entitled (i) to receive
distributions from the Partnership, except as provided in Section 7.2; or (iiY
to withdraw any amount from his or its Capital Account.
Section 4.2. WITHDRAWALS.
------------
(a) Subject to Section 4.2(b), each Partner may at any time withdraw any
amount of his or its Capital Account with the consent of and upon such terms of
payment as the General Partner, in its sole discretion, shall approve. The
General Partner may, in its sole discretion, treat any request for a partial
withdrawal of a Limited Partner's Capital Account as a request for the total
withdrawal of any such Limited Partner's Capital Account. Payment of any amount
withdrawn pursuant to this Section 4.2 shall be made within 90 days following
the effective date of any such withdrawal.
(b) With respect to the Capital Account of any foreign Partner, and
notwithstanding any provision of this Agreement to the contrary, the General
Partner shall withhold and pay over to the Internal Revenue Service, pursuant to
Section 1441 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor provision, at such times as required by such Section, such amounts
as the Partnership is required to withhold under such Section 1441, as from time
to time in effect, on account of such foreign Partner's distributive share of
the partnership's items of gross income which are subject to withholding tax
pursuant to such Section. To the extent that a foreign Partner claims to be
entitled to a reduced rate of, or exemption from, U.S. withholding tax pursuant
to an applicable income tax treaty, or otherwise, the foreign Partner shall
furnish the General Partner with such information and forms as may be required
to comply with the regulations governing the obligations of withholding tax
agents. Each foreign partner represents and warrants that any such information
and forms furnished by it shall be true and accurate and agrees to indemnify the
Partnership and each of the Partners from any and all damages, costs and
expenses resulting from the filing of inaccurate or incomplete information or
forms relating to such withholding taxes.
Any amounts of withholding taxes withheld and paid over by the General
Partner with respect to a foreign Partner's distributive share of the
Partnership's gross income shall be treated as a distribution to such foreign
Partner and shall be charged against the Capital Account of such foreign
Partner.
Section 4.3. LIMITATION ON WITHDRAWALS. The right of any Partner to
---------------------------
withdraw any amount from his or its Capital Account pursuant to the provisions
of Section 4.2 is subject to the provision by the General Partner for all
partnership liabilities in accordance with the New York Revised Limited
Partnership Act, and for reserves for contingencies, all in accordance with
Section 3.7.
Section 4.4. SALARIES OR OTHER PAYMENTS OR ALLOCATIONS TO THE GENERAL PARTNER.
-----------------------------------------------------------------
(a) For its services, the partnership shall pay the General Partner a
management fee (the "Management Fee") in an amount equal to twenty percent (20%)
of the amount by which cumulative distributions to and withdrawals by each
Partner exceed such Partner's Capital Contributions.
-8-
<PAGE>
(b) In addition to such Management Fee, the General Partner shall be
entitled to the Partnership percentage set forth next to its name in Part I of
the Schedule.
(c) Except for the Management Fee and the allocations and payments
attributable to the General Partner's Partnership Percentage referred to in the
preceding paragraphs of this Section, the Partnership shall not make any
payments or allocations to the General Partner. The foregoing, however, shall
not be deemed to prohibit the General Partner or any of its affiliates from (i)
participating in the Partnership as a Limited Partner upon the same terms and
conditions as any Limited Partner may so participate, (ii) receiving brokerage
commissions or other customary fees and charges from the Partnership relating to
the conduct of the Partnership's business and investment of its assets, (iii)
receiving compensation and/or other fees from other persons with whom the
Partnership conducts business; provided that the receipt of any such
compensation or fees does not result in the partnership incurring charges for
services in excess of charges which would have been incurred had the General
Partner or any of its affiliates not received such compensation or fees, (iv)
receiving a commission on the sale of interests in the Partnership, or (v)
receiving payment for expenses as provided in Sections 2.7 and 2.6.
ARTICLE V
ADMISSION OF NEW LIMITED PARTNERS
Section 5.1 NEW LIMITED PARTNERS. Limited Partners may be admitted to the
---------------------
Partnership with such consent and at such time or times, if any, and upon such
terms and conditions as shall be determined by the General Partner, including
without limitation, the imposition of a reasonable charge, payable to the
Partnership, to defray the expenses associated with the admission of any such
new Limited Partner. Each new Limited partner will be required to execute an
agreement pursuant to which he or it becomes bound by the terms of this
Agreement. Admission of a new Limited Partner shall not be a cause for
dissolution of the Partnership.
ARTICLE VI
WITHDRAWAL, DEATH, INCOMPETENCY
Section 6.1. WITHDRAWAL, DEATH, ETC, OF LIMITED PARTNERS.
--------------------------------------------
(a) The withdrawal, death, disability, incapacity, incompetency,
termination, bankruptcy, insolvency or dissolution of a Limited Partner shall
not dissolve the partnership. The legal representatives of a Limited Partner
shall succeed as assignee to the Limited Partner's interest in the Partnership
upon the death, disability, incapacity, incompetency, termination, bankruptcy,
insolvency or dissolution of a Limited Partner, but shall not be admitted as a
substituted Partner without the consent of the General Partner.
(b) In the event of the withdrawal, death, disability, incapacity,
incompetency, termination, bankruptcy, insolvency or dissolution of a Limited
Partner, except as otherwise agreed to by the General Partner, the interest of
such Limited Partner shall continue at the risk of the Partnership business
until the last day of the Accounting Period in which such Limited Partner (or
his or its legal representatives) shall withdraw from the Partnership pursuant
to Section 4.2 or Section 6.2 or the earlier termination of the partnership.
-9-
<PAGE>
(c) The interest of a Limited Partner who gives notice of withdrawal
pursuant to Section 4.2 has been consented to by the General Partner shall not
be included (as to such interest) in calculating the partnership Percentages of
the Limited Partners for the purpose of taking any action under this Agreement.
Section 6.2. REQUIRED WITHDRAWALS. The General Partner may, in the
----------------------
exercise of the General Partner's reasonable discretion, terminate the interest
of any Limited Partner in the Partnership upon at least 10 days' prior written
notice. Reasonable discretion shall include, among other reasons, the
determination by the General Partner that the continued participation of such
Limited Partner in the Partnership might cause the Partnership or any Partner to
violate any law, or if any litigation is commenced or threatened against the
Partnership or any Partner arising out of, or relating to, the participation of
such Limited Partner in the Partnership. A notice of termination pursuant to
this Section 6.2 shall have the same effect as a notice of withdrawal by such
Limited Partner pursuant to Section 4.2 and the Partner receiving such notice
shall be treated for all purposes and in all respects as a Partner who has given
notice of withdrawal.
Section 6.3. EFFECTIVE DATE OF WITHDRAWAL. The Capital Account of a
-----------------------------
withdrawing Limited Partner shall be determined as of the effective date of his
or its withdrawal. For purposes of this Section 6.3, the effective date of a
Limited Partner's withdrawal shall mean (as the case may be): (i) the last day
of the Accounting Period immediately preceding the effective date specified in
the notice of withdrawal described in Section 4.2 or (ii) the date of receipt of
the notice of withdrawal described in Section 4.2 or (iii) the date specified in
the written notice referred to in Section 6.2 if such Limited Partner shall be
required to withdraw from the Partnership pursuant to such clause. In the event
the effective date of a Partner's withdrawal shall be a date other than the last
day of an Accounting Period of the Partnership, the effective date of such
Partner's withdrawal shall be deemed to be the last day of an Accounting Period
for purposes of adjusting the Capital Account of the withdrawing Partner
pursuant to Section 3.5.
