AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MORTGAGE.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 6162 65-0435281
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
------------------------
MORTGAGE.COM, INC.
8751 BROWARD BOULEVARD, FIFTH FLOOR
PLANTATION, FLORIDA 33324
(954) 452-0000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SETH S. WERNER
CHIEF EXECUTIVE OFFICER
MORTGAGE.COM, INC.
8751 BROWARD BOULEVARD, FIFTH FLOOR
PLANTATION, FLORIDA 33324
(954) 452-0000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C> <C>
LUTHER F. SADLER, JR., ESQ. JOHN M. HESSION, ESQ. MICHAEL BRENNER, ESQ.
JEFFREY M. MCFARLAND, ESQ. JOHN M. MUTKOSKI, ESQ. CHAN BRYANT ABNEY, ESQ.
FOLEY & LARDNER TESTA, HURWITZ & THIBEAULT, LLP MORTGAGE.COM, INC.
200 LAURA STREET 125 HIGH STREET 8751 BROWARD BOULEVARD, FIFTH FLOOR
JACKSONVILLE, FLORIDA 32202 BOSTON, MA 02110 PLANTATION, FLORIDA 33324
(904) 359-2000 (617) 248-7000 (954) 452-0000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
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 statement number of the earlier effective registration
statement for the same offering. / / .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value............ $112,125,000 $31,170.75
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares of common stock being registered and the proposed maximum offering
price per share are not included in this table. The proposed maximum
aggregate offering price is estimated solely for the purpose of calculating
the registration fee pursuant to Section 6(b) and Rule 457(o) of the
Securities Act of 1933.
------------------------
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>
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 it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 1, 1999
SHARES
[LOGO]
COMMON STOCK
------------------------
Mortgage.com is selling shares of common stock. Prior to this offering,
there has been no public market for the common stock. The initial public
offering price is expected to be between $ and $ per share.
We have applied to list the common stock on The Nasdaq Stock Market's National
Market under the symbol "MDCM."
Mortgage.com has granted the underwriters an option to purchase a maximum
of additional shares of common stock to cover over-allotments of
shares.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON
PAGE 5.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS MORTGAGE.COM
<S> <C> <C> <C>
Per Share....................... $ $ $
Total........................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
BT ALEX. BROWN
U.S. BANCORP PIPER JAFFRAY
PROSPECTUS DATED , 1999
<PAGE>
[The graphic appearing here represents the process through which a mortgage
loan is originated, funded and closed with Mortgage.com.
Beginning at the top of the picture, symbols represent the avenues through
which Mortgage.com receives applications. These applications flow through the
CLOser software system represented in the picture. Moving down the picture, a
series of boxes representing steps in the mortgage process and the associated
Mortgage.com service are represented]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY......................................................................................... 3
RISK FACTORS............................................................................................... 6
USE OF PROCEEDS............................................................................................ 15
DIVIDEND POLICY............................................................................................ 15
CAPITALIZATION............................................................................................. 16
DILUTION................................................................................................... 17
SELECTED CONSOLIDATED FINANCIAL DATA....................................................................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 19
BUSINESS................................................................................................... 31
MANAGEMENT................................................................................................. 48
CERTAIN TRANSACTIONS....................................................................................... 55
PRINCIPAL STOCKHOLDERS..................................................................................... 57
DESCRIPTION OF CAPITAL STOCK............................................................................... 59
SHARES ELIGIBLE FOR FUTURE SALE............................................................................ 64
UNDERWRITING............................................................................................... 66
NOTICE TO CANADIAN RESIDENTS............................................................................... 68
LEGAL MATTERS.............................................................................................. 69
EXPERTS.................................................................................................... 69
ADDITIONAL INFORMATION..................................................................................... 69
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
-----------------------------
Until , 1999 (25 days after the commencement of this offering),
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 the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
-----------------------------
We have obtained federal registration of the trademark "CLOser."
"Mortgage.com" and the Mortgage.com logo, "Openclose" and "SmartQuote" are our
trademarks and service marks. Other trademarks and service marks appearing in
this prospectus are the property of their respective holders.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information that we present more fully in the rest
of this prospectus. The summary is not complete and does not contain all the
information you should consider before buying shares of common stock. You should
read the entire prospectus carefully. Except where we state otherwise, all
information in this prospectus assumes (1) the conversion of the outstanding
convertible note and all shares of convertible preferred stock (other than
Special Preferred Stock (Northern California Division)), into an aggregate of
3,906,407 shares of common stock upon the closing of this offering, (2) a waiver
of Credit.com's right to convert receivables into shares of our common stock and
(3) no exercise of the underwriters' over-allotment option. Of the 1,000
outstanding shares of Special Preferred Stock (Northern California Division),
660 shares will convert, upon closing of this offering, to the number of shares
of common stock as is obtained by dividing $2,640,000 by the initial public
offering price.
MORTGAGE.COM
Mortgage.com is a leading provider of online mortgage services to consumers
and businesses. We have developed state-of-the-art technology called CLOser that
leverages the Internet to offer origination, processing, underwriting, closing
and secondary marketing of mortgage loans. We offer these mortgage services
directly to consumers at our www.mortgage.com Web site and retail locations. We
also use our technology to provide online mortgage services to our
business-to-business clients, including mortgage brokers, mortgage banks,
financial institutions, Realtors and homebuilders. Through this multifaceted
strategy, we aspire to "touch every mortgage."
According to the Mortgage Banker's Association, approximately $1.5 trillion
in mortgage loans were originated in 1998. Despite its lengthy history and
numerous refinements, the mortgage purchasing process remains arduous for most
borrowers. Many borrowers are dissatisfied with the complexity and inefficiency
of the borrowing process, time delays related to the manual collection and
transfer of information, and the inability to monitor the status of loans. Even
though these are the types of bottlenecks that the Internet is expected to
alleviate, Forrester Research reported that less than 1% of mortgages funded in
1998 were originated online. We believe that this is mainly because traditional
mortgage industry participants lack technological capabilities and, until very
recently, both borrowers and lenders have been reluctant to embrace new online
customer contact channels. In light of the recent development of online mortgage
services, Forrester Research expects that by 2003, online mortgage loan volume
will grow to nearly 10% of all mortgage loans funded, exceeding $91 billion.
At Mortgage.com, we offer borrowers a more satisfying and efficient
mortgage purchasing experience, both directly and through our more than 50
business-to-business clients, including Intuit Lender Services, GE Capital
Mortgage Services and Fleet Mortgage. Borrowers can select from a wide range of
loan products at our Web site, www.mortgage.com, at our branch
office facilities and through our mortgage professionals at locations where
homes are purchased. Borrowers can also visit any of our 22 private label or
co-branded client Web sites to satisfy their mortgage needs.
Our mortgage financing services provide borrowers with widespread benefits,
including:
o Convenient access to the mortgage lending process--through the Internet,
by e-mail, by telephone, or at the locations where homes are sold;
o Interactive selection from a comprehensive suite of mortgage products and
services;
o Personalized services and products tailored to individual needs;
o Faster applications and pre-qualifications;
o Immediate interest rate lock; and
o Constant monitoring of loan status.
For the year ended 1998, we originated and closed $2.0 billion of mortgage
loans, of which approximately 21% were originated online. For the three months
ended March 31,1999, we originated and closed $751.6 million of mortgage loans,
of which approximately 39% were originated online.
We are located at www.mortgage.com, our address is 8751 Broward Boulevard,
Plantation, FL 33324 and our telephone number is (954) 452-0000. We were
incorporated in Florida in 1993 as First Mortgage Network, Incorporated,
commenced operations in April 1994 and changed our name to Mortgage.com, Inc. in
January 1999.
3
<PAGE>
RECENT FINANCINGS
In May 1999 we issued a 12% Senior Subordinated Convertible Note in the
principal amount of $27.5 million to Intuit, which is convertible at Intuit's
election into common stock. Also in May 1999, we completed a private placement
of $15.0 million of preferred stock.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............................................................. shares
Common stock to be outstanding after the offering................................ shares
Use of proceeds.................................................................. For working capital and other
general corporate purposes.
Proposed Nasdaq National Market symbol........................................... MDCM
</TABLE>
These share numbers are based on shares outstanding on May 28, 1999. The
share numbers exclude:
o 1,808,888 shares of common stock issuable upon exercise of options
outstanding under our stock option plan, 538,582 of which are exercisable
at a weighted average exercise price of $6.80;
o 1,190,487 shares authorized but unissued under our stock option plan; and
o 1,165,123 shares of common stock issuable upon exercise of options and
warrants outstanding outside of our stock option plan, 1,081,107 of which
are exercisable at a weighted average exercise price of $6.57 per share.
Of the options and warrants outstanding, warrants to purchase 80,841
shares of common stock become exercisable upon closing this offering at
the initial public offering price, although the number of shares
purchasable under those warrants may be reduced through a formula based
upon the initial public offering price.
4
<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of the convertible note issued to Intuit in
May 1999 and all outstanding preferred stock (including shares of preferred
stock issued in May 1999) into common stock (other than Special Preferred Stock
(Northern California Division)), as if the shares had converted immediately upon
their issuance, but does not assume undeclared cumulative dividends on preferred
stock. Net loss attributable to common shareholders includes undeclared
cumulative dividends on preferred stock and is not included in the calculation
of pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue..................................................... $ 7,516 $16,474 $35,691 $ 6,819 $13,216
Total expenses.................................................... 11,534 20,006 41,768 7,189 16,414
Net loss.......................................................... (4,018) (3,532) (6,078) (370) (3,199)
Net loss attributable to common shareholders...................... (4,434) (4,485) (8,943) (691) (4,130)
Basic and diluted net loss per share.............................. (3.92) (3.85) (7.17) (0.63) (3.05)
Shares used in computation of basic and diluted net loss per
share........................................................... 1,132 1,166 1,247 1,099 1,356
Unaudited proforma net loss attributable to
common shareholders............................................. $(6,829) $(3,377)
Unaudited pro forma basic and diluted net loss per share.......... $ (1.33) $ (0.64)
Shares used in computation of unaudited pro forma basic and
diluted net loss per share...................................... 5,153 5,262
</TABLE>
The pro forma as adjusted balance sheet data as of March 31, 1999 gives
effect to the conversion of the convertible note issued to Intuit in May 1999
and all outstanding preferred stock (including shares of preferred stock issued
in May 1999) into common stock (other than Special Preferred Stock (Northern
California Division)) and has been adjusted to give effect to the sale of
shares of common stock offered hereby at an assumed initial public
offering price of $ per share (the mid-point of the range) after
deducting underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
MARCH 31, 1999
DECEMBER 31, -----------------------
------------------- PRO FORMA
1997 1998 ACTUAL AS ADJUSTED
------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 1,680 $ 3,412 $ 6,251
Working capital (deficit)........................................... 1,353 2,204 6,142
Total assets........................................................ 81,927 193,438 188,805
Total long-term debt, net of current portion........................ 0 0 7,623
Convertible preferred stock......................................... 11,823 26,473 26,473
Stockholders' equity................................................ 3,797 13,136 10,993
</TABLE>
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the following risks relating to our business and our common stock, together with
the other information described elsewhere in this prospectus. If any of the
following risks actually occur, our business, results of operations and
financial condition could be materially affected, the trading price of our
common stock could decline, and you might lose all or part of your investment.
WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES AND WE MAY NOT BECOME
PROFITABLE.
We have incurred substantial net losses in every fiscal period since we
began operations. As of March 31, 1999, we had an accumulated deficit of
approximately $21.8 million. We incurred net losses of nearly $6.4 million for
the year ended December 31, 1998 and approximately $3.5 million for the three
months ended March 31, 1999. Net losses have increased for each fiscal year
since 1996 and this trend may continue. We may not become profitable. If we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis. We expect to increase our research and
development, general and administrative, and marketing expenses. As a result, we
will need to generate significant additional revenues to achieve and maintain
profitability. Although we have experienced strong revenue growth in the last
several quarters, we anticipate further quarterly and annual losses for the
foreseeable future.
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR PROSPECTS.
We commenced operations in April 1994 and did not begin our
Internet-related business until the summer of 1997. Our Web site was not
identified as "www.mortgage.com" until January 1999. Accordingly, we have a
limited operating history on which you can base your evaluation of our business
and prospects. Our prospects are subject to the risks, expenses and
uncertainties frequently encountered by companies in the early stages of
development in new and evolving markets for online financial services. These
risks include:
o our ability to develop further our unproven online business model;
o our ability to further develop awareness and loyalty for our Mortgage.com
brand;
o our ability to maintain funding sources for mortgage loans;
o our ability to attract and retain qualified personnel; and
o our ability to anticipate and adapt to the changes in the evolving
electronic commerce market.
In addition, our Internet-related business has never operated during a
downturn in the mortgage market and we cannot assure you we will be successful
in such a market.
CHANGES IN INTEREST RATES CAN REDUCE OUR REVENUES.
Changes in interest rates can have a variety of effects on our business,
including:
We will originate and sell fewer mortgage loans if interest rates rise. In
periods of rising interest rates, demand for mortgage loans typically declines.
During those periods we will likely originate and fund fewer mortgage loans,
which will adversely affect our revenues.
Our net interest income is affected by fluctuations in intermediate-term
and short-term interest rates. We earn net interest income or suffer net
interest losses from the time a mortgage loan is funded until it is delivered to
an investor in the secondary market. Whether we earn net interest income or
suffer net interest losses depends on the difference between the interest rates
on mortgage loans we fund and the interest rates on the money we borrow to fund
those mortgage loans.
The interest rates on mortgage loans we fund are affected by
intermediate-term rates in the United States. The interest rates on the money we
borrow to fund mortgage loans are affected by short-term rates based on the
London Interbank Offered Rate (LIBOR). When intermediate-term interest rates in
the United States approach the LIBOR rate, our net interest income is reduced,
which decreases our revenues.
