As filed with the Securities and Exchange Commission May 12, 2000
File No. 333-71091
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Amendment No. 3
IBF VI - SECURED LENDING CORPORATION
(Name of small business issuer as specified in its charter)
Delaware 52-2139510
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1733 Connecticut Avenue, N.W.
Washington, DC 20009
(202) 588-7500
(Address and telephone number of registrant's principal
executive offices and principal place of business)
Simon A. Hershon
IBF VI -- Secured Lending Corporation
1733 Connecticut Avenue, N.W.
Washington, DC 20009
(202) 588-7500
(Name, address and telephone number of agent for service)
Copies to:
H. John Steele, Esq. Arthur Don, Esq.
Brown & Wood LLP Steve Curtis, Esq.
1666 K Street, N.W. D'Ancona & Pflaum LLC
Washington, DC 20006-1208 111 East Wacker Drive, Suite 2800
(202) 533-1460 Chicago, IL 60601
(202) 533-1399 fax (312) 602-2000
(312) 602-3000 fax
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
The securities being registered on the Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration 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. [X]
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CALCULATION OF REGISTRATION FEE
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Title of each Dollar Proposed maximum Proposed
class of securities amount to offering maximum aggregate Amount of
to be registered be registered price per unit offering price registration fee
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
10.25% Bonds-
Series A $50,000,000 $1,000 $50,000,000 $13,900*
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*Previously paid.
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 the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
IBF VI - SECURED LENDING CORPORATION
Cross-Reference Sheet Showing Location in Prospectus,
Filed as Part of Registration Statement, of Information
Required by Form SB-2
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Item
Number in
Form SB-2 Item Caption in Form SB-2 Location in Prospectus
- --------- ------------------------- ----------------------
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1 Front of Registration Statement and Outside Front Cover of Prospectus Front Cover Page
2 Inside Front and Outside Back Cover Pages of Prospectus................ Inside Front Cover Page; Back Cover
Page
3 Summary Information and Risk Factors................................... Prospectus Summary; Risk Factors
4 Use of Proceeds........................................................ Use of Proceeds
5 Determination of Offering Price........................................ Not Applicable
6 Dilution............................................................... Not Applicable
7 Selling Security Holders............................................... Not Applicable
8 Plan of Distribution................................................... Front Cover Page; Plan of Distribution
9 Legal Proceedings...................................................... Management
10 Directors, Executive Officers, Promoters and Control Persons........... Prospectus Summary; Certain
Relationships and Related Transactions
11 Security Ownership of Certain Beneficial Owners and Management......... Prospectus Summary; Certain
Relationships and Related Transactions
12 Description of Securities.............................................. Description of the Bonds; Cover Page
of Registration Statement; Cover Page
of Prospectus; Prospectus Summary;
Risk Factors; Investor Suitability and
Minimum Investment Requirements;
Subscription
13 Interest of Named Experts and Counsel.................................. Not Applicable
14 Disclosure of Commission Position on Indemnification for Securities
Act Liabilities........................................................ Risk Factors
15 Organization within Last Five Years.................................... Prospectus Summary; Certain
Relationships and Related Transactions
16 Description of Business................................................ Front Cover Page; Prospectus Summary;
Management's Discussion and Analysis
of Liquidity and Capital Resources;
Management; Certain Relationships and
Related Transactions; Risk Management;
Operating Policies and Objectives; IBF
VI Guidelines; Risk Factors;
Additional Information
17 Management's Discussion and Analysis or Plan of Operation.............. Operating Policies and Objectives;
Management's Discussion and Analysis
of Liquidity and Capital Resources
18 Description of Property................................................ Prospectus Summary; Risk Factors; Use
of Proceeds; IBF VI's Guidelines;
Management; Certain Legal Aspects of
Mortgage Loans and Real Property
Investments
19 Certain Relationships and Related Transactions......................... Management; Certain Relationships and
Related Transaction
20 Market for Common Equity and Related Stockholder Matters............... Prospectus Summary; Certain
Relationships and Related Transactions
21 Executive Compensation................................................. Not Applicable
22 Financial Statements................................................... Appendix I to the Prospectus
23 Changes In and Disagreements With Accountants on Accounting and Final Not Applicable
Disclosure.............................................................
24 Indemnification of Officers and Directors.............................. Part II of Registration Statement
25 Other Expenses of Issuance and Distribution............................ Part II of Registration Statement
26 Recent Sales of Unregistered Securities................................ Part II of Registration Statement
27 Exhibits............................................................... Exhibits to Registration Statement
28 Undertakings........................................................... Part II of Registration Statement
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<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS [LOGO]
$50,000,000
IBF VI - SECURED LENDING CORPORATION
10.25% BONDS - SERIES A
IBF VI - Secured Lending Corporation is offering its 10.25% Bonds -
Series A, due December 31, 2006. There is no market for you to resell your
bonds.
See "Risk Factors" beginning on page 3 for certain information you
should consider before you purchase bonds.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the securities or passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
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Price To Sales Proceeds To
Public Commission Company
<S> <C> <C> <C>
Per bond 100% 8% 92%
Minimum $500,000 $40,000 $460,000
Maximum $50,000,000 $4,000,000 $46,000,000
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The offering is made through National Securities Corporation, as
underwriter on a best efforts basis. If less than $500,000 of bonds are sold
within three months following the date of this prospectus, or within six
months following the date of this Prospectus, unless we and the Underwriter
elect an extension, all proceeds raised will be promptly returned to investors
with interest. All proceeds from the sale of bonds will be placed in escrow
pending investment by IBF VI - Secured Lending Corporation ("IBF VI") or
return to investors. If the earliest of the date on which minimum amount of
bonds is sold within the date on which the initial offering period, then the
offering will continue until the earliest of the date on which the maximum
amount of bonds are sold, the date on which IBF VI elects to terminate this
offering in its sole discretion, or June 30, 2001.
NATIONAL SECURITIES CORPORATION
875 N. Michigan Ave., Suite 1560
Chicago, Illinois 60611
312-751-8833
The date of this Prospectus is _______________, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
PROSPECTUS SUMMARY................................................................................................1
RISK FACTORS......................................................................................................2
DESCRIPTION OF THE BONDS.........................................................................................15
FORWARD-LOOKING STATEMENTS.......................................................................................20
USE OF PROCEEDS..................................................................................................20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES..........................................21
OPERATING POLICIES AND OBJECTIVES................................................................................21
IBF VI's GUIDELINES..............................................................................................22
RISK MANAGEMENT..................................................................................................28
MANAGEMENT.......................................................................................................30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................36
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND REAL PROPERTY INVESTMENTS............................................37
PLAN OF DISTRIBUTION.............................................................................................38
INVESTOR SUITABILITY AND MINIMUM INVESTMENT REQUIREMENTS; SUBSCRIPTION PROCEDURES................................39
LEGAL MATTERS....................................................................................................41
EXPERTS..........................................................................................................41
ADDITIONAL INFORMATION...........................................................................................41
APPENDIX I - FINANCIAL STATEMENTS...............................................................................F-1
APPENDIX II - SUBSCRIPTION AGREEMENT...........................................................................II-1
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<PAGE>
PROSPECTUS SUMMARY
IBF VI - Secured Lending Corporation ("IBF VI") is a Delaware
corporation organized in June 8, 1998. IBF VI changed its name from IBF VI
Participating Income Corporation on May 11, 2000. IBF VI is a direct, wholly
owned subsidiary of InterBank Funding Corporation, a Delaware corporation
("InterBank"). The stockholders of InterBank are Simon A. Hershon and Ehud D.
Laska, who are both officers and directors of IBF VI. IBF Management Corp.
("IBF Management"), an affiliate of InterBank, through its affiliate InterBank
Consultants, Inc. ("IB Consultants"), will provide administrative and support
services to IBF VI for a fee. The principal offices of IBF VI, IBF Management,
IB Consultants and InterBank are located at 1733 Connecticut Avenue, N.W.,
Washington, DC 20009, telephone number (202) 588-7500.
IBF VI will engage either directly, or through one or more wholly
owned affiliates, including IBF VI SPV, in one or more of the following
businesses:
o Purchasing and originating loans secured at least 100% by value of
commercial and residential real estate, which may include
distressed properties, properties located outside the United
States and residential mortgage loans made to borrowers whose
credit standing would not qualify them for bank or Fannie Mae or
Freddie Mac guidelines;
o Purchasing and originating other commercial real estate related
loans;
o Purchasing and originating commercial loans that are
collateralized by non-real estate property;
o Investing in subordinated interests in residential or commercial
mortgage-backed securities;
o Issuing nonrecourse mortgage-backed securities and entering into
short-term financings secured by, and used to finance the
purchase of, its loans;
o Issuing the bonds offered hereby;
o Through a management agreement with its affiliate, IBF
Management Corp., and through management or servicing agreements
with one or more unaffiliated parties, manage and service the
loans.
IBF VI's investment objective is to purchase and originate loans that
will produce an average annual percentage rate of return of at least 18
percent. IBF VI will attempt to obtain such yields through a combination of
origination fees, stated interest, discount fees and leverage. This strategy
requires that IBF VI originate or acquire certain non-conforming loans,
distressed loans, subordinated interests in pools of loans and enter into
substantial leverage, all of which will typically involve a high degree of
risk. Management has broad discretion in selecting the investments IBF VI will
acquire or make.
The Offering
Bonds Offered Up to $50,000,000 aggregate principal amount of
10.25% Bonds - Series A, due December 31, 2006.
The bonds will be general unsecured debt of IBF
VI. Although not currently subordinated in right
of payment to any other obligations of IBF VI,
circumstances may arise where IBF VI could
participate in loan investment opportunities by
leveraging a portion of its participation through
debt obligations issued by IBF VI secured by the
loan investments, which would be senior in right
of payment to the bonds.
Denomination The minimum principal amount of bonds you can
purchase is $5,000 unless there is a higher
requirement in your state of residence. However,
the minimum purchase for Individual Retirement
Accounts and Keogh Plans is $2,000. After the
minimum purchase, sales will be made in
increments of $1,000.
Maturity Date The bonds mature December 31, 2006.
Interest Interest at the stated rate of 10.25% per annum is
payable quarterly, unless you purchase more than
$15,000 of bonds and elect to receive interest
monthly. Stated interest will have a priority in
payment over management fees due to IBF
Management for the same period.
Interest Reinvestment Bondholders may elect to reinvest monthly interest
payment in additional bonds, to the extent
permitted by applicable law. The reinvested
interest will accrue for the benefit of the
investor as of the interest payment date, and the
total amount of the interest payments over the
year, with interest compounded on the reinvested
amount, will be added to the principal amount of
the Holder's bond on December 31 of each year.
Redemption IBF VI may redeem any portion of your bonds from
time to time after June 30, 2001. Your bonds may
be tendered for redemption in the limited
circumstances of your death or hardship
circumstances, subject to certain conditions.
No Rating The bonds are not rated.
Indenture Trustee, Continental Stock Transfer & Trust Company.
Payment Agent and
Registrar
RISK FACTORS
You will not receive the full amount of your investment if IBF VI is
unsuccessful in achieving its investment objectives
IBF VI was recently formed and has not purchased any loans or made
any investments. Consequently, there is no history of operations on which to
predict future operations. IBF VI may not be successful in fully implementing
its business plan or achieving profitable operations. IBF VI has no other
assets than its anticipated loans and investments with which to repay your
bonds. Therefore, if IBF VI does not obtain its desired returns on its
investments, you may not receive the entire amount of your bonds. IBF VI will
not be able to repay the full amount of principal and interest on your bonds
in their entirety if it does not achieve approximately 15% yield to maturity
on the loan investments.
IBF VI's ability to repay your bonds will be impaired if management does not
identify adequate loans for investment
IBF VI has broad discretion in the types of loans and investments
that may be originated or acquired. You will make your investment in the bonds
prior to the time loans and investments are actually acquired by management.
If you choose to purchase bonds, you will be relying upon the ability of
management to acquire and make loans consistent with IBF VI's investment
objectives for the repayment of your bonds.
Collateral on loans and investments may not be sufficient or liquidation
proceeds received timely enough to allow IBF VI to achieve the yield on its
investments required to repay the bonds
IBF VI will acquire and make loans and investments primarily on the
basis of IBF VI's assessment of the value of the collateral pledged as
security, which in most cases will be real estate or mortgages. If IBF VI's
evaluation of the collateral is incorrect, it fails for any reason to hold a
perfected security interest, the collateral loses value or the process of
collection on the collateral is longer or more costly than anticipated when
the investment is acquired, IBF VI may not be able to recover the full amount
of the related investment or achieve its targeted rates of return.
IBF VI may not always be able to pay interest payments on your bonds
IBF VI intends to pay interest on your bonds out of interest and fee
income from its loans and investments. If the loans and investments do not
produce sufficient revenue in any period to pay the interest for that period,
interest may be paid from funds raised in this offering and placed in reserve
or held as working capital. If no reserves or working capital are available,
IBF VI will not be able to make interest payments on the bonds when due.
IBF VI may not be able to pay principal at the maturity of your bonds
IBF VI must liquidate its loans and investments beginning in calendar
year 2005 in order to have sufficient capital to pay the principal on your
bonds at maturity. However, the nature of the loans and investments, general
economic conditions, or other factors beyond the control of IBF VI may inhibit
its ability to liquidate its loans and investments or may require such
liquidation to occur at substantial discounts. In these circumstances, IBF VI
might not be able to meet its principal payment obligations under the bonds.
Adverse changes in general economic conditions can adversely affect IBF VI's
business
IBF VI's success is dependent upon the general economic conditions in
the geographic areas in which its loans and investments will be located.
Adverse changes in the economic conditions of any region in which IBF VI
conducts substantial business will likely have an adverse effect on real
estate values, interest rates and, accordingly, IBF VI's business.
There are no limits on the amount of assets that IBF VI may acquire
in any region of the country. If IBF VI were to concentrate its investment
activity in any particular region or regions, its performance and ability to
repay your bonds likely would be affected significantly by future economic
conditions in such region or regions.
Significant competition may affect adversely IBF VI's ability to acquire
assets at favorable spreads relative to bond rate
In originating and acquiring its loans and investments, IBF VI will
compete with real estate investment trusts, investment banking firms, savings
and loan associations, banks, mortgage bankers, insurance companies, mutual
funds, other lenders, and other entities purchasing similar assets, many of
which have established operating histories and procedures, may have access to
greater capital and other resources, and may have other advantages over IBF VI
in conducting certain businesses and providing certain services. Increased
competition for the acquisition of real properties, mortgage loans and
mortgage-backed securities or a diminution in the available supply could
result in higher prices and thus lower yields on such real properties,
mortgage loans and mortgage-backed securities which could further narrow the
yield spread over borrowing costs. In addition, IBF VI's competitors may seek
to establish relationships with the financial institutions and other firms
from whom IBF VI intends to acquire some of its loans and investments. IBF VI
may not be able to acquire sufficient loans and investments at spreads above
IBF VI's cost of funds to achieve IBF VI's yield objectives and to repay the
bonds in full.
Non-performing loans are risky investments and may cause IBF VI to suffer
losses or delays in payment on the loans, resulting in the inability to fully
repay the bonds
IBF VI plans to acquire non-performing loans secured by real estate
or other non-real estate assets. Non-performing loans may entail a higher risk
of loss or delayed payment than loans typically extended by commercial banks.
In the event IBF VI experiences higher losses or delays in payment on
non-performing loans than expected, it may be unable to fully repay the bonds.
IBF VI may suffer greater losses due to the potential lack of diversification
of the loans and investments
If bond proceeds are less than expected, IBF VI will be limited in
its ability to diversify its loan portfolio. The lack of sufficient
diversification and the dependence on a small number of loans and investments
creates the risk that the non-performance (or, in the case of a non-performing
loan acquired by IBF VI, lower than expected net liquidation proceeds) of any
one loan could have a substantial adverse effect on the financial condition of
IBF VI and its ability to repay the bonds.
The existence of conflicts of interest could compromise the quality of IBF
VI's loans and investments and the return on investment for IBF VI
Simon A. Hershon and Ehud D. Laska, both officers and directors of
IBF VI, are the owners of InterBank, which is the sole stockholder of IBF VI.
Simon A. Hershon is also the sole stockholder of IBF Management and IB
Consultants. There are conflicts of interest inherent in the relationships
between IBF VI and its affiliates.
o InterBank owns other business entities that acquire and make
loans for their own accounts, and many investments
appropriate for IBF VI also will be appropriate for these
other accounts.
o IBF VI may make loans to affiliates of InterBank or acquire
investments from InterBank. There is a potential conflict of
interest when management has an interest in the lender and
the borrower.
o IBF VI will pay each of Coleman Securities and IBF
Securities (each an affiliate of InterBank) a fee for
participating in the offering of the bonds.
IBF VI may purchase substantial assets from InterBank and its
affiliates. Many of such assets will not have a readily determinable fair
market value and independent valuations may not be sought. Under the indenture
governing the bonds, however, loan transactions with (including acquisitions
from) affiliates of IBF VI must be effected on an arms' length basis and on at
least as favorable terms to IBF VI as would be made available to IBF VI from
third party borrowers or sellers. Nevertheless, these conflicts of interest
may be difficult, if not impossible, to resolve in all cases in the best
interests of IBF VI, which could adversely affect its business.
IBF VI's success will depend on the services of external management
IBF VI will contract with IBF Management to manage the day-to-day
business affairs of IBF VI and will rely on IBF Management as its principal
source of investment opportunities. In addition, IBF VI does not expect to
employ full-time personnel and expects to rely on the facilities, personnel
and resources of IBF Management and IB Consultants, with whom IBF Management
will subcontract for services, to conduct its operations. Thus, IBF VI's
success will depend on the services of IBF Management and IB Consultants and
its officers and employees. Certain officers, directors and employees of IBF
VI and IBF Management and IB Consultants have experience in creating,
evaluating, acquiring and managing commercial mortgage loans, and other real
estate related investments. IBF Management is expected to have significant
latitude as to the types of assets it may determine to be proper investments
for IBF VI. IBF VI's success will depend in part on the continuing ability of
IBF Management and IB Consultants to hire and retain knowledgeable personnel
and IBF Management's ability to cause such personnel to focus their attention
on the affairs of IBF VI rather than the affairs of its other affiliates. The
ability of IBF Management and IB Consultants to attract and retain such
personnel may be affected, in turn, by IBF Management's continued financial
strength. Finally, IBF VI is subject to the risk that IBF Management will
terminate the Management Agreement and that no suitable replacement will be
found to manage IBF VI.
Covenants that protect bondholders' rights in the indenture are very limited
and give IBF VI wide latitude to make investments
The covenants in the indenture are limited and do not restrict the
operations of IBF VI to enhance profits or cash flow for the payment of
interest on the bonds. IBF VI's ability and discretion to make investments are
essentially unlimited within the parameters described herein. As a result, you
will be dependent for repayment on your bonds on management's judgment
regarding individual investments as well as the overall risk profile of IBF
VI's assets.
A default by IBF VI in paying interest or principal on your bonds could result
in the acceleration of the maturity of your bonds and a termination of your
investment
If IBF VI defaults in its obligation to pay you interest or principal
on the bonds or there is a default under the indenture, the indenture trustee
or the holders of 30% of the outstanding bonds acting together may accelerate
the due date of all principal and interest on the bonds. Although the holders
of a majority of the bonds outstanding could vote to waive the default, if
they are unwilling to do so your investment in the bonds would be terminated
through prepayment, which may or may not result in full payment on the bonds,
even if you would prefer that your investment continue until the original
maturity.
You may never be able to resell your bonds because there is no secondary
market for bonds
There is no public market for the bonds. Accordingly, you may never
be able to resell your bonds and should purchase the bonds only if you are
prepared to make a long-term investment with the expectation of holding the
bonds until maturity.
A material portion of the proceeds of the offering will be used to pay
offering expenses, organizational costs and equipment acquisition costs to
operate IBF VI's business
A substantial amount of the proceeds of the offering will be used to
pay offering expenses, organizational expenses, equipment acquisition costs
and other expenditures. Therefore, the amount of loan and investment
collateral available to earn returns and to secure the payments on the bonds
will be substantially less than the principal amount of the bonds, and might
never be sufficient to repay the bonds. IBF VI will be required to earn
substantially higher rates of return on its loans and investments than the
stated interest rates on the bonds in order to be able to repay the bonds in
full.
Environmental risks of ownership of properties could impair IBF VI's ability
to repay your bonds
Operating costs and the value of real property may be affected by the
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations and future legislation. Under various federal,
state and local environmental laws, ordinances and regulations, a current or
previous owner or operator of real property may be liable for the costs of
removal or remediation of hazardous or toxic substances on, under or in such
property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. Therefore, an environmental liability could have a material
adverse effect on the underlying value of the real property securing a loan or
investment and on IBF VI's income and cash available for payment to
bondholders. However, IBF VI is not aware of any necessary environmental
remediation or other environmental liabilities with respect to the real
properties underlying the loans being considered for acquisition with the net
proceeds from the offering.
IBF VI generally obtains Phase I environmental assessments on
commercial real estate properties prior to the origination or acquisition of
the related loan. The purpose of Phase I environmental assessments is to
identify existing and potential environmental contamination that is made
apparent from historical reviews of the properties, reviews of certain public
records, preliminary investigations of the sites and surrounding properties
and screening for the presence of hazardous substances, toxic substances and
underground storage tanks. However, IBF VI will exercise its judgment on this
issue and may choose not to obtain Phase I environmental assessments on
certain commercial properties prior to their acquisition or origination and to
purchase loans without Phase I environmental assessments on the underlying
property if it deems that to do so is prudent (e.g., the loan size is too
small to justify the cost of such assessment). Further, even if a Phase I
environmental assessment is obtained, the assessment may not reveal all
existing and potential environmental risks and liabilities, and there may be
unknown material environmental obligations or liabilities.