Section 6.4. LIMITATIONS ON WITHDRAWAL OF CAPITAL ACCOUNT. The right of
---------------------------------------------
any withdrawn Limited Partner or his or its legal representatives to have
distributed the Capital Account of such Limited Partner pursuant to this Article
VI is subject to the provision by the General Partner for all Partnership
liabilities in accordance with the New York Revised Limited Partnership Act, and
for reserves for contingencies. The General Partner may retain such portion of a
withdrawing Limited Partner's Capital Account as he shall deem necessary in
order to comply with such Act. The unused portion of any reserve, if any, shall
be distributed, with interest at the prevailing savings bank rate for
unrestricted deposits from time to time in effect in New York, New York, as
determined by the General Partner, at such time as the General Partner shall
have determined that the need therefor shall have ceased.
Section 6.5. RESIGNATION, DISSOLUTION, ETC. OF THE GENERAL PARTNER.
------------------------------------------------------
(a) In the event of the resignation (upon not less than 30 days' notice to
the Limited Partners), dissolution or judicially determined bankruptcy of the
General Partner if there be one or all General Partners if there be more than
one, then Limited Partners having in excess of 50% of the Limited Partners'
Partnership Percentages shall, within 30 days following the effective date of
the resignation of the General Partner or within 30 days following any such
judicial determination, vote to either (1) terminate the Partnership, or (ii)
elect the General Partner's designee, it any, or any other person as a successor
general partner and continue the business of the Partnership.
-10-
<PAGE>
(b) The General Partner (or its legal representative) shall be paid the
amount of its Capital Account and the Management Fee, if any, due and payable to
the General Partner within 20. days following the effective date of its
resignation or within 20 days following.. its dissolution or the General
Partner's judicially determined bankruptcy, as the case may be.
ARTICLE VII
DURATION AND TERMINATION OF PARTNERSHIP
Section 7. 1. DURATION. The Partnership shall continue for a period of
----------
five full fiscal years, (until December 31, 2001) unless sodner terminated, (i)
at any time, by decision of the General Partner, or (ii) by a vote of Limited
Partners in accordance with Section 6.5.
Section 7.2. TERMINATION. On termination of the business of the
-------------
Partnership, the General Partner (or the designees of the Limited Partners if
the Partnership is terminated under Section 6.5(a) (i)) shall, within no more
than 30 days after completion of a final accounting of the Partnership's books
and records (which shall be performed within 90 days. of such termination), make
distributions out of Partnership assets, in the following manner and order
(a) to payment and discharge of the claims of all creditors of the
Partnership who are not Partners;
(b) to payment and discharge pro rata of the claims of all creditors of
--------
the Partnership who are Partners;
(c) to the Partners in the proportion of their respective Capital Accounts
until the Partners have received the amount of their Capital
contributions;
(d) to the General Partner in payment of the Management Fee pursuant to
Section 4.4 (a); and
(e) to the Partners in the proportion of their respective Capital Accounts
In the event that the Partnership is terminated on a date other than the
last day of a fiscal year, the date of such termination shall be deemed to be
the last day of a fiscal year for purposes of adjusting the Capital Accounts of
the Partners pursuant to Section 3.5. For purposes of distributing the assets of
the Partnership upon termination, the General Partner shall be entitled to a
return, on a pari passu basis with the Limited Partners, of the amount, if any,
standing to the General Partner's credit in his or its Capital Account. In the
event that upon termination of the Partnership, there is a deficit in the
Capital Account of the General Partner, then the General Partner shall pay to
the Partnership the amount, if any, required to comply with Rev. Proc. 89-3,
1989-1 C.B. 761 promulgated under the Code.
ARTICLE VIII
TAX RETURNS; REPORTS TO PARTNERS
-11-
<PAGE>
Section 8.1. ACCOUNTANTS. The books and records of the Partnership shall
-------------
be prepared by accountants selected by the General Partner, as of the end of
each fiscal year of the Partnership.
Section 8.2. FILING OF TAX RETURNS The General Partner shall prepare and
---------------------
file, or cause the accountants of the Partnership to prepare and file, a Federal
information tax return in compliance with Section 6698 of the Internal Revenue
Code of 1986, as amended, and any required state and local income tax and
information returns for each tax year of the Partnership.
SECTION 8.3 TAX MATTERS PARTNER . The General Partner shall at all times
--------------------
constitute, and have full powers and responsibilities as, the Tax Matters
Partner of the Partnership for purposes of Section 6231 (a) (7) of the Code.
Each person (for purposes of this Section 8.3, called a "Pass-Thru Partner")
that holds or controls an interest as a Limited Partner on behalf of, or for the
benefit of another person or persons or which a Pass-Thru Partner is
beneficially owned (directly or indirectly) by another person or persons shall,
within 30 days following receipt from the Tax Matters Partner of any notice,
demand, request for information or similar document, convey such notice or other
document in writing to all holders of beneficial interests in the partnership
holding such interest through such Pass-Thru Partner. In the event the
Partnership shall be the subject of an income tax audit by any Federal, state or
local authority, to the extent the Partnership is treated as an entity for
purposes of such audit, including administrative settlement and judicial review,
the Tax Matters Partner shall be authorized to act for, and its decision shall
be final and binding upon, the Partnership and each Partner thereof. All
expenses incurred in connection with any such audit, investigation, settlement
or review shall be borne by the Partnership.
Section 8.4. REPORTS TO CURRENT PARTNERS. Within 90 days after the end of
-----------------------------
each fiscal year, the Partnership shall prepare and mail to each Partner,
together with the report thereon of the accountants selected by the General
Partner, a financial report (unaudited) setting forth as of the end of such
fiscal year:
(a) a balance sheet of the Partnership;
(b) a statement showing the Net Capital Appreciation or Net Capital
Depreciation of the Partnership for such year; and
(c) such Partners Capital Account and the manner of its calculation.
The General Partner may authorize the preparation and distribution to
Limited Partners of such other and further financial reports, on a quarterly
basis, as the General Partner, in its sole discretion, deems advisable.
Section 8.5. REPORTS TO CURRENT AND FORMER PARTNERS. Within 90 days of the
----------------------------------------
end of each fiscal year, the Partnership shall prepare and mail, or cause its
accountants to prepare and mail, to each Partner and, to the extent necessary,
to each Former Limited Partner (or his or its legal representatives), a report
setting forth in sufficient detail such information as shall enable such Partner
or Former Limited Partner (or his or its legal representatives) to prepare their
respective Federal income tax returns in accordance with the laws, rules and
regulations then prevailing.
-12-
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.1. GENERAL. This Agreement (i) shall be binding on the
-------
executors, administrators, estates, heirs, and legal successors and
representatives of the Partners; and (ii) may be executed, through the use of
separate signature pages or in any number of counterparts with the same effect
as if the parties executing such counterparts had all executed one counterpart
provided, however, that each such counterpart shall have been executed by the
General Partner and that the counterparts, in the aggregate, shall have been
signed by all of the Partners.
Section 9.2. METHOD OF DISTRIBUTION. All distributions made pursuant to
------------------------
this Agreement shall be made in cash or Securities or both, as the General
Partner, in its sole discretion, may determine.
Section 9.3. POWER OF ATTORNEY . Each of the Partners hereby appoints each
------------------
of the General Partner and each of its officers, separately, as his or its true
and lawful representative and attorney-in-fact, in his or its name, place and
stead to make, execute, sign, acknowledge, swear to and file
(a) a Certificate of Limited Partnership of the Partnership and all
amendments thereto as may be required under the New York Revised Limited
Partnership Act;
(b) any and all instruments, certificates, and other documents which may
be deemed necessary or desirable to effect the winding-up and termination of the
Partnership (including, but not limited to, a Certificate of Cancellation of the
Certificate of Limited Partnership); and
(c) any business certificate, fictitious name certificate, amendment
thereto, or other instrument or document of any kind necessary or desirable to
accomplish the business, purpose and objectives of the Partnership, or required
by any applicable federal, state or local law.
The power of attorney hereby granted by each of the Limited Partners is
coupled with an interest, is irrevocable, and shall survive, and shall not be
affected by, the subsequent death, disability, incapacity, incompetency,
termination, bankruptcy, insolvency or dissolution of such Limited Partner.