Our gains and losses on sales of mortgage loans in the secondary market are
affected by rising interest rates. Our ability to generate net gains on the
sale of loans in the secondary market
6
<PAGE>
may be adversely affected by increases in interest rates. We typically establish
interest rates on mortgage loans we originate at the same time we obtain
commitments from the anticipated purchasers of the loans. The mortgage loan
purchase commitments we obtain are contingent upon delivery of the loans to the
purchasers within specified periods. If we are unable to deliver closed loans on
time and interest rates increase, we may experience no gain, or even a loss, on
the sale of these loans. We currently do not use derivative financial
instruments to hedge these risks and are therefore exposed to losses caused by
rising interest rates. Management is currently evaluating hedging strategies.
FLUCTUATIONS MAY OCCUR IN OUR OPERATING RESULTS DUE TO SEASONALITY AND OTHER
FACTORS, ANY OF WHICH MAY REDUCE THE PRICE OF OUR COMMON STOCK.
Our revenue is subject to seasonal fluctuations. These trends reflect the
general pattern of home sales, which typically peak during the spring and fall
seasons and decline in the summer and winter.
Our operating results may fluctuate significantly in the future as a result
of a variety of other factors, many of which are outside our control. These
factors include:
o a decline in residential home buying that decreases the demand for
purchase mortgage loans;
o an increase in interest rates that decreases the demand for refinancing
existing mortgage loans; and
o the number of applications generated through our Web site and those sites
we create and maintain for clients.
Due to these factors, our operating results during any given period may
suffer, which could result in a reduction in the trading price of our common
stock.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH.
We have been experiencing a period of rapid growth that has been placing a
significant strain on our resources. We have maintained a significant online
presence only since April 1998. The number of our employees increased from 255
on December 31, 1997, to 594 on March 31, 1999. In addition, we recently hired a
new chief financial officer and other key members of management. To manage
future growth effectively, we must integrate these and other new personnel,
manage our expanded operations, invest in our technology infrastructure and
obtain additional space to house our operations. If we fail to manage our future
growth effectively, the quality of our services will be impaired and our
financial performance will suffer.
OUR ABILITY TO FUND MORTGAGE LOANS DEPENDS UPON THE AVAILABILITY OF FUNDING
SOURCES.
Our ability to fund mortgage loans depends to a large extent upon our
ability to secure financing on acceptable terms. We currently fund most of the
loans we originate through warehouse lines of credit or under collateralized
loan repurchase agreements. Several commercial banks and institutional investors
provide these funding sources. Most of these financing arrangements have
one-year terms and some are cancellable by the lenders at any time.
If we are not successful in renewing our borrowings or in arranging new
financing with terms as favorable as the terms of our current financing
arrangements, we may have to curtail our origination and funding activities,
which would reduce our revenue.
All of the financing arrangements we use to fund mortgage loans are subject
to financial covenants and other restrictions. Because we are an early stage
company that is actively investing in growth, we are at times in default under
those covenants and restrictions and rely on waivers from the various lenders.
If we are unable to operate within the covenants or obtain waivers, all amounts
that we owe under the financing arrangements could become immediately payable.
The loss of a financing arrangement with a lender, or the acceleration of our
debt, would have a significant negative effect on our business.
LOSS OF OUR RELATIONSHIP WITH INTUIT LENDER SERVICES WOULD ADVERSELY AFFECT OUR
REVENUE.
We believe a significant amount of our revenue will be generated through
our agreements with Intuit Lender Services, and the termination of one or more
of those agreements would adversely affect our revenue.
The processing, underwriting and funding services we provide to
participating lenders on www.quickenmortgage.com are subject to performance
standards relating to the number of applications and inquiries we convert to
funded loans and the level of customer service we provide. We currently are not
meeting the performance standards which relate to converting applications and
inquiries to closed loans. If we continue to fail to meet these performance
standards, Intuit Lender Services may cancel the agreement. A cancellation of
the agreement would have a negative effect on our online loan originations and
our business as a whole.
WE FACE SIGNIFICANT COMPETITION FROM INTERNET COMPANIES AND MORTGAGE BANKING
COMPANIES.
Internet-Related Competition. The market for Internet products and
services is highly competitive. There are no substantial barriers to entry in
these markets, and we expect that competition will continue to intensify.
As we expand the scope of our Internet services, we will compete directly
with a greater number of Internet sites and other online providers
7
<PAGE>
of financial services who offer competitive products or services addressing
mortgage lending on the Internet. Increased competition in Internet mortgage
loan originations and services may reduce our access to borrowers and clients,
and thus reduce our revenues.
Mortgage Banking Competition. The mortgage banking business also is highly
competitive. We compete with other mortgage banking companies, commercial banks,
savings associations, credit unions, insurance companies and other financial
institutions in every aspect of our business. Many of these companies and
financial institutions are larger, more experienced and have greater financial
resources than we do. Consequently, they may be able to respond more quickly to
take advantage of new or changing opportunities, technologies and customer
requirements. They may also be able to undertake more extensive promotional
activities, offer more attractive terms to borrowers and adopt more aggressive
pricing policies. Accordingly, we may not be able to successfully compete with
these companies and financial institutions.
OUR BUSINESS IS DEPENDENT UPON THE AVAILABILITY OF AN ACTIVE SECONDARY MARKET.
Our ability to sell mortgage loans to institutional investors in the
secondary market is largely dependent upon the continuation of programs
administered by Fannie Mae, Freddie Mac, Ginnie Mae and private mortgage
investors. These entities facilitate the sale of mortgage loans and
mortgage-backed securities through the secondary market. Any discontinuation or
reduction in the operation of those programs and any significant impairment of
our eligibility to participate in those programs would hurt our financial
performance. Also, any significant adverse change in the secondary market level
of activity or the underwriting criteria of Fannie Mae, Freddie Mac, Ginnie Mae
or other private mortgage investors would reduce our revenues.
THE LOSS OF OUR RELATIONSHIP WITH FANNIE MAE WOULD HAVE AN ADVERSE EFFECT ON OUR
BUSINESS.
We have an agreement with Fannie Mae that allows us to provide mortgage
brokers and mortgage bankers with use of Fannie Mae's Desktop Underwriter
software through www.openclose.com. If Fannie Mae terminates the agreement, our
plans for www.openclose.com would be interrupted, and possibly discontinued,
which could reduce our revenue.
USE OF OUR WEB SITES IS DEPENDENT ON THE CONTINUED GROWTH OF THE INTERNET.
Our ability to originate mortgage loans on the Internet and provide clients
with Internet-based mortgage services is dependent upon continued growth in
Internet usage. Web-based mortgage lending is relatively new, and we cannot
predict whether there will be growth in mortgage loans generated on the
Internet.
The Internet may not prove to be a viable commercial marketplace for a
number of reasons, including lack of acceptable security technologies,
inadequate development of the Internet infrastructure or slow or inadequate
development of performance improvements.
Mortgage borrowers are accustomed to traditional means of obtaining
mortgage financing. For us to be successful, these borrowers must accept the use
of the Internet to conduct financial transactions and exchange information
online.
OUR BUSINESS MAY BE SIGNIFICANTLY AFFECTED BY THE ECONOMIES OF FLORIDA AND
CALIFORNIA.
Approximately 12.0% of our funded loan volume for the year ended
December 31, 1998 was derived from borrowers or properties in Florida and
approximately 67.2% was derived from borrowers or properties in California. From
January 1, 1999 through March 31, 1999, our funded loan volume from Florida
accounted for approximately 8.5% and our funded loan volume from California
accounted for approximately 57.0% of our total loan volume.
8
<PAGE>
Consequently, although we expect our mortgage loan business to have a greater
national scope in the future, our short-term results of operations and financial
condition will be negatively affected by poor economic conditions in Florida and
California, particularly in their residential real estate markets.
THE SUCCESS OF OUR BUSINESS DEPENDS UPON SYSTEM INTEGRITY.
The performance of our Web site and the Web sites we maintain for our
clients is important to our reputation, our ability to attract customers and our
ability to achieve market acceptance of our services. Any system failure that
causes an interruption or an increase in response time of our services could
result in fewer loan applications through our Web sites and those we maintain
for clients. System failures, if prolonged, could reduce the attractiveness of
our services to borrowers and clients.
Our operations are susceptible to outages due to fire, floods, power loss,
telecommunications failures, break-ins, and similar events. Our primary
Internet-related computer and communications hardware is currently located in
New Jersey. Although we plan to fully duplicate our New Jersey hardware in a
Florida plant, we currently do not have backup facilities in the event of any
widespread outages in New Jersey.
In addition, despite our implementation of network security measures, our
servers are vulnerable to computer viruses, break-ins, and similar disruptions
from unauthorized tampering with our computer systems.
We do not carry sufficient insurance to compensate for losses that may
occur as a result of any of these events.
WE FACE RISKS ASSOCIATED WITH GOVERNMENTAL REGULATION OF OUR MORTGAGE BANKING
BUSINESS.
Our mortgage banking business is subject to the rules and regulations of
various federal, state and local regulatory agencies in connection with
originating, processing, underwriting and selling mortgage loans. These rules
and regulations, among other things, impose licensing obligations on us,
prohibit discrimination, establish underwriting guidelines and mandate
disclosures and notices to borrowers. We also are required to comply with each
regulatory entity's financial requirements.
Mortgage origination activities are subject to the provisions of various
federal and state statutes including the Equal Credit Opportunity Act, the
Federal Truth-in-Lending Act, the Fair Credit Reporting Act, Real Estate
Settlement Procedures Act and the Fair Housing Act. We also must comply with
state usury laws. Failure to comply with these laws can lead to civil and
criminal liability, loss of approved status, demands for indemnification or loan
repurchases from investors in the secondary market, class action lawsuits and
administrative enforcement actions.
Regulatory and legal requirements are subject to change and may become more
restrictive, making our compliance more difficult or expensive or otherwise
restricting our ability to conduct our business as it is now conducted. Changes
in these regulatory and legal requirements could adversely impact our financial
performance.
Many states prohibit non-employees of a licensed mortgage company from
conducting business under that licensed mortgage company's name. Many of our
clients hire us to provide back office functions, such as processing and
underwriting. Because providing these back office services is a relatively new
concept in the industry, most state regulations do not specifically address the
provision of back office services. As state regulators become more familiar with
these practices, it is possible that they may interpret current regulations or
enact new regulations to restrict our ability to perform these back office
services for our clients, either of which would adversely affect our financial
performance.
IF WE FAIL TO MAINTAIN MORTGAGE BANKING AUTHORITY IN THE STATES WHERE WE DO
BUSINESS, WE MAY INCUR LIABILITY.
We are authorized to originate first lien mortgage loans in 48 states and
the District of Columbia. If we fail to maintain our licensing approvals and
exemptions in those jurisdictions, we may incur liability and may be unable to
transact business in those jurisdictions.
Although our license applications are pending, we currently are not
licensed to originate mortgage loans in New York or New Jersey in our own name.
Loan applications and inquiries we receive from New Jersey and New York are
originated through NetB@nk. NetB@nk can terminate our arrangement at any time.
If NetB@nk terminates the arrangement, we will not be able to originate and fund
mortgage loans in New York and New Jersey unless we develop a similar
arrangement
9
<PAGE>
with another mortgage lender or become licensed. For the year ended
December 31, 1998, approximately 2.6% of the mortgage loans we funded were from
New York and New Jersey. For the three months ended March 31, 1999,
approximately 5.2% of the mortgage loans we funded were from New York and New
Jersey.
We have authority to originate subordinate lien mortgage loans in 44
states. In those states in which we do not have authority, or in which our
authority is limited, we do not originate subordinate lien mortgage loans. If we
were to originate a subordinate lien mortgage loan in a state without authority
to do so, we might incur liability.
To maintain our authority to originate mortgage loans, some states require
us to obtain prior approval before any change of control. Change of control is
generally defined as the acquisition by any person or entity of 10% or more of
our voting stock. A state's approval may be conditioned on the stockholder
meeting criteria based on personal and business information about the
stockholder. The stockholder also may be required to periodically file
information with the state.
Because we will be a public company following this offering, we may not
have advance notice of a change of control occasioned by a stockholder's
purchase of our stock in the open market. We also will not be able to control
who purchases our voting stock in the open market. If any person holding 10% or
more of our stock fails to meet a state's criteria, or refuses to comply with
state regulatory requirements, we could lose our authority to originate mortgage
loans in that state, which could have an adverse effect on our business, results
of operations and financial condition.
WE FACE LEGAL UNCERTAINTIES ASSOCIATED WITH THE INTERNET AND ELECTRONIC
COMMERCE.
Our operations on the Internet are not currently subject to direct
regulation by any government agency in the United States beyond mortgage-related
regulations and regulations applicable to businesses generally.
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, including:
o online content;
o user privacy;
o taxation;
o access charges;
o liability for third-party activities; and
o jurisdiction.
In addition, the applicability to the Internet of existing laws is
uncertain. The adoption of new laws or the application of existing laws may
decrease the use of the Internet, which would decrease the demand for our
services, increase our cost of doing business or otherwise have an adverse
effect on our business.
The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals have been made that could impose taxes on the
sale of goods and services and certain other Internet activities. Recently, the
Internet Tax Information Act was signed into law placing a three-year moratorium
on new state and local taxes on Internet commerce. However, we cannot assure you
that future laws imposing taxes or other regulations would not substantially
impair the growth of our business and our financial condition.
Certain local telephone carriers claim that the increasing popularity of
the Internet has burdened the existing telecommunications infrastructure and
that many areas with high Internet use are experiencing interruptions in
telephone service. These carriers have petitioned the Federal Communications
Commission to impose access fees on Internet service providers. If these access
fees are imposed, the costs of communicating on the Internet could increase,
which could decrease demand for our services and increase our cost of doing
business.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ADAPT TO TECHNOLOGICAL CHANGES.