IBF VI's insurance will not cover all losses
IBF VI intends, and will require borrowers under commercial mortgage
loans, to maintain comprehensive insurance on each of the commercial
properties and residential properties, including liability and fire and
extended coverage, in amounts sufficient to permit the replacement of the
properties in the event of a total loss, subject to applicable deductibles.
IBF VI will endeavor to obtain, or cause to be obtained, coverage of the type
and in the amount customarily obtained by owners of properties similar to the
commercial properties and residential properties. There are certain types of
losses, however, generally of a catastrophic nature, such as earthquakes,
floods and hurricanes, that may be uninsurable or too costly to justify
insuring. Inflation, changes in building codes and ordinances, environmental
considerations, and other factors also might make it infeasible to use
insurance proceeds to replace a property if it is damaged or destroyed. Under
such circumstances, the insurance proceeds received by IBF VI might not be
adequate to restore its economic position with respect to the affected
commercial property and residential properties.
Interest rate changes may adversely affect IBF VI's investments
IBF VI's operating results depend in part on the difference between
the interest income earned on interest-earning assets and the interest expense
on your bonds. Changes in the general level of interest rates can affect IBF
VI's income by affecting the spread between IBF VI's interest-earning assets
and interest-bearing liabilities, as well as, among other things, the value of
IBF VI's interest-earning assets and its ability to realize gains from the
sale of assets and the average life of IBF VI's interest-earning assets.
The value of subordinated investments in mortgage-backed securities
("Subordinate MBS") is significantly affected by prepayment rates on the
mortgage loans comprising the mortgage collateral for such securities.
Prepayment rates on Subordinate MBS are influenced by changes in current
interest rates and a variety of economic, geographic and other factors, and
cannot be predicted with certainty. In periods of declining mortgage interest
rates, prepayments on Subordinate MBS generally increase. If general interest
rates also decline, reinvestments by IBF VI during such periods are likely to
be reinvested at lower interest rates than IBF VI was earning on the
Subordinate MBS that were prepaid. Subordinate MBS may decrease in value as a
result of increases in interest rates and may benefit less than other
fixed-income securities from declining interest rates because of the risk of
prepayment. In general, changes in both prepayment rates and interest rates
will change the total return on Subordinate MBS, which in turn will affect the
amount available for payment to bondholders. Under certain interest rate or
prepayment rate scenarios, IBF VI may fail to recoup fully its cost of
acquisition of such Subordinate MBS investments.
Failure to maintain exemption from the Investment Company Act would restrict
IBF VI's operating flexibility
IBF VI at all times intends to conduct its business so as not to
become regulated as an investment company under the Investment Company Act.
Accordingly, IBF VI does not expect to be subject to the restrictive
provisions of the Investment Company Act. The Investment Company Act excludes
from regulation entities that are primarily engaged in the business of
purchasing or otherwise acquiring "mortgages and other liens on and interests
in real estate." Under the current interpretations of the staff of the
Securities and Exchange Commission, in order to qualify for this exemption,
IBF VI must, among other things, maintain at least 55% of its assets directly
in mortgage loans, qualifying pass-through certificates and certain other
qualifying interests in real estate and an additional 25% of its assets in
real estate related assets. In addition, unless certain mortgage-backed
securities represent all the certificates issued with respect to an underlying
pool of mortgage loans, such securities may be treated as securities separate
from the underlying mortgage loans and thus, may not qualify as qualifying
interests in real estate for purposes of the 55% requirement. IBF VI's
ownership of many mortgage assets, therefore, will be limited by the
provisions of the Investment Company Act. If IBF VI fails to qualify for
exemption from registration as an investment company, it would be unable to
conduct its business as described herein. Any such failure to qualify for such
exemption would have a material adverse effect on IBF VI.
Subordinated loans on real estate are subject to higher risks
IBF VI may originate or acquire loans secured by commercial real
estate, including loans that are subordinate to first liens on such real
estate. Loans that are subordinate to first liens on real estate are subject
to greater risks of loss than first lien mortgage loans. An overall decline in
the real estate market could adversely affect the value of the real property
securing such loans such that the aggregate outstanding balance of the
second-lien loan and the balance of the more senior loan on the real property
exceed the value of the real property.
Bankruptcy proceedings entail certain risks
Under the Bankruptcy Code, the filing of a petition in bankruptcy by
or against a borrower will stay the sale of the real property owned by that
borrower, as well as the commencement or continuation of a foreclosure action.
In addition, if a court determines that the value of the mortgage property is
less than the principal balance of the mortgage loan it secures, the court may
prevent a lender from foreclosing on the mortgaged property (subject to
certain protections available to the lender). As part of a restructuring plan,
a court also may reduce the amount of secured indebtedness to the current
value of the mortgaged property. Such an action would make the lender a
general unsecured creditor for the difference between the current value and
the amount of its outstanding mortgage indebtedness.
A bankruptcy court may also grant a debtor a reasonable time to cure
a payment default on a mortgage loan, reduce monthly payments due on a
mortgage loan, change the rate of interest due on a mortgage loan, or
otherwise alter the mortgage loan's repayment schedule.
Moreover, the filing of a petition in bankruptcy by, or on behalf of,
a junior lienholder may stay the senior lienholder from taking action to
foreclose on the junior lien. Additionally, the borrower's trustee or the
borrower, as debtor-in-possession, has certain special powers to avoid,
subordinate or disallow debts. In certain circumstances, the claims of the
trustee may be subordinated to financing obtained by a debtor-in-possession
subsequent to its bankruptcy.
Under the Bankruptcy Code, the lender will be stayed from enforcing a
borrower's assignment of rents and leases. The legal proceedings necessary to
resolve these issues can be time consuming and may significantly delay the
receipt of rents. Rents also may escape an assignment to the extent they are
used by the borrower to maintain the mortgaged property or for other court
authorized expenses.
As a result of the foregoing, IBF VI's recovery with respect to
borrowers in bankruptcy proceedings may be significantly delayed, and the
aggregate amount ultimately collected may be substantially less than the
amount owed.
Hedging - IBF VI's performance may be adversely affected if its hedging
strategy is not successful
If IBF VI purchases loans for issuance of MBS debt, but such MBS is
not issued simultaneously with the loan purchase, IBF VI may hedge the value
of the loans in an effort to lock in some or all of the value of the loans
until the MBS debt can be issued. IBF VI's performance may be affected
adversely if it does not hedge effectively against interest rate and other
risks. No hedging strategy will insulate IBF VI completely from interest rate
risk. A liquid secondary market may not exist for hedging instruments
purchased or sold, and IBF VI may be required to maintain a position until
exercise or expiration, which could result in losses.
Leverage can reduce income available for distribution and cause losses
There is no limit on the amount of indebtedness IBF VI can incur. IBF
VI intends to leverage its investments in an amount to be determined by IBF
Management. If borrowing costs increase, or if the cash flow generated by IBF
VI's assets decrease, IBF VI's use of leverage will increase the likelihood
that IBF VI will experience reduced or negative cash flow and reduced
liquidity.
Subordinate MBS may subject IBF VI to greater credit risks and yields that are
sensitive to interest rate changes
IBF VI intends to originate and acquire a significant amount of
various classes of MBS, including "first loss" classes of Subordinate MBS. A
first loss class is the most subordinated class of a multi-class issuance of
pass-through or debt securities and is the first to bear the loss upon a
default on the mortgage loans securing or backing a series of MBS ("Mortgage
Collateral"). Subordinate MBS are subject to special risks, including a
substantially greater risk of loss of principal and non-payment of interest
than more senior classes. The market values of subordinated classes of MBS
tend to be more sensitive to changes in economic conditions than more senior
classes. As a result of these and other factors, Subordinate MBS generally are
not actively traded and may not provide holders with liquidity of investment.
The yield to maturity on Subordinate MBS of the type IBF VI intends to acquire
will be extremely sensitive to the default and loss experience of the
underlying Mortgage Collateral and the timing of any such defaults or losses.
Because the subordinated classes of the type IBF VI intends to acquire
generally have no credit support, to the extent there are realized losses on
the Mortgage Collateral, IBF VI may not recover the full amount, or indeed
any, of its investment in such Subordinate MBS. When IBF VI acquires a
Subordinate MBS interest, it typically will be unable to obtain the right to
service the underlying performing Mortgage Collateral. In an attempt to
control and minimize its losses, IBF VI may obtain the right to service any
underlying Mortgage Collateral that is in default (the servicing of defaulted
mortgage loans is referred to as "Special Servicing"), although in many cases
it is not likely to obtain Special Servicing rights on acceptable terms. If
IBF VI does acquire Special Servicing rights, then it will contract with a
special servicer (that may be IBF Management) to perform the Special Servicing
functions, and thus the performance of IBF VI's investments will depend, at
least in part, on such special servicer's handling of defaulted loans. To the
extent IBF VI does not obtain Special Servicing rights with respect to the
Mortgage Collateral underlying its MBS, the servicer of the Mortgage
Collateral generally would be responsible to holders of the senior classes of
MBS, whose interests may not be the same as those of the holders of the
subordinated classes. Accordingly, the Mortgage Collateral may not be serviced
in a manner that is most advantageous to IBF VI as the holder of a
subordinated class. The subordination of Subordinate MBS to more senior
classes may affect the yield on the Subordinate MBS adversely even if realized
losses ultimately are not allocated to such classes. On any payment date,
interest and principal generally would be paid on the more senior classes
before interest and principal would be paid with respect to the subordinated
classes. Typically, interest deferred on subordinated classes would be payable
on subsequent payment dates to the extent funds become available, but such
deferral itself may not bear interest. Such deferral of interest generally
will affect adversely the yield on the subordinated classes.
Multifamily and commercial loans involve a greater risk of loss than single
family loans
A substantial amount of the mortgage loans that IBF VI expects to
originate and acquire generally will be secured by existing multifamily or
commercial real estate, including apartments, shopping centers, office
buildings, hotels, industrial properties, hospitals and nursing homes.
Property pledged as security for mortgage loans is referred to as "Mortgaged
Property." Multifamily and commercial real estate lending is considered to
involve a higher degree of risk than single family residential lending because
of a variety of factors, including generally larger loan balances, dependency
on successful operation of the Mortgaged Property and tenants operating
businesses therein for repayment, and loan terms that often require little or
no amortization and, instead, provide for balloon payments at stated maturity.
In addition, the value of multifamily and commercial real estate can be
affected significantly by the supply and demand in the market for that type of
property. Market values may vary as a result of economic events, governmental
regulations or other factors outside the control of the borrower or IBF VI,
such as rent control laws in the case of multifamily mortgage loans, which may
impact the future cash flow of the underlying Mortgaged Property. The
successful operation of a multifamily or commercial real estate project is
generally dependent on the performance and viability of the property manager
of that project. The property manager would be responsible for responding to
changes in the local market, planning and implementing the rental structure,
including establishing appropriate rental rates, and advising the owner so
that maintenance and capital improvements can be carried out in a timely
fashion and at an appropriate cost. There can be no assurance regarding the
performance of any operators and/or managers or persons who may become
operators and/or managers upon the expiration or termination of leases or
management agreements or following any default or foreclosure under a mortgage
loan.
Volatility of values of mortgaged properties may affect adversely IBF VI's
mortgage loans
Commercial and multifamily property values and net operating income
derived therefrom are subject to volatility and may be adversely affected by a
number of factors, including, but not limited to, national, regional and local
economic conditions (which may be adversely affected by plant closings,
industry slowdowns and other factors); local real estate conditions (such as
an oversupply of housing, retail, industrial, office or other commercial
space); changes or continued weakness in specific industry segments;
perceptions by prospective tenants and, in the case of retail properties,
retailers and shoppers, of the safety, convenience, services and
attractiveness of the property; the willingness and ability of the property's
owner to provide capable management and adequate maintenance; construction
quality, age and design; demographic factors; retroactive changes to building
or similar codes; and increases in operating expenses (such as energy costs).
The historical operating results of the Mortgaged Properties may not be
comparable to future operating results. In addition, other factors may affect
adversely the Mortgaged Properties' value without affecting the net operating
income, including changes in governmental regulations, zoning or tax laws,
potential environmental or other legal liabilities, the availability of
refinancing, and changes in interest rate levels.
Delinquency and loss ratios may be affected by performance of servicers
IBF VI intends to contract for the servicing of its mortgage loans
with servicers and will be subject to risks associated with potentially
inadequate servicing. Many borrowers require notices and reminders to keep
mortgage loans current and to prevent delinquencies and foreclosures. A
substantial increase in the delinquency or foreclosure rate resulting from
inadequate servicing could affect adversely IBF VI's performance and ability
to access profitably the capital markets for its financing needs, including
future securitizations. IBF VI's servicing agreements with its servicers often
will provide that if IBF VI terminates the servicing agreement without cause
(as defined in the agreement), IBF VI may be required to pay the third-party
servicer a termination fee. Depending upon the size of the particular mortgage
loan portfolio then being serviced, the termination fee that IBF VI would be
obligated to pay upon termination of a servicing agreement without cause could
be substantial and could deter a termination without cause that otherwise
would be advantageous to IBF VI.
Limited recourse loans may limit IBF VI's recovery to the value of the
mortgaged property
IBF VI anticipates that a substantial portion of the mortgage loans
that it will originate or acquire may contain limitations on the mortgagee's
recourse against the borrower. In other cases, the mortgagee's recourse
against the borrower may be limited by applicable provisions of the laws of
the jurisdictions in which the Mortgaged Properties are located or by the
mortgagee's selection of remedies and the impact of those laws on that
selection. In those cases, in the event of a borrower default, recourse may be
limited to only the specific Mortgaged Property and other assets, if any,
pledged to secure the relevant mortgage loan. As to those mortgage loans that
provide for recourse against the borrower and its assets generally, there can
be no assurance that such recourse will provide a recovery in respect of a
defaulted mortgage loan greater than the liquidation value of the Mortgaged
Property securing that mortgage loan.
Possible losses on mortgage loans during warehousing period
IBF VI may acquire and accumulate mortgage loans for securitization.
IBF Management, in its discretion, will determine the quantity of mortgage
loans sufficient for securitization after discussions with potential
underwriters and rating agencies and an evaluation of the costs of
securitization. During the accumulation period, IBF VI will be subject to
risks of borrower defaults, bankruptcies, fraud losses and special hazard
losses that are not covered by standard hazard insurance. However, prior to
securitization, IBF VI generally does not intend to obtain credit enhancements
such as mortgage pool or hazard insurance. Typically, third parties insure
against these types of losses, and IBF VI would be dependent on the
creditworthiness of the insurer and timeliness of the reimbursement in the
event of a default on the underlying obligations. Further, the insurance
coverage for various type of losses is limited in amount, and losses in excess
of the limitation would be the responsibility of IBF VI. In the event of any
default under mortgage loans held by IBF VI, IBF VI will bear the risk of loss
of principal to the extent of any deficiency between the value of the mortgage
collateral and the principal amount of the mortgage loan. Also, during the
accumulation or warehousing period, the cost of financing and hedging the
mortgage loans could exceed the interest income on the mortgage loans. It may
not be possible or economical for IBF VI to securitize all of the mortgage
loans which it acquires, in which case IBF VI will continue to hold the
mortgage loans and bear the risks of borrower defaults, bankruptcies, fraud
losses and special hazard losses. Furthermore, if IBF VI retains a Subordinate
MBS in the securitizations, it will retain many of these risks. IBF VI expects
that when it acquires mortgage loans, the seller of the mortgage loans (the
"Mortgage Seller") generally will represent and warrant to IBF VI that there
has been no fraud or misrepresentation during the origination of the mortgage
loans and will agree to repurchase any loan with respect to which there is
fraud or misrepresentation. Although IBF VI will have recourse to the Mortgage
Seller based on the Mortgage Seller's representations and warranties to IBF
VI, IBF VI will be at risk for loss to the extent the Mortgage Seller does not
or cannot perform its repurchase obligations. IBF VI intends to acquire third
party insurance, to the extent that it is available at a reasonable price, for
such risks. If IBF VI is unable or fails to acquire such insurance, IBF VI
would be relying solely on the value of the collateral underlying the mortgage
loans. In addition, substantial delays could be encountered in connection with
the foreclosure of defaulted mortgage loans, with corresponding delays in the
receipt of related proceeds by IBF VI. State and local statutes and rules may
delay or prevent IBF VI's foreclosure on or sale of the mortgaged property and
may prevent IBF VI from receiving new proceeds sufficient to repay all amounts
due on the related mortgage loan. Moreover, IBF VI's servicing agent may be
entitled to receive all expenses reasonably incurred in attempting to recover
amounts due and not yet repaid on liquidated mortgage loans, thereby reducing
amounts available to IBF VI.
Lack of access to securitizations would adversely affect IBF VI. Risks
involving mortgage loans in securitizations
IBF VI intends to rely upon securitizations of a substantial portion
of its mortgage loans to generate cash proceeds for the purchase of such
mortgage loans. Several factors will affect IBF VI's ability to complete
securitizations, including conditions in the securities markets generally,
conditions in the mortgage-backed securities market specifically, the credit
quality of IBF VI's portfolio of mortgage loans and IBF VI's ability to obtain
credit enhancement. If IBF VI were unable to successfully securitize a
sufficient amount of mortgage loans, then IBF VI would have to rely on other,
more expensive short-term methods of financing, or curtail or reduce its
acquisition of mortgage loans. There can be no assurance that IBF VI will be
able to successfully securitize any mortgage loans which it acquires or, if it
is not successful, that IBF VI will obtain financing alternatives to
securitization or that if such financing is available, that it will be
available on favorable terms.
In connection with the securitization of self-originated or purchased
loans, IBF VI may be required to make certain representations and warranties
to "conduit" purchasers. These representations and warranties cover such
matters as title to the mortgaged property, lien priority, environmental
reviews and certain other matters. IBF VI's representations and warranties
rely in part on similar representations and warranties made by the borrower or
others. IBF VI would have a claim against the borrower or another party in the
event of a breach of any of these representations or warranties; however, IBF
VI's ability to recover on any such claim would be dependent upon the
financial condition of the party against which such claim is asserted. There
can be no assurance that IBF VI will not experience a material loss as a
result of representation and warranties that it makes.
Construction and mezzanine investments involve greater risks of loss than
loans secured by income producing properties
IBF VI may acquire Construction Loans and Mezzanine Investments.
Construction Loans and Mezzanine Investments are considered to involve a
higher degree of risk than term mortgage lending secured by income-producing
real property due to a variety of factors, including, in the case of
Construction Loans, dependency on successful completion and operation of the
project for repayment, difficulties in estimating construction or
rehabilitation costs and loan terms that often require little or no
amortization, providing instead for additional advances to be made and for a
balloon payment at a stated maturity date. In the case of Mezzanine
Investments, such factors would include, among other things, that a
foreclosure by the holder of the senior loan could result in a Mezzanine
Investment becoming unsecured. Accordingly, IBF VI might not recover the full
amount, or indeed any, of its investment in Mezzanine Investments. In
addition, Construction Loans and Mezzanine Investments may have higher loan to
value ratios than conventional term loans because of shared appreciation
provisions. Although the borrower may have an initial equity investment of 10%
to 15% of total project costs, such initial equity may not be sufficient to
protect IBF VI's investment in Construction Loans and Mezzanine Investments.
Distressed mortgage loans may have greater default risks than performing loans
IBF VI may acquire non-performing and sub-performing mortgage loans,
as well as mortgage loans that have had a history of delinquencies. These
mortgage loans presently may be in default or may have a greater than normal
risk of future defaults and delinquencies, as compared to newly originated,
high quality loans. Returns on an investment of this type depend on the
borrower's ability to make required payments (or, with respect to
sub-performing mortgage loans, the modified monthly payments required under
the applicable forbearance plan) or, in the event of default, the ability of
the loan's servicer to foreclose and liquidate the mortgaged property
underlying the mortgage loan. There can be no assurance that the servicer can
liquidate a defaulted mortgage loan successfully or in a timely fashion.
One action rules may limit IBF VI's rights following defaults
Several states have laws that prohibit more than one "judicial
action" to enforce a mortgage obligation, and some courts have construed the
term "judicial action" broadly. The servicer of the mortgage obligation may be
required to foreclose first on properties located in states where such "one
action" rules apply (and when non-judicial foreclosure is permitted) before
foreclosing on properties located in states where judicial foreclosure is the
only permitted method of foreclosure.
Foreign real properties are subject to currency conversion risks, foreign tax
laws and uncertainty of foreign laws
IBF VI may invest in mortgage loans secured by real property located
outside the United States. Lending against real property located in foreign
countries creates risks associated with the uncertainty of foreign laws and
markets and currency conversion risks. In addition, income from investment in
foreign real property and, in some instances, foreign mortgage loans may be
subject to tax by foreign jurisdictions, which would reduce the economic
benefit of such investments. IBF Management has only limited experience in
investing in foreign mortgage loans.
Maturity mismatch between asset maturities and borrowing maturities may affect
adversely IBF VI's net income
IBF VI's use of short-term floating rate borrowings to acquire long
term assets, including mortgage loans and MBS, some of which will bear a fixed
rate of interest, may expose IBF VI to a maturity mismatch. As a consequence,
IBF VI's borrowing costs could exceed the income earned on IBF VI's assets
acquired with the borrowed funds, thereby reducing IBF VI's income and ability
to make distributions to its shareholders. Further, MBS subject to reverse
repurchase agreements periodically are marked to market by the repurchase
lender, and a decline in the value of MBS pledged to secure reverse repurchase
agreements may result in margin calls. In addition, if renewals of or
substitutes for maturing or called short term borrowings are unavailable to
IBF VI for any reason, IBF VI may be required to sell assets quickly to repay
those borrowings. Certain of IBF VI's MBS may be illiquid and a sale
associated with a short marketing period generally would result in IBF VI
receiving a lower price than otherwise would be available. There can be no
assurance that IBF VI will not incur losses associated with forced sales of
illiquid collateral to repay borrowings. Furthermore, the use of leverage will
magnify IBF VI's exposure to losses.