Such representative and attorney-in-fact shall not have any right, power
or authority to amend or modify this Agreement when acting in such capacity.
SECTION 9.4. AMENDMENTS TO PARTNERSHIP AGREEMENT The terms and provisions
------------------------------------
of this Agreement may be modified or amended at any time and from time to time
with (i) the written consent of Limited Partners having in excess of 65% of the
Partnership Percentages of the Limited Partners and (ii) the written consent of
the General Partner, insofar as is consistent with the laws governing this
Agreement; provided. however, that without the consent of the Limited Partners,
the General Partner may amend the Schedule to reflect changes validly made in
the membership of this Partnership and the Capital Contributions and partnership
Percentages of the Partners. Without the specific written consent of each
Partner affected thereby no modification of or amendment to this Agreement shall
(i) reduce the Capital Account of any Partner or his or its rights of
contribution or withdrawal with respect thereto; and (ii) amend this Section
9.4.
-13-
<PAGE>
Section 9.5. CHOICE OF LAW. Notwithstanding the place where the Agreement
--------------
may be executed by any of the parties hereto, the parties expressly agree that
all the terms and provisions hereof shall be construed under the laws of the
State of New York.
Section 9.6. ADJUSTMENT OF BASIS OF PARTNERSHIP PROPERTY In the event of a
--------------------------------------------
distribution of Partnership property to a Partner or an assignment or other
transfer (including by reason of death) of all or part of the interest of a
Partner in the Partnership, at the request of a Partner, the General Partner, in
his discretion, may cause the Partnership to elect, pursuant to Section 754 of
the Code or the corresponding provision of any subsequent law, to adjust the
basis of the Partnership property as provided by Sections 734 and 743 of the
Code.
Section 9.7. Notices. Each notice relating to this Agreement shall be in
---------
writing and delivered in person or by registered or certified mail or by
recognized overnight courier service, e.g. Federal Express, UPS. All notices to
the Partnership shall be addressed to its principal office and place of
business. All notices; addressed to a Partner shall be addressed to such Partner
at the address set forth in the Schedule. Any Partner may designate a new
address by notice to that effect given to the Partnership. Unless otherwise
specifically provided in this Agreement, a notice shall be deemed to have been
effectively given when mailed by registered or certified mail to the proper
address or delivered in person or delivered to a recognized overnight courier.
Section 9.8 GOOD WILL. No value shall be placed on the name or good will
----------
of the Partnership, which shall belong exclusively to the General Partner.
Section 9.9. HEADINGS. The titles of the Articles and the headings of the
----------
Sections of this Agreement are for convenience of reference only, and are not to
be considered in construing the terms and provisions of this Agreement.
SCHEDULE OF CAPITAL CONTRIBUTIONS
PART I
GENERAL PARTNERS
Amount of Initial
Capital Partnership
Name and Address Contribution Percentage
---------------- ------------ -----------
Craig Kirsch .5% (.005)
201 North Service Road
Melville, NY 11747
-14-
<PAGE>
Edward T. Stein .5% (.005)
201 North Service Road
Melville, NY 11747
PART. II
LIMITED PARTNERS
Amount of Initial
Capital Partnership
Name and Address Contribution Percentages
- ----------------- -------------- -------------
-15-
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the date first set forth above.
GENERAL PARTNERS, LIMITED PARTNER
Print Name of Limited Partner
- -----------------------------
Craig Kirsch
By:
-----------------------------
- -----------------------------
Edward Stein
Signature of Limited
Partner or Authorized
Signatory
--------------------------------
Print Name of Authorized
Signatory
--------------------------------
Title of Authorized Signatory
-16-
<PAGE>
FORM A
------
MELVILLE VENTURES & ASSOCIATES, L.P.
(a New York Limited Partnership)
SUBSCRIPTION AND INVESTMENT
REPRESENTATION AGREEMENT
------------------------
Mr. Craig Kirsch
Mr. Edward T. Stein
201 North Service Road
Melville, NY 11747-3138
Gentlemen:
SECTION 1
---------
1.1 Subscription. The undersigned hereby subscribes for and agrees to
--------------
purchase a limited partnership interest (the "Interest") in Melville Ventures &
Associates, L.P. (the "Partnership"), a limited partnership organized under the
laws of the State of New York, and to make a capital contribution to the
Partnership in the amount indicated on the signature page hereof, on the terms
and conditions described herein, in the Business Plan of Mortgage Plus Equity &
Loan Corp., Inc. ("MP") prepared October, 1996; Financial Results of "MP" for
the quarter ended June 1996 with financial projections and company valuation,
the company profile of "MP", 1996 Product Vision and 1996 Marketing Plan all of
the foregoing having been prepared by "MP" and collectively hereinafter referred
to as the "Memorandum", and in the Agreement of Limited Partnership relating to
the offering (the "Offering") of limited partnership interests in the
Partnership.
1.2 Purchase
--------
(a) The undersigned tenders cash or a check made payable to the order of
"MELVILLE VENTURES & ASSOCIATES, L.P." in the amount indicated on the signature
page hereof.
(b) The undersigned also tenders herewith (i) an executed counterpart of
the signature page of the Limited Partnership Agreement of the Partnership (the
"Partnership Agreement") (Form B), and (ii) a completed and executed Investor
Suitability Questionnaire (Form C).
(c) The undersigned's cash or check delivered herewith, the signature
page of the Partnership Agreement and the Investor Suitability Questionnaire
will be held in trust for the undersigned's benefit unless and until (i) the
undersigned is accepted as a limited partner of the Partnership and (ii) the
Partnership closing on its purchase of shares of the Common Stock of MP. The
General Partner of the Partnership (individually and together, the "General
partner") will notify the undersigned as to whether his subscription has been
accepted by the Partnership.
<PAGE>
1.3 Acceptance or Relection of Subscription.
(a) The undersigned understands and agrees that the General Partner
reserves the right to reject this subscription for the Interest, in whole or in
part and at any time prior to receipt by the undersigned of notice of acceptance
of the undersigned's subscription if, in the judgment of the General Partner,
such action is deemed to be in the best interests of the Partnership.
(b) In the event of rejection of this subscription, the undersigned's
check or the amount of cash evidenced thereby, together with the documents
specified above, will be promptly returned to the undersigned without interest
and without deduction, and this Agreement shall have no force or effect. In the
event the undersigned is subscription is accepted, the funds and documents
specified above shall be retained by the Partnership in order to admit the
undersigned and other subscribers whose subscriptions are from time to time
accepted as limited partners of the Partnership (as so admitted, hereinafter
sometimes individually referred to as a "Limited Partner" and collectively as
the "Limited Partners").
1.4 Partnership Agreement . Upon acceptance by the General Partner of
----------------------
subscriptions and the closing of a purchase of MP Common Stock by the
Partnership, all funds delivered by admitted Limited Partners will be used by
the Partnership as described in the Partnership Agreement and the Memorandum.
The Interest subscribed for herein shall not be deemed issued to, or owned by,
the undersigned until the Partnership Agreement has been executed by the
undersigned and countersigned by the General Partner.
SECTION 2
---------
2.1 Investor Representations and Warranties. The undersigned hereby
-----------------------------------------
acknowledges, represents and warrants to, and agrees with, the Partnership and
the General Partner as follows:
(a) The undersigned is acquiring the Interest for his own account, for
investment purposes only, and not with a view to or for the resale, distribution
or fractionalization thereof, in whole or in part, and no other person has a
direct or indirect beneficial interest in the Interest.