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards, and frequent new
products and enhancements. If faster Internet access becomes more widely
available through cable modems or other technologies, we may be required to make
significant changes to the design and content of our Web site and the Web sites
we maintain for clients to compete effectively.
As the number of Web pages and users increase, we will need to modify the
Internet infrastructure, our Web site and the Web sites we
10
<PAGE>
maintain for our clients to accommodate increased traffic. If we cannot modify
our computer systems, we may experience:
o system disruptions;
o slower response times;
o impaired quality and speed of application processing; and
o delays in reporting accurate interest rate information.
If we fail to effectively adapt to increased usage of the Internet or new
technological developments, our business will be adversely affected.
OUR EFFORTS TO ENHANCE BRAND AWARENESS MAY BE UNSUCCESSFUL, WHICH WOULD AFFECT
OUR FINANCIAL PERFORMANCE.
We believe that establishing and maintaining the Mortgage.com brand name
and its reputation is an important aspect of our efforts to attract and expand
our technology services and mortgage lending business. We also believe that the
importance of brand recognition will increase due to the growing number of
Internet sites and the relatively low barriers to entry. If we fail to
adequately promote and maintain our brand name, our financial performance will
suffer.
To maintain and enhance the Mortgage.com brand, we must provide
high-quality products and services, particularly on the Internet. If any breach
or alleged breach of security or privacy involving our online services occurs,
or if we are unable to otherwise successfully promote and maintain our brand,
our business will suffer.
There are thousands of Internet Web site addresses, or "domain names,"
containing the word "mortgage," such as "1mortgage.com" and "1mortgage1.com,"
that have been registered to other users. To the extent consumers confuse other
Web sites with ours, our reputation could be harmed and our business could
suffer.
ONLINE SECURITY RISKS MAY HARM OUR BUSINESS OPERATIONS.
A significant barrier to online commerce is the secure transmission of
confidential information over public networks. We rely on encryption and
authentication technology licensed from third parties to effect secure
transmission of confidential information, such as that required on a mortgage
loan application. Advances in computer capabilities, new discoveries in
cryptography, or other developments may result in a breach of the algorithms we
use to protect customer data. If any compromise of our security occurs, it would
injure our reputation, and could impact the success of our business.
WE RELY ON THE DEPENDABILITY OF SOFTWARE LICENSED TO US BY THIRD PARTIES.
Our products and services rely on software licensed to us by third parties.
We believe there are other sources for most of the specialized software we
license and that we could replicate the functionality of this software. However,
because our products incorporate software developed and maintained by third
parties, and because we license from third parties certain industry standard
software products that cannot be replicated, we depend on those third parties
to:
o deliver and support reliable products;
o enhance their current products;
o develop new products on a timely and cost-effective basis; and
o respond to emerging industry standards and other technological changes.
In addition, the third party software currently used in our products and
the delivery of our services may become obsolete or incompatible with the
products and services we offer in the future.
If we have to replace third-party software for any of those reasons, our
business could suffer during the replacement period.
WE FACE RISKS THAT OUR INTELLECTUAL PROPERTY IS NOT ADEQUATELY PROTECTED AND
THAT WE MAY BE SUBJECT TO CLAIMS FROM THIRD PARTIES FOR INFRINGEMENT.
Our copyrights, trademarks, trade dress, trade secrets, and similar
intellectual property are critical to our success. We have obtained federal
trademark registration for CLOser, and have registered the Web site domain names
we use, which prevents any other person from using those names for their Web
sites.
Some of our trademarks and service marks, such as Mortgage.com, may be
considered too generic to qualify for federal trademark registration.
Accordingly, it is possible that neither we nor anyone else is entitled to the
exclusive use of those
11
<PAGE>
trade names. Other persons may use those trade names in a way that damages our
reputation or otherwise creates confusion in the market, all of which would
injure our financial performance if it took place on a large enough scale.
Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
copyright, trade secret and trademark law. However, we have no patents issued or
applied for on our technology. Unauthorized parties may attempt to copy or to
otherwise obtain and use our services or technology and we cannot be certain
that the steps we have taken and will take in the future will prevent them from
misappropriating or infringing upon our technology. The costs associated with
enforcing our rights to technology could adversely affect our financial
performance.
Mortgage-related Internet technologies are rapidly being developed. As a
result, we believe that disputes regarding the ownership of these technologies
are likely to arise in the future. Third parties may assert infringement claims
against us. We may incur substantial costs in defending against third-party
infringement claims regardless of the merit of those claims. We also cannot
guarantee that we would be able to license comparable technology if our use was
found to infringe on someone else's rights. If we were unable to license
comparable technology, our business could suffer.
WE MAY NOT BE ABLE TO HIRE AND RETAIN SUFFICIENT TECHNICAL AND SUPPORT PERSONNEL
THAT WE NEED TO SUCCEED.
Competition for qualified technical and support personnel is intense, and
we may not be able to hire and retain sufficient numbers of qualified technical
and support personnel. If we fail to hire and retain sufficient numbers of
technical and support personnel, our business and results of operations would be
adversely affected.
EARLY PAYMENT MORTGAGE LOAN DEFAULTS MAY CAUSE LOSSES.
If borrowers default in the first few months after the loan is originated,
we may be required to repurchase those loans from the secondary market investors
to whom we sold those loans. We may not be able to resell those loans in the
secondary market. Our financial performance may be adversely affected during
economic downturns when the frequency of loan defaults tends to increase.
WE MAY BE REQUIRED TO REPURCHASE LOANS OR INDEMNIFY INVESTORS IF WE BREACH
REPRESENTATIONS AND WARRANTIES.
When we sell a mortgage loan to a secondary market investor, we make
representations and warranties about certain characteristics of the mortgage
loan, the borrower and the underlying property. If we breach any of these
representations and warranties, we may be required to repurchase the loan from
the investor or indemnify the investor for any damages caused by the breach.
With some loan sales, we may be required to return a portion of the premium paid
by the investor for the loan if the loan is prepaid within the first year after
its sale. If we are regularly required to repurchase loans, indemnify investors
or return loan premiums, it would have an adverse effect on our financial
performance. A delay in the receipt of services from third parties may adversely
affect our business.
We rely on third party sources for certain information used in the mortgage
loan underwriting process, including credit reports, appraisals and title
searches. Any interruptions or delays in obtaining these services may cause
delays in our processing and closing of mortgage loans, which could create
customer dissatisfaction and adversely affect our business.
WE MAY BE AFFECTED BY UNEXPECTED YEAR 2000 PROBLEMS.
Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. This Year 2000 problem could result in
data corruption, system failures or disruptions of operations. We are subject to
potential Year 2000 problems affecting our products and services, our internal
systems, and the systems of third parties on whom we rely. We believe that the
technology underlying our products and services is Year 2000 compliant. However,
we may discover errors or defects in our internal systems that may be
unresolvable or that may result in material costs to us. Internal Year 2000
problems could negatively affect our business, operating results and financial
condition.
We use third-party equipment, software and content that may not be Year
2000 compliant. Although we typically receive assurances from third parties that
they are Year 2000 compliant, we do
12
<PAGE>
not independently verify their Year 2000 compliance. If third parties on whom we
rely are not Year 2000 compliant, our business could be adversely affected.
We have not yet fully developed a comprehensive contingency plan to address
situations that may result if we encounter Year 2000 problems. The cost of
developing and implementing a contingency plan may itself be material, and we
cannot assure you that our contingency plans will be adequate. For more
information on how we are addressing the Year 2000 problem, see "Management's
Discussion and Analysis--Year 2000 Readiness Disclosure Statement."
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADDITIONAL FINANCING MAY NOT BE
AVAILABLE.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the next 12
months. We may need to raise additional capital, however, to fund more rapid
expansion, to develop new and to enhance existing services to respond to
competitive pressures, and to acquire complementary business or technologies.
We raised capital through the issuance of securities four times during 1998
and five times during 1999. If we raise additional funds through further
issuances of equity or convertible debt securities, the percentage ownership of
our current stockholders will be reduced and holders of those new securities may
have rights, preferences and privileges senior to those of our current
stockholders, including stockholders purchasing shares in this offering.
In addition, we may not be able to obtain additional financing on terms
favorable to us, if at all. If adequate funds are not available or are not
available on terms favorable to us, our business, results of operations and
financial condition could be adversely affected.
YOU WILL BE SUBJECT TO MARKET RISKS TYPICALLY ASSOCIATED WITH INITIAL PUBLIC
OFFERINGS.
Prior to the offering, there has been no public market for our common
stock. After the offering, an active trading market may not develop or continue.
You will pay a price for the common stock that was not established in a
competitive market. Rather, you will pay a price that we negotiated with the
representatives of the underwriters. The price of the common stock that will
prevail in the market after the offering may be higher or lower than the price
you pay.
The stock market in general has recently experienced extreme price and
volume fluctuations. The market prices of technology companies, particularly
Internet-related companies, have experienced fluctuations unrelated or
disproportionate to the operating performance of those companies. These broad
market fluctuations could adversely affect the market price of our common stock.
Recently, when the market price of a stock has been volatile, holders of
that stock have often instituted securities class action litigation against the
company that issued the stock. If that were to happen to us, we could incur
substantial costs defending the lawsuit. The lawsuit also could divert the time
and attention of our management team. Both could have a negative impact on our
financial performance.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION UPON COMPLETION OF THIS PUBLIC
OFFERING.
The initial public offering price of our common stock is substantially
higher than the book value per outstanding share of common stock. Accordingly,
you will suffer an immediate and substantial dilution in net tangible book value
per share of the common stock from the initial public offering price in the
amount of $ per share (based upon an assumed initial offering price of
$ per share.) You will experience additional dilution upon exercise of
outstanding options and warrants.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
After this offering, we will have shares of common stock
outstanding. Sales of a substantial number of shares of common stock in the
public market following this offering could adversely affect the market price of
our common stock. All the shares sold in this offering will be freely tradable.
The remaining shares of common
13
<PAGE>
stock outstanding after this offering will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE SHARES
- ----------------------------------------- ---------
<S> <C>
Date of this prospectus.................. 0
90 days after the date
of this prospectus..................... 625
180 days or more after the date of this
prospectus............................. 5,298,406
</TABLE>
In addition, there are 1,808,888 shares of common stock issuable upon
exercise of options issued under our stock option plan, and there are
1,161,948 shares of common stock issuable upon exercise of exercisable options
and warrants otherwise outstanding.
WE WILL HAVE BROAD DISCRETION IN USING THE NET PROCEEDS OF THIS OFFERING.
We expect to use the net proceeds from the sale of our common stock to
develop and market the brand name mortgage.com and for other corporate purposes.
We will have significant flexibility in applying the net proceeds of this
offering. You will not have the opportunity to evaluate the economic, financial
or other information on which we base our decisions on how to use the net
proceeds. If we fail to apply the net proceeds effectively, our business could
be negatively affected.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE UNCERTAIN.
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate," "believe," "expect," "future,"
"plan" and "intend," and similar expressions, to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements. Our actual results could differ materially from those anticipated in
forward-looking statements for many reasons, including the risks described in
this section and elsewhere in this prospectus.
14
<PAGE>
USE OF PROCEEDS
The proceeds we receive after deducting underwriting discounts, commissions
and estimated offering expenses from the sale of the common stock are estimated
to be approximately $ million (assuming an initial public offering
price of $ ). If the underwriters' over-allotment option is exercised
in full, we estimate our net proceeds will be approximately $ . The
primary purposes of this offering are to obtain additional capital, create a
public market for our common stock and facilitate future access to public
capital markets.
We expect to use the net proceeds of this offering for corporate purposes,
including funding an advertising and promotional campaign to enhance awareness
of our Mortgage.com brand, technology research and development and expanding our
funding sources for mortgage loans. In addition, we expect to use approximately
$13 million of the net proceeds to redeem warrants to purchase 300,000 shares of
common stock held by Superior Bank, which we are required to redeem under an
agreement with Superior Bank. We expect to use $40.5 million of the net proceeds
to retire $13 million in 12% Senior Subordinated Notes issued in February and
April 1999 and a $27.5 million 12% Senior Subordinated Convertible Note issued
in May 1999. The holder of the Convertible Note may instead elect to convert the
principal amount into common stock at $60 per share. In addition, Credit.com has
the right to require us to redeem its 20,000 shares of common stock following
the offering at the initial public offering price per share.