Interest rate mismatch between asset yields and borrowing rates may affect
adversely IBF VI's net income
IBF VI's borrowings may be at interest rates based on indexes and
repricing terms similar to, but of somewhat shorter maturities than, the
interest rate indexes and repricing terms of various of IBF VI's variable rate
assets. While the historical spread between relevant short-term interest rate
indexes has been relatively stable, there have been periods when the spread
between those indexes was volatile. Further, certain of IBF VI's assets will
bear fixed rates of interest and have long term maturities. There can be no
assurance that such fixed rates of interest will exceed the variable rates of
interest on related borrowings. Interest rate mismatches could impact IBF VI's
financial condition in a material way, and could affect adversely IBF VI's
income and ability to make payments to bondholders.
IBF VI may not be able to borrow money on favorable terms
The ability of IBF VI to achieve its investment objectives through
leverage will depend on IBF VI's ability to borrow money on favorable terms.
IBF VI has not entered into any borrowing arrangements at the present time,
and there can be no assurance that IBF VI will be able to enter into
arrangements enabling it to borrow money on favorable terms. Furthermore, IBF
VI may not be able to obtain financing at borrowing rates below the asset
yields of its mortgage assets. IBF VI will face competition for financing
sources which may limit the availability of, and adversely affect the cost of
funds to, IBF VI.
Adverse changes in general economic conditions can affect adversely IBF VI's
business
IBF VI's success is dependent upon the general economic conditions in
the geographic areas in which a substantial number of its investments are
located. Adverse changes in national economic conditions or in the economic
conditions of the regions in which IBF VI conducts substantial business likely
would have an adverse effect on real estate values, interest rates and,
accordingly, IBF VI's business, income and ability to make payments to
bondholders. The general economic conditions in the geographic areas in which
IBF VI's investments are located will be beyond the control of IBF VI.
IBF VI's responsibility to indemnify the manager and officers and directors of
IBF VI may result in liability for the actions of the manager and officers and
directors of IBF VI
Delaware law permits a Delaware corporation to include in its charter
a provision limiting the liability of its directors and officers to the
corporation and its shareholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent
permitted by Delaware law. IBF VI will indemnify IBF Management and IB
Consultants and its officers and directors from any action or claim brought or
asserted by any party by reason of any allegation that IBF Management and IB
Consultants or one or more of its officers or directors is otherwise
accountable or liable for the debts or obligations of IBF VI or its
affiliates. In addition, IBF Management and IB Consultants and its officers
and directors will not be liable to IBF VI, and IBF VI will indemnify IBF
Management and IB Consultants and its officers and directors, for acts
performed in good faith pursuant to the Management Agreement, except for
claims arising from acts constituting bad faith, willful misconduct, gross
negligence or reckless disregard of their duties under the Management
Agreement. In addition, IBF VI will indemnify, hold harmless and pay
reasonable expenses in advance of final disposition of a proceeding to present
or former directors and officers and certain other parties to the fullest
extent permitted from time to time by Delaware Law. It is the position of the
Securities and Exchange Commission that indemnification of directors and
officers for liabilities arising under the Securities Act is against public
policy and unenforceable pursuant to Section 14 of the Securities Act.
Credit-impaired single family residential borrowers
IBF VI may purchase residential mortgage loans made to
credit-impaired borrowers who generally entail a higher risk of delinquency
and possibly higher losses than loans made to more creditworthy borrowers. The
underwriting policies and collection procedures of IBF VI, IBF Management, IB
Consultants or any servicer it employs may not successfully alleviate such
risks. In the event that pools of loans warehoused and securitized experience
higher delinquencies, foreclosures or losses than anticipated, IBF VI's
results of operations and financial condition could be materially and
adversely affected.
Effect of adverse economic conditions
The value of subprime residential mortgages may 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 and increases the loan-to-value ratios of
loans previously made, thereby weakening collateral coverage and increasing
the possibility of a loss in the event of default. In addition, delinquencies,
foreclosures and losses generally increase during economic slowdowns and
recessions.
Regulatory risk
IBF VI's business, particularly the purchase of subprime residential
mortgages, is subject to extensive regulation, supervision and licensing by
federal, state and local governmental authorities and is subject to various
laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. IBF VI's consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act, and Regulation B, as amended ("ECOA"), the Fair
Credit Reporting Act of 1994, as amended, the Federal Real Estate Settlement
Procedures Act ("RESPA") and Regulation X, the Home Mortgage Disclosure Act,
the Federal Debt Collection Practices Act, as well as other federal and state
statutes and regulations. IBF VI is also subject to the rules and regulations
of, and examinations by, the Department of Housing and Urban Development
("HUD") and state regulatory authorities with respect to originating,
processing, underwriting, selling and servicing loans. These rules and
regulations, among other things, impose licensing obligations on IBF VI,
establish eligibility criteria for mortgage loans, prohibit discrimination,
provide for inspections and appraisals of properties, require credit reports
on loan applicants, regulate assessment, collection, foreclosure and claims
handling, investment and interest payments on escrow balances and 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 loss of licenses or approved
status, termination or suspension of servicing contracts without compensation
to the servicer, demands for indemnifications or mortgage loan repurchases,
certain rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions. IBF VI may not be able to maintain
compliance with these requirements in the future without additional expenses,
or that more restrictive local, state or Federal laws, rules and regulations
will not be adopted that would make compliance more difficult or more
expensive for IBF VI.
DESCRIPTION OF THE BONDS
The bonds will be issued under an indenture between IBF VI and
Continental Stock Transfer & Trust Company as indenture trustee. The indenture
is an exhibit to the Registration Statement of which this prospectus is a
part. The indenture is governed by the Trust Indenture Act of 1939. The
following summary does not contain all information that may be important to
you. You are encouraged to review the indenture by obtaining a copy in the
manner described under "Additional Information."
General
The bonds are obligations of IBF VI only and are being offered in an
aggregate principal amount not to exceed $50,000,000. The bonds mature on
December 31, 2006 and are subject to redemption in limited circumstances. See
"-- Redemption" below. The bonds will be subordinated to the prior payment in
full of fees and expenses of the indenture trustee. The bonds are not rated by
any statistical rating organization. The lack of a rating is likely to inhibit
the development of a public market for the bonds and your ability to sell the
bonds to anyone else.
Stated interest at the rate of 10.25% per annum will be paid on the
bonds. If you purchase at least $15,000 of bonds, the fixed interest is paid
to you monthly or quarterly, as you elect. If you purchase less than $15,000
of bonds, then you will be paid stated interest quarterly. The interest
payment will be made to the holder of record as of the close of business on
the 10th day prior to the interest payment date, which is the end of the
applicable monthly or quarterly period. In the event an interest payment date
falls on a day other than a business day, interest will be paid on the next
business day. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Principal and interest will be payable at
the office of the indenture trustee in New York, New York.
The bonds will be issued in minimum denominations of $5,000 and
increments of $1,000 thereafter. The bonds will be issued in certificated form
without coupons.
IBF VI will furnish to holders of the bonds any reports required by
the indenture governing the bonds, the Trust Indenture Act of 1939 and any
other applicable requirement of federal and state law.
Bondholders may elect to reinvest monthly interest payment in
additional bonds, to the extent permitted by applicable law. The reinvested
interest will accrue for the benefit of the investor as of the interest
payment date, and the total amount of the interest payments over the year,
with interest compounded on the reinvested amount, will be added to the
principal amount of the Holder's bond on December 31 of each year.
A written election given to IBF VI at the time of original issue of
bonds to an investor will be effective from the date of issue of the bonds. If
the bonds are outstanding and the holder desires to make an initial election
to reinvest interest, the election will be effective as of the first day of
the calendar month following the month in which IBF VI receives the election.
A holder is entitled to change his election annually by increasing or
decreasing the amount of fixed interest reinvested or eliminating reinvestment
of the fixed interest. Any change in the fixed interest reinvestment must be
made by giving written notice to IBF VI not less than 30 days prior to the end
of a calendar year, and the change will be effective as of January 1 of the
next calendar year.
Reinvested interest shall be credited on the books of IBF VI for the
benefit of the holder as of the interest payment date, and thereafter will
accrue interest at the bond rate. As of December 31 of each year, the
reinvested interest payments and all interest accrued on such payments will be
added to, and become a part of, the principal amount of the bond.
In the event the bond is paid in full prior to its maturity date, all
reinvested interest and interest accrued thereon not previously added to the
principal of the bond will be paid, in full, as interest on the date of
payment of this bond.
Redemption
After January 1, 2001, IBF VI may redeem any portion of your bonds
from time to time on at least 30 days' advance notice to you. After the
redemption date specified in the notice, your bond ceases to accrue stated
interest. Partial redemptions will be allocated among holders of the bonds by
lot.
You may tender your bond to the indenture trustee for redemption
under hardship circumstances commencing January 1, 2001. A request for
hardship redemption may only be delivered to IBF VI during the months of June
and December. The request is irrevocable and represents a binding commitment
by you to tender your bond for redemption. The request must provide
information on your financial difficulty or change of circumstances and you
must provide any additional information requested by IBF VI on the hardship
situation. IBF VI has complete discretion on the basis of the information
provided or factors unrelated to your personal circumstances to accept or
reject the request for hardship redemption. Bonds will be redeemed as of the
end of the month in which the request for redemption is made. The amount of
bonds redeemed for hardship reasons in each calendar year may not exceed 10%
of the aggregate principal amount of the bonds outstanding on the first day of
each calendar year. In the event requests for hardship redemption during a
year exceed the 10% limitation, redemption will be made on a "first come -
first served" basis among the holders of the bonds requesting redemption.
In the event of the death of a holder, a joint holder, or the owner
of an individual retirement account holding a bond, the successor in interest
may tender the bond for redemption at any time during the six-month period
following the date of death. Bonds tendered and accepted for redemption under
hardship circumstances or death of a holder will be redeemed as of the end of
the month in which the request for redemption is made.
The redemption value is equal to 100% of the principal amount of your
bond plus accrued fixed interest through the date of redemption. Payment of
principal and fixed interest will be made on the redemption date with respect
to a redemption by IBF VI. In the case of a hardship redemption, payment of
principal and interest will be made on or before the end of the following
month.
Future borrowing
IBF VI and its subsidiaries may borrow additional funds in the
future. IBF VI can pledge all of its assets, including the assets acquired
with the proceeds of the offering, as security on any future borrowing, such
as the MBS debt. In these circumstances, payment of the bonds could be
subordinated to payment of future borrowings by IBF VI.
Upon a distribution of assets, dissolution, winding up, liquidation
or reorganization of IBF VI, upon an assignment for the benefit of creditors,
or if the principal of the bonds has been declared due and payable and such
declaration has not been rescinded or annulled, then in any such instance all
senior debt may be required to be repaid in full before any payment of
principal or interest on the bonds can be made. Any subordination will not
prevent a default under the indenture. See "-- Events of Default" below.
Limitation on restricted payments
IBF VI cannot, while any of your bonds are outstanding
o declare or pay any dividend, either in cash or property, on
any shares of its capital stock (except dividends or other
distributions payable solely in shares of capital stock of IBF
VI),
o purchase, redeem or retire any shares of its capital stock or
any warrants, rights or options to purchase or acquire any
shares of its capital stock, or
o make any other payment or distribution, either directly or
indirectly, in respect of its capital stock,
if a default will occur on the bonds after giving effect to the transaction.
Notwithstanding the foregoing, IBF VI may make a previously declared
distribution on its capital stock if at the date of the declaration the
distribution was permitted under this restriction.
Furthermore, IBF VI cannot pay the management fee to IBF Management
or any of its affiliates to the extent IBF VI has an accumulated deficit for
any period with respect to which the management fee is payable. As a practical
matter, this means stated interest on the bonds and the other operating
expenses will be paid before the management fee.
Limitations on transactions with affiliates
IBF VI may not participate in a transaction with an affiliate, except
in good faith and on terms that are no less favorable to IBF VI than those
that could have been obtained in a comparable transaction on an arm's length
basis from a person not an affiliate of IBF VI.
IBF VI may not liquidate or dissolve itself, sell or dispose of
substantially all of its assets except to create liquidity to pay the bonds,
or make any material change in its business. IBF VI may merge or consolidate
with another entity; provided that such merger or consolidation will not
materially change the business of IBF VI, the new entity fully assumes all
obligations of IBF VI, and after giving effect to the transaction no default
shall exist.
Events of default
An event of default under the indenture includes:
o failure to pay the principal on the bonds when due at maturity,
upon redemption, or upon repayment, as provided in the indenture;
o failure to pay any interest on the bonds when due, which default
continues for 30 days;
o failure to perform any other covenant set forth in the
indenture for 30 days after receipt of written notice from the
indenture trustee or holders of at least 30% in principal
amount of the outstanding bonds under the indenture specifying
the default and requiring IBF VI to remedy such default;
o certain events of insolvency, receivership, or reorganization of
IBF VI or any of its subsidiaries, and
o entry of a final judgment, decree or order against IBF VI or
any of its subsidiaries for the payment of money in excess of
$5,000,000 in certain circumstances.
If an event of default occurs, the indenture trustee may at its
discretion proceed to protect and enforce its rights and the rights of the
holders. The indenture trustee is required to enforce such rights at the
written request of holders of a majority of the outstanding bonds and upon
being indemnified to its satisfaction. If a default occurs, either the
indenture trustee or the holders of at least 30% of the outstanding bonds may
accelerate the maturity of all outstanding bonds. Prior to any judgment or
decree for the payment of money being obtained, the holders of a majority of
the outstanding bonds may waive a default resulting in acceleration of the
bonds, but only if any other defaults have been remedied or waived.
IBF VI must furnish quarterly, to the indenture trustee an Officers'
Certificate stating whether, to the best of the knowledge of the officers
executing such certificate, IBF VI is in default under any of the provisions
of the indenture and describing any existing defaults.
A holder will not have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless
o the holder has previously given to the indenture trustee written
notice of a default,
o the holders of at least 30% of the outstanding bonds have made
a written request and offered reasonable indemnity to the
indenture trustee to institute such proceedings,
o the indenture trustee has failed to institute such proceeding
within 60 days, and
o the indenture trustee has not received from the holders of a
majority of the outstanding bonds a direction inconsistent
with such request.
However, you have an absolute right to receive payment of principal and
interest on your bond on or after the due dates and to institute suit for the
enforcement of any such payments.
Modification and waiver
With certain limited exceptions which permit modification of the
indenture by IBF VI and indenture trustee without the consent of any holders
of the bonds, the indenture may be modified by IBF VI with the consent of
holders of not less than a majority of the outstanding bonds, if the bonds are
affected by the modification. No change can be made without your consent if
the effect is to:
o change the maturity date of principal or the payment date of any
interest on your bond,
o reduce the principal of, or the rate of interest on, your bond,
o change the coin or currency in which any portion of the principal
of, or interest on, your bond is payable,
o impair your right to institute suit for the enforcement of any
such payment,
o reduce the percentage of holders of the outstanding bonds
necessary to modify the indenture, or
o modify the foregoing requirements or reduce the percentage of
outstanding bonds necessary to waive any past default.
The holders of a majority of the outstanding bonds may waive
compliance by IBF VI with certain restrictive provisions of the indenture.
Satisfaction and discharge of indenture
The indenture provides that IBF VI may terminate its obligations
under the indenture with respect to all bonds which have become due and
payable by delivering to the indenture trustee, in trust for such purpose,
money and/or government obligations which, through the payment of interest and
principal, will provide money in an amount sufficient to discharge the entire
indebtedness on the bonds. Defeasance of the bonds is subject to delivery to
the indenture trustee of an opinion of independent counsel that holders of the
outstanding bonds will not recognize income, gain or loss for Federal income
tax purposes as a result of such deposit and termination and certain other
conditions.
The Indenture Trustee
Continental Stock Transfer & Trust Company is the indenture trustee
under the indenture. Its principal corporate trust office is located at 2
Broadway, New York, NY 10004. The indenture trustee is not responsible for any
investment decisions of IBF VI and shall not be held responsible or liable for
any such decisions.
FORWARD-LOOKING STATEMENTS
You should carefully consider the risk factors set forth above, as
well as the other information contained in this Prospectus. This Prospectus
contains forward-looking statements regarding events, conditions, and
financial trends that may affect IBF VI's plan of operation, business
strategy, operating results, and financial position. You are cautioned that
any forward-looking statements are not guarantees of future performance and
are subject to risks and uncertainties. Actual results may differ materially
from those included within the forward-looking statements as a result of
various factors. Cautionary statements in the "Risk Factors" section and
elsewhere in this Prospectus identify important risks and uncertainties
affecting IBF VI's future, which could cause actual results to differ
materially from the forward-looking statements made in this Prospectus.
USE OF PROCEEDS
The following table sets forth IBF VI's best estimate of the net
proceeds from the sale of the minimum and maximum amount of bonds offered
during the year following the offering. Since the dollar amounts shown in the
table are estimates only, actual use of proceeds may vary from the estimates
shown. See "Plan of Distribution."
<TABLE>
<CAPTION>
Assuming Minimum Assuming Maximum
Amount of Bonds Sold Amount of Bonds Sold
Amount ($) Percent Amount ($) Percent
<S> <C> <C> <C> <C>
Gross proceeds 500,000 100.0 50,000,000 100.0
Offering Expenses(1) 90,000 18.0 4,400,000 8.8
Net proceeds after offering expenses 410,000 82.0 45,600,000 91.2
======= ==== ========== ====
</TABLE>
- ---------------------
(1) Includes sales commissions and printing and shipping costs. Certain
additional offering expenses will be paid by InterBank if the minimum
of bonds are sold.
InterBank (the sole common stockholder of IBF VI) will acquire
cumulative preferred stock in one or more private transactions prior to the
offering of the bonds under this prospectus. The amount of the preferred stock
will be determined at the time an initial pool of mortgage loans is identified
for purchase and will equal the difference between the acquisition price of
the mortgage loans and the proceeds IBF VI or its subsidiary IBF VI SPV will
obtain upon the issuance of MBS secured by the pool of mortgage loans.
Out of net proceeds from the sale of the bonds and the remaining
proceeds from the sale of the preferred stock, IBF VI expects to pay offering
costs, including legal and accounting fees of approximately $400,000,
wholesale marketing expenses of approximately $1,575,000 and $125,000 for new
computer and equipment purchases required for the business. At lesser amounts
of bond proceeds, some or all of the offering costs will be paid directly by
InterBank, without reimbursement from IBF VI. IBF VI also will initially set
aside working capital reserves estimated to be 5% of the gross proceeds, which
will be placed in a trust account in the name of the indenture trustee for the
benefit of the bondholders.
The remainder of the proceeds after payment of organizational and
working capital reserves, approximately $360,000 if the minimum amount of
bonds are sold and $41 million if the maximum amount of bonds are sold, are
expected to be available to invest in loans and investments. The net proceeds
of this offering will be invested in short-term, interest bearing securities
pending investment in real estate loans.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF LIQUIDITY AND CAPITAL RESOURCES
IBF VI has no operating history. IBF VI currently has only nominal
assets. IBF VI's revenues will be derived from its investments in mortgage
loans, and other real estate related assets and other commercial loans and
short term investments. The principal sources of IBF VI's funds will be the
proceeds of this offering, the proceeds of the private purchase by InterBank
of IBF VI's preferred stock and short and long-term borrowings collateralized
by the mortgage loans and other real estate related assets.
Management expects that some of the loans made or acquired by IBF VI
with the proceeds of the offering will generate revenue in the first year
following the offering in amounts sufficient to cover interest expense on the
bonds and operating expenses. Revenue will be applied first to payment of
interest on the bonds and expenses not covered by the management fee, and
second to payment of the management fee to IBF Management. The management fee
will be deferred if revenue is not sufficient to pay the fee after paying
interest and other expenses.
If the maximum amount of bonds is sold in the offering, IBF VI
expects to have a minimum of approximately $41 million to invest. Fixed
interest expense on the bonds in the first year following the offering will
not exceed $5 million, and operating expenses, including the management fee,
will not exceed $1.1 million. If the maximum amount of bonds is sold in the
offering and IBF VI is able to achieve its target return, gross revenue would
be approximately $7.8 million, which management expects to be sufficient to
meet IBF VI's obligations.
Provided at least the minimum amount of bonds is sold, management
believes the net proceeds will be adequate to implement its loan business and
generate revenue sufficient to meet the interest and operating expenses of IBF
VI without seeking additional financing. The effect of selling less, rather
than more, bonds in the offering is to increase expenses as a percentage of
total assets and limit the ability of IBF VI to diversify its loan portfolio,
which will increase the risk to you of an investment in the bonds.
OPERATING POLICIES AND OBJECTIVES
IBF VI was established to purchase and manage several categories of
commercial mortgage loans, residential subprime mortgage loans and real estate
related assets and commercial non-real estate loans that will be identified,
managed and actively serviced by IBF Management and IB Consultants. Initially,
IBF VI will emphasize creating a mortgage portfolio collateralized by
institutional quality assets for the purpose of securitizing and retaining the
subordinated interests in such loans. IBF VI will seek to generate cash flow
primarily (i) by originating and acquiring whole loans in order to create
pools of mortgage loans (which may include commercial mortgages and subprime
residential mortgages) for securitization and retain the Subordinated
Interests in those pools subject to the CMO debt and (ii) from investments in
(A) Subordinated Interests in MBS;(B) Mezzanine Investments in commercial and
multifamily residential properties and (C) Construction Loans and foreign real
estate loans. IBF VI may decide in the future to pursue other available
acquisition opportunities it deems suitable for IBF VI's portfolio. Thus, IBF
VI cannot anticipate with any certainty the percentage of the proceeds of this
offering that will be invested to any particular category of Other Real Estate
Related Assets, except that IBF VI expects at least 80% of its assets to be
mortgage loans on commercial real estate. IBF VI has a great deal of
discretion in the manner in which to invest the proceeds of this offering. IBF
VI will seek to maximize yield by managing credit risk through credit
underwriting. IBF VI will have no predetermined limitations or targets for
concentration of property type or geographic location. Instead, IBF VI plans
to make acquisition decisions through asset and collateral analysis,
evaluating investment risks and potential rewards on a case-by-case basis. To
the extent that IBF VI's assets become concentrated in a few states or a
particular region, the return on investment will become more dependent on the
economy of such states or region. To create yields commensurate with its
investment objectives, IBF VI intends to borrow funds through the issuance of
CMOs in debt securitizations or other borrowing arrangements, pledging its
assets (including mortgage loans and interests in MBS) as collateral security
for its repayment obligations. IBF VI intends to use the proceeds from
borrowings to invest in additional mortgage loans, MBS and other assets and,
in turn, to borrow against those newly acquired assets, primarily through
CMOs. IBF VI's strategy is to repeat this process to the extent opportunities
to use leverage are available and IBF Management determines and advises that
using leverage is prudent and consistent with maintaining an acceptable level
of risk until IBF VI has significantly leveraged its portfolio of mortgage
loans and MBS.