(b) The undersigned acknowledges his understanding that the offering and
sale of the Interests is intended to be exempt from registration under the
Securities Act of 1933, as amended (the "Act") by virtue of Section 4(2) of the
Act and the provisions of Rule 506 of Regulation D promulgated thereunder. In
furtherance thereof, the undersigned represents and warrants to and agrees with
the Partnership and the General Partners as follows:
(i) The undersigned has the financial ability to bear the economic risk
of his investment in the Partnership (including its possible loss) , has
adequate means of providing for his current needs and personal contingencies and
has no need for liquidity with respect to his investment in the Partnership.
(ii) Except as otherwise set forth in the Investor Suitability
Questionnaire, no one has acted as his purchaser representative in connection
with evaluating the merits and risks of an investment in the Partnership in
general and the suitability of the investment for the undersigned in particular.
(ii)
<PAGE>
(iii) Except as otherwise set forth in the Investor Suitability
Questionnaire, the undersigned (or the undersigned together with his duly
appointed and qualified purchaser representative(s)) has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of an investment in the Interest and has obtained, in his
judgment, sufficient information from the Memorandum and the General Partner to
evaluate the merits and risks of an investment in the Interest.
(iv) The undersigned hereby reconfirms as representations and
warranties, as though fully set forth herein, each of the statements and answers
of the undersigned set forth in his Investor Suitability Questionnaire.
(c) The undersigned (and his purchaser representatives(s), if any:
(i) has been furnished the Memorandum and the Partnership Agreement and
any other documents which may have been made available upon request, has
carefully read such documents and understands and has evaluated, or together
with his purchaser representative, if any, understands and has evaluated the
risks of a purchase of the Interest and has relied solely (except as indicated
in subsections (ii) and (iii) below) on the information contained in the
Memorandum and Partnership Agreement; additional (including, Partnership the
extent information.
(ii) has been provided an opportunity to obtain any information
concerning the Offering, the Partnership if applicable, but not limited to, the
performance of the from its inception to date) and all other information to the
Partnership or the General Partner possesses such or can acquire it without
unreasonable effort or expense;
(iii) has been given the opportunity to ask questions of, and receive
answers from, the General Partner concerning the terms and conditions of the Of
Offering and other matters pertaining to this investment, and has been given the
opportunity to obtain such additional information necessary to verify the
accuracy of the information which was provided in order for him to evaluate the
merits and risks of an investment in the Partnership to the extent the General
Partner possesses such information or can acquire it without unreasonable effort
or expense, and has not been furnished any other offering literature or
prospectus except as mentioned herein, in the Memorandum or in the Partnership
Agreement; and
(iv) has determined that the Interest is a suitable investment for him
and that at this time he could bear a complete loss of his investment.
(d) In making his decision to purchase the Interest herein subscribed
for, the undersigned has relied solely upon independent investigations made by
him or if applicable his duly appointed and qualified purchaser representative.
The undersigned is not relying on the Partnership or the General Partner with
respect to tax and other economic considerations involved in this investment.
(e) The undersigned represents, warrants and agrees that he will not sell
or otherwise transfer the Interest without registration under the Act or an
exemption therefrom, and fully understands and agrees that he must bear the
economic risk of his investment for an indefinite period of time because, among
other reasons, the
(iii)
<PAGE>
Interest has not been registered under the Act or under the securities laws of
certain states and, therefore, cannot be resold, pledged, assigned or otherwise
disposed of unless it is subsequently registered under the Act and under
applicable securities laws of such states or an exemption from such registration
is available. He understands that the Partnership is under no obligation to
register the Interest on his behalf or to assist him in complying with any
exemption from such registration under the Act. He also understands that sales
or transfers of the Interest are further restricted by the provisions of the
Partnership Agreement and state securities laws. He further understands that the
Partnership is not registered as an investment company under the Investment
Company Act of 1940, in reliance upon an exemption from such registration and
that the General Partner is not registered as an investment adviser under the
Investment Advisers Act of 1940, in reliance upon an exemption from such
registration.
(f) If the undersigned is a corporation, partnership, trust, employee
benefit plan, individual retirement account, Keogh plan, or other entity, it is
authorized and qualified to become a Limited Partner in, and authorized to make
its capital contribution to, the Partnership, and the person signing this
Agreement on behalf of such entity has been duly authorized by such entity to do
so.
(g) If the undersigned is a corporation, partnership, trust, employee
benefit plan, individual retirement account, Keogh plan, or other entity, then,
to the best of its knowledge, based on such investigations as the undersigned
has deemed appropriate, the value of all securities owned by the undersigned of
all issuers which would be investment companies (as defined under the Investment
Company Act of 1940), but for the fact that the outstanding securities (other
than short-term paper) of such companies are beneficially owned by not more than
one hundred persons and were not issued in a public offering, does not exceed
ten percent of the value of the undersigned's total assets.
(h) If the subscriber is an employee benefit plan (the "Plan"), the
undersigned fiduciaries of the Plan (i) acknowledge that they have been informed
of and understand the investment objectives and policies of, and the investment
strategies which may be pursued by, the Partnership; (ii) acknowledge that they
are aware of the provisions of Section 404 of the Employee Retirement Income
Security Act of 1974 ("ERISA") relating to the requirements for investment and
diversification of the assets of employee benefit plans and trusts subject to
ERISA; (iii) represent that they have given appropriate consideration to the
facts and circumstances relevant to the Plan's investment in the Partnership and
have determined that such investment is reasonably designed, as part of the
Plan's portfolio, to further the purposes of the Plan; (iv) represent that,
taking into account the other investments made with the assets of the Plan, and
the diversification thereof, the Plan's investment in the Partnership is
consistent with the requirements of Section 404 and other provisions of ERISA;
and (v) represent that, taking into account the other investments made with the
assets of the Plan, the investment of assets of the Plan in the Partnership is
consistent with the cash flow requirements and funding objectives of the Plan.
(i) No representations or warranties have been made to the undersigned by
the Partnership or the General Partner or their affiliates.
(j) Any information which the undersigned has heretofore furnished to the
General Partner with respect to his financial position and business experience,
including, without limitation, his Investor Suitability Questionnaire, is
correct and complete as of the date of this Agreement and if there should be any
material change in such information prior to his admission to the Partnership as
a Limited Partner he will immediately
(iv)
<PAGE>
furnish such revised or corrected information to the General Partners
2.2 Investor Awareness. The undersigned acknowledges, represents, agrees
--------------------
and is aware that:
(a) the Partnership has no financial and operating history;
(b) no Federal or state agency has passed upon the Interests or made any
findings or determination as to the fairness of this investment;
(c) there are substantial risks of loss of investment incidental to the
purchase of the Interest;
(d) portfolio transactions for the Partnership may be executed by
affiliates of the General Partner;
(e) the investment in the Partnership and the Partnership's proposed
investment in MP securities are each an illiquid investment and the undersigned
must bear the economic risk of his investment in the Interest for an indefinite
period of time;
(f) the Partnership Agreement contains substantial restrictions on
transferability and withdrawal of the Interests; and
(g) the representations, warranties, agreements, undertakings and
acknowledgments made by the undersigned in this Agreement are made with the
intent that they be relied upon by the Partnership and the General Partner in
determining his suitability as a purchaser of the Interest, and shall survive
his admission as a Limited Partner of the Partnership. In addition, the
undersigned undertakes to notify the General Partner immediately of any material
change in any representation, warranty or other information relating to the
undersigned set forth herein.
2.3 Authority to Date Partnership Agreement and Certificate of Limited
------------------------------------------------------------------
Partnership of the Partnership The undersigned hereby authorizes the General
- -------------------------------
Partner to date the Partnership Agreement and amendments to the Certificate of
Limited Partnership of the Partnership deemed by the General Partner to be
appropriate, including on and as of the admission of each Limited Partner
therein.
SECTION 3
---------
3.1 Indemnity. The undersigned hereby agrees to indemnify and hold harmless
---------
the Partnership, the General Partner, their representatives and agents and each
other person, if any, who controls or is controlled by any thereof, within the
meaning of Section 15 of the Act, against any and all loss, liability, claim,
damage and expense whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising
out of or based upon any false representation or warranty or breach or failure
by the undersigned herein or in any other document furnished by the undersigned
to any of the foregoing in connection with this transaction.