Other than as described above, we have no present plans or commitments and
are not currently engaged in any negotiations with respect to the use of the net
proceeds of this offering. Until the net proceeds are used, we will invest them
in short-term, investment grade securities or money market instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
anticipate that any earnings will be retained for development and expansion of
our business and we do not anticipate paying any cash dividends in the
foreseeable future. Our board of directors has sole discretion to pay cash
dividends based on our financial condition, results of operation, capital
requirements, contractual obligations and other relevant factors. Our warehouse
lines of credit may also restrict our ability to pay dividends.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999,
(1) on an actual basis, (2) on a pro forma basis giving effect to the conversion
of the Convertible Note issued to Intuit in May 1999 and all outstanding shares
of preferred stock (including shares of preferred stock issued in May 1999) into
common stock, other than the Special Preferred Stock (Northern California
Division) and (3) on a pro forma as adjusted basis to reflect the sale of
shares of common stock offered through this prospectus at an assumed
initial offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses. The
table does not include 2,999,375 shares of common stock reserved for issuance
under our stock option plan and does not include common stock reserved for
issuance upon exercise of options and warrants outstanding outside of our stock
option plan. The pro forma and pro forma as adjusted columns do not include
common stock issuable upon conversion of the Special Preferred Stock (Northern
California Division). Of the 1,000 outstanding shares of Special Preferred Stock
(Northern California Division), 660 shares will convert, upon closing of this
offering, to the number of shares of common stock as is obtained by dividing
$2,640,000 by the initial public offering price. All numbers are in thousands,
except share and per share data.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Long-term obligations, net of current portion............................... $ 8,000 $ 8,000
Notes payable, net of current portion....................................... 380 380
Stockholders equity (deficit):
Common stock, $.01 par value: 30,000,000 shares authorized; 1,362,730
shares issued and outstanding actual, 5,299,031 shares issued and
outstanding pro forma and shares issued and outstanding pro
forma as adjusted...................................................... 14 46
Convertible preferred stock, $.01 par value: 15,000,000 shares authorized;
3,199,073 issued and outstanding actual; 1,000 shares issued and
outstanding pro forma and pro forma as adjusted........................ 32 0
Unearned compensation....................................................... (15,187) (15,187)
Additional paid-in capital.................................................. 47,403 47,403
Accumulated deficit......................................................... (21,269) (21,269)
-------- --------- ---------
Total stockholders' equity (deficit)........................................ 10,993 10,993
-------- --------- ---------
Total capitalization........................................................ $ 19,373 $ 19,373
-------- --------- ---------
-------- --------- ---------
</TABLE>
16
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. We calculate net tangible book value per
share by calculating the total assets less intangible assets and total
liabilities, and dividing it by the number of outstanding shares of common
stock.
After giving effect to the conversion of the convertible note issued in May
1999 and all shares of preferred stock (including shares of preferred stock
issued in May 1999) into common stock, other than the Special Preferred Stock
(Northern California Division), as though they occurred on March 31, 1999, the
net tangible book value of our common stock as of March 31, 1999 would have been
$47,934,471, or approximately $9.10 per share. After giving effect to the sale
of shares of common stock at an assumed initial public offering price
of $ per share (less estimated underwriting discounts and commissions
and estimated expenses), our pro forma net tangible book value as of March 31,
1999 would have been $ , or $ per share. This represents an
immediate increase in the pro forma as adjusted net tangible book value of
$ per share to existing stockholders and an immediate dilution of
$ per share to you, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................................ $
Pro forma net tangible book value per share at March 31, 1999.......................... $9.10
Increase per share attributable to new investors.......................................
-----
Pro forma net tangible book value per share after this offering........................
-----
Dilution per share to new investors.................................................... $
-----
-----
</TABLE>
The following table shows on a pro forma basis at March 31, 1999, the total
number of shares of common stock purchased, the total consideration paid to us
and the average price per share paid by existing stockholders and purchasers of
shares in this offering, assuming the conversion of the convertible note issued
in May 1999 and all shares of preferred stock (including shares of preferred
stock issued in May 1999) into common stock and assuming an initial public
offering price of $ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 5,269,137 $74,555,209 $ 14.15
New investors.......................................
--------- --- ----------- ---
Totals............................................ 100% 100%
--------- --- ----------- ---
--------- --- ----------- ---
</TABLE>
You will experience additional dilution upon exercise of outstanding
options and warrants. See "Stock Option Plan" and "Options and Warrants."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data has been derived from our
consolidated financial statements. Our financial statements for the years ended
December 31, 1996, 1997 and 1998 have been audited by KPMG LLP, independent
auditors. Those financial statements and KPMG LLP's report on those financial
statements are included in this prospectus, and the information below for those
periods is qualified by reference to their report. The financial statements for
the periods ended March 31, 1995, December 31, 1995 and the three month periods
ended March 31, 1998 and 1999 are unaudited. The unaudited financial statements
have been prepared on the same basis as the audited financial statements. In the
opinion of management, all adjustments of a normal recurring nature which are
necessary to present a fair statement of the results for the interim periods
have been made. The unaudited results of operations for the interim periods are
not necessarily indicative of the results for the full year or any future
period. Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of the convertible note issued to Intuit in
May 1999 and all outstanding preferred stock (including shares of preferred
stock issued in May 1999) into common stock (other than Special Preferred Stock
(Northern California Division)), as if the shares had converted immediately upon
their issuance but does not assume undeclared cumulative dividends on preferred
stock. Net loss attributable to common shareholders includes undeclared
cumulative dividends on preferred stock, and is not included in the calculation
of pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
APR. 15, 1994 NINE MONTHS MARCH
(INCEPTION) ENDED YEAR ENDED DECEMBER 31, 31,
THROUGH DEC. 31, ----------------------------- ------
MAR. 31, 1995 1995 1996 1997 1998 1998
------------- ------------ ------- ------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Secondary marketing revenue, net.............. $ 77 $ 942 $ 4,101 $11,595 $28,598 $5,407
Loan production and processing fees, net...... 384 778 821 2,347 5,338 922
Management, technical and other fees.......... 40 1,422 2,577 2,032 1,868 546
Net interest (expense) income................. (17) (92) 17 500 (113) (56)
------- -------- ------- ------- ------- ------
Total revenue............................. 484 3,050 7,516 16,474 35,691 6,819
------- -------- ------- ------- ------- ------
Expenses:
Compensation and employee benefits............ 1,515 2,542 6,527 13,083 26,075 4,928
Marketing..................................... 33 36 95 238 1,335 85
Research and development...................... -- -- 497 1,079 2,888 433
Depreciation and amortization................. 235 296 652 480 1,873 154
General and administrative.................... 919 1,470 3,764 5,126 9,597 1,589
------- -------- ------- ------- ------- ------
Total expenses............................ 2,702 4,344 11,534 20,006 41,768 7,189
------- -------- ------- ------- ------- ------
Net loss........................................ $(2,218) $ (1,294) $(4,018) $(3,532) $(6,078) $ (370)
Net loss attributable to common shareholders.... $(2,218) $ (1,294) $(4,934) $(4,485) $(8,943) $ (691)
------- -------- ------- ------- ------- ------
Basic and diluted net loss per share............ $ (2.71) $ (1.14) $ (3.92) $ (3.85) $ (7.17) $(0.63)
Shares used in computation of basic and diluted
net loss per share............................ 818 1,132 1,132 1,166 1,245 1,098
Unaudited pro forma basic and diluted net loss
per share attributable to common
shareholders.................................. $ (1.37)
-------
-------
Shares used in computation of unaudited pro
forma basic and diluted net loss per share.... 4,445
-------
-------
<CAPTION>
1999
-------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Secondary marketing revenue, net.............. $ 8,600
Loan production and processing fees, net...... 2,598
Management, technical and other fees.......... 1,991
Net interest (expense) income................. 26
-------
Total revenue............................. 13,216
-------
Expenses:
Compensation and employee benefits............ 9,645
Marketing..................................... 1,536
Research and development...................... 776
Depreciation and amortization................. 698
General and administrative.................... 3,759
-------
Total expenses............................ 16,414
-------
Net loss........................................ $(3,199)
Net loss attributable to common shareholders.... $(4,130)
-------
Basic and diluted net loss per share............ $ (3.05)
Shares used in computation of basic and diluted
net loss per share............................ 1,356
Unaudited pro forma basic and diluted net loss
per share attributable to common
shareholders.................................. $ (0.70)
-------
-------
Shares used in computation of unaudited pro
forma basic and diluted net loss per share.... 4,554
-------
-------
</TABLE>
The pro forma as adjusted balance sheet data as of March 31, 1999 reflects
the conversion of the convertible note issued to Intuit in May 1999 and all
outstanding preferred stock (including shares of preferred stock issued in May
1999), into common stock upon the closing of this offering (other than Special
Preferred Stock (Northern California Division)). The pro forma as adjusted
balance sheet data also has been adjusted to give effect to the sale of
shares of common stock offered through this prospectus at an assumed
initial public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
MARCH
31,
DECEMBER 31, 1999
DEC. 31, ----------------------------- -------
MARCH 31, 1995 1995 1996 1997 1998 ACTUAL
-------------- -------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 541 $ 222 $ 2,008 $ 1,680 $ 3,412 $ 6,251
Working capital.............................. 213 (850) 2,283 1,353 2,240 6,142
Total assets................................. 3,253 11,684 30,711 81,927 193,438 188,805
Total long-term debt, net of current
portion.................................... -- -- 0 0 0 7,623
Convertible preferred stock.................. 1,000 1,000 8,278 11,823 26,476 26,473
Stockholders' equity......................... 912 347 3,283 3,797 13,136 10,993
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................
Working capital..............................
Total assets.................................
Total long-term debt, net of current
portion....................................
Convertible preferred stock..................
Stockholders' equity.........................
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus includes "forward-looking" statements that reflect our
current views with respect to future events and financial performance. We use
words such as "anticipate," "believe," "expect," "future," "plan" and "intend,"
and similar expressions, to identify forward-looking statements. You should be
aware that actual results may differ materially from our expressed expectations
because of risks and uncertainties inherent in future events, particularly those
risks identified in the "Risk Factors" section of this prospectus, and you
should not unduly rely on these forward looking statements. We will not
necessarily update the information in this prospectus if any forward-looking
statement later turns out to be inaccurate.
OVERVIEW
We are a provider of mortgage services to consumers and to other businesses
and a leading provider of such services on the Internet. We have developed
state-of-the-art technology to support the origination, processing,
underwriting, closing and secondary marketing of mortgage loans. We use this
technology as a platform to provide mortgage financing directly to borrowers and
to enable our clients, such as mortgage brokers, mortgage banks, Realtors and
homebuilders, to improve the efficiency and effectiveness of their operations.
We commenced operations in April 1994 in Florida as First Mortgage Network,
a wholesale mortgage lender providing independent mortgage brokers with various
support services, including processing, closing and funding services for their
loans. In April 1995, we acquired a software system from Morbank Financial
Systems that was designed to automate mortgage origination, processing,
underwriting and closing functions in traditional mortgage lending operations.
We enhanced this software and named it CLOser, our proprietary technology
platform that supports all of the services we provide. By the end of 1995, we
were using the CLOser software system to enable financial institutions and
non-traditional mortgage originators, such as Realtors and homebuilders, to
originate mortgages as an ancillary service. These "network members" paid
monthly membership fees for the use of the CLOser software system and
transaction fees for our other services.
In the summer of 1996, we expanded our membership network by acquiring
Western American Mortgage, the mortgage affiliate of Mason-McDuffie Real Estate,
a major real estate brokerage company in northern California. In June 1997, we
acquired OnLine Capital, a mortgage lender also located in northern California,
with more than 25 loan counselors at the point-of-sale of homes, three Realtor
business-to-business relationships and requisite back office personnel. We
deployed these acquired resources to support and expand our member business in
California.
In the spring of 1998, we acquired American Finance and Investment (AFI), a
former subsidiary of Virginia First Savings Bank, and moved its operations to
Florida. AFI was one of the first companies to originate mortgages through the
Internet. We integrated this acquired Internet technology with our CLOser
software system, enabling us to establish various relationships with other
Internet-based businesses and to originate mortgage applications online on a
national basis. In January 1999, we acquired the URL www.mortgage.com and
changed our corporate name to Mortgage.com, Inc. We believe this name change
more accurately reflects our business of re-engineering the mortgage process
through technology such as the Internet.
We currently provide origination, processing, underwriting, closing,
funding and post-closing services for mortgages originated directly with
borrowers. We originate mortgages directly with borrowers through
www.mortgage.com and several other Web sites or through point-of-sale loan
counselors stationed in the offices of our network members. We also provide one
or more of these services, or the technology to support these services, to other
mortgage industry participants. We enable these business clients to efficiently
conduct the mortgage process by providing them with co-branded mortgage
services, private label mortgage services, back office services and licenses of
our proprietary technology. We have also developed www.openclose.com, a Web site
where participating mortgage lenders, brokers and loan correspondents can
exchange lender product and pricing information, automated underwriting data,
mortgage insurance certificates and borrower
19
<PAGE>
application information in a neutral environment. We expect www.openclose.com to
be available for commercial use in August 1999.
Loans that we originate directly from borrowers or through one of our
business clients generate loan origination fees. Loans that we fund, including
loans originated by our business partners and clients, generate gains or losses
when we sell the loans to independent mortgage investors in the secondary
market. When we sell a loan in the secondary market we achieve a net gain or
suffer a net loss equal to the difference between the amount we funded or paid
for the loan and the price at which the loan is sold to the secondary market
investor. Typically, we obtain commitments from investors to buy loans on a
loan-by-loan basis at the same time we lock an interest rate for the borrower.
We have sold, and intend to continue to sell, all loans, together with the
associated servicing rights, in the secondary market. Origination fees, or
"points," and secondary marketing gains or losses are included in "Secondary
marketing revenue, net" in our financial statements.
Other services, including loan underwriting and processing, and obtaining
appraisals and credit reports, generate fees payable by the borrower at closing.
These fees are offset against amounts paid to third parties for the provision of
some of these services and, along with underwriting and closing fees, are
reflected in "Loan production and processing fees, net" in our financial
statements.
Fees for the use of our technology and related support services, including
technology licensing and maintenance fees and fees earned from creating and
maintaining private label Web sites, are reflected in "Management, technical and
other fees" in our financial statements.
The cost of funds under our financing arrangements is based on short-term
interest rates, while in today's market the interest rates we charge borrowers
on mortgage loans are based generally on intermediate-term interest rates. We
generate net interest income on mortgage loans if the intermediate-term interest
rate paid by the borrower on the mortgage loan exceeds the short-term interest
rate we are charged under our financing arrangements. Conversely, we suffer net
interest losses if the short-term interest rate under our financing arrangements
exceeds the intermediate-term interest rate paid by the borrower on the mortgage
loan. We try to minimize the length of time between closing of the loan and
delivery of the loan to secondary market investors, which is especially
important when intermediate-term rates have declined to the levels of short-term
rates. The difference between the interest we earn on the loans we fund and the
interest we pay under our financing arrangements, along with other net interest
income or expense, is recorded as "Net interest (expense) income" in our
financial statements. "Net interest (expense) income" also includes interest
expense related to subordinated debt.