IBF VI's GUIDELINES
General
The following is a summary of the guidelines setting forth the
general parameters for IBF VI's investments, borrowings and operations,
although IBF Management has substantial discretion in applying these
guidelines and making investment decisions. Such investment decisions will
include decisions to issue commitments on behalf of IBF VI to invest in
Subordinated Interests, Mezzanine Investments and Other Real Estate Related
Assets. IBF VI intends to invest primarily in Real Estate Related Assets.
Pending investment of its funds in longer term investments as provided for in
the guidelines, IBF VI intends to invest those funds in readily marketable
securities or interest-bearing deposit accounts. IBF VI is permitted to take
an opportunistic approach to its investments, and may acquire any of the types
of assets described in the guidelines if IBF VI and IBF Management determine
that such investments would be in IBF VI's best interests. IBF VI, in
consultation with IBF Management, may establish underwriting criteria for
evaluating potential investments and, if such underwriting criteria are
established, IBF VI, in consultation with IBF Management, may modify such
underwriting criteria at any time and from time to time. IBF VI's policy
generally is to offer a price for each asset that it contemplates acquiring
that is not greater than the price that IBF Management estimates to be
sufficient to generate an acceptable risk-adjusted return to IBF VI from the
acquisition of that asset.
Purchase from the manager and its affiliates
IBF VI may purchase loans and investments from IBF Management and its
affiliates, which may include loans made to affiliates. The price at which IBF
VI will purchase mortgage loans and other investments from third parties
(including IBF Management and its affiliates) will be based on whether the
price is fair and the investment otherwise is suitable and in the best
interests of IBF VI. To determine whether the price of an investment is fair,
IBF Management may consider a number of other factors, which may include an
appraisal by an appraiser who is certified or licensed in the state and whose
compensation is not dependent on the transaction. Where possible, the price
that IBF VI will pay for loans, MBS and other assets acquired from affiliates
will be determined by reference to the prices most recently paid to the
affiliates for similar assets, adjusted for differences in the terms of such
transactions and for changes in market conditions between the dates of the
relevant transactions. If no previous sales of similar assets have occurred,
IBF VI will attempt to determine a market price for the asset by an
alternative method, such as obtaining a broker's price opinion or an
appraisal, if it can do so at a reasonable cost. Investors should understand,
however, that such determinations are estimates and are not bona fide third
party offers to buy or sell. It is the intention of IBF VI that the agreements
and transactions, including the sale of loans, MBS and other investments,
taken as a whole, between IBF VI on the one hand and its affiliates on the
other hand are fair to both parties.
Investment Activities
The discussion below describes the principal categories of assets
that IBF VI intends to originate or acquire. IBF VI intends to invest at least
80% of its assets at all times in the first two categories of assets described
below.
Commercial Mortgage Loans
IBF VI will originate or acquire commercial mortgage loans. A
substantial portion of these mortgages are expected to be institutional
quality, the purchase price of the loans is expected to be provided in large
part from the issuance of CMO debt.
Acquisitions. IBF VI will also purchase non-performing and performing
loans from government agencies, financial institutions and from InterBank and
its affiliates. Government agencies, including the Federal Deposit Insurance
Corporation, Department of Housing and Urban Development, Department of
Agriculture, and The Department of Education as well as traditional lending
institutions may offer to sell individual loans and pools of defaulted loans
at a discount, rather than rehabilitate or foreclose on the loans. Acquiring
non-performing loans at discounts may provide opportunities to IBF VI to
achieve its desired rates of return. Accordingly, IBF VI will attempt to
identify and purchase non-performing loans that have the potential through its
collection activities to generate its desired rates of return.
IBF VI will also attempt to purchase performing loans at a discount
that, coupled with stated interest on the loans, have the potential to achieve
IBF VI's desired rates of return.
Before acquiring any loan, IBF VI will review the loan documents, the
borrower's payment history, the borrowers' financial condition and the value
of the collateral securing the loan. Sources of information that may be
examined in determining the fair market value of a real property may include
one or more of the following: (1) current and historical operating statements;
(2) existing or new appraisals; (3) sales comparables; (4) industry statistics
and reports regarding operating expenses, such as those compiled by the
Institute of Real Estate Management and the Building Owners and Managers
Association; (5) existing leases and market rates for comparable leases; (6)
deferred maintenance observed during site inspections or described in
structural and engineering reports; and (7) correspondence and other documents
and memoranda found in the files of the seller of the loan secured by that
real property or other relevant parties. After completing its evaluation and
assessing the potential for satisfying its desired rates of return, IBF VI
will determine a price at which it would be willing to purchase the loan. As a
general guideline, IBF VI will set its bid for non-performing loans at a price
that management believes could provide a 30 percent rate of return, and for
performing loans could provide an 18 percent rate of return. If management
believes that particular risk attributes for a loan would justify a higher or
lower target return, such as the value of the underlying collateral being high
compared to the debt obligation or a guarantor's ability to repay the loan as
evidenced by a strong credit history, a higher or lower bid price and higher
or lower projected return may be acceptable to IBF VI.
In addition to the foregoing, IBF Management is expected to develop
projections of net operating income and cash flows with respect to operating
properties securing loans, taking into account lease rollovers, tenant
improvement costs and leasing commissions. IBF Management will compare its
estimates of revenue and expenses to historical operating statements and
estimates provided in appraisals and general industry and regional statistics.
Market capitalization rates and discount rates will then be applied to the
cash flow projections to estimate values. These values will then be compared
to available appraisals and market sale comparables to determine recommended
bid prices for each asset. The amount offered by IBF VI generally will take
into account projected holdings periods, capital costs and projected profit
expectations, and will be the price that IBF Management estimates is
sufficient to generate an acceptable risk-adjusted return on IBF VI's
investment.
Once IBF VI has acquired non-performing loans, it will attempt to
enhance its overall rate of return by restructuring or refinancing the loans
through workouts with borrowers. If restructuring or refinancing is not
possible, IBF VI will seek to obtain ownership of the underlying collateral
through foreclosure and collection proceedings. Non-performing loans
restructured or refinanced may be serviced by IBF Management and packaged for
sale to non-affiliated third parties as performing loans. Collateral acquired
through foreclosure will be liquidated with a view to minimizing the time the
investment is held and maximizing the return on the investment.
Direct originations. IBF VI also intends to originate loans primarily
secured by commercial real estate. The targeted market will include borrowers
that, because of time constraints, credit factors, desired loan amount, or
other circumstances, may be unable to obtain sought-after financing from
traditional lenders. IBF VI will obtain leads for these loans through
institutions such as banks, general lenders of corporate obligations, mortgage
lenders, and real estate and finance companies. IBF VI will primarily make
loans secured by real estate, and secondarily loans secured by other assets.
Before originating a loan, IBF VI intends to perform a thorough
review of the value of the collateral securing the loan and the borrower's
ability to repay the loan. In addition to its own review, IBF VI will obtain
independent appraisals of the related real property securing all mortgage
loans. For loans secured by other personal property, IBF VI may rely solely on
its own internal evaluation of the value of the collateral or obtain
independent appraisals of the collateral.
Generally, IBF VI will obtain Phase I environmental assessments on
commercial properties prior to originating the related loan. The purpose of
Phase I environmental assessments is to identify existing and potential
environmental contamination that is made apparent from historical reviews of
the properties, reviews of certain public records, preliminary investigations
of the sites and surrounding properties and screening for the presence of
hazardous substances, toxic substances and underground storage tanks. However,
IBF VI may choose not to obtain Phase I environmental assessments on certain
commercial properties prior to its origination and to originate loans without
Phase I environmental assessments on the underlying property if it deems that
to do so is prudent. Further, even if a Phase I environmental assessment is
obtained, the assessment may not reveal all existing and potential
environmental risks and liabilities, and there may unknown material
environmental obligations or liabilities.
IBF VI will also generally require borrowers to obtain and maintain a
standard hazard insurance policy in an amount equal to the lower of the unpaid
principal amount of the related loan and the replacement value of the
improvements on the mortgaged property.
As a general guideline, IBF VI will attempt to make secured loans
with a stated interest rate of at least 18 percent per annum. IBF VI will also
charge a loan origination fee of not less than one percent of the total loan,
which will typically be added to the principal amount financed. Therefore, the
actual amount funded at the time the loan is originated will be less than the
principal amount of the loan on which IBF VI will receive interest.
Typically, repayment will be made from the sale of the collateral or
by a refinancing by the borrower. If one of these methods of repayment becomes
unfeasible, IBF VI will attempt to restructure or refinance the loan. If
restructuring or refinancing becomes unfeasible, IBF VI will seek ownership of
the underlying collateral through sale, liquidation, or collection of the
outstanding collateral.
Subprime Residential Mortgage Loans
IBF VI may purchase pools of residential mortgage loans made to
credit impaired borrowers. The subprime loans will be originated by
unaffiliated third parties generally in accordance with guidelines that are
primarily intended to evaluate the value and adequacy of the mortgaged
property as collateral, the borrower's credit standing and repayment ability
which will depend, among other things, on loan-to-value ratio, debt-to-income
ratio, credit history, stability of employment, and time in residence at the
applicant's current address. Generally, the Originator will review and verify
the loan applicant's sources of income (except under stated income programs),
calculate the amount of income from all such sources indicated on the loan
application, review the credit history of the applicant and calculate the
debt-to-income ratio to determine the applicant's ability to repay the loan,
and review an appraisal of the mortgaged property. The guidelines will
generally be less stringent than the standards generally acceptable to Freddie
Mac and Fannie Mae with regard to the borrower's credit standing and repayment
ability. Borrowers generally will have payment histories and debt ratios which
would not satisfy Freddie Mac and Fannie Mae underwriting guidelines and may
have a record of major derogatory credit items such as outstanding judgments
or prior bankruptcies. The guidelines will generally require verification of
employment and income, title insurance on all mortgage loans secured by liens
on real property, and fire and extended coverage casualty insurance be
maintained on the secured property in an amount at least equal to the
principal balance of the related single-family loan or the replacement cost of
the property, whichever is less. The originators will generally grade all
mortgage loans pursuant to a credit grading matrix. Each originator's credit
grading may have variations but generally will establish "A" as the highest
and "D" as the lowest category with two or more categories in between.
"A" category loans will generally permit the highest loan-to-value
ratio, the lowest back end debt ratio, the most restrictive mortgage and trade
line credit delinquencies and will generally have the lowest interest rates.
"D" category loans will generally permit the lowest loan-to-value ratio, the
highest back end debt ratio, the least restrictive mortgage and trade line
credit delinquency history and generally have the highest interest rates.
Categories in between these levels will have appropriate variations in the
factors described above. IBF VI does not intend to acquire subprime
residential loans with a loan-to-value ratio in excess of 100%.
Any subprime residential loan may be prepaid in full or in part at
any time, although IBF VI will attempt to acquire a large percentage of its
loans that provide for the payment by the borrower of a prepayment charge in
limited circumstances on certain full or partial prepayments made generally
anywhere from one to five years from the date of execution of the related
note.
The originators will generally make representations and warranties to
IBF VI in respect of the acquired loans that include, among other things,
that: (1) the information with respect to each loan is true and correct as of
the specified date; (2) each mortgaged property is improved by a one- to
four-family residential dwelling, which may include condominiums, townhouses
and manufactured housing permanently attached to foundations; (3) each
mortgage loan had, at the time of origination, either an attorney's
certification of title or a title search or title policy; (4) each mortgage
loan was secured by a valid and subsisting first (or, if applicable, second)
lien of record on the mortgaged property subject in all cases only to the
exceptions to title set forth in the title insurance policy, if any, with
respect to the related mortgage loan; (5) the originator held good and
indefeasible title to, and was the sole owner of, each mortgage loan; and (6)
each mortgage loan was originated in accordance with applicable law and is the
valid, legal and binding obligation of the related borrower. If the originator
cannot cure a breach of any representation or warranty made by it in respect
of a mortgage loan that materially and adversely affects IBF VI's interest,
the originator will be obligated to repurchase the mortgage loan. If the
originator fails to repurchase a mortgage loan, IBF VI will suffer any loss
related to the mortgage loan.
Other Real Estate Related Assets and Other Commercial Loans
IBF VI intends to limit its investment in Other Real Estate Related
Assets and Other Commercial Loans, to no more than 20% of IBF VI's portfolio.
Investments in Other Real Estate Related Assets and Other Commercial Loans
will generally have loan-to-value ratios of no more than 90%, if secured by
real estate. IBF VI's policy will be to conduct an investigation and
evaluation of Other Real Estate Related Assets and Other Commercial Loans
before purchasing such assets. Evaluation of potential properties will be
conducted primarily by IBF Management's employees who specialize in the
analysis of such assets, often with further specialization based on geographic
or collateral-specific factors. IBF VI expects IBF Management to use third
parties, such as brokers who are familiar with the property's type and
location, to assist it in conducting an evaluation of the value of the
property, and, depending on the circumstances, to use subcontractors, such as
local counsel and engineering and environmental experts, to assist in the
evaluation and verification of information and the gathering of other
information not previously made available by the potential seller. "Other Real
Estate Related Assets" and "Other Commercial Loans" may include the following:
Subordinate interests. IBF VI may purchase Subordinate MBS in MBS
transactions ("Subordinate MBS"). MBS generally are issued either as
Collateratized Mortgage Obligations ("CMOs") or pass-through certificates.
CMOs are debt obligations of special purpose corporations, owner trusts or
other special purpose entities secured by commercial mortgage loans or MBS.
CMOs and pass-through certificates may be issued or sponsored by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage bankers, commercial banks, investment banks and other
entities. MBS are not guaranteed by an entity having the credit status of a
governmental agency or instrumentality and generally are structured with one
or more of the types of credit enhancement described below. In addition, MBS
may be illiquid. In most mortgage loan securitizations, a series of MBS is
issued in multiple classes in order to obtain investment-grade ratings for the
senior classes and thus increase their marketability. Each class of MBS may be
issued with a specific fixed or variable coupon rate and has a stated maturity
or final scheduled distribution date. Principal prepayments on the mortgage
loans comprising the Mortgage Collateral may cause the MBS to be retired
substantially earlier than their stated maturities or final scheduled
distribution dates although, with respect to commercial mortgage loans, there
generally are penalties for or limitations on the ability of the borrower to
prepay the loan. Interest is paid or accrued on MBS on a periodic basis,
typically monthly. The credit quality of MBS depends on the credit quality of
the underlying Mortgage Collateral. Among the factors determining the credit
quality of the underlying mortgage loans will be the ratio of the mortgage
loan balances to the value of the properties securing the mortgage loans, the
purpose of the mortgage loans (e.g., refinancing or new purchase), the amount
and terms of the mortgage loans, the geographic diversification of the
location of the properties and, in the case of commercial mortgage loans, the
credit-worthiness of tenants. Moreover, the principal of and interest on the
underlying mortgage loans may be allocated among the several classes of a MBS
in many ways, and the credit quality of a particular class results primarily
from the order and timing of the receipt of cash flow generated from the
underlying mortgage loans. Subordinate MBS carry significant credit risks.
Typically, in a "senior-subordinated" structure, the Subordinate MBS provide
credit protection to the senior classes by absorbing losses from loan defaults
or foreclosures before such losses are allocated to senior classes. Moreover,
typically, as long as the more senior tranches of securities are outstanding,
all prepayments on the mortgage loans generally are paid to those senior
tranches. In some instances, particularly with respect to Subordinate MBS in
commercial securitizations, the holders of Subordinate MBS are not entitled to
receive scheduled payments of principal until the more senior tranches are
paid in full. Because of this structuring, Subordinate MBS in a typical
securitization are subject to a substantially greater risk of non-payment than
are those more senior tranches. Accordingly, the Subordinate MBS are assigned
lower credit ratings, or no ratings at all. Neither the Subordinate MBS nor
the underlying mortgage loans are guaranteed by agencies or instrumentalities
of the U.S. government or by other governmental entities and, accordingly, are
subject to credit risks. As a result of the typical "senior-subordinated"
structure, the Subordinate MBS will be extremely sensitive to losses on the
underlying mortgage loans. For example, if IBF VI owns a $10 million
Subordinate MBS consisting of $100 million of underlying mortgage loans, a 7%
loss on the underlying mortgage loans will result in a 70% loss on the
Subordinate MBS. Accordingly, the holder of the Subordinate MBS is
particularly interested in minimizing the loss frequency (the percentage of
the loan balances that default over the life of the Mortgage Collateral) and
the loss severity (the amount of loss on a defaulted mortgage loans, i.e., the
principal amount of the mortgage loan unrecovered after applying any recovery
to the expenses of foreclosure and accrued interest) on the underlying
mortgage loans. The loss frequency on a pool of mortgage loans will depend
upon a number of factors, most of which will be beyond the control of IBF VI
or the applicable servicer. Among other things, the default frequency will
reflect broad conditions in the economy generally and real estate
particularly, economic conditions in the local area in which the underlying
Mortgaged Property is located, the loan-to-value ratio of the mortgage loan,
the purpose of the loan, and the debt service coverage ratio. The loss
severity will depend upon many of the same factors described above, and will
also be influenced by the servicer's ability to foreclose on the defaulted
mortgage loan and sell the underlying Mortgaged Property. Legal issues may
extend the time of foreclosure proceedings or may require the expenditure of
additional sums to sell the underlying Mortgaged Property, in either case
increasing the amount of loss with respect to the loan. The underwriting
standards that will be used by IBF VI in evaluating mortgage loans will be
similar to the guidelines described above with respect to commercial mortgage
loans acquired by IBF VI. The Subordinate MBS to be acquired by IBF VI
generally will not have been registered under the Securities Act, but instead
will initially have been sold in private placements, which will have more
limited marketability and liquidity. The Subordinate Interests may generate
"phantom income" that bears no relationship to the actual economic income
attributable to the Subordinate Interest and may also be issued at a
significant discount to their outstanding principal balance, which gives rise
to OID for federal income tax purposes. As a result, IBF VI could be required
to borrow funds or to liquidate assets in order to pay interest on the bonds.
It is expected that the Manager's employees will use third parties,
such as brokers who are familiar with the property's type and location, to
assist them in conducting an evaluation of the value of the property, and
depending on the circumstances, may use subcontractors, such as local counsel
and engineering and environmental experts, to assist in the evaluation and
verification of information and the gathering of other information not
previously made available by the potential seller.
Mezzanine investments. IBF VI may make investments that are
subordinated to first lien mortgage loans on commercial and multifamily real
estate. For example, on a commercial property subject to a first lien mortgage
loan with a principal balance equal to 70% of the value of the property, IBF
VI could lend the owner of the property (typically a partnership) an
additional 15% to 20% of the value of the property. Typically, the loan would
be secured either by the property subject to the first lien (giving IBF VI a
second lien position) or a partnership or other ownership interest in the
owner. If the ownership interest is pledged, IBF VI would be in a position to
take over the operation of the property in the event of a default on the loan.
These Mezzanine Investments generally would provide IBF VI with the right to
receive a stated interest rate on the loan balance and may also include a
percentage of gross revenues from the property, payable to IBF VI on an
ongoing basis, and/or a percentage of any increase in value of the property,
payable upon maturity or refinancing of the loan, or otherwise would allow IBF
VI to charge an interest rate that would provide an attractive risk-adjusted
return. Mezzanine Investments may also take the form of preferred equity,
which will have a claim against both the operating cash flow and liquidation
proceeds from the specific real estate assets. Before originating Mezzanine
Investments, IBF VI intends to perform certain credit underwriting to attempt
to evaluate future performance of the collateral supporting such investment,
which will include a review of (i) the underlying collateral of each loan,
including property characteristics, location, credit-worthiness of tenants and
economics; (ii) the relative principal amounts of the loan, including the
loan-to-value and debt service coverage ratios, (iii) the borrower and
manager's ability to manage the property and make debt service payments, and
(iv) the mortgage loan's purpose and documentation. The Mezzanine Investments
will be on commercial and multi-family properties that generally will have
loan-to-value ratios of no more than 90% and debt service coverage ratios of
no less than 1.05x.
Construction loans. IBF VI may take advantage of opportunities to
provide Construction Loans on commercial property, taking a first lien
mortgage to secure the debt.
Foreign real estate loans. IBF VI may originate or acquire mortgage
loans secured by real estate located outside the United States. IBF VI has not
imposed any limits with respect to the amounts that it could invest in foreign
mortgages in the aggregate, any particular type of foreign mortgaged property,
or properties located in any particular country. Investing in mortgages
located in foreign countries creates risks associated with the uncertainty of
foreign laws, markets and risks related to currency conversion and possible
taxation by foreign jurisdictions. IBF Management has limited experience in
investing in foreign mortgages. IBF VI may be subject to foreign income tax
with respect to its investments in foreign mortgages.
Other MBS. IBF VI may create or acquire interest-only securities, or
"IOs," that have characteristics of Subordinate MBS, known as "Sub IOs". A Sub
IO is entitled to no payments of principal; moreover, interest on a Sub IO
often is withheld in a reserve fund or spread account and is used to fund
required payments of principal and interest on the more senior tranches. Once
the balance in the spread account reaches a certain level, interest on the Sub
IO is paid to the holders of the Sub IO. These Sub IOs provide credit support
to the senior classes, and thus bear substantial credit risk. Moreover,
because a Sub IO receives only interest payments, its yield is extremely
sensitive to changes in the weighted average life of the class, which in turn
is dictated by the rate of prepayments (including as a result of defaults) on
the underlying loans. Some Sub IOs are designated as REMIC Residual Interests,
which typically generate Excess Inclusion or other forms of "Phantom Income."