(v)
<PAGE>
3.2 MODIFICATION. Neither this Agreement nor any provision hereof shall be
--------------
modified, discharged, or terminated except by an instrument in writing signed by
the party against whom any waiver, change, discharge or termination is sought.
3.3 NOTICE. Any notice, demand or other communication which any party hereto
-------
may be required, or may elect, to give to anyone interested hereunder shall be
sufficiently given if (a) deposited, postage prepaid, in a United States mail
letter box, registered or certified mail, return receipt requested, addressed to
such address as may be given herein, (b) delivered personally at such address or
(c) delivered to a recognized overnight courier, e.g. Federal Express, UPS,
addressed to such address as may be given herein.
3.4 BINDING EFFECT. Except as otherwise provided herein, this Agreement
---------------
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and permitted
assigns. If the undersigned is more than one person, the obligations of the
undersigned shall be joint and several and the agreements, representations,
warranties and acknowledgments herein contained shall be deemed to be made by
and be binding upon each such person and his heirs, executors, administrators
and successors.
3.5 ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties, and there are no representations, covenants or other agreements except
as specifically stated or referred to herein.
3.6 ASSIGNABILITY. This Agreement is not transferable or assignable by the
---------------
undersigned.
3.7 APPLICABLE LAW. This Agreement shall be governed by and construed in
---------------
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such state.
3.8 GENDER. All pronouns contained herein and any variations thereof shall
-------
be deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the parties hereto may require.
3.9 COUNTERPARTS. This Agreement may be executed through the use of separate
-------------
signature pages or in any number of counterparts, and each of such counterparts
shall, for all purposes, constitute agreement binding on all the parties,
notwithstanding that all parties are not signatories to the same counterpart.
IN WITNESS WHEREOF, THE UNDERSIGNED has (have) executed this Subscription
and Investment Representation Agreement on this day of 199 .
----- -------- ----
------------------------------------
Total Amount of Capital Contribution
(vi)
<PAGE>
IF SUBSCRIBER IS AN INDIVIDUAL:
- ------------------------------ ------------------------------
Print Name Signature
IF SUBSCRIBER IS AN ENTITY:
By:
- ------------------------------ ------------------------------
Print Name of Entity Authorized Signatory
Print Name of Authorized Signatory
Title
IF THERE IS A JOINT SUBSCRIBER:
- ------------------------------ ------------------------------
Print Name of Joint Subscriber Signature of Joint Subscriber
Note: EACH joint subscriber must complete an Investor Suitability Questionnaire.
- ----
Subscription accepted as of the day of ,199 .
---- ------ ---
MELVILLE VENTURES & ASSOCIATES, L.P.
By:
------------------------------
Craig Kirsch, General Partner
By:
------------------------------
Edward T. Stein, General Partner
FORM B
(vii)
<PAGE>
SIGNATURE PAGE TO LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date
first set forth above.
MELVILLE VENTURES & ASSOCIATES, L.P.
LIMITED PARTNER:
By:
- --------------------------------- ------------------------------
Craig Kirsch, General Partner Print Name of Limited Partner
By: By:
- --------------------------------- --------------------------
Edward T. Stein, General Partner Signature of Limited Partner
or Authorized Signatory
THE LIMITED PARTNERSHIP INTERESTS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR WITH ANY STATE
SECURITIES ADMINISTRATOR. THE SECURITIES AND EXCHANGE COMMISSION AND CERTAIN
STATES IMPOSE RESTRICTIONS ON THE TRANSFERABILITY OR RESALE OF THESE INTERESTS.
THE LIMITED PARTNER EXECUTING THIS INSTRUMENT HEREBY APPOINTS EACH OF THE
GENERAL PARTNERS, ACTING SEPARATELY AND NOT JOINTLY, SUCH LIMITED PARTNER'S
ATTORNEY-IN-FACT IN THE NAME, PLACE AND STEAD OF THE LIMITED PARTNER TO EXECUTE
AND FILE A CERTIFICATE OF LIMITED PARTNERSHIP OF MELVILLE VENTURES & ASSOCIATES,
L. P., AMENDMENTS THERETO AND RESTATEMENTS THEREOF.
FORM C
MELVILLE VENTURES & ASSOCIATES, L.P.
(a New York Limited Partnership)
(viii)
<PAGE>
INVESTOR SUITABILITY QUESTIONNAIRE
This Questionnaire is required to insure that the offering of the
Partnership's limited partnership interests complies with Securities and
Exchange Commission ("SEC") rules on private placements. Each joint subscriber
must complete an Investor Suitability Questionnaire. All information will be
kept confidential
PART I - TO BE COMPLETED BY ALL SUBSCRIBERS.
- --------------------------------------------
1. Name:
---------------------------------------------
2. Home address:
--------------------------------------
Home Telephone Number:
----------------------------
3. Business address:----------------------------------
Business Telephone Number:
---------------------------
4. Other state(s) in which a residence is maintained:
---------------------------------------------------------------
If a residence is maintained in any other state(s), please provide:
a. state in which driver's license is issued:
---------------------------------------------
b. state in which voter registration is effective:
---------------------------------------------
5. Date of birth:
-------------------------------
6. Social Security Number or Employer I.D. Number:
-------------
7. If subscriber is a corporation, partnership, trust or other entity, attach a
copy of the Articles of
Incorporation, By-Laws, Partnership Agreement, Trust Instrument, or other
documents showing:
a. that the entity is authorized to make this investment, and
(ix)
<PAGE>
b. that the individual(s) signing the Subscription and Investment Representation
Agreement is (are) authorized to take such action on behalf of the entity.
PART II - TO BE ANSWERED BY ALL SUBSCRIBERS.
---------------------------------------
1. The Partnership may sell limited partnership interests to an unlimited number
of "accredited investors," as defined in SEC rules and regulations. A
subscriber may qualify as an "accredited investor" by falling into one or
more of the categories described on Annex A hereto. Please indicate below if
you are an "accredited investor."
YES NO
------------- ---------
2. If you answered "yes", please acknowledge that you are an "accredited
investor" by placing an "X" on the line(s) next to the number(s)
corresponding to EACH applicable category (see Annex A)
1. 5. 9.
---------- ---------- ----------
2. 6. 10.
---------- ---------- ----------
3. 7. 11.
---------- ---------- ----------
4. 8. 12.
---------- ---------- ----------
PART III SIGNATURE
- ------------------
- ---------- ----------------------------------
Date Print Name of Individual or Entity
----------------------------------
Signature of Individual or Authorized
Signatory
ANNEX A
The following are "accredited investors" within the meaning of Rule 501(a) of
Regulation D ("Regulation D") under the Securities Act of 1933
(x)
<PAGE>
1. An individual whose net wort together with that of his spouse, exceeds
-------------------------- -------
$1,000,000.
- -----------
2. An individual who had individual income in excess of $200,000 in each of the
----------- ----------------------------
two most recent years, and who reasonably expects income in excess of
$200,000 this year.
3. An individual who has joint income with his. spouse in excess of $300,000 in
each of the two most recent years, and who reasonably expects income with
his spouse in excess of $300,000 this year.
4. A bank as defined in Section 3(a) (2) of the Securities Act of 1933. (Note:
-----
This category includes banks acting in either their individual capacity or a
fiduciary capacity.)
5. An insurance company as defined in Section 2(13) of the Securities Act of
------------------
1933.
6. An investment company registered under the Investment Company Act of 1940 or
-------------------
a business development company as defined in Section 2(a) (48) of that Act.
-----------------------------
7. A Small Business Investment Company licensed by the U.S. Small Business
----------------------------------
Administration under Section 301(c) or (d) of the Small Business Investment
Act of 1958.