We have experienced substantial losses since inception and, as of
March 31, 1999, have an accumulated deficit of $21.3 million. These net losses
and the accumulated deficit are a result of investments in our technology
infrastructure and personnel in anticipation of growth in loan volumes from both
our direct-to-consumer and business-to-business channels.
We plan to extend our brand position and leverage our technology
infrastructure as we scale up loan production volumes. Accordingly, we intend to
invest heavily in branding programs, marketing and promotional campaigns, new
partnerships and strategic alliances, our operating infrastructure and launching
www.openclose.com. We expect to have net losses for the foreseeable future.
We will incur a non-cash expense over the next five years for the
amortization of unearned stock-based compensation resulting from granting stock
options to employees from October 1998 through April 1999. These deferred
compensation costs represent the difference between the exercise price of the
options and the deemed fair market value of the underlying common stock at the
time of grant of the options.
Our limited operating history makes it difficult to forecast future
operating results. Although our revenue has grown significantly in recent
quarters, we cannot assure you that we will be able to sustain revenue growth or
achieve and maintain profitability. Even if we were to achieve profitability, we
expect material fluctuations in quarterly revenue and earnings to result from a
number of factors, including:
o changes in interest rates;
o loss of strategic relationships;
20
<PAGE>
o changes in competitive pressures on pricing or quality of service;
o seasonal variations in demand for mortgages;
o general economic conditions;
o system failures or Internet down time;
o changes in state or federal government regulations and their
interpretations, especially with respect to the mortgage and
Internet industries;
o our ability to enhance our information technology to keep pace with
changes in the industry; and
o changes in attitudes of consumers doing business over the Internet.
As a result, we do not believe that our historical results are necessarily
indicative of results to be expected in any future period.
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenue of certain
line items included in our statement of operations for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
MARCH 31,
----------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Secondary marketing revenue, net......................................... 54.6% 70.4% 80.1% 79.3% 65.1%
Loan production and processing fees, net................................. 10.9 14.2 15.0 13.5 19.7
Management and technical fees and other.................................. 34.3 12.3 5.2 8.0 15.0
Interest, net............................................................ 0.2 3.1 (0.3) (0.8) .2
----- ----- ----- ----- -----
Total revenue................................................................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
EXPENSE:
Compensation and employee benefits....................................... 86.8 79.4 73.1 72.2 73.0
Marketing................................................................ 1.3 1.4 3.7 1.3 11.6
Research and development................................................. 6.6 6.6 8.2 6.4 5.9
Depreciation and amortization............................................ 8.7 2.9 5.2 2.2 5.3
General and administrative............................................... 50.1 31.1 26.9 23.3 28.4
----- ----- ----- ----- -----
Total expenses............................................................... 153.5 121.4 117.1 105.4 124.2
----- ----- ----- ----- -----
Net loss..................................................................... (53.5)% (21.4)% (17.1)% (5.4)% (24.2)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUE
Total revenue increased 94% to $13.2 million for the three months ended
March 31, 1999 from $6.8 million in the comparable period in 1998. This growth
resulted primarily from our acquisition of AFI in April 1998, the related loan
volume generated by our Web sites and from new strategic alliances with online
partners and Realtors.
Secondary marketing revenue, net. Gains and other revenue from the
origination and secondary marketing of mortgage loans increased 59% to
$8.6 million for the three months ended March 31, 1999 from $5.4 million in the
comparable period in 1998. This increase resulted primarily from the increase in
the total dollar amount of loans we originated, funded and sold. The total
dollar amount of closed loans that we originated increased to $751.6 million for
the three months ended March 31, 1999 from $348.3 million in the comparable
period in 1998. Of these originations, we funded and sold in the secondary
market $615.1 million
21
<PAGE>
in loans as compared to $241.8 million in the first quarter of last year. Loans
that we originated but chose not to fund were funded by other mortgage lenders.
The increase in loan volumes and related revenue resulted primarily from our
introduction of additional Internet origination channels in April 1998 and an
increase in Realtor affiliations.
Loan production and processing fees, net. Total loan production and
processing fees, less amounts paid to third parties for certain processing
services, increased 181% to $2.6 million for the three months ended March 31,
1999 from $0.9 million in the comparable period in 1998. This increase in
production and processing fees resulted from an overall increase in loan volume
and from new strategic alliances that produce fees for processing loans for
third parties and other mortgage lenders.
Management, technology and other fees. Total revenue from management,
technology and other fees increased 264% to $2.0 million for the three months
ended March 31, 1999 from $0.5 million in the comparable period in 1998. The
1999 amount includes recognition of $1.0 million in previously deferred revenue
from the sale of software that we no longer use in our business. The remaining
increase was primarily attributable to fees earned from business affiliations
for management services and technology.
Net interest (expense) income. The net contribution of interest to revenue
increased to a net interest income of $26,000 for the three months ended
March 31, 1999 from a net interest expense of $56,000 in the comparable period
in 1998. This increase was primarily related to higher net cash positions
resulting from equity investments we received in the last three quarters of
1998, and from an improvement in the difference between the interest revenue we
received from borrowers and our cost of funds.
EXPENSES
Compensation and employee benefits. Compensation and employee benefits
consist primarily of management and employee salaries, bonuses and commissions
and related costs as well as the cost of consultants and personnel from
temporary agencies. Total compensation and benefit costs increased 96% to
$9.6 million for the three months ended March 31, 1999, or 73.0% of revenue,
from $4.9 million in the comparable period in 1998, or 72.2% of revenue. The
dollar increase in total compensation and benefit costs resulted primarily from
an increase in personnel from 295 at March 31, 1998 to 594 at March 31, 1999 to
support our new Internet origination volumes and related technical and
administrative support services. The increase was also a result of increased
commissions paid to loan originators commensurate with increased loan volumes.
We expect total compensation and employee benefits to increase in absolute
dollars as we continue to expand our business by hiring additional personnel.
Total compensation and benefit costs increased as a percentage of revenue due to
training periods involved in expanding our call center capacity to meet
increasing Internet loan demand.
Included in "Compensation and employee benefits" is the amortization of
unearned compensation which resulted when stock options we granted during 1998
and the first quarter of 1999 were subsequently deemed to have exercise prices
less than the estimated fair market value of our common stock at the time of
grant. As of March 31, 1999, we have recorded approximately $15.4 million in
deferred compensation and we amortized approximately $193,000 of that amount to
expense in the three months ended March 31, 1999. An additional $1.3 million
will be recorded in the second quarter of 1999. As our stock option plan has a
five-year vesting requirement, the remaining deferred compensation cost will be
amortized at approximately $837,000 per quarter through the fourth quarter of
2003. Stock-based compensation is a non-cash expense.
Marketing. Marketing expenses consist primarily of the cost of leads
generated through Internet marketing and distribution agreements or co-branding
arrangements, as well as the cost of direct advertising and trade-show
participation. Marketing expenses also include fees paid to other Web sites and
business partners for lead generation. Marketing expenses increased to
$1.5 million for the three months ended March 31, 1999, or 11.6% of revenue,
from $85,000 in the comparable period in 1998, or 1.3% of revenue. These
increases were directly related to new online distribution agreements and online
advertising designed to increase the exposure of our Web site. We believe that
marketing expenses will increase, both in absolute dollars and as a percentage
of revenue, as we expand our strategic partnerships with other Web sites to
drive more traffic to our Web site and to increase brand awareness.
22
<PAGE>
Research and development. Research and development costs consist primarily
of compensation and benefit costs of development personnel, materials, computer
equipment and supplies consumed in software development and related facility
costs. Research and development expenses increased 79% to $777,000 for the three
months ended March 31, 1999, or 5.9% of revenue, from $433,000 in the comparable
period in 1998, or 6.4% of revenue. These increases were primarily due to the
addition of product development personnel to integrate CLOser with
newly-acquired Internet technology and third-party software and Web platforms.
We believe additional investment in research and development is essential to our
success and we expect these expenses will increase in future periods.
Depreciation and amortization. Depreciation and amortization consists of
depreciation of capital equipment, amortization of goodwill related to
acquisitions and amortization of capitalized software development costs.
Depreciation and amortization expenses increased to $698,000 for the three
months ended March 31, 1999, or 5.3% of revenue, from $154,000 in the comparable
period in 1998, or 2.2% of revenue. These increases were a result of increased
expenditures for an expansion of our Internet infrastructure, acquisition of
capital equipment to support call center operations, additions to goodwill
from the AFI acquisition and payments relating to the Online Capital
acquisition. We expect these expenses will increase in absolute dollars as a
result of our exercise of an option to repurchase our CLOser software system
from a third party in May 1999 for $3.5 million and our commitment to maintain
state-of-the-art technology to support our Internet operations.
General and administrative. General and administrative costs include
telephone and communication costs, rent and other occupancy costs, equipment
leases, certain loan transfer fees and consulting and professional expenses.
General and administrative expenses increased 138% to $3.8 million for the three
months ended March 31, 1999, or 28.4% of revenue, from $1.6 million in the
comparable period in 1998, or 23.3% of revenue. The increase in general and
administrative expenses resulted from additional rent, communication costs and
other expenses related to call center operations and the addition of
administrative personnel in anticipation of becoming a public company. We expect
general and administrative expenses to increase in absolute dollars as we
continue to grow but decrease as a percentage of revenue as mortgage loan volume
increases.
YEARS ENDED DECEMBER 31, 1997 AND 1998
REVENUE
Total revenue increased 116% to $35.7 million in 1998 from $16.5 million in
1997. This growth resulted primarily from our acquisition of AFI in April 1998
and the loan volume generated by our Web sites, a full year of operations of
OnLine Capital acquired in the summer of 1997, strategic alliances with online
partners that generated increased loan volume for us and an increase in
refinancing activities resulting from relatively low interest rates.
Secondary marketing revenue, net. Gains and other revenue from the
origination and secondary marketing of mortgage loans increased 147% to
$28.6 million in 1998 from $11.6 million in 1997. This increase resulted
primarily from the increase in the total dollar amount of loans we originated,
funded and sold. The total dollar amount of loans that we originated increased
to $2.0 billion in 1998 from $808.7 million in 1997. We funded and sold in the
secondary market $1.5 billion of these loans in 1998 and $562.0 million in 1997.
The increase in loan volumes and related revenue resulted primarily from our
introduction of additional Internet origination channels in April 1998 and a
full year of operations of OnLine Capital. The increase was also attributable to
increased refinancing activity by borrowers resulting from relatively low
interest rates.
Loan production and processing fees, net. Total loan production and
processing fees, less amounts paid to third parties for certain processing
services, increased 130% to $5.3 million in 1998 from $2.3 million in 1997. This
increase in production and processing fees resulted from an overall increase in
loan volume.
Management, technology and other fees. Total revenue from management,
technology and other fees decreased 5% to $1.9 million in 1998 from
$2.0 million in 1997. This decrease was primarily attributable to the refocusing
of our resources in 1998 on internal development of expanded Internet
capabilities.
23
<PAGE>
Net interest (expense) income. The net contribution of interest to revenue
declined to a net interest expense of $113,000 in 1998 as compared to net
interest income of $500,000 in 1997. This decline was primarily related to a
convergence of short and intermediate-term market interest rates. This results
in circumstances where the rates of certain loans funded by us during the year
were equal to or less than our borrowing cost, producing a net interest loss
during the period of time we held these loans prior to delivery to secondary
market investors.
EXPENSES
Compensation and employee benefits. Total compensation and benefit costs
increased 99% to $26.1 million in 1998, or 73.1% of revenue, from $13.1 million
in 1997, or 79.4% of revenue. The dollar increase in total compensation and
benefit costs resulted primarily from an increase in personnel from 158 at
December 31, 1997 to 486 at December 31, 1998 to support our new Internet
origination volumes and related technical support services. The increase was
also a result of increased commissions paid to loan originators commensurate
with increased loan volumes. We expect total compensation and employee benefits
to increase in absolute dollars as we continue to expand our business by hiring
additional personnel. Total compensation and benefit costs decreased as a
percentage of revenue.
Marketing. Marketing expenses also include fees paid to other Web sites
and business partners for lead generation. Marketing expenses increased 550% to
$1.3 million in 1998, or 3.7% of revenue, from $238,000 in 1997, or 1.4% of
revenue. These increases were directly related to new online distribution
agreements and online advertising designed to increase the exposure of our Web
site.
Research and development. Research and development expenses increased 164%
to $2.9 million in 1998, or 8.2% of revenue, from $1.1 million in 1997, or 6.6%
of revenue. These increases were primarily due to the addition of product
development personnel to integrate CLOser with newly-acquired Internet
technology and third-party software and Internet platforms.
Depreciation and amortization. Depreciation and amortization expenses
increased 280% to $1.9 million in 1998, or 5.2% of revenue, from $480,000 in
1997, or 2.9% of revenue. These increases were a result of increased
expenditures for an expansion of our Internet infrastructure and acquisition of
capital equipment to support call center operations, and a shortening of the
period that we amortize capitalized software development costs from five years
to three years. We capitalized an additional $832,000 in software development
costs in 1998 and $518,000 in 1997.
General and administrative. General and administrative expenses increased
88% to $9.6 million in 1998, or 26.9% of revenue, from $5.1 million in 1997, or
31.1% of revenue. The increase in general and administrative expenses resulted
from additional rent, communication costs and other expenses related to call
center operations and the addition of administrative personnel in anticipation
of becoming a public company. These expenses declined as a percentage of revenue
due to increased mortgage loan originations.
YEARS ENDED DECEMBER 31, 1996 AND 1997
REVENUE
Total revenue increased 120% to $16.5 million in 1997 as compared to
$7.5 million in 1996.