IBF VI may invest not only in classes of Subordinate MBS but also in other
classes of MBS, such as IOs and Inverse IOs. These investments will differ
from IBF VI's Subordinate MBS because they generally are not the "first loss"
position, have credit ratings of "AAA" through "BB" and are not commercially
oriented.
Other Commercial Loans. IBF VI may originate or acquire commercial
loans secured by non-real estate assets. Such loans will be underwritten based
on the asset collateral value, borrower's payment history and financial
condition and operating cash flow available for debt service.
RISK MANAGEMENT
The following describes some of the investment management practices
that IBF VI may employ from time to time to earn income, facilitate portfolio
management (including managing the effect of maturity or interest rate
sensitivity) and mitigate risk (such as the risk of changes in interest
rates). IBF VI may amend or deviate from these policies or adopt other
policies in the future.
Leverage and borrowing
IBF VI intends to leverage a substantial amount of its assets through
the issuance of CMOs, reverse repurchase agreements, warehouse lines of
credit, bank credit facilities, mortgage loans on real estate and other
borrowings, when there is an expectation that such leverage will benefit IBF
VI. If changes in market conditions cause the cost of such financing to
increase relative to the income that can be derived from securities purchased
with the proceeds thereof, IBF VI may reduce the amount of leverage it
utilizes. Leverage creates an opportunity for increased income but, at the
same time, creates special risks. For example, leverage magnifies changes in
the net worth of IBF VI and affects the amounts available for payment to
bondholders. Although the amount owed will be fixed, IBF VI's assets may
change in value during the time the debt is outstanding. Leverage will create
interest expenses for IBF VI which can exceed the revenues from the assets
retained. To the extent the revenues derived from assets acquired with
borrowed funds exceed the interest expense IBF VI will have to pay, IBF VI's
net income may be greater than if borrowing had not been used. Conversely, if
the revenues from the assets acquired with borrowed funds are not sufficient
to cover the cost of borrowing, the net income of IBF VI will be less than if
borrowing had not been used.
CMOs and warehouse lines of credit
IBF VI may originate or purchase mortgage loans and issue CMOs
collateralized by such loans. During the period in which IBF VI is acquiring
mortgage loans for securitization, IBF VI is likely to borrow funds secured by
such loans pursuant to warehouse lines of credit. IBF VI has not yet
established any such credit lines. The collateral (whether whole mortgage
loans or MBS) will be transferred into a wholly owned subsidiary, and that
entity will issue CMOs. The transaction will be structured as debt, with the
issuer retaining an equity interest in the collateral. In a debt transaction,
the principal balance of the collateral (whether whole loans or MBS) will
exceed the principal balance of the CMOs. Thus, once the CMOs are paid in
full, the issuer will own the collateral free of the lien of the CMO debt.
Moreover, IBF VI may issue CMOs collateralized by previously issued CMOs or
MBS in transactions known as "resecuritizations." IBF VI will structure a
resecuritization in the same manner as a securitization. IBF VI will issue
CMOs through wholly owned subsidiaries to segregate the underlying collateral
into separate pools. The segregation is necessary to satisfy rating agency and
investor requirements that the CMOs be issued through separate entities that
rating agencies believe are insulated from the claims of creditors of IBF VI
and its affiliates in the event of the insolvency of those companies
("bankruptcy remote" entities).
Reverse repurchase agreements
IBF VI may enter into reverse repurchase agreements, which are
agreements under which IBF VI would sell assets to a third party with the
commitment that IBF VI repurchase such assets from the purchaser at a fixed
price on an agreed date. Reverse repurchase agreements may be characterized as
loans to IBF VI from the other party that are secured by the underlying
assets. The repurchase price reflects the purchase price plus an agreed market
rate of interest.
Bank credit facilities
IBF VI intends to borrow money through various bank credit
facilities, which will have varying fixed or adjustable interest rates and
varying maturities. IBF VI has not yet established any such bank credit
facilities.
Interest rate management techniques
IBF VI may engage in a variety of interest rate management techniques
for the purpose of managing the effective maturity or interest rate of its
assets or liabilities. These techniques also may be used to attempt to protect
against declines in the market value of IBF VI's assets resulting from general
trends in debt markets or to change the duration of or interest rate risk
associated with IBF VI's borrowings. Any such transaction is subject to risks,
and may limit the potential earnings on IBF VI's investment in real estate
related assets. Such techniques may include puts and calls on securities or
indices of securities, Eurodollar futures contracts and options on such
contracts, interest rate swaps or other such transactions.
Hedging
IBF VI may use hedging techniques to mitigate potential risks, and
not for speculative purposes, e.g., with respect to indebtedness, to limit,
fix or cap the interest rate on variable interest rate indebtedness. IBF VI
may utilize interest rate swaps, options on interest rate swaps,
treasury-locks, options on treasuries and interest rate caps or floors, to
protect the value of fixed rate mortgage loans originated and held for
securitization. IBF VI plans to issue CMOs backed by pools of mortgage loans
that it originates or acquires. Changes in interest rates during the time IBF
VI is holding mortgage loans for securitization will impact the net proceeds
and terms available from the issuance of CMOs. The intent of IBF VI's hedging
strategy will be to produce an aggregate gain or loss which approximates the
gain or loss in securitization proceeds caused by changes in interest rates
between the time the mortgage loan is funded and the time IBF VI issues CMOs.
All hedge agreements related to a securitized pool of loans will be terminated
concurrently with the securitization.
MANAGEMENT
Employees
IBF VI does not have, and does not expect to have, any full time
employees. No salaries will be paid to the executive officers of IBF VI. All
personnel services required for IBF VI's operations will be provided by IB
Consultants through the management agreement with IBF Management.
IBF VI's business will be managed by its officers and directors IB
Consultants and IBF Management. The following persons are the officers and
directors of IBF VI , IBF Management and IB Consultants:
<TABLE>
<CAPTION>
Name Age Position Since
<S> <C> <C> <C>
Simon A. Hershon 52 CEO, President and Director of IBF VI June 1998
CEO, President and Director of IBF Management
Ehud D. Laska 50 Executive Vice President and Director June 1998
Ivan M. Krasner 48 Senior Vice President September 1998
Robert L. Olson 57 Chief Financial Officer May 2000
</TABLE>
Biographies
The following are brief biographies of the officers and directors:
Simon A. Hershon has, for the past 22 years, been the President and
C.E.O. of InterBank, InterBank Consultants, Inc., InterBank/Brener Brokerage
Services, Inc., American Eagle Funding, LLC, InterBank Capital Group, IBF
Securities, Inc., IBF Management Corp., InterBank Funding Special Purpose
Corporation, IBF VI Special Purpose Corporation II, IBF Special Purpose
Corporation III, IBF VI Participating Income Fund, IBF - Alternative
Investment Fund, and IBF Special Purpose Corporation VII. These companies
offer financial advisory, asset management, merchant banking, and investment
services to business, institutions and individuals in the hospitality, real
estate, finance, and communications industries. Through InterBank Consultants,
Inc., Mr. Hershon has been involved in numerous corporate and bond financings
and provided advisory services in connection with the largest bankruptcy in
Washington, D.C. history, which totaled over $2.0 billion. Mr. Hershon was
also involved, through InterBank/Brener Brokerage Services, Inc., in over $5.0
billion of hotel transactions. Mr. Hershon's education and professional
experience combine to provide InterBank's clientele with an in depth
understanding of institutional and corporate finance, real estate finance and
development, and hospitality turn-arounds. Mr. Hershon graduated from the U.S.
Naval Academy and subsequently served in nuclear powered submarines in the
U.S. Navy. He received both a Masters and Doctorate in Business Administration
from Harvard University where he concentrated in finance and graduated with
honors.
Ehud D. Laska has served as President of American Eagle Funding, LLC,
and Managing Director of the InterBank Capital Group since January 1996.
Through these firms, Mr. Laska specializes in building up companies through
same industry consolidation and acquisitions. Mr. Laska has also served as the
Chairman of Coleman & Company Securities, Inc., a member firm of the National
Association of Securities Dealers, Inc., since May 1996. Mr. Laska has also
served as a director of Headway Corporate Resources, Inc., a publicly held
corporation engaged in human resource management, since August 1993. From
August 1994 to February 1996, Mr. Laska served as a managing director at the
investment-banking firm of Continuum Capital, Inc. While serving as a Managing
Director with Tallwood Associates, Inc., a boutique investment banking firm,
from May 1992 to August 1994, Mr. Laska founded the Private Equity Finance
Group, which merged with Continuum Capital, Inc. in August 1994. Prior to
1992, Mr. Laska was a senior investment banker with the Wall Street firms of
CS/First Boston, Drexel Burnham Lambert, Paine Webber, and Laidlaw Equities.
Mr. Laska graduated from the University of Massachusetts with a B.Sc. in
Engineering and holds an Masters of Science degree in engineering from Brown
University and a Masters of Business Administration from Stanford University.
Ivan M. Krasner has been employed since September 1998 by IBF
Securities, Inc., where he is responsible for managing the marketing
operations of InterBank's business activities. Mr. Krasner has over 20 years
experience in the development, strategic positioning, and marketing of
financial service products. Most recently, Mr. Krasner was Vice President of
Orbitex Management, a European-based mutual fund group specializing in global
sector funds, from September 1997 to August 1998. From September 1996 to
August 1997, Mr. Krasner was a founding partner and Senior Vice President of
The Net Collaborative, a consultancy of industry experts bringing internet
solutions to large financial service institutions. From October 1983 to
December 1995, Mr. Krasner was employed in various positions by PLM
International, a major originator of equipment leasing programs. Mr. Krasner
graduated from C.W. Post College with a Bachelor of Arts in Philosophy and
attended the Strategic Marketing Management Program at the Harvard Business
School.
Robert L. Olson has served as Chief Financial Officer since May 2000.
Mr. Olson has over 20 years experience in developing financial controls and
procedures for companies in various industries. Most recently, Mr. Olson
served as Vice President of Finance for The Energy Grid, Inc., a start up
company in the energy, gas and telecommunications industries, from March 1999
to May 2000. From September 1997 to March 1999, Mr. Olson served as Vice
President of Finance for Global Intellicom, Inc., a publicly-traded technology
firm. From June 1990 to September 1997, Mr. Olson served as Vice President of
Finance for Trafalgar Ltd., a manufacturer, wholesaler and retailer of leather
products. From 1977 to June 1990, Mr. Olson served as a Vice President of
Finance or Chief Financial Officer for various companies involved primarily in
retailing and manufacturing. Mr. Olson graduated from Long Island University
with a Bachelor of Science in Accounting.
IBF Management
IBF Management, formed in December 1998, succeeded to the business of
InterBank Consultants, Inc. Since December 1990, InterBank, InterBank
Consultants, Inc. and their affiliates and successors, including IBF
Management, have been in the business of providing crisis management and
turnarounds, asset restructuring, workouts, and corporate and real estate
finance.
Since 1977, InterBank, its predecessors, affiliates and successors
completed over $3 billion in restructurings and workouts including the
restructuring of mortgage backed bonds and real estate-backed municipal
securities. In addition, InterBank assisted clients in the development of over
100 real estate projects. In addition, InterBank provided workout services in
the largest personal bankruptcy case in the Washington metropolitan area,
which involved over 200 partnerships.
InterBank and its affiliates have 11 employees, which include three
analysts and asset managers, three accountants, one loan administrator, two
operations managers, and three senior managers.
IBF VI will enter into the Management Agreement with IBF Management
for a term expiring on the maturity or other redemption of the bonds. IBF
Management will be primarily involved in three activities: (i) underwriting,
originating and acquiring mortgage loans and other real estate related assets;
(ii) asset/liability management, financing, management and disposition of
loans, including credit and prepayment risk management, collection of
payments, enforcement of remedies, foreclosure and property disposition and
related services; and (iii) capital management, oversight of IBF VI's
structuring, analysis, capital raising and investor relations activities. In
conducting these activities, IBF Management will formulate operating
strategies for IBF VI, arrange for the acquisition of assets by IBF VI,
monitor the performance of IBF VI's loans and provide certain administrative
and managerial services in connection with the operation of IBF VI. IBF
Management will be required to manage the business affairs of IBF VI in
conformity with the policies that are approved and monitored by IBF VI's board
of directors. IBF Management will be required to prepare regular reports for
IBF VI that will review IBF VI's acquisitions of assets, portfolio composition
and characteristics, credit quality, performance and compliance with the
policies approved by IBF VI.
At all times, IBF Management will be subject to the direction and
oversight of IBF VI and will have such functions and authority as set forth in
the Management Agreement. IBF Management will be responsible for the
day-to-day operations of IBF VI and will perform such services and activities
relating to IBF VI's assets and operations as may be appropriate, including:
o providing a complete program of investing and reinvesting the
capital and assets of IBF VI in pursuit of its investment
objectives and in accordance with policies adopted by IBF VI
from time to time;
o serving as IBF VI's consultant with respect to formulation of
investment criteria and preparation of policy guidelines by
IBF VI's board of directors;
o assisting IBF VI in developing criteria for mortgage asset
purchase commitments that are specifically tailored to IBF
VI's investment objectives and making available to IBF VI its
knowledge and experience with respect to mortgage loans, other
real estate related assets and commercial loans;
o counseling IBF VI in connection with policy decisions;
o maintaining IBF VI's exemption from regulation as an investment
company;
o representing IBF VI in connection with the purchase and
commitment to purchase or sell mortgage loans and other real
estate related assets and commercial loans;
o furnishing reports and statistical and economic research to
IBF VI regarding IBF VI's activities and the services
performed for IBF VI by IBF Management;
o monitoring and providing to IBF VI on an ongoing basis price
information and other data, obtained from certain nationally
recognized dealers that maintain markets in mortgage assets;
and providing data and advice to the board of directors in
connection with the identification of such dealers;
o administering the day-to-day operations of IBF VI and
performing and supervising the performance of such other
administrative functions necessary in the management of IBF VI
as may be agreed upon by IBF Management and IBF VI;
o contracting, as necessary, with third parties for master and
special servicing of assets acquired by IBF VI;
o communicating on behalf of IBF VI with the holders of the
equity and debt securities of IBF VI as required to satisfy
the reporting and other requirements of any governmental
bodies or agencies and to maintain effective relations with
such holders;
o causing IBF VI to qualify to do business in all applicable
jurisdictions;
o assisting IBF VI in complying with all regulatory requirements
applicable to IBF VI in respect of its business activities,
including preparing or causing to be prepared all financial
statements required under applicable regulations and
contractual undertakings and all reports and documents, if
any, required under the Securities Exchange Act of 1934, as
amended;
o performing such other services as may be required from time to
time for management and other activities relating to the
assets of IBF VI as the board of directors shall reasonably
request or IBF Management shall deem appropriate under the
particular circumstances; and
o using all reasonable efforts to cause IBF VI to comply with all
applicable laws.
IBF Management will subcontract with IB Consultants to perform all of
the duties set forth above on its behalf. The subcontract with IB Consultants
will not relieve IBF Management from any of its liabilities under the
Management Agreement.
IBF VI has the right at any time during the term of the Management
Agreement to terminate the Management Agreement without the payment of any
termination fee upon, among other things, a material breach by IBF Management
of any provision contained in the Management Agreement that remains uncured at
the end of the applicable cure period (including the failure of IBF Management
to use reasonable efforts to comply with IBF VI's investment policy and
guidelines).
The Management Agreement may not be assigned by either party without
the consent of the other party.
Compensation
IBF Management is a Delaware corporation in which Simon A. Hershon is
the sole officer, director, and stockholder. No executive compensation will be
paid directly by IBF VI to its officers. IBF Management will bear all costs of
operating IBF VI. IBF Management will receive an annual management fee payable
on each quarter end for its services equal to two percent (2%) of the
principal amount of the bonds for providing all administrative support
required to operate IBF VI. The management fee will cover items such as wages
and salaries of employees of IB Consultants responsible for IBF VI's daily
operations, fees and expenses of agents and independent contractors providing
administrative support for IBF VI's operations, office space, and all overhead
expenses. The management fee does not cover IBF VI's legal and accounting
fees, filing fees, investment transaction costs, taxes, officer and director
liability insurance, and other administrative expenses. The annual management
fee is subordinated to interest and principal due on the bonds and is payable
out of working capital reserves.
Prior experience of InterBank, IBF Management and IB Consultants
The information contained in this section of the Prospectus is
included solely to enable prospective investors to have information which can
be used to evaluate the experience of IBF Management in investing in real
estate related assets for its clients.
THE PRIOR PERFORMANCE INFORMATION INCLUDED IN THIS PROSPECTUS IS
HISTORICAL AND INVESTORS SHOULD NOT CONSTRUE THE INCLUSION OF SUCH INFORMATION
AS IMPLYING OR INDICATING IN ANY MANNER THAT IBF VI WILL MAKE INVESTMENTS
WHICH ARE COMPARABLE TO THOSE MADE BY THE AFFILIATES DISCUSSED BELOW, OR THAT
THE RESULTS ACHIEVED BY IBF VI WILL IN ANY WAY RESEMBLE OR BE COMPARABLE TO
THOSE ACHIEVED BY SUCH AFFILIATES. INVESTORS IN BONDS WILL NOT BE ACQUIRING
ANY INTEREST IN THE AFFILIATES DESCRIBED BELOW. IN ADDITION, THE REAL ESTATE
MARKETS HAVE GENERALLY BEEN FAVORABLE DURING MUCH OF THE PERIOD FOR WHICH DATA
IS PROVIDED. THEREFORE, THE FOLLOWING INFORMATION MAY NOT BE INDICATIVE OF THE
RESULTS THAT WILL BE EXPERIENCED BY IBF MANAGEMENT IN CONNECTION WITH ITS
MANAGEMENT OF IBF VI'S ASSETS.
InterBank is the parent corporation of seven private affiliated
corporations listed in the table below (the "Affiliated Private Funds") formed
by InterBank to acquire performing and non-performing loans, originate loans,
and invest in equity and debt securities. Each of the Affiliated Private Funds
obtained capital by offering and selling notes or equity interests (the
"Private Securities") to investors in private placements with maturities
ranging from May, 2001 to December, 2005. The Affiliated Private Funds have
sold approximately $59,576,000 of notes and $1,626,000 of equity securities to
date. The origination and acquisition businesses of each of the Affiliated
Private Funds is managed by IBF Management.
Generally, InterBank has acted as the lead lender on loans originated
or acquired, and the Affiliated Private Funds have purchased participations in
the loans. Allocation of loans among the affiliates is based on the amount of
capital each of the Affiliated Private Funds has available to acquire loan
investments and other factors considered important to IBF Management.
All interest due on the Private Securities has been paid in a timely
manner. None of the principal of the Private Securities has become due,
although SPC I has issued a notice of redemption and intends to redeem a
portion of its notes on May 31, 2000.
The operating and investment strategy employed for the Affiliated
Private Funds will differ from those that will be employed by IBF VI because
of IBF VI's need to maintain an exemption from registration under the
Investment Company Act. IBF Management will monitor the types of assets
maintained in IBF VI's portfolio to ensure that it is not deemed to be an
investment company under the Investment Company Act, due to its intention to
maintain at least 80% of its assets consist of mortgages and other liens on
and interests in real estate and real estate related investments.
As of December 31, 1999, the Affiliated Private Funds owned
approximately $50.0 million book value of assets under management being
managed by IBF Management and IB Consultants, including approximately $14.4
million of mortgage loans and $18.3 million of other commercial loans.
The Affiliated Private Funds with similar investment objectives (all
of the funds listed below with the exception of AIF V) invest in smaller
properties and underperforming or otherwise distressed real property. Although
the investment objectives of these funds are not identical to those of IBF VI,
they are similar, and IBF VI believes that prior performance information about
these funds may be material to a prospective investor. Certain information
relating to those seven funds is set forth below.
<TABLE>
<CAPTION>
INTERBANK FUNDING CORPORATION
INDIVIDUAL FUNDS ANALYSIS
AS OF MAY 8, 2000
Coupon
Interest
Payments Principal
Date of Gross Interest as of June 30, Additional Redemptions as Total Avg.
Fund Name Inception Amount Sold(1) Rate 2000 Interest of May 31, 2000 Yield(2)
- ---------------- -------------- --------------- ---------- ----------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SPC I 01/31/96 $2,500,000 12% $1,175,203 $79,012 $648,000 12.90%
SPC II 01/21/97 5,000,000 12% 1,685,515 91,248 12.75%
SPC III 04/10/98 10,000,000 12% 1,771,567 58,883 12.67%
PIF IV - 98 02/17/98 10,000,000 12% 2,056,498 67,005 12.51%
PIF IV - 99 02/12/99 15,000,000 12% 1,690,830 22,770 12.51%
AIF V 09/09/99 1,626,000 N/A N/A N/A N/A
SPC VII 05/10/99 16,076,500 11% 1,613,605 11,000 11.53%
- ---------------- -------------- --------------- ---------- ----------------- -------------- ---------------- -------------
Total $60,202,500 $9,993,218 $329,918 $648,000
- ---------------- -------------- --------------- ---------- ----------------- -------------- ---------------- -------------
</TABLE>
(1) Before deducting offering expenses.
(2) Includes coupon interest and additional interest and is calculated on a
bond equivalent yield basis.
Competition
The business IBF VI proposes to engage in is highly competitive. IBF
VI will compete for its loan investments with a number of national, local, and
regional companies that pursue similar loan acquisition and origination
business. Some of these companies may possess substantially greater financial,
marketing, technical, personnel and other resources than IBF VI. In addition,
IBF VI's future profitability will be directly related to the targeted yield
relative to that of its competitors. Competitors may have access to capital at
a lower cost than the capital available to IBF VI through the bonds described
in this prospectus and, therefore, would have a competitive advantage in
making and acquiring loans at lower yields than IBF VI can accept.