8. An employee benefit plan within the meaning of Title I of the Employee
---------------------
Retirement Income Security Act of 1974, if
a. the decision to invest in the Partnership is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, insurance
company, or registered investment adviser, or
--
b. the plan has total assets in excess of $5,000,000, or
--
c. the plan is a self-directed plan with decisions made solely by persons that
are "accredited investors".
9. A private business development company as defined in Section 202(a) (22) of
-------------------------------------
the Investment Advisers Act of 1940.
10. A charitable organization described in Section 501(c) (3) of the Internal
------------------------
Revenue Code not formed for the specific purpose of acquiring an interest in
the Partnership with total assets in excess of $5,000,000.
11. A trust with assets in excess of $5,000,000 not formed for the specific
purpose of acquiring an interest in the Partnership whose purchase is
directed by a sophisticated person as described in Rule 506(b) (2)ii of
Regulation D.
12. An entity in which all of the equity is owned by persons described in
paragraphs 1 through 11, above.
(xi)
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date
first set forth above.
GENERAL PARTNERS LIMITED PARTNER
Print Name of Limited Partner
- ------------------------------
Craig T. Kirsch
(xii)
<PAGE>
By:
- ------------------------------ -------------------------------
Edward T. Stein
Signature of Limited
Partner of Authorized
Signatory
----------------------------------
Print Name of Authorized
Signatory
----------------------------------
Title of Authorized Signatory
(xiii)
<PAGE>
AGREEMENT
---------
Agreement dated as of May 1, 1998 among MPEL Holdings Corp., a New York
corporation ("MPEL"), Mortgage Plus Equity & Loan Corp., a New York Corporation
and a wholly-owned subsidiary of MPEL ("Mortgage Plus"), Cary Wolen ("CW"),
Steven M. Latessa ("SL"), Jon P. Blasi and Lydia Blasi ("JB"), the WLB
Partnership, a general partnership whose general partners are CW, SL and JB (the
"Partnership"), the Estate of Anthony Saffiotti (the "Estate"), as represented
by the executors and (the "Executors") and
Karen Saffiotti, in her individual and representative capacities ("KS").
For consideration duly provided, the receipt of which each party hereto
acknowledges, it is agreed by each party as follows:
1. As of March , 1998 the Estate was the beneficial owner of
shares of Common Stock of Mortgage Plus (the "Mortgage Plus Common Stock"),
represented by Stock Certificate No. . Pursuant to the merger (the
"Merges") as set forth in the Merger Agreement dated 1998, (a copy of
which is attached as Exhibit A) (the "Merger Agreement"), each share of Mortgage
Plus Common Stock owned by the Estate, as well as each share of Mortgage Plus
Common Stock owned by all other Shareholders of Mortgage Plus was automatically
converted into one share of Computer Transceiver Systems, Inc., which, on March
1998, changed its name to "MPEL Holdings, Inc.," (all shares of MPEL are herein
called the "MPEL Common Stock"). Accordingly, since the effective date of the
Merger the Estate is the legal and beneficial owner of shares of MPEL
Common Stock.
1
<PAGE>
2. The Restated Shareholder's Agreement dated August 27, 1996, as amended,
(the "Shareholders Agreement") is hereby terminated in all respects and of no
further force or effect, and the parties thereto are released and discharged
from all obligations to one another created or incurred pursuant to the
Shareholders Agreement, and have no claim, right, obligation or liability to any
other party thereunder. In particular, the Estate and KS specifically
acknowledge that the proceeds of the insurance policy on the life of Anthony
Saffiotti, identified on Exhibit B hereto (the "Policy"), were not, as of the
date of Anthony Saffiotti's death, obligated to be paid to the Estate or KS
pursuant to the provisions of Section 7of the Shareholder's Agreement.
3. The Estate hereby sells, assigns and transfers to the Partnership and
the Partnership hereby purchases from the Estate, shares of MPEL Common
Stock (the "Transaction Shares") for a purchase price of ($415,000.00 and $
, amount of ("Anthony Saffiotti Obligations" to Mortgage Plus) (the
"Consideration"), payable as follows:
(a) Commencing on May 31, 1998, and on the first and fifteenth date of
each month thereafter until the "Final Payment Date" (as herein
defined), the sum of $ , and on the Final Payment Date, an amount
equal to the difference between $115,000 and the amounts heretofore
paid pursuant to the first clause of this Paragraph 3(a);
2
<PAGE>
(b) $ , which shall be applied to the full satisfaction of the
"Anthony Saffiotti Obligations" set forth on Exhibit C hereto, and
(c) $300,000, in either (i) four installments of $75,000 on the 60th,
90th, 120th and 150th day following the date (the "Effective Date") on
which the MPEL's Registration Statement (No. ) (the ("Registration
Statement) is declared "effective" by the United States Securities and
Exchange Commission or (ii) if the benefits of the Policy is paid
prior to the 150th day following the Effective Date, within four (4)
business days following the payment of such benefits, it being agreed
that the amount payable on such date shall, when added to any amounts
paid pursuant to c(i) be equal to only $300,000. The 150th day
following the Effective Date or the date on which the c(ii) payment is
made is called the "Final Payment Date."
4(A). The Estate and KS each represent and warrant to the Partnership
that: the Estate is the legal and beneficial owner of all of the Transaction
Shares being sold to the Partnership; the Estate has full power, capacity and
lawful authority to sell, assign, transfer and deliver all the Transaction
Shares, and its title thereto is good, valid and enforceable, free and clear of
all claims, liens, encumbrances or restriction of any nature; neither the
Estate,
3
<PAGE>
any Executor nor KS has granted any option or right to any person to acquire any
right title or interest to any or all of the Transaction Shares; there are no
proceedings of any kind pending or threatened, and no agreements, understandings
or promises (whether oral or written in existence) which will or which could
interfere with the full sale and delivery of the Transaction Shares to the
Partnership, or the Partnership's full ownership of all right, marketable title
and interest in the Transaction Shares; this Agreement has been duly and validly
executed and delivered by the Estate and is fully enforceable against the
Estate, the Executors and KS and no consent or approval of, or filing with, any
court or governmental body is necessary to the Estate's full performance of its
obligations hereunder; the execution, delivery or performance of this Agreement
by the Estate will not (i) violate or conflict with any judgment, order, trust
agreement (ii) result in the creation or imposition of any lien, claim, charge,
restriction or limitation on any of the Transaction Shares, or (iii) impose on
the Partnership or MPEL or Mortgage Plus any cost, expense or liability
(including, but not limited to, any lien, cost, expense or liability arising at
any time from the failure by the Estate or KS to satisfy any tax obligations
which it or she may be subject to for any reason).
4(B). MPEL and the Estate agree that the law firms of Ruskin, Moscou,
Evans and Faltischek ("RMEF"), and Farrell Fritz ("FF") are appointed by the
Estate and MPEL as attorneys-in-fact to take all actions necessary to cause (i)
share certificates for shares of MPEL Common Stock in the name of the Estate to
be delivered to the
4
<PAGE>
Estate and (ii) share certificates for shares of MPEL Common Stock in
the name of the Partnership to be delivered to FF, as escrow agreement for the
Estate (pursuant to an escrow agreement in the form attached hereto as Exhibit
D), in each case within five (5) business days from the date hereof.
5. MPEL agrees that on one occasion, for a period commencing one year
after the date hereof, but not later than three years form the date hereof,
MPEL, upon a written request therefor from the Estate (so long as it owns at
least 50% of the shares of MPEL Common Stock which it owns following the sale of
the Transaction Shares, such shares called the "Registrable Securities") shall
prepare and file with the United State Securities Commission ("SEC") a
registration statement under the Securities Act of 1933 (the "Act") covering the
Registrable Securities which are the subject of such request.