Secondary marketing revenue, net. Gains and other revenue from the
origination and secondary marketing of mortgage loans we originated increased
183% to $11.6 million for 1997 from $4.1 million in 1996. The total dollar
amount of loans we originated increased to $808.7 million in 1997 as compared to
$330.8 million in 1996, a 144% increase. We funded and sold in the secondary
market $562.0 million in loans in 1997 and $180.0 million in 1996. The increase
in loan volumes and related revenue resulted primarily from the acquisition of
OnLine Capital, as well as expansion of our member business.
24
<PAGE>
Loan production and processing fees, net. Total loan production and
processing fees, less amounts paid to third parties for certain processing
services, increased 180% to $2.3 million in 1997 from $820,000 in 1996. This
increase in production and processing fees resulted from an overall increase in
loan volume.
Management, technology and other fees. Total revenue from management,
technology and other fees decreased 23% to $2.0 million for 1997 from
$2.6 million in 1996. This decrease was primarily attributable to the refocusing
of our resources on the conversion of our technology platform from MS-DOS to
Windows 95.
Net interest (expense) income. The net contribution of interest to revenue
increased to $500,000 for 1997 as compared to $17,000 in 1996. This increase was
due primarily to higher loan volumes and an improvement in the difference
between the interest revenue we received from borrowers and our cost of funds.
EXPENSES
Compensation and employee benefits. Total compensation and benefit costs
increased 102% to $13.1 million in 1997, or 79.4% of revenue, from $6.5 million
in 1996, or 86.8% of revenue. The dollar increase was primarily attributable to
the acquisition of OnLine Capital.
Marketing. Marketing expenses increased 151% to $238,000 in 1997, or 1% of
revenue, from $95,000 in 1996, or 1% of revenue. These increases were directly
related to promotional activities and participation in trade shows designed to
increase brand awareness.
Research and development. Research and development expenses increased 121%
to $1.1 million in 1997, or 7% of revenue, from $497,000 in 1996, or 7% of
revenue. The dollar increase was primarily related to our decision to convert
CLOser to the Microsoft Windows 95 operating system.
Depreciation and amortization. Depreciation and amortization expenses
decreased 26% to $480,000 in 1997, or 3% of revenue, from $652,000 in 1996, or
9% of revenue. This decrease was primarily the result of the $263,000
amortization of the remaining organizational costs in 1996.
General and administrative. General and administrative expenses increased
34% to $5.1 million in 1997, or 31% of revenue, from $3.8 million in 1996, or
50% of revenue. The dollar increase was primarily related to the additional
rent, communication costs and equipment costs attributable to the OnLine Capital
operation, while the percentage decrease was attributable to the higher loan
volumes from those operations.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly consolidated
statement of operations data for each of the nine quarters ended March 31, 1999.
This information has been prepared substantially on the same basis as the
audited consolidated financial statements appearing elsewhere in this
prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the quarterly results. The quarterly data should be read in conjunction with our
audited consolidated financial statements and unaudited consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus. As a result of our limited operating history and numerous factors
beyond management's control, we may experience material fluctuations in revenue
and
25
<PAGE>
earnings in future quarters. Accordingly, the operating results of any quarter
may not be indicative of the results that may be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Secondary marketing revenue,
net.......................... $ 997 $2,116 $ 4,052 $4,430 $5,407 $6,620 $ 7,632 $ 8,938 $ 8,600
Loan production and processing
fees, net.................... 300 521 685 842 922 1,278 1,329 1,809 2,598
Management, technology and
other fees................... 416 359 707 551 546 649 539 134 1,991
Net interest (expense)
income....................... 144 137 155 63 (56) (22) 108 (143) 26
-------- ------ ------- ------ ------ ------ ------- -------- --------
Total revenue................ 1,857 3,133 5,599 5,886 6,819 8,525 9,608 10,738 13,215
-------- ------ ------- ------ ------ ------ ------- -------- --------
Expenses:
Compensation and employee
benefits..................... 1,754 2,534 4,067 4,728 4,927 5,892 6,653 8,602 9,645
Marketing...................... 26 49 79 84 85 258 454 539 1,536
Research and development....... 162 216 269 432 434 578 722 1,155 776
Depreciation and
amortization................. 110 123 143 105 154 268 337 1,114 698
General and administrative..... 869 1,205 1,574 1,478 1,589 2,292 2,721 2,994 3,759
-------- ------ ------- ------ ------ ------ ------- -------- --------
Total Expenses............... 2,921 4,127 6,132 6,827 7,189 9,288 10,887 14,404 16,414
-------- ------ ------- ------ ------ ------ ------- -------- --------
Net loss......................... $(1,064) $ (994) $ (533) $ (941) $ (370) $ (763) $(1,279) $ (3,666) $ (3,199)
-------- ------ ------- ------ ------ ------ ------- -------- --------
-------- ------ ------- ------ ------ ------ ------- -------- --------
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Secondary marketing revenue,
net.......................... 53.7% 67.5% 72.4% 75.3% 79.3% 77.7% 79.5% 83.3% 65.1%
Loan production and processing
fees, net.................... 16.2 16.6 12.2 14.3 13.5 15.0 13.8 16.8 19.7
Management, technology and
other fees................... 22.4 11.5 12.6 9.3 8.0 7.6 5.6 1.2 15.0
Net interest (expense) income.... 7.7 4.4 2.8 1.1 (0.8) (0.3) 1.1 (1.3) .2
-------- ------ ------- ------ ------ ------ ------- -------- --------
Total revenue.................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------- ------ ------- ------ ------ ------ ------- -------- --------
Expenses:
Compensation and employee
benefits..................... 94.5 80.9 72.7 80.3 72.2 69.1 69.2 80.1 73.0
Marketing...................... 1.4 1.6 1.3 1.4 1.3 3.0 4.8 5.0 11.6
Research and development....... 8.7 6.9 4.8 7.4 6.4 6.8 7.5 10.8 5.9
Depreciation and
amortization................. 5.9 3.9 2.6 1.8 2.2 3.1 3.5 10.4 5.3
General and administrative..... 46.8 38.4 28.1 25.1 23.3 26.9 28.3 27.8 28.4
-------- ------ ------- ------ ------ ------ ------- -------- --------
Total expenses............... 157.3 131.7 109.6 116.0 105.4 108.9 113.3 134.1 124.2
-------- ------ ------- ------ ------ ------ ------- -------- --------
Net loss......................... (57.3)% (31.7)% (9.6)% (16.0)% (5.4)% (8.9)% (13.3)% (34.1)% (24.2)%
-------- ------ ------- ------ ------ ------ ------- -------- --------
-------- ------ ------- ------ ------ ------ ------- -------- --------
</TABLE>
Our quarterly growth in revenue has resulted from a growth in loan volumes.
The growth rate during the nine quarters has been significant enough to obscure
any seasonality that we may have experienced. However, the mortgage industry
usually experiences stronger demand in the summer than in the winter. Our
acquisition in June 1997 of OnLine Capital and our acquisition in March 1998 of
AFI boosted revenue growth in the subsequent quarters.
The following chart shows our total volume of loans originated, whether
funded by us or other mortgage lenders, for each of the nine quarters ended
March 31, 1999. As seen in the chart, our quarterly loan volume has grown by
958% over the last nine quarters, from approximately $71 million in the first
quarter of 1997 to more than $750 million in the first quarter of 1999.
26
<PAGE>
MORTGAGE.COM TOTAL LOAN VOLUME
(IN MILLIONS)
[The chart appearing here shows
the growth in our total loan
volume, in dollars, for each
of the last nine quarters].
Apart from our amortization of unearned compensation, our compensation
costs reflect a general downward trend as a percentage of revenue over the nine
quarters due to efficiency of scale and the efficiency of originating loans
through the Internet. We have increased our marketing expense both in absolute
dollars and as a percentage of revenue in an effort to increase loan volumes
generated through the Internet. We intend to increase our marketing expenditures
further in 1999 as we continue to direct traffic to our Web site and embark on a
brand recognition program. Our general and administrative expenses have declined
as a percentage of revenue due to economies of scale.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded operations primarily through net cash
proceeds from private placements of preferred stock of approximately
$26.5 million through December 31, 1998. As of December 31, 1998, we had cash
and cash equivalents of $3.4 million. In February and April 1999, we received
gross proceeds from the issuance of subordinated notes totaling $13.0 million.
In May 1999, we received an additional $27.5 million from the issuance of a
convertible subordinated note, which is either payable, or convertible to common
stock, upon completion of this offering. We also received $15.0 million from the
sale of shares of Series F Preferred Stock.
Our primary need for operating capital is for the funding of mortgage loans
between closing and eventual delivery to secondary market investors. We fund
these loans through warehouse lines of credit and collateralized loan purchase
agreements with banks and other financial institutions. We have a $70.0 million
warehouse line of credit with Residential Funding Corporation, a $60.0 million
warehouse line of credit with Bank United and a $25.0 million warehouse line of
credit with Cooper River Funding. We also have loan purchase agreements with
Superior Bank FSB and Greenwich Capital. Our aggregate borrowing limits are
currently set at approximately $220.0 million. These financing arrangements
generally provide from 97% to 99% of the principal amounts needed to fund
mortgage loans and are collateralized by the underlying mortgages. The average
time between funding closed mortgages and receipt of loan sale proceeds from
investors was approximately 25 days during 1998.
We have entered into a letter of intent with Telebanc Financial Corp. to
provide a committed $200.0 million repurchase agreement which will allow us to
sell our closed mortgage loans to Telebanc instead of holding them in our
warehouse lines of credit. The net effect of this arrangement should be to
provide us with lower financing costs between closing and ultimate sale and
delivery to investors in the secondary market. In addition, the letter of intent
outlines the parameters for the development of an electronic mortgage conduit
with the intent of streamlining the financing process. Telebanc would work with
us to create a dedicated e-commerce platform that will enable the efficient
transmission of loan information from originators to the secondary market.
Although we expect this financing arrangement to become available by
27
<PAGE>
the end of July 1999, we cannot assure you that it will be available at that
time, if at all, nor can we assure you that the development of the e-commerce
platform will happen as anticipated.
Net cash used for operating activities for the year ended December 31, 1998
totaled $102.7 million. We used this cash primarily to fund loans held for sale
to investors, offset by reductions in other working capital requirements and
non-cash charges. For the quarter ended March 31, 1999, net cash provided by
operating activities totaled $6.1 million. This cash was generated primarily
from a reduction in mortgage loans held for sale, offset by operating losses.
Net cash used in investing activities for the year ended December 31, 1998
totaled $7.6 million, $2.7 million of which was used for the purchase of AFI. We
used the remaining $4.9 million primarily for the purchase of computers,
workstations, servers and other equipment to support our growth in technology
support services and call center operations and costs related to software
development. Net cash used in investing activities for the quarter ended
March 31, 1999 totaled $1.6 million, $500,000 of which we used to purchase
computers and equipment and $700,000 of which we used for software development
costs.
Net cash provided by financing activities for the year ended December 31,
1998 totaled $112.1 million. Warehouse facilities provided $99.6 million of this
amount and we received an additional $12.4 million as proceeds from the sale of
Series D Preferred Stock. We repaid $200,000 in subordinated notes during the
year. Net cash used by financing activities for the quarter ended March 31, 1999
totaled $1.7 million, as $10.0 million in proceeds from the issuance of
subordinated notes were used for general corporate purposes.
As of December 31, 1998, we had net operating loss carryforwards of
approximately $16.1 million available to reduce future taxable income, which
carryforwards expire on various dates from 2010 to 2014.
Since inception, we have significantly increased our operating costs and we
anticipate that we will continue to experience significant increases in our
operating costs for the foreseeable future. In addition, we may use cash
resources, including a portion of the net proceeds of this offering, to fund
acquisitions or investments in joint ventures, businesses, technologies and
products or services complementary to our business. Increased loan volume also
requires additional cash to fund the loans. We believe that net proceeds of this
offering coupled with the expected increase of our warehouse credit lines and
mortgage repurchase facilities will be sufficient to meet anticipated cash
requirements over the next twelve months. If cash generated from operations in
future periods remains insufficient to satisfy our liquidity requirements, we
may sell additional equity or debt securities, or obtain additional credit
facilities. The issuance of additional equity or convertible debt securities
could result in additional dilution to our stockholders.
RECENT ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
On January 1, 1998, we adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 established standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and net unrealized gains (losses) on
securities and is presented in the consolidated statements of shareholders'
equity and comprehensive income. The Statement requires only additional
disclosures in the consolidated financial statements; it does not affect our
consolidated balance sheets or statements of operations. The adoption of SFAS
No. 130 has had no effect on our consolidated financial statements.
SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 established standards for
the way that a public enterprise reports information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997, and requires restatement of earlier periods presented. The
adoption of SFAS No. 131 has not had a significant impact on our consolidated
financial statements.
28
<PAGE>
SOFTWARE REVENUE RECOGNITION
In March 1998, the AICPA issued Statement of Position 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2" ("SOP 98-4"). SOP 98-4 defers for
one year the application of certain provisions of Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"). Different informal and
unauthoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as a result, the AICPA is deliberating amendments to SOP 97-2, so it can
issue interpretations regarding the applicability and the method of application
of those provisions. We have adopted SOP 97-2. The adoption of SOP 97-2 has not
had a material impact on our consolidated statements of operations, balance
sheets or cash flows.
DERIVATIVES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. As we do not currently engage in derivative or
hedging activities, there has been no impact on our consolidated statements of
operations, balance sheets or cash flows upon the adoption of this standard. If
we engage in derivative or hedging activities in the future, we will apply SFAS
No. 133.
DISCLOSURES ABOUT MARKET RISK
Interest rate movements significantly impact our volume of closed loans.