Legal proceedings
Neither IBF VI, IBF VI SPV, IBF Management nor IB Consultants is a
party to any pending legal proceedings. To the knowledge of management, no
legal proceedings are threatened against any of them.
Offices
The principal executive offices and principal place of business of
IBF VI will be located at the offices of InterBank, IBF Management and IB
Consultants at 1733 Connecticut Avenue, N.W., Washington, DC 20009. Management
believes that the office space available at this location is adequate for its
foreseeable needs.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following table describes the amount and nature of payments that
will or may be made by IBF VI to InterBank and its affiliates.
<TABLE>
<CAPTION>
Payee Amount ($) Purpose
<S> <C> <C>
IBF Management $10,000 to $1,000,000 Annual management fee (1)
IBF Securities $15,000 to $1,575,000 Wholesale Selling Compensation and
Expenses
Coleman & Company Securities, Inc. $2,500 to $250,000 Offering concession (2)
</TABLE>
- --------------------------
(1) See "Management - Compensation."
(2) Coleman will receive out of the sales commission payable to National a
fee of 0.5% of the gross proceeds from the sale of bonds for its
assistance in wholesale distribution of the offering to selected dealers.
Coleman will also receive 7% of the gross sales price of all bonds sold
by Coleman directly to investors in the offering, but it is not expected
that sales by Coleman to investors will be material.
InterBank is currently the sole stockholder of IBF VI and has the
right to manage the business affairs of IBF VI and to appoint all directors.
Loans made to InterBank or its affiliates will only be made on the
same or similar terms and conditions as loans made to unrelated parties.
InterBank is the sole equity owner of the Affiliated Private Funds,
which are engaged in loan investment activities that are similar to the
proposed business of IBF VI, and may participate as a controlling stockholder
in other corporations or partnerships formed in the future to pursue loan
origination and acquisition activities similar to that of IBF VI. Simon A.
Hershon and Ehud D. Laska, directors and officers of IBF VI, are the owners of
InterBank. Mr. Hershon is the sole owner of IBF Management, which provide
management services to IBF VI for fees.
Certain conflicts of interest are inherent in the foregoing
relationships, including the selection of loan opportunities for IBF VI and
allocation of management time and resources to the operations of IBF VI.
Although the indenture provides that IBF VI may not participate in a
transaction with an affiliate, except in good faith and on terms that are no
less favorable to IBF VI than those that could have been obtained from a
person not an affiliate of IBF VI, no other policy or restriction has been
adopted by management to resolve conflicts of interest that might arise.
IBF VI will reimburse IBF Management for legal and accounting fees,
printing costs and marketing costs paid to third parties by IBF Management.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
AND REAL PROPERTY INVESTMENTS
IBF VI intends primarily to acquire mortgage loans and other real
estate related assets. IBF VI's return on such assets will depend upon, among
other things, the ability of the servicer of the mortgage loans to foreclose
upon the mortgage loans in default and sell the underlying real property.
There are a number of legal considerations involved in the acquisition of
mortgage loans or real estate related assets or the foreclosure and sale of
defaulted mortgage loans (whether individually or as part of a series of
mortgage-backed securities). The following discussion provides general
summaries of certain legal aspects of loans secured by real property and the
acquisition of real property. Because such legal aspects are governed by
applicable state law (which laws vary from state to state), the summaries do
not purport to be complete, to reflect the laws of any particular state, or to
encompass the laws of all states. Accordingly, the summaries are qualified in
their entirety by reference to the applicable laws of the states where the
property is located. The summaries are not based upon opinions of legal
counsel.
Each mortgage loan will be evidenced by a note or bond and secured by
an instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the
prevailing practice and law in the state in which the related mortgaged
property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." The priority of the lien
created or interest granted by a mortgage will depend on the terms of the
mortgage and, in some cases, on the terms of separate subordination agreements
or intercreditor agreements with others that hold interests in the real
property, the knowledge of the parties to the mortgage and, generally, the
order of recordation of the mortgage in the appropriate public recording
office and whether there are any later-arising liens for real estate taxes,
assessments and other charges.
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease
and the income derived therefrom, while (unless rents are to be paid directly
to the lender) retaining a revocable license to collect the rents for so long
as there is no default. If the borrower defaults, the license terminates and
the lender is entitled to collect the rents. Local law may require that the
lender take possession of the property and/or obtain a court-appointed
receiver before becoming entitled to collect the rents. In addition, the
potential payments from a property may be less than the periodic payments due
under the mortgage.
The form of the mortgage or deed of trust used by many lenders
confers on the mortgagee or beneficiary the right both to receive all proceeds
collected under any hazard insurance policy and all awards made in connection
with any condemnation proceedings, and to apply such proceeds and awards to
any indebtedness secured by the mortgage or deed of trust, in such order as
the mortgage or beneficiary may determine. Mortgages often provide under
certain circumstances that the proceeds of hazard insurance or condemnation
awards may be used by the borrower to repair the casualty or taking. The laws
of certain states may limit the ability of mortgagees or beneficiaries to
apply the proceeds of hazard insurance or condemnation awards to the secured
indebtedness and instead may require the proceeds of hazard insurance or
condemnation proceeds to be used to repair the casualty or taking unless the
security of the mortgagee or beneficiary has been impaired.
Foreclosure is a legal procedure that allows the lender to recover
its mortgage debt by enforcing its rights and available legal remedies under
the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness. Foreclosure procedures vary from state to state, but are
generally time consuming and costly. In addition, certain states may grant a
borrower the right to repay amounts owed and reinstate the loan.
Commercial or multi-family residential mortgage loans acquired by IBF
VI may be nonrecourse loans, as to which recourse in the case of default will
be limited to the property and such other assets, if any, that were pledged to
secure the mortgage loan. However, even if a mortgage loan by its terms
provides for recourse to the borrower's other assets, a lender's ability to
realize upon those assets may be limited by state law.
Operation of Title 11 of the United States Code, as amended (the
"Bankruptcy Code") and related state laws may interfere with or affect the
ability of a lender to realize upon collateral and/or to enforce a deficiency
judgment. For example, under the Bankruptcy Code, virtually all actions
(including foreclosure actions and deficiency judgment proceedings) to collect
a debt are automatically stayed upon the filing of the bankruptcy petition
and, often, no interest or principal payments are made during the course of
the bankruptcy case. The delay and the consequences thereof caused by such
automatic stay can be significant.
Notes and mortgages may contain provisions that obligate the borrower
to pay a late charge or additional interest if payments are not timely made,
and in some circumstances, may prohibit prepayments for a specified period
and/or condition prepayments upon the borrower's payment of prepayment fees or
yield maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges that a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid.
IBF VI will be subject to environmental risks when taking a security
interest in real property, as well as when it acquires any real property. Of
particular concern may be properties that are or have been used for
industrial, manufacturing, military or disposal activity. In certain
circumstances, a lender could determine to abandon a contaminated mortgaged
property as collateral for its loan rather than foreclose and risk liability
for compliance or clean-up costs.
Under Title III of the Americans with Disabilities Act of 1990 and
rules promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers that are
structural in nature from existing places of public accommodation to the
extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so that,
to the maximum extent feasible, such altered portions are readily accessible
to and usable by disabled individuals. The "readily achievable" standard takes
into account, among other factors, the financial resources of the affected
site, owner, landlord or other applicable person. In addition to imposing a
possible financial burden on the borrower in its capacity as owner or
landlord, the ADA may also impose such requirements on a foreclosing lender
who succeeds to the interest of the borrower as owner or landlord.
PLAN OF DISTRIBUTION
Subject to the conditions set forth in this prospectus and in
accordance with the terms and conditions of the indenture and the Underwriting
Agreement between IBF VI and National Securities Corporation ("National"), IBF
VI will offer through National, on a best efforts basis, a maximum of
$50,000,000 in principal amount of the bonds. The minimum subscription is
$5,000 ($2,000 for IRAs and Qualified Plans, including Keogh plans) except in
certain states. See "Investor Suitability And Minimum Investment Requirements;
Subscription Procedures."
The sales commission paid to National is 8.0 percent of the gross
offering proceeds and an additional amount equal to 2.0 percent of IBF VI's
annual net income for each calendar year in which the bonds are outstanding
(the "Profit Participation"). In addition, IBF VI will reimburse National for
all out-of-pocket expenses on an accountable basis. National may reallow the
selling compensation to selected dealers participating in the offering.
Generally, dealers participating in the offering will receive a 6.5 percent
commission, a 0.5 percent due diligence fee and the Profit Participation.
Coleman & Company Securities, Inc., an affiliate of InterBank and IBF
VI, will participate in the wholesale distribution of the offering to selected
dealers. Coleman may also make sales of bonds to investors. For these
services, Coleman will receive from National out of its sales commission 0.5
percent of the gross proceeds of the offering, 7.0 percent of the gross
proceeds received on bonds sold by Coleman directly to investors, and the
Profit Participation, which will be reallowed to dealers.
Due to the affiliation between IBF VI and Coleman, the offering will
be conducted pursuant to Rule 2720 of the NASD Rules of Conduct, which imposes
certain requirements on the distribution. National has assumed the
responsibilities of acting as the qualified independent underwriter and has
priced the offering and conducted due diligence on the issuer.
The Underwriting Agreement and the selected dealer agreements contain
provisions for the indemnification of National and participating selected
dealers by IBF VI with respect to certain liabilities, including liabilities
arising under the Securities Act.
Until subscriptions for $500,000 of bonds have been accepted by IBF
VI, all funds received by National and selected dealers from subscriptions for
bonds will be placed in an escrow account with Continental Stock Transfer &
Trust Company, as escrow agent. If less than $500,000 of bonds are sold within
three months following the date of this prospectus (unless extended by IBF VI
and National for an additional three months), all proceeds raised will be
promptly returned to investors, with interest and without deducting any sales
commissions or expenses of the offering. Investors will not have the use of
their funds and will not be able to obtain return of funds placed in escrow
unless and until the minimum offering period expires. In the event the minimum
amount of bonds is sold within the minimum offering period, the offering will
continue until either all bonds are sold, the offering is terminated by IBF
VI, or June 30, 2001, whichever occurs first. In no event will any bonds be
sold to affiliates of IBF VI in order to reach the minimum.
The offering of the bonds is made subject to prior sale and to
withdrawal, cancellation, or modification of the offer without notice.
National and IBF VI reserve the right to reject any order for the purchase of
bonds.
INVESTOR SUITABILITY AND MINIMUM INVESTMENT REQUIREMENTS;
SUBSCRIPTION PROCEDURES
General Suitability Considerations
Among the reasons for establishing investor suitability standards and
minimum dollar amounts of investment is that there is no public market for the
bonds and none is expected to develop. Accordingly, only persons able to make
a long-term investment and who have adequate financial means and no need for
liquidity with regard to their investment should purchase the bonds. An
investment in bonds is not appropriate for you if you must rely on cash
distributions with respect to your bonds as your primary, or as an essential,
source of income to meet your necessary living expenses.
Requirements Concerning Minimum Investment and Minimum Investor Net Worth/
Income
Minimum Investment. For investors other than Qualified Plans and
IRAs, the minimum investment is $5,000 in principal amount of the bonds. For
Qualified Plans and IRAs, the minimum investment is $2,000 in principal amount
of the bonds.
Minimum Net Worth/Income. Except with respect to Qualified Plans and
IRAs, bonds will be sold to you only if you represent in writing:
o your net worth is at least $65,000 in excess of the proposed
investment in the bonds and you have an annual gross income of
at least $65,000, or
o irrespective of annual gross income, your net worth is at least
$225,000, or
o that you satisfy the suitability standards imposed by the
state in which you reside, if such standards are more
stringent than those set forth above.
All computations of your net worth must exclude the value of your
principal residence, its furnishings, and personal automobiles. All other
assets should be valued at their fair market value.
If an investor is a Qualified Plan or an IRA, such investor must
represent (i) that the IRA owner or the participant in the self-directed
Qualified Plan satisfies the foregoing standards, or (ii) if other than a
self-directed Qualified Plan, that the Qualified Plan satisfies the foregoing
suitability standards.
You must execute a copy of the Subscription Agreement, the form of
which is attached as Appendix II to this prospectus, to evidence your
compliance with the foregoing standards and the requirements of applicable
laws.
How to Subscribe
If you meet the suitability standards set forth above you must do the
following to subscribe to purchase bonds. You must personally execute the
Subscription Agreement and deliver it to National or the selected dealer
soliciting the investment with payment of the purchase price for the bonds. In
the case of IRAs and Qualified Plans, both owners and the plan fiduciary (if
any) must sign the Subscription Agreement. In the case of grantor trusts or
other trusts in which the grantor is the fiduciary, such grantor must sign the
Subscription Agreement. In the case of other fiduciary accounts in which the
donor does not exercise control and is not a fiduciary, the plan fiduciary
alone may sign the Subscription Agreement.
All subscription payments should be made payable to "CSTTC - Escrow
Account." Subscription payments will be deposited in the escrow account no
later than noon of the next business day following receipt. After the minimum
of $500,000 in principal amount of bonds is sold within the minimum offering
period, subscription payments will continue to be deposited and cleared
through the escrow account.
IBF VI and National will promptly review, and accept or reject at
their discretion, each subscription. If a subscription is rejected, the
subscription payment will be promptly refunded, without deduction of any
offering expenses and without payment of interest.
Affiliates of IBF VI, National, and the selected dealers will have
the right, but not the obligation, to subscribe for and purchase bonds for
their own account for investment purposes, subject to the terms and conditions
contained herein. Such affiliates may purchase bonds prior to sale of the
minimum $500,000 of bonds, which will count toward the achievement of the
minimum requirement. All bonds purchased by such parties will be purchased
solely for investment purposes and not with a present view towards resale or
distribution.
Sales Material
In addition to and apart from this prospectus, IBF VI will utilize
certain sales material in connection with the offering of bonds. This material
may include reports describing IBF VI and a brochure and audio-visual
materials or taped presentations highlighting various features of this
offering. IBF VI and its affiliates may also respond to specific questions
from selected dealers and prospective investors. Business reply cards,
introductory letters or similar materials may be sent to selected dealers for
customer use, and other information relating to this offering may be made
available to selected dealers for their internal use. However, this offering
is made only by means of this prospectus. Except as described herein or in
supplements hereto, IBF VI has not authorized the use of other sales materials
in connection with this offering. Although the information contained in such
material does not conflict with any of the information contained in this
prospectus, such material does not purport to be complete and should not be
considered as a part of this prospectus or the registration statement of which
this prospectus is a part, or as incorporated in this prospectus or the
registration statement by reference or as forming the basis of this offering
of bonds.
LEGAL MATTERS
The legality of the issuance of the bonds offered hereby and certain
other matters will be passed upon for IBF VI by Brown & Wood LLP, 1666 K
Street, N.W., Washington, D.C. 20006-1208. Certain matters will be passed upon
for National by its counsel D'Ancona & Pflaum LLC of Chicago, Illinois.
EXPERTS
The financial statements of IBF VI as of December 31, 1999 and 1998,
appearing in this Prospectus and Registration Statement have been audited by
Radin, Glass & Co., LLP, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
IBF VI has filed a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
bonds offered hereby. This Prospectus 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 IBF VI and the bonds offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement, and the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Seven World Trade Center, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or
any part of the Registration Statement may be obtained from the Commission
upon payment of a prescribed fee. This information is also available from the
Commission's Internet web site at http://www.sec.gov.
------------------
<PAGE>
Appendix I
INDEPENDENT AUDITOR'S REPORT
IBF VI -- Secured Lending Corporation
Washington, DC
We have audited the accompanying balance sheet of IBF VI -- Secured
Lending Corporation (A Development Stage Enterprise) for the period June 8,
1998 (inception) through December 31, 1999 and the related statement of
operations, change in shareholder's equity and cash flows for the period June
8, 1998 (inception) through December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement 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 our audit provides a reasonable basis for
our opinion.
In our opinion, the balance sheet referred to above presents fairly,
in all material respects, the financial position of IBF VI -- Secured Lending
Corporation (A Development Stage Enterprise) for the period June 8, 1998
(inception) through December 31, 1999 and the results of its operations and
its cash flows for the period then ended in conformity with generally accepted
accounting principles.
RADIN, GLASS & CO., LLP
Certified Public Accountants
New York, NY
February 17, 2000
<PAGE>
IBF VI -- SECURED LENDING CORPORATION
(A Development Stage Enterprise)
BALANCE SHEET
December 31, 1998 December 31, 1999
----------------- -----------------
ASSETS
- -------------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 1,000 $189,122
TOTAL CURRENT ASSETS 1,000 189,122
DEBT ISSUANCE COSTS 26,276 180,322
DUE FROM AFFILIATE 249,000
---------- --------
$276,276 $369,444
========== ========
STOCKHOLDER'S EQUITY
--------------------
COMMON STOCK, $1 par value, $ 1,000 $ 1,000
1,000 shares authorized,
issued and outstanding
ADDITIONAL PAID-IN CAPITAL 280,276 409,018
ACCUMULATED DEFICIT (5,000) (40,574)
--------- ---------
$276,276 $369,444
========= =========
<PAGE>
IBF VI -- SECURED LENDING CORPORATION
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
JUNE 8, 1998 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Cumulative
June 8, 1998 to January 1, 1999 to June 8,1998 to
December 31, 1998 December 31, 1999 December 31, 1999
<S> <C> <C> <C>
EXPENSES $5,000 $35,574 $40,574
NET EARNINGS (LOSSES) $(5,000) $(35,574) $(40,574)
NET EARNINGS (LOSSES) PER SHARE:
EARNINGS PER COMMON SHARE $(5.00) $(35.74) $(40.57)
WEIGHTED AVERAGE SHARES 1,000 1,000 1,000
</TABLE>
<PAGE>
IBF VI -- SECURED LENDING CORPORATION
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDER'S EQUITY
JUNE 8, 1998 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional Total
------------ Paid in Accumulated Stockholder's
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance as of June 8, 1998
(inception) - $ - $ - $ - $ -
Capital Contributions 1,000 1,000 280,276 $ - 281,276
Net Earnings for the Period June
8, 1998 to December 31, 1998 - - - (5,000) -
----------- --------- ---------- -------------- -----------
Balance as of December 31, 1998 1,000 1,000 280,276 (5,000) 276,276
Capital Contributions - - 128,742 - 128,742
Net Earnings for the Period
January 1, 1999 to December 31, - - - (35,574) (35,574)
1999 ----------- --------- ---------- -------------- -----------
Balance as of December 31, 1999 1,000 $ 1,000 $ 409,018 $(40,574) $ 369,444
=========== ========= ========== ============== ===========
</TABLE>
<PAGE>
IBF VI -- SECURED LENDING CORPORATION
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
JUNE 8, 1998 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Cumulative
June 8, 1998 to January 1, 1999 to June 8,1998 to
December 31, 1998 December 31, 1999 December 31, 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (5,000) $ (35,574) $ (40,574)
------- -------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (5,000) (35,574) (40,594)
----------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES 0 0 0
NET CASH USED IN INVESTING ACTIVITIES 0 0 0
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 281,276 128,742 410,018
Loan to parent (249,000) (335,000) (584,000)
Receipts from loan to parent 584,000 584,000
Debt issuance costs (26,276) (154,046) (180,322)
----------------- ------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,000 223,696 229,696
------------------ ------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 1,000 188,122 189,122
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD - 1,000 -
------------------- ------------- --------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 1,000 $ 189,122 $ 189,122
============= ============= ==============
</TABLE>
<PAGE>
IBF VI -- SECURED LENDING CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. INITIATION OF BUSINESS
On June 8, 1998, IBF VI -- Secured Lending Corporation ("IBF VI") was formed
to engage in the business of purchasing, holding and disposing of debt and
equity securities and instruments and other real estate related assets. There
have been no operations from inception through December 31, 1999.
IBF VI is a wholly-owned subsidiary of InterBank Funding Corporation.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Development stage - IBF VI is a development stage enterprise and
will continue as a development stage enterprise until such time
as it has significant revenues from operations.
b. Debt issuance costs - Debt issuance costs will be charged
against additional paid-in capital upon successful completion of
IBF VI's proposed public offering. In the event the offering is
not completed, such costs will be charged to expense.
c. Pervasiveness 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.
d. Fiscal year - IBF VI has adopted a fiscal year ending December 31.
3. RELATED PARTY INTERESTS
IBF VI is wholly-owned by InterBank Funding Corporation, affiliates of which,
IBF Management Corp. ("IMC") and IB Consultants Inc. will receive fees for
certain administrative and support services rendered to IBF VI. The annual
management fee will pay for certain costs of operating IBF VI for which IMC is
responsible. A portion of the management fee will be paid to IB Consultants.
The overhead costs incurred by IBF VI are absorbed by IMC. A charge was made
for the year ended December 31, 1999 in the financial statements for the
amount that management believes is appropriate for such costs, including
payroll, rent, equipment leases and other expenses. The amount of such charge
is recorded as a credit to paid in capital.
4. PROPOSED PUBLIC OFFERING
IBF VI anticipates offering $50,000,000 of 10.25% bonds, Class A (the "bonds")
of IBF VI -- Secured Lending Corporation. The bonds may be subordinated to
future Senior Indebtedness of IBF VI. Any amount of the bonds is redeemable at
the option of IBF VI after January 1, 2001. Bonds may be redeemed at the
request of the registered holders of the bonds ("Holders") under limited
circumstances. The redemption value of each bond is equal to 100% of its
principal amount plus accrued Interest.
The minimum principal amount of bonds that may be purchased is $5,000 for all
investors, except for Individual Retirement Accounts and Keogh Plans, for
which the minimum purchase is $2,000.