6. If CW, SL, JB or the Partnership at any time propose to sell any of his
or their MPEL Common Stock to the public pursuant to a registration statement
filed with the SEC in excess of 200,000 shares of MPEL Common Stock contemplated
to be sold pursuant to the Registration Statement, they will give at least 30
days' prior written notice to the Estate of their intentions so to do. Upon the
written request of the Estate received by MPEL within 30 days after the giving
of any such notice MPEL will cause such Registrable Securities as to which
registration shall have been so requested by the Estate to be included with the
securities to be covered by the registration
5
<PAGE>
statement filed by the Company for the MPEL Common Stock being sold by CW, SL,
JB or the Partnership, all to the extent required to permit the sale or other
disposition of the Registrable Securities so registered by the Estate to the
public.
7. If any whenever MPEL is required by the provisions hereof to effect
the registration of any shares of Registrable Securities under the Act, MPEL
will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with respect
to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the
distribution contemplated the Estate;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for the period specified in paragraph (a) above and comply
with the provisions of the Act with respect to the disposition of all
of the Registrable Securities covered by such registration statement
in accordance with the Estate's intended method of disposition set
forth in such registration statement for such period;
6
<PAGE>
(c) furnish to the of copies of the therein Estate, and to registration
(including each each underwriter statement and the preliminary if any,
such number prospectus included prospectus) as such persons reasonably
may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;
(d) use its best covered by such efforts to registration register or
statement under qualify the the securities or Registrable "blue
Securities sky" laws of such jurisdictions as the Seller or, in the
case of any underwritten reasonably such purpose be a foreign or to
consent to public offering, request, provided, required to corporation
in any general service of the managing however, that MPEL qualify
generally jurisdiction where process in any such underwriter shall
shall not for any to transact it is not so jurisdiction; business as
qualified
(e) list the statement with any Common Stock is Registrable securities
then listed; Securities covered exchange on which by such the MPEL
registration
(f) immediately notify registration thereto is the Estate and statement,
at any required to be each underwriter time when a delivered under
under such prospectus relating the Act of the happening
7
<PAGE>
of any event of which MPEL has knowledge as a result of which the
prospectus contained in such registration statement, as then in
effect, state a make the circumstances then existing; included an
material statements untrue fact therein not statement required to
misleading of a be stated in light of material therein or the fact or
necessary to omits to
(g) make available for inspection by the Estate any under writer
participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained Estate
or underwriter, all financial and other records, pertinent corporate
documents and properties of the MPEL, and cause the MPEL's officers,
directors and employees to supply all information reasonably requested
by the Estate, underwriter, attorney, accountant or agent in
connection with such registration statement.
(h) In connection with each registration hereunder, the Estate will
furnish to MPEL in writing such information with respect to itself and
the proposed distribution by it as reasonable shall be necessary in
order to assure compliance with federal and applicable state
8
<PAGE>
securities laws. In connection with each registration covering an
underwritten public offering, MPEL agrees to enter into a written
agreement with the managing underwriter in such form and containing
such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the MPEL's
size and investment stature.
8. In accordance with the Registration Statement ("Use of Proceeds"), MPEL
will pay the Estate the sum of $ (401K advance) upon the closing of
the "Minimum Sale of Securities."
9. Simultaneously, with the execution and delivery of this Agreement, the
parties are exchanging Irrevocable and Unconditional Releases, in the form
attached as Exhibit E-1 and E-2 hereof.
10. The Estate and KS agree to promptly and fully cooperate with the
Equitable Insurance Company (or with any of its authorized representatives) in
order to assist Mortgage Plus' collection of the proceeds of the Policy; will
not take any action or make any statement which would delay or hinder the
payment of such proceeds; and will take all other actions (at the expense of
Mortgage Plus) as Mortgage Plus may reasonably request to assist Mortgage Plus'
prompt collection of such proceeds.
9
<PAGE>
11. MPEL represents that the Registration Statement delivered to the
Estate and KS is, in all mutual respects, accurate as of the date it was filed
with the SEC, and, in particular, that as of the date hereof, a total of
shares of MPEL Common Stock are authorized and outstanding, of which a total of
shares are owned by CW, SL and JB.
12. The Estate and KS acknowledge that they have sought independent legal
and financial advice in connection with the negotiation and execution of this
Agreement, and that no promise or representation has been made with respect to
the present or future release of any shares of MPEL Common Stock. The Estate
and KS acknowledge and understand that the shares of MPEL Common Stock owned by
the Estate have not been registered with the SEC and are not freely tradable or
saleable (and will carry a restricted legend to that effect) and may only be
sold in compliance with the Act.
13. All notices permitted or required under this Agreement shall be in
writing and shall be either: (a) delivered by personal service, (b) delivered by
courier service, or (c) sent by certified or registered mail, postage prepaid,
return receipt requested, to the parties hereto at their addresses set forth
below or at such other address which may be designated in writing by the
parties:
If to MPEL, Mortgage Plus, or CW, SL, JB or the Partnership:
Mortgage Plus Equity & Loan Corp.
6851 Jericho Turnpike, Suite 246
Syosset, New York 11791
with a copy to: Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
10
<PAGE>
Attention: Mr. Norman Friedland
If to the Estate or KS:
Karen Saffiotti
63 Amherst Road
Albertson, New York 11507
with a copy to: Farrell Fritz, P.C.
EAB Plaza
Uniondale, New York 11556
Attention: Mr. Igor Bilewich
Such notices shall be effective upon receipt in the case of personal or courier
service and on the third(3rd) day after posting in the U.S. mail.
14. (a) Entire Agreement. This Agreement represents the entire
-----------------
agreement between the parties with respect to the subject matter hereof, and
superseded all prior agreements, arrangements and understandings between the
parties, whether oral or written, with respect thereto.
(b) Governing Law. All questions concerning this Agreement, including
-------------
but not limited to, the execution, interpretation and performance shall be
governed by the laws of the State of New York without regard to any law or rule
which would require the selection or application of the law of any other
jurisdiction.
11
<PAGE>
(c) Amendments. This Agreement may not be amended except in writing
----------
signed by each of the parties hereto.
(d) Assignment. This Agreement may not be assigned by any of the
----------
parties without the prior written consent of the other parties.
(e) Counterparts. This Agreement may be executed in counterparts,
-------------
including facsimile counterparts, each of which shall be deemed an original, and
all of which, when taken together, shall be deemed one and the same instrument.
(f) Further Assurances. Each party hereto agrees to execute and
------------------
deliver all such other instruments and take all such other action as another
party hereto may reasonably request from time to time hereafter and without
payment of further consideration in order to effectuate or evidence the
transactions contemplated thereby.
(g) No Adverse Construction. The rule that a contract is to be
-----------------------
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or any provision hereof.
MPEL HOLDINGS CORP. ESTATE OF ANTHONY SAFFIOTTI
By:______________________ By:______________________
MORTGAGE PLUS EQUITY
& LOAN CORP.