Interest rate movements represent the primary component of market risk to us. In
a higher interest rate environment, borrower demand for mortgage loans,
particularly refinancing of existing mortgages, declines. Interest rate
movements affect the interest income earned on loans we hold for sale in the
secondary market, interest expense on our warehouse lines, the value of mortgage
loans we hold for sale in the secondary market and ultimately the gain on the
sale of those mortgage loans. In addition, in an increasing interest rate
environment, the volume of mortgage loans that our clients originate declines.
We originate mortgage loans and manage the market risk related to these
loans by pre-selling them on a best efforts basis to the anticipated secondary
market investors at the same time that we establish the borrowers' interest
rates. If we can deliver mortgage loans within the time frames established by
the secondary market investors, we have no interest rate risk exposure on those
loans. However, if the loan closes but we cannot deliver the loan within those
time frames, and if interest rates increase, we may experience a reduced gain or
may even incur a loss on the sale of the loan.
We sell more than 90% of the loans we sell through best efforts
commitments, which means we do not suffer a penalty if the loans do not close.
We sell some loans, including sub-prime loans, on a mandatory delivery basis. We
earn a higher sale price on these, but we have risk if the loans do not close.
We also do not currently maintain a trading portfolio. As a result, we are
not exposed to market risk as it relates to trading activities. Our entire loan
portfolio is held for sale. Accordingly, we must perform market valuations of
our pipeline, our mortgage portfolio held for sale and the related sale
commitments in order to properly record the portfolio and the pipeline at the
lower of cost or market. Therefore, we measure the interest rates of our loan
portfolio against prevailing interest rates in the market.
Because we pre-sell our mortgage loan commitments, we believe that a 1%
increase or decrease in long-term interest rates would not have a significant
adverse effect on our earnings from interest rate sensitive assets. We pay off
warehouse lines when the loans are sold in the secondary market. Because the
loans are held in the warehouse lines for a short period of time, we do not
expect to incur significant losses from an increase in interest rates on the
warehouse lines. However, since a significant percentage of our closed loan
volume is from refinancing mortgage loans, our future operating results may be
more sensitive to interest rate movements.
In the future, if we do not pre-sell the mortgage loans to secondary market
investors or if we do not rely on best-efforts commitments, our market risk
could change significantly.
29
<PAGE>
YEAR 2000 READINESS DISCLOSURE STATEMENT
Many currently installed computer systems and software products are
designed to accept only two digit entries in the date code field. As a result,
they may have problems properly recognizing 1/1/00 as January 1, 2000. In less
than a year, computer systems and software may need to be upgraded to comply
with "Year 2000" requirements. Significant uncertainty exists concerning the
potential effects associated with the Year 2000 issue on business operations.
In early 1998, we began reviewing the Year 2000 compliance status of our
technology platforms licensed to others, the software and systems used in our
internal business processes and other systems and services on which we rely. We
have completed the assessment phase and the research and strategy phases of the
program and are beginning to implement these strategies, which will include
developing contingency plans for potential third party Year 2000 compliance
problems that we deem critical to our business continuity. We cannot assure you
that the program will anticipate or identify all potential Year 2000 effects on
our business or that our contingency plans will be effective.
We have fully integrated Year 2000 testing into the development of our own
software. We believe that the entire technology platform on which we operate and
which we provide to clients is generally Year 2000 compliant. Accordingly, the
use or occurrence of dates on or after January 1, 2000 and the occurrence of
leap years will not affect the performance of our systems with respect to their
ability to correctly create, store, process and output information related to
such data.
We are in the process of contacting our major customers and critical
suppliers of components, equipment and services to determine whether products
and services we obtain from them are Year 2000 compliant. Our suppliers and
customers are under no obligation to provide such information to us. We intend
to continue monitoring the Year 2000 compliance of suppliers and major
customers.
Based on the information available to date, we believe we will be able to
complete our Year 2000 compliance modifications and contingency plans, if
necessary, in the last quarter of 1999. We are prioritizing our efforts to focus
on Year 2000 discrepancies that would significantly impact operations.
Nevertheless, to the extent we are relying on vendors or suppliers to notify us
or resolve Year 2000 issues within their own products, we may experience delays
in implementing such changes. If key systems, or a significant number of systems
fail as a result of Year 2000 problems, we could incur substantial costs and
disruption of our business, which potentially would have a material adverse
effect on our results of operations. In addition, because we heavily rely on
communications and Internet service providers, failure of any such providers to
adequately address issues relating to Year 2000 may have a material adverse
effect on our business, financial condition and results of operations.
In certain circumstances, we have warranted to customers that the use or
occurrence of dates on or after January 1, 2000 will not adversely affect the
performance of our systems with respect to the ability to create, store, process
and output information related to such data. If any of these customers
experience Year 2000 problems in connection with use of our systems, they could
assert claims for damages against us.
To date we have not maintained a complete budget for investigating and
remedying issues related to Year 2000 compliance of our own software and
underlying systems used in our internal operations. We have incorporated the
costs of our Year 2000 initiative into existing workloads and budgets within our
technology group, and we do not expect them to be material to our results of
operations or financial position. Management is developing a contingency plan
based upon the results of supplier and customer readiness reviews. To the extent
we have not adequately assessed our Year 2000 compliance deficiencies,
additional and possibly significant resources may be spent on investigating and
remedying Year 2000 issues. The expenditure of such resources may have a
material adverse effect on our business, financial condition and results of
operations.
30
<PAGE>
BUSINESS
MORTGAGE.COM
We are a leading provider of online mortgage services to consumers and
businesses. We have developed state-of-the-art technology to support the
origination, processing, underwriting, closing and secondary marketing of
mortgage loans. We use this proprietary technology to provide mortgage financing
directly to borrowers. We also enable our clients, such as mortgage brokers,
mortgage banks, financial institutions, Realtors and homebuilders, to improve
the efficiency and effectiveness of their mortgage operations.
We believe that borrowers are generally dissatisfied with the traditional
mortgage lending process. This dissatisfaction stems from the complexity of the
process, inefficiencies and delays related to the manual collection and transfer
of information and the borrower's inability to monitor the status of his loan.
Mortgage lending on the Internet can offer borrowers an easier, faster and less
expensive way to obtain mortgage loans and has the potential to eliminate many
of the borrower's frustrations found in traditional mortgage lending. We believe
companies that provide these benefits to borrowers will gain a competitive
advantage.
We offer borrowers a more satisfying, less frustrating mortgage experience.
We use our Internet platform and other proprietary technologies to make the
mortgage lending process more efficient, whether for our own direct-to-consumer
mortgage banking operation or in support of the mortgage operations of our
business-to-business clients.
In 1998, we originated and closed mortgage loans with a total principal
amount of $2.0 billion, of which approximately 21% were originated through the
Internet. We funded and sold $1.5 billion of those loans. For the three months
ended March 31, 1999, we originated and closed mortgage loans with a total
principal amount of $751.6 million, of which approximately 37% were originated
through the Internet. We funded and sold $615.1 million of those loans.
As of April 30, 1999, we were providing private label and co-branded Web
sites for 22 clients, including NetB@nk and Southtrust Mortgage. We have enabled
non-lenders, such as Intuit through its Quickenmortgage Web site, to provide its
customers with access to efficient mortgage services. As of April 30, 1999, we
also were providing mortgage banking services to 23 mortgage brokerage
companies, mortgage bankers and financial institutions. At the point-of-sale of
homes, we have business relationships with 20 homebuilders and Realtors,
including franchisees of Century 21 and Prudential Real Estate, enabling
borrowers to obtain mortgage loans at the same locations at which they arrange
for the purchase or building of a home.
INDUSTRY BACKGROUND
Overview
The Mortgage Bankers Association of America, or MBA, estimates that the
mortgage industry originated approximately $1.5 trillion in mortgages in 1998
compared to $834.0 billion in 1997. The MBA estimates that another $1.2 trillion
in mortgages will be originated in 1999.
In traditional mortgage lending, a borrower obtains a mortgage loan by
contacting a mortgage originator, such as a mortgage banker, mortgage broker or
a financial institution. After a borrower has selected a mortgage originator, an
employee or commissioned loan officer of the mortgage originator collects
information about the borrower and completes a loan application by hand, while
the borrower waits. These mortgage originators often have business hours that
are not convenient for a borrower who works during the day, and a borrower may
have to make several trips to provide all of the information for the
application. In addition, these mortgage originators' offices may be located far
from the borrower's home. The borrower may have to wait weeks while credit
reports, appraisals and other third party verifications are ordered. For these
reasons, we believe that borrowers are generally dissatisfied with this process.
We also believe that borrowers lack knowledge about the mortgage process,
including the costs associated with obtaining a mortgage loan. Consequently, it
is difficult for a borrower to determine whether
31
<PAGE>
he is getting the right mortgage loan, at the right cost, in a timely fashion.
In addition, a borrower is dependent upon the mortgage loan originator to keep
him informed about the status of the loan application.
Some of a borrower's frustration and dissatisfaction stems from
inefficiencies and delays in the application, processing and underwriting phases
of the mortgage lending process. Manual collection and transfer of information
from the application process through the processing and underwriting phases
increases loan approval time and results in a greater number of human errors.
Many mortgage originators and mortgage lenders do not have the technical
expertise or financial resources to automate the origination, processing and
underwriting of mortgage loans to achieve greater efficiency. Continuing
inefficiencies make it difficult for mortgage originators and mortgage lenders
to adequately keep borrowers informed and satisfied.
GROWTH OF THE INTERNET AND ONLINE FINANCIAL SERVICES
The Internet has emerged as a global medium for communication, content
delivery and electronic commerce, and Internet use continues to increase
rapidly. International Data Corporation, or IDC, estimates that the number of
users worldwide will increase from 142 million in 1998 to over 400 million in
2002. As consumers have become increasingly adept at using the Internet for
evaluating and purchasing a wide variety of goods, the dollar volume of online
commerce transactions has risen dramatically. IDC estimates that the volume of
goods and services purchased through the Web will increase from $50 billion in
1998 to more than $734 billion in 2002.
The Internet provides companies with additional ways to reach potential
customers along with the opportunity to transact business with them in a more
efficient and low-cost manner than business transacted through traditional
channels. In addition, the Internet offers companies flexibility, permitting
them to adjust features, presentations and prices in response to competition.
Consumers benefit from improved overall convenience, low-cost access to
information regarding available products and services, ease of use, numerous
choices and often more competitive pricing.
Financial services is one of the more prominent industries that has taken
advantage of the Internet. The information potential of the Internet and the
potential lower costs associated with conducting business electronically
underlie the success of financial services Web sites. For example, Forrester
Research reports that 25% of all retail stock trades are now executed online.
Many of these financial services companies have undertaken aggressive marketing
campaigns to establish their online brands. We believe that consumers will
become more willing to conduct financial transactions online, including mortgage
transactions, as Internet use increases, Internet brands are established and
concerns about security and privacy are alleviated.
ONLINE MORTGAGE SERVICES
Online mortgage lending is particularly well-suited to the Internet
platform. Mortgage lending on the Internet can offer borrowers an easier,
faster, less expensive way to obtain mortgage loans and has the potential to
eliminate many of borrowers' frustrations found in traditional mortgage lending.
The same principles that make online mortgage lending an easier, faster and less
expensive process for the borrower can also benefit mortgage providers. Mortgage
providers can increase their access to borrowers by offering Web-enabled
services that are accessible at any time. Online mortgage lending can also
reduce costs and eliminate inefficiencies, resulting in a more satisfying
experience for borrowers.
Based on a recent report from Forrester Research, less than 1% of the $1.5
trillion in mortgages funded in 1998 were originated online. However, Forrester
Research estimates online mortgage loan volume will reach $91.2 billion by 2003,
constituting nearly 10% of all mortgage loans funded in 2003.
We believe that very few of the largest mortgage loan originators have
capitalized on the mortgage lending opportunities on the Internet. Most mortgage
originators lack the expertise to develop their own Internet technologies and
have been slow to address the online market. We believe the majority of the
prominent mortgage originators use the Internet primarily as an advertising
medium and to provide contact information. Even among originators that offer
online applications, we believe that many still have problems seamlessly
integrating their Internet applications with the systems that assist in
processing, underwriting and
32
<PAGE>
closing the mortgage loans. As a result, mortgage originators have not been
leveraging the Internet as a means to increase borrowers' satisfaction and
reduce overall costs.
We believe that to maximize the potential of computer-related technology in
the mortgage industry, a company must be able to provide borrowers with:
o numerous channels from which to obtain mortgage loans;
o faster loan applications and loan pre-qualifications;
o greater choice among numerous loan products and rates;
o the opportunity to obtain lower cost mortgages; and
o the ability to monitor the status of their loans from origination
through closing.
We believe companies that are able to provide these benefits to borrowers
will gain a competitive advantage.
THE MORTGAGE.COM SOLUTION
We use our Internet platform and other internally-developed, proprietary
technologies to maximize efficiency in the mortgage lending process, whether for
our own mortgage banking operation or in support of the mortgage operations of
our clients, such as mortgage bankers, mortgage brokers, financial institutions,
Realtors and homebuilders. As a result of these efficiencies, borrowers find the
mortgage experience more satisfying and less frustrating because they benefit
from:
o convenient access to the mortgage lending process through the
Internet, by e-mail, by telephone or in person at location where
homes are sold;
o interactive selection from a comprehensive suite of mortgage
products and services;
o personalized services and products tailored to individual needs;
o faster applications and pre-qualifications;
o interest rate locks; and
o constant monitoring of loan status.
We provide these benefits to borrowers through both direct-to-consumer and
business-to-business channels. Our direct-to-consumer channels consist of our
Web site at www.mortgage.com and the loan counselors using our proprietary
CLOser technology in our OnLine Capital operations. Throughout the mortgage
process, borrowers are supported by customer service representatives in our call
centers or by our OnLine Capital loan counselors.