<PAGE>
Appendix II
IBF VI -- Secured Lending Corporation
Subscription Agreement
<TABLE>
<CAPTION>
<S> <C> <C>
___
|___| Initial Subscription
___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
|___| Additional Investment: Account Number Previously Assigned: |___|___|___|___|___|___|___|___||___||___|
___
|___| Check here if you wish to reinvest a portion of each interest payment
___
in additional Bonds: |___|
___
|___| Check here if you wish to reinvest a portion of each interest payment in addition Bonds:
___ ___
|___| 25% |___| 50%
___ ___
|___| 75% |___| 100%
INVESTMENT
___ ___ ___ ___ ___ ___ ___
|___|___|___|___|___|___|___|
I desire to purchase $_____________ aggregate principal amount of IBF VI-- Secured Lending Corporation.
Make Checks Payable to: CSTTC Escrow Agent for IBF VI
o Subscriber Information: Please clearly print name(s) in which Notes
are to be acquired. All checks and correspondence will go to the
Investor.
Your net worth is at least $65,000 in excess of the proposed
investment in the bonds and you have an annual gross income of at
least $65,000, or
o irrespective of annual gross income, your net worth is at least
$225,000, or
o that you satisfy the suitability standards imposed by the state in
which you reside, if such standards are more stringent than those
set forth above.
All computations of your net worth must exclude the value of your
principal residence, its furnishings, and personal automobiles. All other
assets should be valued at their fair market value. Residence Address unless
specified otherwise in the Check Distribution Section
Investor 1 (First, Middle I., Last):
___________________________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
(1) Investor 2 (First, Middle I. Last):
___________________________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Registration For The Investment (How The Investment Should Be Titled):
___________________________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Investor Residence Address 1: Check One Of The
Following:
_______________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Investor Residence Address 2: ___
_______________________________________________________________ |___| U.S. Citizen
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___| ___
|___| Resident Alien
City, State ZIP Code ___
_______________________________ _______ ___________________ |___| Foreign Resident; Country
|___|___|___|___|___|___|___|___| |___|___| ___|___|___|___|___|
___
|___| U.S. Citizen residing outside the U.S.
Occupation:
_______________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Check Distribution Information (if different):
Financial Institution (Bank, Trust Company, etc.):
___________________________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Address:
___________________________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
City, State ZIP Code
_______________________________ _______ ___________________
|___|___|___|___|___|___|___|___| |___|___| ___|___|___|___|___|
Account Number:
___________________________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Enter the taxpayer identification number. For most individual taxpayers, it is
their Social Security Number. Note: If the purchase is in more than one name,
----
the number should be that of the first person listed. For IRAs, Keoghs, and
qualified plans, enter both the Social Security Number and the Taxpayer
Identification Number for the plan.
Social Security Number Taxpayer Identification Number (If Applicable)
___________ ___________ ___________ _______ _______________________ ___
|___|___|___| |___|___|___| |___|___|___| |___|___| |___|___|___|___|___|___|___|
Form of Ownership (Individual, IRA, Trust, UGMA, Pension Plan, etc.)
___________________________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
==================================================================================================================================
Broker/Dealer - Registered Representative Information (To be completed by Registered Representative)
I hereby certify that the investor(s) has read the prospectus and meets the suitability requirements.
Broker/Dealer Firm Name:
___________________________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Registered Representative:
___________________________________________________________________________
|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Sales Representative Number: __________________________________________________
Sales Representative Signature: ______________________________________________
==================================================================================================================================
Interest Distribution: If you are purchasing $15,000 or more of the Notes, please indicate how you want fixed interest paid
___ ___
|___| Monthly |___| Quarterly
<PAGE>
Subscriber Signature: (the undersigned has the authority to enter into this
subscription agreement on behalf of the person(s) or entity registered above.
I (We) certify under penalty of perjury that this is my (our) correct Social
Security Number (and/or Tax Identification Number) and that interest income on
this account should be reported on this number. I acknowledge and agree to
this statement on the reverse side hereof.
Authorized Signature of Investor 1 _____________________ Date _________________________
Authorized Signature of Investor 2 _____________________ Date _________________________
==================================================================================================================================
Company's Acceptance (To be completed only by an authorized representative of IBF VI.)
The foregoing subscription is accepted this ____________ day of ________________, _____
_____________________________________ Authorized Representative of IBF VI
==================================================================================================================================
</TABLE>
<PAGE>
[Outside back cover]
==================================== =======================================
Until _____________, 2000, all
dealers that effect transactions in
these securities, whether or not
participating in this offering, may
be required to deliver a
prospectus. This is in addition to $50,000,000
the dealers' obligation to deliver
a prospectus when acting as
underwriters and with respect to
their unsold allotments or
subscriptions.
IBF VI -- SECURED LENDING
------------------ CORPORATION [logo]
TABLE OF CONTENTS
-----------------
Class A 10.25% Bonds
----------
PROSPECTUS
----------
No dealer, salesperson or
other person has been authorized to
give any information or to make any
representations other than those
contained in this Prospectus and,
if given or made, such information
or representations must not be
relied upon as having been
authorized by IBF VI or any
Underwriter. This Prospectus does
not constitute an offer to sell or
a solicitation of an offer to buy
any of the securities offered
hereby to whom it is unlawful to
make such offer in such
jurisdiction to any person in any
jurisdiction. Neither the delivery
of this Prospectus nor any sale
made hereunder shall, under any
circumstances, create any
implication that information
contained herein is correct as of
any time subsequent to the date
hereof or that there has been no
change in the affairs of IBF VI ___________________ 2000
since such date.
==================================== =======================================
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
IBF VI's Charter provides that, to the fullest extent that limitations on
the liability of directors and officers are permitted by the Delaware General
Corporation Law (the "DGCL"), no director or officer of IBF VI shall have any
liability to IBF VI or its stockholders for monetary damages. The DGCL
provides that a corporation's charter may include a provision which restricts
or limits the liability of its directors or officers to the corporation or its
stockholders for money damages except: (1) to the extent that it is provided
that the person actually received an improper benefit or profit in money,
property or services, for the amount of the benefit or profit in money,
property or services actually received, or (2) to the extent that a judgment
or other final adjudication adverse to the person is entered in a proceeding
based on a finding in the proceeding that the person's action, or failure to
act, was the result of active and deliberate dishonesty and was material to
the cause of action adjudicated in the proceeding. IBF VI's Charter and Bylaws
provide that IBF VI shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent permitted by the DGCL
and that IBF VI shall indemnify and advance expenses to its officers to the
same extent as its directors and to such further extent as is consistent with
law.
The Charter and Bylaws provide that IBF VI will indemnify its directors
and officers and may indemnify employees or agents of IBF VI to the fullest
extent permitted by law against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with IBF VI. However, nothing in the Charter or Bylaws of IBF VI
protects or indemnifies a director, officer, employee or agent against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. To the extent that a director has been
successful in defense of any proceeding, the DGCL provides that he shall be
indemnified against reasonable expenses incurred in connection therewith.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with this
Registration Statement. IBF VI will pay all expenses of the offering. All of
such expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission and NASD.
Securities and Exchange Commission Filing Fee $ 13,900.00
NASD Filing Fee 5,500.00
Printing Fees and Expenses 40,000.00
Legal Fees and Expenses 125,000.00
Accounting Fees and Expenses 50,000.00
Blue Sky Fees and Expenses 25,000.00
Indenture Trustee's and Registrar's Fees 35,000.00
Miscellaneous 100,600.00
- --------------------------------------------------- -----------
TOTAL $400,000.00
===========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement,
IBF VI had only one transaction in which it issued its securities. In
connection with the formation of IBF VI, it sold 1,000 shares of its common
stock to InterBank Funding Corporation ("InterBank") to obtain $250,000 of
initial capital. InterBank is the sole stockholder of IBF VI, and two of IBF
VI's officers and directors are the sole owners of InterBank. The transaction
was intended to be exempt from the registration requirements of the Securities
Act of 1933, as amended, by virtue of Section 4(2) thereunder. No underwriters
were involved in connection with the sales of these securities.
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS
Exhibits.
<S> <C> <C> <C>
Exhibit No. SEC Ref. No. Title of Document Location
1 (1) Dealer-Manager Agreement Amend. 2
Page E-1
2 (1) Selling Group Agreement Amend. 2
Page E-14
3 (3)(i) Certificate of Incorporation, as amended Initial Filing
Page E-17
3(a) (3)(i) Certificate of Amendment to Certificate of Incorporation Amend. 1
Page E-32
3(b) (3)(i) Certificate of Amendment to Certificate of Incorporation Amend. 2
Page E-18
3(c) (3)(i) Certificate of Amendment to Certificate of Incorporation Amend. 3
Page E-1
4 (3)(ii) By-Laws Initial Filing
Page E-21
5 (4) Proceeds Escrow Agreement Amend. 2
Page E-34
6 (4) Indenture, with exhibits Amend. 2
Page E-27
7 (10) Management Agreement Amend. 3
Page E-2
8 (5)(23) Opinion and Consent of Brown & Wood LLP Amend. 3
Page E-18
9 (23) Consent of Radin, Glass & Co., LLP Amend. 3
Page E-20
10 (25) Form T-1, Statement of Eligibility under Initial Filing
the Trust Indenture Act of 1939 Page E-195
</TABLE>
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
persons 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the 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.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form SB-2 and authorizes this Registration
Statement or Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in Washington, D.C., on May 11, 2000.
IBF VI -- SECURED LENDING CORPORATION
By /s/ Simon A. Hershon, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or Amendment has been signed below by the following
persons in the capacities and on the dates indicated.
/s/ Simon A. Hershon, President May 11, 2000
and Director
/s/ Ehud D. Laska, Director May 11, 2000
/s/ Robert L. Olson, Chief Financial Officer May 11, 2000
EXHIBIT 3(C)
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
IBF VI-PARTICIPATING INCOME CORPORATION
IBF VI - PARTICIPATING INCOME CORPORATION, a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
The amendment to the Corporation's Certificate of Incorporation set forth
below was duly adopted by resolutions approved by the Corporation's Board of
Directors and stockholders in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware:
Amendment. The Certificate of Incorporation of the corporation is amended
by striking Article I in its entirety and replacing therefor:
ARTICLE I
NAME
The name of the Corporation is IBF VI - Secured Lending Corporation.
IN WITNESS WHEREOF, IBF VI - Participating Income Corporation has caused
this Certificate to be signed by its duly authorized officer this 10th day of
May, 2000.
IBF VI - PARTICIPATING INCOME CORPORATION
By: /s/ Simon A. Hershon
----------------------------
Name: Simon A. Hershon
Title: President
EXHIBIT 7
MANAGEMENT AGREEMENT
<PAGE>
MANAGEMENT AGREEMENT
THIS AGREEMENT, dated as of _____________, 2000 by and between IBF VI
- - SECURED LENDING CORPORATION, a Delaware corporation (the "Company"), and IBF
MANAGEMENT CORP., a Delaware corporation (the "Manager");
WITNESSETH:
WHEREAS, the Company intends to invest in mortgage loans, Mortgage-Backed
Securities and other real estate related assets and commercial loans
("Investments"); and
WHEREAS, the Company desires to retain the Manager to acquire, sell and
otherwise manage the Investments of the Company and to perform administrative
services for the Company in the manner and on the terms set forth herein;
NOW THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto agree as follows:
SECTION 1. Definitions.
Except as the context otherwise requires, capitalized terms used but not
defined herein shall have the respective meanings assigned them in the
Company's prospectus dated [[ ]], 2000 (the "Prospectus"). In addition, the
following terms have the meanings assigned them:
(a) "Agreement" means this Management Agreement, as amended from
time to time.
(b) "Closing Date" means the date of closing of the Company's debt
offering described in the Prospectus.
(c) "Eligible Account": One or more trust accounts maintained with
(i) a federal depository institution, (ii) a state chartered depository
institution subject to regulations regarding fiduciary funds on deposit
substantially similar to 12 CFR Section 9.10(b) or (iii) a trust company
acting in its fiduciary capacity, which in any case may be an account
maintained with the indenture trustee. Eligible Accounts may bear
interest.
(d) "Governing Instruments" means, in the case of a corporation, the
articles of incorporation and bylaws, in the case of a partnership, the
certificate of partnership or similar document and partnership agreement
and, in the case of a limited liability company, the certificate of
formation and operating agreement.
(e) "Mortgage-Backed Securities" means interests in mortgage-backed
securities.
SECTION 2. Duties of the Manager.
(a) The Manager at all times will be subject to the supervision by
the Company and will have only such functions and authority as the
Company may delegate to it. The Manager will be responsible for the
day-to- day operations of the Company and will perform (or cause to be
performed) such services and activities relating to the assets and
operations of the Company as the Manager deems to be appropriate,
including:
(i) providing a complete program of investing and reinvesting
the capital and assets of the Company in pursuit of its investment
objectives and in accordance with policies adopted by the Company
from time to time;
(ii) serving as the Company's consultant with respect to
formulation of investment criteria and preparation of policy
guidelines by the Company's board of directors;
(iii) assisting the Company in developing criteria for mortgage
asset purchase commitments that are specifically tailored to the
Company's investment objectives and making available to the Company
its knowledge and experience with respect to mortgage loans, other
real estate related assets and commercial loans;
(iv) counseling the Company in connection with policy
decisions;
(v) maintaining the Company's exemption from regulation as an
investment company;
(vi) representing the Company in connection with the purchase
and commitment to purchase or sell mortgage loans and other real
estate related assets and commercial loans;
(vii) furnishing reports and statistical and economic research
to the Company regarding the Company's activities and the services
performed for the Company by the Manager;
(viii) monitoring and providing to the Company on an ongoing
basis price information and other data, obtained from certain
nationally recognized dealers that maintain markets in mortgage
assets, and providing data and advice to the Company in connection
with the identification of such dealers;
(ix) administering the day-to-day operations of the Company and
performing and supervising the performance of such other
administrative functions necessary in the management of the Company
as may be agreed upon by the Manager and the Company;
(x) contracting, as necessary, with third parties for master
and special servicing of assets acquired by the Company;
(xi) communicating on behalf of the Company with the holders of
the equity and debt securities of the Company as required to satisfy
the reporting and other requirements of any governmental bodies or
agencies and to maintain effective relations with such holders;
(xii) causing the Company to qualify to do business in all
applicable jurisdictions;
(xiii) assisting the Company in complying with all regulatory
requirements applicable to the Company in respect of its business
activities, including preparing or causing to be prepared all
financial statements required under applicable regulations and
contractual undertakings and all reports and documents, if any,
required under the Securities Exchange Act of 1934, as amended;
(xiv) performing such other services as may be required from
time to time for management and other activities relating to the
assets of the Company as the board of directors shall reasonably
request or the Manager shall deem appropriate under the particular
circumstances; and
(xv) using all reasonable efforts to cause the Company to
comply with all applicable laws.
(b) Real Estate Asset Portfolio Management. The Manager will perform
portfolio management services on behalf of the Company with respect to the
Company's Investments. Such services will include, but not be limited to,
consulting with the Company on purchase and sale opportunities, collection of
information and submission of reports pertaining to the Company's assets,
interest rates, and general economic conditions, periodic review and
evaluation of the performance of the Company's portfolio of assets, acting as
liaison between the Company and banking, mortgage banking, investment banking
and other parties with respect to the purchase, financing and disposition of
assets, and other customary functions related to real estate portfolio
management. The Manager may enter into subcontracts with other parties,
including its affiliates, to provide any such services to the Company.
(c) Manager to Act as Servicer. The Company hereby appoints the Manager
to service and manage the Company's assets, and the Manager hereby accepts
such appointment and hereby agrees to service and manage the Company's assets
pursuant to the terms of this Agreement. The Manager agrees that its servicing
and management of assets shall be carried out in accordance with (i)
applicable law and (ii) the express terms hereof.
In servicing and administering the Company's assets under this Agreement,
the Manager shall, subject to the terms of this Agreement, have full power and
authority, acting alone or through subservicers, to do any and all things in
connection with such servicing and administration that it may deem necessary
or desirable. Without limiting the generality of the foregoing, the Manager is
hereby authorized and empowered by the Company to execute and deliver, in the
name and on behalf of the Company, any and all financing statements,
continuation statements and other documents or instruments necessary to
maintain the lien on each mortgaged property and related collateral and any
and all instruments of satisfaction or cancellation or of partial or full
release or discharge, all documents, affidavits and pleadings necessary to
conduct any litigation or other proceedings involving the Company or its
assets and all other comparable instruments with respect to the assets and
with respect to the mortgaged properties and related collateral. The Manager
shall take all actions necessary or desirable to maintain the lien on each
mortgaged property and related collateral.
(d) Subservicers; Independent Contractors. The Manager may, at its own
expense, contract with any subservicer or independent contractor satisfactory
to the Company to perform all or any portion of its duties hereunder, but the
Manager shall remain liable hereunder to the full extent of its duties and
obligations specified herein.
(e) Collection of Taxes, Assessments and Similar Items; Escrow Accounts.
The Manager shall establish and maintain one or more accounts (each, an
"Escrow Account") into which all escrow payments shall be deposited. Escrow
Accounts shall be Eligible Accounts. The Manager shall notify the Company in
writing of the location and account number of each Escrow Account it
establishes and shall notify the Company prior to any change thereof.
Withdrawals of amounts from an Escrow Account may be made, subject to the
terms governing the use of the related escrow payments, only to: (i) effect
payment of taxes, assessments, insurance premiums, ground rents and comparable
items; (ii) refund to borrowers any sums determined to be overages; (iii) pay
interest, if required, to borrowers on balances in the Escrow Account; (iv)
withdraw interest or other income which lawfully belongs to the Company; or
(v) clear and terminate the Escrow Account at the termination of this
Agreement.
The Manager shall maintain accurate records with respect to each
mortgaged property reflecting the status of taxes, assessments and other
similar items that are or may become a lien thereon and the status of
insurance premiums payable with respect thereto as well as the payment of
ground rents with respect to each ground lease. The Manager shall use best
efforts to obtain, from time to time, all bills for the payment of such items
(including renewal premiums), and shall effect payment prior to the applicable
penalty or termination date, employing for such purpose escrow payments as
allowed under the terms of the related mortgage loan. To the extent that a
mortgage loan does not require a borrower to make payments for taxes,
assessments, insurance premiums and other similar items in escrow, the Manager
shall require that any such payment be made by the borrower at the time they
first become due.
(f) Maintenance of Insurance Policies and Errors and Omissions and
Fidelity Coverage. The Manager shall maintain or cause the related borrower to
maintain with respect to each mortgage loan, fire and hazard insurance with
extended coverage on the related mortgaged property in an amount which is at
least equal to the lesser of the replacement cost of the improvements which
are part of such property and the investment value thereof, but in no event
greater than the maximum amount of such insurance required by the terms of the
related note or mortgage.
It is understood and agreed that no earthquake or other additional
insurance other than flood insurance is to be required of any borrower or to
be maintained by the Manager other than pursuant to the terms of the related
note or mortgage and pursuant to such applicable laws and regulations as shall
at any time be in force and as shall require such additional insurance. If
permitted by the related note or mortgage, the Manager may maintain, if
available, or, if applicable, may require the related borrower to maintain
other forms of insurance including but not limited to, loss of rents
endorsements, business interruption insurance or comprehensive public
liability insurance. If the mortgaged property was located at the time of
origination of the mortgage loan in a federally designated special flood
hazard area, the Manager will cause the related borrower to maintain or will
itself obtain flood insurance in respect thereof to the extent available. Such
flood insurance shall be in an amount equal to the lesser of (i) the unpaid
principal balance of the related mortgage loan and (ii) the greater of (x) the
maximum amount of such insurance required by the terms of the related note or
mortgage and (y) the maximum amount of such insurance as is available for the
related property under the national flood insurance program (assuming that the
area in which such property is located is participating in such program).
The Manager agrees to prepare and present claims under each related
insurance policy in a timely fashion in accordance with the terms of such
policy and to take such reasonable steps as are necessary to receive payment
or to permit recovery thereunder.
All policies required hereunder shall name the Manager and the Company as
loss payees and, to the extent available and applicable, shall contain
negative amortization endorsements.
(g) The Manager shall maintain at its own expense a fidelity bond in the
form and amount that would meet the requirements of prudent commercial
servicing or asset management standards for loans of this type in its own
servicing or asset management portfolio, as the case may be. The Manager shall
use its best efforts to cause the issuer of any such fidelity bond to give at
least ten days' prior written notice of cancellation or nonrenewal of such
fidelity bond to the Company. In addition, the Manager shall keep in force
during the term of this Agreement a policy or policies of insurance covering
loss occasioned by the errors and omissions of the Manager's officers,
employees and agents in connection with its obligations hereunder. The Manager
shall cause each and every subservicer to maintain a policy of insurance
covering errors and omissions and a fidelity bond which meet such
requirements. The Manager shall notify the Company of the cancellation or the
receipt of a notice of cancellation of any such policy.
(h) Environmental Assessment Prior to Foreclosure; Tax Reporting with
Respect to Foreclosure and Abandoned Property. Notwithstanding any other
provision of this Agreement, the Manager shall not obtain title to a mortgage
property as a result of or in lieu of foreclosure or otherwise, and shall not
otherwise acquire possession of any mortgage property, if as a result of any
such action the Company would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of such
mortgage property within the meaning of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to
time, or any comparable law, unless the Manager has previously determined,
based on an environmental assessment prepared by an independent person who
regularly conducts environmental audits, that:
(A) such mortgaged property is in compliance with applicable
environmental laws or, if not, that it is consistent with the business
plan in respect of such mortgaged property to take such actions as are
necessary to bring the mortgaged property in compliance therewith, and
(B) there are no circumstances present at such mortgaged property
relating to the use, management or disposal of any hazardous materials
for which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any then effective federal, state or
local law or regulation, or that, if any such hazardous materials are
present for which such action could be required, it is consistent with
the business plan to take such actions with respect to the affected
mortgaged property.
In the event that the environmental assessment first obtained by the
Manager with respect to a mortgaged property indicates that such mortgaged
property may not be in compliance with applicable environmental laws or that
hazardous materials may be present but does not definitively establish such
fact, the Manager shall cause such further environmental tests as the Manager
shall deem prudent. Any such tests shall be deemed part of the environmental
assessment obtained by the Manager for purposes of this Section.