12
<PAGE>
By:______________________ By:______________________
KAREN SAFFIOTTI
By:______________________
CARY WOLEN
By:______________________
STEVEN M. LATESSA
By:______________________
JON P. BLASI
By:______________________
LYDIA BLASI
WLB PARTNERSHIP
By:______________________
13
<PAGE>
Exhibit E-1
-----------
IRREVOCABLE AND UNCONDITIONAL RELEASE
-------------------------------------
The Estate and KS (individually a "Releasor" and collectively, the
"Releasors"), in consideration MPEL Holdings Corp. ("MPEL"), Mortgage Plus
Equity & Loan Corp. ("Mortgage Plus") Cary Wolen, Steven M. Latessa, Jon Blasi
and Lydia Blasi, and the WLB Partnership entering into an agreement with the
Releasors dated the date hereof (the "Agreement") jointly, and jointly and
severally, fully and unconditionally release (i) MPEL and Mortgage Plus and all
its affiliated businesses (herein called the "Company"), and (ii) all officers,
employees, shareholders, directors, partners, advisors and agents of the
Company, and (iii) all successors, assigns and heirs of the foregoing and (iv)
all other parties to the Agreement (each aforementioned entity or person called
a "Releasee" and all such entities and persons called the "Releasees:) form and
against any and all claims, rights, fees, payments, compensation of any kind,
accountings, actions, causes of action, suits, debts, dues, sums of money,
property, accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, damages (including consequential damages),
judgments and demands whatsoever (whether or not
14
<PAGE>
existing, contingent, matures or known on the date hereof) in law, admiralty or
equity, which against any Releasee or all Releasees, any Releasor or the
Releasors, or it or their heirs,
Initials:
______________ _______________
executors, administrators, successors and assigns, ever had, now have or
hereafter can, shall or may, have for, upon, or by reason of any matter, cause
or thing whatsoever from the beginning of the world to the date of this Release,
provided, however, the obligations of the Purchaser set forth in Paragraph 3 of
the Agreement and the obligations of MPEL set forth in Paragraph 5, 6, 7 and 8
of the Agreement shall remain in full force and effect.
The Irrevocable and Unconditional Release further specifically confirms
that no Releasor has heretofore assigned, pledged, sold or transferred all or a
portion of any of the foregoing claims, rights, etc., and the Estate and KS each
agree to fully and promptly indemnify each and every Releasee from any claim or
expense that may be incurred in connection with any misrepresentation with
respect to the foregoing.
Each of the Releasors acknowledges that it/she has received legal advice
with respect to the Unconditional Release and that it/she intends to be bound
by the provisions hereof.
This Irrevocable and Unconditional Release shall be governed by New York
law.
15
<PAGE>
Initials:
______________ _____________
This Irrevocable and Unconditional Release may not be modified, rescinded
or altered without the written consent of each Releasee.
ESTATE OF ANTHONY SAFFIOTTI
By:_____________________________
By:_____________________________
KAREN SAFFIOTTI
STATE OF NEW YORK )
)ss.:
COUNTY OF NASSAU )
On May 6, 1998, before me personally came Executor, to me known, who, by me
duly sworn, did depose and say that deponent is the ______________________ of
Estate of Anthony Saffiotti which executed the foregoing Irrevocable and
Unconditional Release, and that deponent signed deponent's name.
__________________________
NOTARY PUBLIC
STATE OF NEW YORK )
16
<PAGE>
)ss.:
COUNTY OF NASSAU )
On May 6, 1998, before me personally came Karen Saffiotti, to me known, and
known to me to be the individual described in, and executed the foregoing
Irrevocable and Unconditional Release, and duly acknowledged to me that he
executed same.
___________________________
NOTARY PUBLIC
Initials:
________________ _______________
EXHIBIT E-2
-----------
IRREVOCABLE AND UNCONDITIONAL RELEASE
-------------------------------------
MPEL Holdings Corp., ("MPEL") its wholly-owned subsidiary Mortgage Plus
Equity & Loan Corporation and the persons on Exhibit A hereto (a "Releasor" and
collectively, the "Releasors" ), in consideration of the Estate of Anthony
Saffiotti (the "Estate") and Karen Saffiotti entering into an agreement with the
Releasors dated the date hereof (the "Agreement"), jointly, and jointly and
severally, fully and unconditionally release (i) the Estate and KS and all
advisors and agents of the Estate and (ii) all successors, assigns and heirs of
the foregoing (each such aforementioned entity or person called a "Releasee" and
all such entities and persons called the "Releasees") from and against any and
claims, rights, fees, payments, compensation of any kind, accountings, actions,
causes of action, suits, debts, dues, sums of money, property, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, damages (including consequential damages), judgments and
demands whatsoever (whether or not existing, contingent, matured or know on the
date hereof) in
17
<PAGE>
law, admiralty or equity, which against any Releasee or all Releasess, any
Releasor or the Releasors, or it or their heirs, executors, administrators,
successors and assigns, ever had, now have or hereafter can, shall or may, have
for, upon or by reason of any matter, cause or thing whatsoever from the
beginning of the world to the date of the date of this
Initials:
______________ ______________
Release, provided, however, the obligations of the Estate and KS set forth in
Paragraph ____ of the Agreement shall remain in full force and effect.
The Irrevocable and Unconditional Release further specifically confirms
that no Releasor has heretofore assigned, pledged, sold or transferred all or a
portion of any of the foregoing claim, rights, etc., and each Releasor agrees to
fully and promptly indemnify each and every Releasee from any claim or expense
that may be incurred in connection with any misrepresentation with respect to
the foregoing.
Each of the undersigned acknowledges that it/he has received legal advice
with respect to this Unconditional Release and that it/he intends to be bound by
the provisions hereof.
This Irrevocable and Unconditional Release shall be governed by New York
law.
18
<PAGE>
Initials:
_______________ ______________
This Irrevocable and Unconditional Release may not be modified, rescinded
or altered without the written consent of each Releasee.
MPEL HOLDINGS CORP.
MORTGAGE PLUS EQUITY & LOAN CORP.
By:_____________________________
By:_____________________________
CARY WOLEN
By:_____________________________
STEVEN M. LATESSA
By:_____________________________
JON P. BLASI
WLB PARTNERSHIP
By:_____________________________
19
<PAGE>
Initials:
_____________ _____________
STATE OF NEW YORK )
)ss.:
COUNTY OF NASSAU )
On May 6, 1998, before me personally came to me known, who, by me duly
sworn, did depose and say that deponent is the ______________________ of MPEL
Holdings Corp., and Mortgage Plus Equity & Loan Corp. the corporation described
in, and which executed the foregoing Irrevocable and Unconditional Release, and
that deponent knows the seal of the corporation, that the seal affixed to the
Irrevocable and Unconditional Release is the corporate seal, that it was affixed
by order of the Board of Directors of the corporation; and that deponent signed
deponent's name by like order.
__________________________
NOTARY PUBLIC
STATE OF NEW YORK )
)ss.:
COUNTY OF NASSAU )
On May 6, 1998, before me personally came Cary Wolen, to me known, and
known to me to be the individual described in, and executed the foregoing
Irrevocable and Unconditional Release, and duly acknowledged to me that he
executed same.
___________________________
NOTARY PUBLIC
STATE OF NEW YORK )
)ss.:
COUNTY OF NASSAU )
20
<PAGE>
On May 6, 1998, before me personally came Steven M. Latessa, to me known,
and known to me to be the individual described in, and executed the foregoing
Irrevocable and Unconditional Release, and duly acknowledged to me that he
executed same.
___________________________
Initials: NOTARY PUBLIC
_______________ ______________
STATE OF NEW YORK )
)ss.:
COUNTY OF NASSAU )
On May 6, 1998, before me personally came Jon P. Blasi, to me known, and
known to me to be the individual described in, and executed the foregoing
Irrevocable and Unconditional Release, and duly acknowledged to me that he
executed same.
___________________________
NOTARY PUBLIC
STATE OF NEW YORK )
)ss.:
COUNTY OF NASSAU )
On May 6, 1998, before me personally came General Partner of WLB
Partnership, to me known, and known to me to be the individual described in, and
executed the foregoing Irrevocable and Unconditional Release, and duly
acknowledged to me that he executed same.
___________________________
NOTARY PUBLIC
21
<PAGE>
Initials:
______________ ______________
22
<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 25, 1998 and
Note 17, May 1, 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
May 7, 1998
<PAGE>
EXHIBIT 23.4
May 4, 1998
Daniel Intemann
3057 Judith Drive
Bellmore, NY 11710
I Daniel Intemann, hereby consent to be named to the Board of Directors after
the offering of MPEL Holdings, Corp., and the disclosure of my name in the
Registration Statement of MPEL Holdings, Corp.
/s/ Daniel Intemann
- -----------------------
Daniel Intemann