The Manager shall report to the Internal Revenue Service and to the
related borrower, in the manner required by applicable law, the information
required to be reported regarding interest collected or refunded on the
related mortgage loan or any mortgaged property which is abandoned or
foreclosed. The Servicer shall deliver a copy of any such report to the
Company.
(i) Modifications, Waivers, Amendments and Consents. To the extent
consistent with the business plan and subject to the provisions of this
Section, the Manager shall have the right, but not the obligation, to agree to
any modification, waiver or amendment of any term of any of the Company's
assets. All modifications, waivers or amendments of any asset shall be in
writing.
The Manager may charge the borrower for any costs and expenses incurred
by the Manager in connection with any request for a consent, modification,
waiver or amendment.
The Manager shall notify the Company of any modification, waiver or
amendment of any term of any asset and the date thereof, and shall deposit in
the related mortgage file an executed copy of the agreement relating to such
modification, waiver or amendment, together with the mortgage documents
relating to any substitute or additional collateral given in connection
therewith, promptly following the execution thereof.
(j) Additional Fees. The Manager may charge the borrower a reasonable or
customary modification fee. All such fees and reimbursements and any
additional fees charged by the Manager shall be for the benefit of the
Company.
(k) Expenses. All expenses incurred by the Manager hereunder shall be for
its own account, without any right of reimbursement therefor, except for any
expenses directly related to the maintenance or liquidation of the Company's
assets.
(l) Standard of Care. The Manager agrees to service the loans originated
or acquired by the Company and manage any properties acquired in respect
thereof in accordance with servicing standards for loans similar to the loans
originated or acquired by the Company and asset management standards for
commercial properties that are customarily employed by prudent servicers
servicing comparable loans for their own account and prudent asset managers
managing comparable properties for their own account and in a manner intended
to achieve the purposes of the Company set forth above.
SECTION 3. Additional Activities of Manager. Nothing herein shall prevent
the Manager or any of its affiliates from engaging in other businesses or from
rendering services of any kind to any other person or entity, including
investment in, or advisory service to others investing in, any type of real
estate investment.
Directors, officers, employees and agents of the Manager or affiliates of
the Manager may serve as directors, officers, employees, agents, nominees or
signatories for the Company, to the extent permitted by their Governing
Instruments, as from time to time amended, or by any resolutions duly adopted
by the Board of Directors pursuant to the Company's Governing Instruments.
When executing documents or otherwise acting in such capacities for the
Company, such persons shall use their respective titles in the Company.
SECTION 4. Commitments. In order to meet the investment requirements of
the Company, as determined from time to time, the Manager agrees to issue on
behalf of the Company commitments on such terms as are established by the
Company for the purchase of Investments.
SECTION 5. Bank Accounts. At the direction of the Company, the Manager
may establish and maintain one or more bank accounts in the name of the
Company, and may collect and deposit into any such account or accounts, and
disburse funds from any such account or accounts, under such terms and
conditions as the Company may approve; and the Manager shall from time to time
render appropriate accountings of such collections and payments to the Company
and, upon request, to the auditors of the Company or any Subsidiary.
Notwithstanding the foregoing, all amounts collected or received by the
Manager in respect of the Company's assets shall be deposited by the Manager
on the day received into an account established by the Manager in the name of
the Company.
SECTION 6. Records; Confidentiality. The Manager shall maintain
appropriate books of accounts and records relating to services performed
hereunder, and such books of account and records shall be accessible for
inspection by representatives of the Company at any time during normal
business hours. The Manager shall keep confidential any and all information
obtained in connection with the services rendered hereunder and shall not
disclose any such information to nonaffiliated third parties except with the
prior written consent of the Company.
SECTION 7. Obligations of Manager.
(a) The Manager shall require each seller or transferor of Investments to
the Company to make such representations and warranties regarding such
Investments as may, in the judgment of the Manager, be necessary and
appropriate. In addition, the Manager shall take such other action as it deems
necessary or appropriate with regard to the protection of the Company's
Investments and other assets.
(b) The Manager shall refrain from any action that would adversely affect
the status of the Company as exempt from regulations under the Investment
Company Act or that, in its sole judgment made in good faith, would violate
any law, rule or regulation of any governmental body or agency having
jurisdiction over the Company or that would otherwise not be permitted by the
Company's Governing Instruments. If the Manager is ordered to take any such
action by the Company, the Manager shall promptly notify the Company of the
Manager's judgment that such action would adversely affect such status or
violate any such law, rule or regulation or the Governing Instruments.
Notwithstanding the foregoing, the Manager, its directors, officers,
stockholders and employees shall not be liable to the Company for any act or
omission by the Manager, its directors, officers, stockholders or employees
except as provided in Section 9 of this Agreement.
(c) Absent written direction from the Company, the Manager shall use
reasonable efforts to comply with the Guidelines, as they may be revised from
time to time.
SECTION 8. Compensation.
(a) The Company shall reimburse the Manager for expenses incurred in the
establishment of the Company and the offering and administrative costs of the
bond offering as described in the Prospectus.
(b) The Company shall pay to the Manager incentive compensation for each
calendar year, commencing in the calendar year ending December 31, 2000 (for
which initial year such amount shall be prorated), in an amount equal to the
product of (A) 2.00% and (B) the outstanding principal amount of the Bonds.
(c) The Manager shall compute the compensation payable under Section 8(b)
of this Agreement within 45 days after the end of each calendar year. A copy
of the computations made by the Manager to calculate its compensation shall
thereafter promptly be delivered to the Company and, upon such delivery,
payment of the compensation earned under Section 8(b) of this Agreement shown
therein shall be due and payable within 60 days after the end of such calendar
year.
SECTION 9. Limits of Manager Responsibility. The Manager assumes no
responsibility under this Agreement other than to render the services called
for hereunder in good faith and shall not be responsible for any action of the
Company in following or declining to follow any advice or recommendations of
the Manager, including as set forth in Section 7(b) of this Agreement. The
Manager, its directors, officers, stockholders and employees will not be
liable to the Company, the directors or the Company's stockholders or partners
for any acts or omissions by the Manager, its directors, officers,
stockholders or employees under or in connection with this Agreement, except
by reason of acts constituting bad faith, willful misconduct, gross negligence
or reckless disregard of their duties. The Company shall reimburse, indemnify
and hold harmless the Manager, its stockholders, directors, officers and
employees of and from any and all expenses, losses, damages, liabilities,
demands, charges and claims of any nature whatsoever, (including attorneys'
fees) in respect of or arising from any acts or omissions of the Manager, its
stockholders, affiliates, directors, officers and employees made in good faith
in the performance of the Manager's duties under this Agreement and not
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of its duties.
SECTION 10. No Joint Venture. The Company and the Manager are not
partners or joint venturers with each other and nothing herein shall be
construed to make them such partners or joint venturers or impose any
liability as such on either of them.
SECTION 11. Term; Termination. This Agreement shall commence on the date
of execution by the parties and shall continue in force until the Bonds are
paid in full, unless the Company delivers a notice of termination to the
Manager pursuant to Section 13.
SECTION 12. Assignments.
(a) Except as set forth in Section 12(b) of this Agreement, this
Agreement shall terminate automatically in the event of its assignment, in
whole or in part, by the Manager, unless such assignment is consented to in
writing by the Company. Any such assignment shall bind the assignee hereunder
in the same manner as the Manager is bound. In addition, the assignee shall
execute and deliver to the Company a counterpart of this Agreement naming such
assignee as manager. The Management Agreement shall be void upon (i) the sale
of all or substantially all of the assets of the Manager, or (ii) the
recapitalization, restructuring, merger, consolidation, combination or sale of
the stock of the Manager as a result of which Simon A. Hershon is not the
holder of securities representing the majority of the outstanding capital
stock entitled to vote in an election of the director of the Manager. This
Agreement shall not be assigned by the Company without the prior written
consent of the Manager, except in the case of assignment by the Company to an
organization which is a successor (by merger, consolidation or purchase of
assets) to the Company, in which case such successor organization shall be
bound hereunder and by the terms of such assignment in the same manner as the
Company is bound hereunder.
(b) Notwithstanding any provision of this Agreement, the Manager may
subcontract any or all of its responsibilities under Section 2 of this
Agreement to any of its affiliates, which affiliate shall be approved by the
Company, and the Company hereby consents to any such assignment and
subcontracting provided, however, that no such arrangement between the Manager
and any Affiliate of the Manager shall relieve the Manager of its duties or
obligations hereunder.
SECTION 13. Termination by the Company for Cause. At the option of the
Company, this Agreement, or any extension hereof, shall be and become
terminated for cause immediately upon 60 days' written notice of termination
from the Company, or the trustee under any document pursuant to which the
Company has issued debt, to the Manager, without payment of any termination
fee, if any of the following events shall occur:
(a) if the Manager shall breach any provision of this Agreement in any
material respect and, after notice of such material breach, shall not cure
such violation within 30 days of such notice;
(b) there is entered an order for relief or similar decree or order with
respect to the Manager by a court having competent jurisdiction in an
involuntary case under the federal bankruptcy laws as now or hereafter
constituted or under any applicable federal or state bankruptcy, insolvency or
other similar laws; or the Manager (i) ceases, or admits in writing its
inability, to pay its debts as they become due and payable, or makes a general
assignment for the benefit of, or enters into any composition or arrangement
with, creditors; (ii) applies for, or consents (by admission of material
allegations of a petition or otherwise) to the appointment of a receiver,
trustee, assignee, custodian, liquidator or sequestrator (or other similar
official) of the Manager or of any substantial part of its properties or
assets, or authorizes such an application or consent, or proceedings seeking
such appointment are commenced without such authorization, consent or
application against the Manager and continue undismissed for 30 days; (iii)
authorizes or files a voluntary petition in bankruptcy, or applies for or
consents (by admission of material allegations of a petition or otherwise) to
the application of any bankruptcy, reorganization, arrangement, readjustment
of debt, insolvency, dissolution, liquidation or other similar law of any
jurisdiction, or authorizes such application or consent, or proceedings to
such end are instituted against the Manager without such authorization,
application or consent and are approved as properly instituted and remain
undismissed for 30 days or result in adjudication of bankruptcy or insolvency;
or (iv) permits or suffers all or any substantial part of its properties or
assets to be sequestered or attached by court order and the order remains
undismissed for 30 days; or
(c) if the Manager shall act in any way under this Agreement that is
grossly negligent or the Manager shall recklessly disregard the interests of
the holder's of the Company's bonds issued pursuant to the Prospectus.
(d) If any of the events specified in Section 13(b) of this Agreement
shall occur, the Manager shall give prompt written notice thereof to the
Company upon the happening of such event.
SECTION 14. Action Upon Termination. From and after the effective date of
termination of this Agreement, pursuant to Section 13 of this Agreement, the
Manager shall not be entitled to compensation for further services hereunder,
but shall be paid all compensation accruing to the date of termination. Upon
such termination, the Manager shall forthwith:
(a) pay over to the Company all money collected and held for the account
of the Company pursuant to this Agreement;
(b) deliver to the Company a full accounting, including a statement
showing all payments collected by it and a statement of all money held by it,
covering the period following the date of the last accounting furnished to the
Company; and
(c) deliver to the Company all property and documents of the Company then
in the custody of the Manager.
SECTION 15. Release of Money or Other Property Upon Written Request. The
Manager agrees that any money or other property of the Company held by the
Manager under this Agreement shall be held by the Manager as custodian for the
Company, and the Manager's records shall be appropriately marked clearly to
reflect the ownership of such money or other property by the Company. Upon the
receipt by the Manager of a written request signed by a duly authorized
officer of the Company requesting the Manager to release to the Company any
money or other property then held by the Manager for the account of the
Company under this Agreement, the Manager shall release such money or other
property to the Company within a reasonable period of time, but in no event
later than 60 days following such request. The Manager shall not be liable to
the Company, the directors, or the Company's stockholders or partners for any
acts performed or omissions to act by the Company in connection with the money
or other property released to the Company in accordance with this Section. The
Company shall indemnify the Manager, its directors, officers, stockholders and
employees against any and all expenses, losses, damages, liabilities, demands,
charges and claims of any nature whatsoever, which arise in connection with
the Manager's release of such money or other property to the Company in
accordance with the terms of this Section 15 of this Agreement.
Indemnification pursuant to this provision shall be in addition to any right
of the Manager to indemnification under Section 9 of this Agreement.
SECTION 16. Representations and Warranties.
(a) The Company hereby represents and warrants to the Manager as follows:
(i) The Company is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has the
corporate power to own its assets and to transact the business in which
it is now engaged and is duly qualified as a foreign corporation and in
good standing under the laws of each jurisdiction where its ownership or
lease of property or the conduct of its business requires such
qualification, except for failures to be so qualified, authorized or
licensed that could not in the aggregate have a material adverse effect
on the business operations, assets or financial condition of the Company
and its subsidiaries, taken as a whole. The Company does not do business
under any fictitious business name.
(ii) The Company has the corporate power and authority to execute,
deliver and perform this Agreement and all obligations required hereunder
and has taken all necessary corporate action to authorize this Agreement
on the terms and conditions hereof and the execution, delivery and
performance of this Agreement and all obligations required hereunder. No
consent of any other person including, without limitation, stockholders
and creditors of the Company, and no license, permit, approval or
authorization of, exemption by, notice or report to, or registration,
filing or declaration with, any governmental authority is required by the
Company in connection with this Agreement or the execution, delivery,
performance, validity or enforceability of this Agreement and all
obligations required hereunder. This Agreement has been, and each
instrument or document required hereunder will be, executed and delivered
by a duly authorized officer of the Company, and this Agreement
constitutes, and each instrument or document required hereunder when
executed and delivered hereunder will constitute, the legally valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms.
(iii) The execution, delivery and performance of this Agreement and
the documents or instruments required hereunder will not violate any
provision of any existing law or regulation binding on the Company, or
any order, judgment, award or decree of any court, arbitrator or
governmental authority binding on the Company, or the Governing
Instruments of, or any securities issued by the Company or of any
mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which the Company is a party or by which the Company or
any of its assets may be bound, the violation of which would have a
material adverse effect on the business operations, assets or financial
condition of the Company and its subsidiaries, taken as a whole, and will
not result in, or require, the creation or imposition of any lien on any
of its property, assets or revenues pursuant to the provisions of any
such mortgage, indenture, lease, contract or other agreement, instrument
or undertaking.
(b) The Manager hereby represents and warrants to the Company as follows:
(i) The Manager is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation, has the
corporate power to own its assets and to transact the business in which
it is now engaged and is duly qualified to do business and is in good
standing under the laws of each jurisdiction where its ownership or lease
of property or the conduct of its business requires such qualification,
except for failures to be so qualified, authorized or licensed that could
not in the aggregate have a material adverse effect on the business
operations, assets or financial condition of the Manager and its
subsidiaries, taken as a whole. The Manager does not do business under
any fictitious business name.
(ii) The Manager has the corporate power and authority to execute,
deliver and perform this Agreement and all obligations required hereunder
and has taken all necessary corporate action to authorize this Agreement
on the terms and conditions hereof and the execution, delivery and
performance of this Agreement and all obligations required hereunder. No
consent of any other person including, without limitation, partners and
creditors of the Manager, and no license, permit, approval or
authorization of, exemption by, notice or report to, or registration,
filing or declaration with, any governmental authority is required by the
Manager in connection with this Agreement or the execution, delivery,
performance, validity or enforceability of this Agreement and all
obligations required hereunder. This Agreement has been, and each
instrument or document required hereunder will be, executed and delivered
by a duly authorized agent of the Manager, and this Agreement
constitutes, and each instrument or document required hereunder when
executed and delivered hereunder will constitute, the legally valid and
binding obligation of the Manager enforceable against the Manager in
accordance with its terms.
(iii) The execution, delivery and performance of this Agreement and
the documents or instruments required hereunder, will not violate any
provision of any existing law or regulation binding on the Manager, or
any order, judgment, award or decree of any court, arbitrator or
governmental authority binding on the Manager, or the Governing
Instruments of, or any securities issued by the Manager or of any
mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which the Manager is a party or by which the Manager or
any of its assets may be bound, the violation of which would have a
material adverse effect on the business operations, assets or financial
condition of the Manager and its subsidiaries, taken as a whole, and will
not result in, or require, the creation or imposition of any lien on any
of its property, assets or revenues pursuant to the provisions of any
such mortgage, indenture, lease, contract or other agreement, instrument
or undertaking.
SECTION 17. Notices. Unless expressly provided otherwise herein, all
notices, requests, demands and other communications required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given, made and received when delivered against receipt or upon actual receipt
of registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below:
(a) If to the Company:
IBF VI Securities Corporation
1733 Connecticut Avenue, N.W.
Washington, D.C. 20009
Attention: Simon A. Hershon
(b) If to the Manager:
IBF Management Corp.
1733 Connecticut Avenue, N.W.
Washington, D.C. 20009
Attention: Simon A. Hershon
Any party may alter the address to which communications or copies are to
be sent by giving notice of such change of address in conformity with the
provisions of this Section 17 for the giving of notice.
SECTION 18. Binding Nature of Agreement; Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and assigns
as provided herein.
SECTION 19. Entire Agreement. This Agreement contains the entire
agreement and understanding among the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous
agreements, understandings, inducements and conditions, express or implied,
oral or written, of any nature whatsoever with respect to the subject matter
hereof. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
SECTION 20. Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the
District of Columbia, without reference to its choice of law principles.
SECTION 21. Schedules and Exhibits. All Schedules and Exhibits referred
to herein or attached hereto are hereby incorporated by reference into, and
made a part of, this Agreement.
SECTION 22. Indulgences, Not Waivers. Neither the failure nor any on the
part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy,
power or privilege with respect to any other occurrence. No waiver shall be
effective unless it is in writing and is signed by the party asserted to have
granted such waiver
SECTION 23. Costs and Expenses. Each party hereto shall bear its own
costs and expenses (including the fees and disbursements of counsel and
accountants) incurred in connection with the negotiations and preparation of
and the closing under this Agreement, and all matters incident thereto.
SECTION 24. Titles Not to Affect Interpretation. The titles of paragraphs
and subparagraphs contained in this Agreement are for convenience only, and
they neither form a part of this Agreement nor are they to be used in the
construction or interpretation hereof.
SECTION 25. Execution in Counterparts. 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 signatures of all of the parties reflected hereon as the
signatories.
SECTION 26. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for
any reason any other or others of them may be invalid or unenforceable in
whole or in part.
SECTION 27. Gender. Words used herein regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as
the context requires.
SECTION 28. Computation of Interest. Interest will be computed on the
basis of a 360-day year consisting of twelve months of thirty days each.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
IBF VI SECURED LENDING CORPORATION
By: __________________________________________
Its: _________________________________________
IBF MANAGEMENT CORP.
By: __________________________________________
Its: _________________________________________
<PAGE>
Exhibit A
Form of Guidelines
EXHIBIT 8
OPINION AND CONSENT OF Brown & Wood LLP
<PAGE>
BROWN & WOOD, LLP
1666 K STREET, N.W.
WASHINGTON, D. C. 20006-1208
Telephone: 202-533-1300
Facsimile: 202-533-1399
May 12, 2000
IBF VI - Secured Lending Corporation
1733 Connecticut Avenue, N.W.
Washington, D.C. 20009
Re: IBF VI - Secured Lending Corporation,
Registration Statement on Form SB-2
-------------------------------------
Ladies and Gentlemen:
We will act as counsel for IBF VI - Secured Lending Corporation, a
Delaware corporation (the "Company"), in connection with the offering of the
Company's 10.25% Bonds - Series A (the "Securities"). The Securities are being
registered pursuant to the Securities Act of 1933, as amended (the "Act"), by
means of a Registration Statement of the Company on Form SB-2. The Securities
will be offered pursuant to the prospectus (the "Prospectus"), which will be
filed with the Commission pursuant to Rule 424 under the Securities Exchange
Act. As set forth in the Registration Statement, the Securities will be issued
under and pursuant to the conditions of a separate Indenture (the "Indenture")
among the Company and Continental Stock Transfer & Trust Company, as indenture
trustee (the "Indenture Trustee").
We have examined copies of the Company's Certificate of
Incorporation, Bylaws, the form of Indenture (as incorporated by reference as
an exhibit to the Registration Statement), the forms of Securities included in
the Indenture and such other records, documents and statutes as we have deemed
necessary for purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
i. When the Indenture relating to the Securities has been duly and
validly authorized by all necessary action on the part of the Company
and has been duly executed and delivered by the Company and the
Indenture Trustee, such Indenture will constitute a legal, valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency or other laws relating to or
affecting creditors' rights generally or by general equity
principles.
ii. When the Securities have been duly authorized by all necessary
action on the part of the Company (subject to the terms thereof being
otherwise in compliance with applicable law at such time), duly
executed and authenticated by the Indenture Trustee in accordance
with the terms of the Indenture and issued and delivered against
payment therefor as described in the Registration Statement, the
Securities will be legally and validly issued, fully paid and
nonassessable, and the holders thereof will be entitled to the
benefits of the Indenture.
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of New York
(excluding choice of law principles therein) and the federal laws of the
United States of America.
We hereby consent to the filing of this letter and to the references
to this firm under the headings "Legal Matters" in the Prospectus, without
implying or admitting that we are "experts" within the meaning of the Act or
the rules and regulations of the Commission issued thereunder, with respect to
any part of the Prospectus.
Very truly yours,
/s/ Brown & Wood LLP
EXHIBIT 9
CONSENT OF RADIN, GLASS & CO. LLP
<PAGE>
INDEPENDENT ACCOUNTANT'S CONSENT
We hereby consent to the use of our report dated February 17, 2000 and the
reference to us under Experts to be included in the Registration Statement on
Form SB 2 of IBF VI - Secured Lending Corporation on May 12, 2000.
Radin, Glass & Co., LLP
Certified Public Accountants
May 12, 2000