Through our business-to-business channels, we leverage our technology to
enable our clients to better satisfy their borrowers. Borrowers can access our
clients through customized "private label" mortgage lending Web sites we create
and maintain for clients who need technical expertise and other resources to
establish and maintain a comprehensive online presence. Borrowers also can get
efficient mortgage services at the point-of-sale of homes, where we enable
Realtors and homebuilders to enter the mortgage lending business with a minimum
initial investment and with low overhead. We also offer dedicated Internet-based
call center services to our clients so they can provide a high-level of customer
service for their borrowers.
When we process, underwrite and fund mortgage loans for our mortgage
banking operations or for our clients, borrowers have constant and convenient
access through the Internet to monitor the status of their loan applications.
After the mortgage loans close, we sell those mortgage loans in the secondary
market to investors who will be responsible for servicing the mortgage loans.
Servicing consists of collecting from the borrower debt service and escrow funds
for property taxes and insurance, paying debt service to loan investors, paying
property taxes and insurance premiums and supervising foreclosures for defaulted
loans.
33
<PAGE>
MORTGAGE.COM STRATEGY
Our objective is to touch every mortgage, either directly or through our
business-to-business channels. We intend to do this by leveraging the Internet
and our proprietary technology to efficiently originate, fund and sell mortgage
loans, and enable our clients to efficiently originate, fund and sell mortgage
loans. Key elements of our strategy are:
Establishing and Enhancing Brand Awareness. We seek to make Mortgage.com
the household name for mortgage services. We believe that our Mortgage.com brand
name will become synonymous with better, faster and more convenient mortgage
loans, which will bring potential borrowers to our Web site and will help
establish us as the premier technology enabler in the mortgage industry. We have
budgeted a significant amount of money for advertising and promotion of the
Mortgage.com brand name during 1999 and beyond, with a focus on advertising
through leading Web sites and other media, co-branding with leading financial
information sites and developing additional business alliances. We have also
planned a direct marketing campaign designed to attract additional borrowers to
www.mortgage.com, which will increase our share of the online mortgage business.
This direct marketing campaign will target all current and potential home buyers
in the United States.
Expanding Our Ability to Serve Borrowers and Clients. We intend to
continue to devote substantial resources to the development and acquisition of
innovative Internet and software solutions so that we can better serve our
clients and mortgage borrowers. We are currently developing and testing
improvements to CLOser and its Internet interface that will increase its
versatility and automate additional portions of the mortgage process. For
example, we intend to implement automated underwriting systems to enhance the
sub-prime lending portion of www.mortgage.com. We intend to continually modify
and upgrade our software, Internet servers and high-speed transmission lines to
increase bandwidth, expand services and reduce costs. We are also continually
evaluating strategic acquisitions of technology leaders in ancillary service
areas, such as appraisal and credit report services. In this way we and our
clients will be able to provide borrowers with convenient, high-value and
low-cost services.
Addressing Underserved Markets. Because online commerce is still in its
infancy, there are a number of online markets for mortgage lending that are
currently underserved. We recently have developed a new segment of our
www.mortgage.com Web site specifically tailored to borrowers of sub-prime loans.
We also intend to continue to provide solutions to Realtors and homebuilders, so
that potential borrowers at the point-of-sale of homes have convenient access to
efficient, cost-effective mortgage financing. We believe that enhancing our
presence at the point-of-sale will strengthen our position in the purchase
mortgage market, which is less sensitive to changes in interest rates than the
refinancing mortgage market.
Reengineering the Mortgage Process with Advanced Technologies. CLOser was
one of the first portable computer software systems in the industry and remains
one of the most comprehensive systems for performing and linking all functions
in the mortgage process. We believe that our CLOser technology and its Internet
interface give us a competitive advantage in the mortgage banking industry. We
are currently testing www.openclose.com, which will serve as a virtual market
place for industry participants to communicate and exchange borrower and loan
information. We believe that www.openclose.com will provide yet another way to
more quickly and cost-effectively enhance the mortgage process. We intend to
continue to develop technological solutions that will reengineer and automate
the mortgage process and make our technology the easiest, most efficient and
most cost-effective way to facilitate mortgage transactions, whether through
online or offline channels.
PRODUCTS AND SERVICES
We make home financing easier, faster and less expensive for borrowers
through both direct-to-consumer channels and business-to-business channels. Our
direct-to-consumer channels include providing borrowers with access to low-cost
mortgage financing through the Internet and telephone and e-mail inquiries
generated by our Web site, and through loan counselors in our Florida and
California offices. We then process the mortgage loans to closing, provide
funding for the mortgages through our credit facilities, and sell the loans in
the secondary market to institutional investors.
34
<PAGE>
Through our business-to-business channels we:
o create Web sites for our clients that borrowers can access 24 hours
a day, 7 days a week;
o provide automated processing, closing, underwriting and funding
services to mortgage industry participants;
o enable Realtors and homebuilders to provide borrowers with access to
mortgage financing at the point-of-sale of homes; and
o will administer a Web site that mortgage lenders and mortgage
brokers can use to communicate and share borrower and loan
information electronically.
We offer clients the opportunity to use our services at any stage of the
mortgage process, from marketing, to online applications, processing,
underwriting, closing and selling mortgage loans in the secondary market.
Our direct-to-consumer channels and business-to-business channels are
linked, enhanced and supported by our Internet platform and proprietary CLOser
software system which we develop and maintain. Use of this technology
streamlines the mortgage process by allowing us and our clients to
electronically obtain, analyze and transmit information. We believe this
ultimately results in a more satisfying experience for borrowers.
The financial statements included in this prospectus contain financial
information for the direct-to-consumer and business-to-business segments of our
business for the years ended December 31, 1996, 1997 and 1998, and the three
months ending March 31, 1998 and 1999.
DIRECT-TO-CONSUMER CHANNELS
Our direct-to-consumer channels include our www.mortgage.com Web site,
which is linked to our call centers and our OnLine Capital operations. During
the three months ended March 31, 1999, our direct-to-consumer channel originated
and closed $171.2 million of mortgage loans, 34.9% of which were originated
through the Internet. We funded $128.8 million of those loans.
Online Mortgage Origination Through www.mortgage.com
Our flagship Internet Web site is www.mortgage.com, which serves as
our online origination source for mortgage loans. Borrowers can access our
Web site 24 hours a day, 7 days a week, to:
o research and evaluate mortgage products and services;
o select the most suitable mortgage loan with interactive assistance;
o apply for a mortgage loan;
o lock in an interest rate; and
o monitor the status of their loans.
Originating mortgage loans directly on the Internet results in reduced
costs and time to the borrower. The Internet also continues to provide us
with greater access to a tremendous number of potential borrowers, which
increases the number of mortgage loans that we expect to fund and sell in
the secondary market.
Prime Mortgage Loans. Prime mortgage loans include residential
mortgage loans that meet Fannie Mae's or Freddie Mac's secondary marketing
guidelines. These loans generally meet the agencies' guidelines because the
borrowers are credit-worthy and the loans have appropriate loan-to-value
ratios and principal amounts. Prime mortgage loans also include loans made
to credit-worthy borrowers that would otherwise meet Fannie Mae's or
Freddie Mac's underwriting guidelines, but have a principal amount which
exceeds the amounts permitted by Fannie Mae or Freddie Mac.
The prime mortgage loan portion of our Web site first provides a
borrower with knowledge about the mortgage lending process. It then
provides the borrower with the opportunity to use "SmartQuote," a loan
program search system we developed to make choosing a mortgage simple.
SmartQuote prompts the user for information and then searches the database
for all of the loan programs meeting the borrower's criteria. After
obtaining information on pricing and the right type of loan for the
borrower's
35
<PAGE>
situation, the borrower has an opportunity to securely apply online for a
mortgage loan in about 20 minutes. The borrower then can monitor the
progress of the loan through closing.
This portion of our Web site also includes a feature that allows a
user to specify the conditions under which he would be interested in
refinancing his mortgage loan. CLOser then stores this information and
provides the user with an automatic e-mail notification when a suitable
loan program becomes available.
To increase our access to borrowers, we participate as a mortgage
lender on high-profile multi-lender Web sites such as Intuit's
Quickenmortgage, Microsoft's Home Advisor and The Lending Tree. Our
presence on these sites provides borrowers with a convenient avenue to
access our technologically efficient mortgage services, which increases our
opportunity to originate, process and fund mortgage loans, and then sell
them in the secondary market.
Sub-prime Mortgage Loans. Sub-prime mortgage loans have
characteristics that make them generally ineligible for sale to Fannie Mae
or Freddie Mac in the secondary market for reasons other than an excessive
principal amount. Those characteristics might include the credit history of
the borrower, the debt-to-income ratio, the loan-to-value ratio, the
property type, the lien position or other factors. Because borrowers of
sub-prime loans have often been denied financing, they are more likely to
be dissatisfied with the traditional sub-prime lending process. Our goal is
to provide these borrowers with an unintimidating, informative and
confidential way to obtain a mortgage. Our Web site and customer service
representatives try to simplify the borrowing process and give borrowers
answers within a short period of time. In most cases, a borrower knows
within 3 hours whether he is approved for a mortgage loan.
Commensurate with the higher credit risk, we charge borrowers higher
interest rates on sub-prime mortgages, which allows us to generate higher
origination fees and higher gains on sale in the secondary market than
prime mortgage loans. The higher interest rate also allows us to generate a
greater spread between the interest rate we charge the borrower and the
interest rate we pay to lenders for the financing arrangements we use to
fund the mortgage loans.
Call Center Support. Our call center operations are integrated with
our Web site to provide customer service to visitors to www.mortgage.com.
For those borrowers who have submitted a complete online application, our
automatic call distribution software, CLOserLink, electronically imports
all of the borrower's data into our CLOser software system. In addition,
artificial intelligence software that we license from a third party
provides an automated, customized e-mail response to confirm the
application and make immediate contact with the potential borrower. We then
follow up with frequent telephone calls and e-mails to keep the borrower
informed of the mortgage loan's approval status.
When a partial online application is submitted, or when a borrower
calls or e-mails us based on contact information on our Web site, a
customer service representative in our call center is assigned to that
potential borrower for the duration of the origination process. The
customer service representative works with the potential borrower to
explain portions of the mortgage lending process, provide rate and product
information and assist the borrower with obtaining a mortgage loan. The
customer service representative can enter data into an electronic loan
application through CLOser, which efficiently manages the remainder of the
mortgage transaction.
OnLine Capital Loan Counselors
In addition to our Internet site, we also maintain our own sales force
that originates prime and sub-prime mortgage loans directly with borrowers.
This sales force consists of loan counselors operating under the trade name
OnLine Capital in offices we have established in Florida and California. We
provide each loan counselor with a personalized Web page at
www.onlinecap.com which they use to extend their access to borrowers.
OnLine Capital loan counselors then use their personal Web sites and CLOser
on a portable computer to conduct the mortgage origination process more
efficiently.
Our proprietary CLOser software system operates on portable and
desktop computers connected through a secure nationwide communications
network. CLOser includes the following features:
o full integration with Web sites we have developed;
36
<PAGE>
o automated loan applications and interest rate locks;
o daily updated loan rates and more than 100 loan products;
o in-depth loan tracking;
o high-speed dedicated connections to automated underwriting systems
at Fannie Mae and Freddie Mac;
o automatic generation of disclosure and closing documents tailored to
the loan product, property and local laws; and
o contact information, reminders of critical deadlines, e-mail, fax
services and custom printing of promotional material.
CLOser allows the user to input information from a prospective
borrower once, pre-qualify the borrower, and evaluate numerous loan
programs in light of the borrower's individual financial situation. It
automatically downloads credit reports and obtains other third party
verifications electronically. All information about a borrower and the
borrower's loan is electronically transferred through CLOser to third-party
automated underwriting systems or to our processing and underwriting
personnel over our secure wide area network. By automating virtually every
stage of the mortgage process, CLOser potentially reduces paperwork and the
time it takes the borrower to obtain a mortgage loan. Also, because CLOser
is fully integrated with our Web site, borrowers can monitor the status of
their loans on the Internet at any time.
BUSINESS-TO-BUSINESS CHANNELS
In addition to our direct-to-consumer channels, we enable mortgage bankers,
mortgage brokers, financial institutions, Realtors and homebuilders to
efficiently participate in the online mortgage industry at low cost. We have
developed an Internet platform integrated with our CLOser software system that
we license to other mortgage industry participants, as well as a Web site,
www.openclose.com, which is designed to permit mortgage bankers, mortgage
brokers, mortgage insurance companies and loan correspondents to communicate and
exchange information more effectively. We also provide our CLOser software
system to clients who become network members. We automate the origination
process and provide support services to network members whose own processing and
underwriting systems are not as efficient as our systems. We also enable certain
network members to provide automated origination services at the point-of-sale
of homes. These products and services enable our clients to provide more
efficient mortgage services to borrowers.
The same call centers that we use to support our direct-to-consumer
channels are used to support our online business-to-business channels, including
clients for whom we have created private label Web sites, those with whom we
have co-branding relationships and Intuit Lender Services. This allows our
clients to provide their borrowers with remote counseling through e-mail and the
telephone and the ability to apply for a mortgage loan at a convenient time and
place. Accordingly, our services are often used in support of, or as a
replacement for, a traditional retail loan officer staff. When clients hire us,
they no longer need to manage data centers, maintain technology help desks,
purchase, install or develop software or hire and manage technical personnel. We
have an e-mail address and a toll-free number assigned to each client, so that
inquiries are answered in the name of the client by a group of customer service
representatives dedicated to that client's potential borrowers.
During 1998, our business-to-business channel originated and closed $1.2
billion of mortgage loans, 14% of which were originated through the Internet. We
funded $934.7 million of those loans. For the three months ended March 31, 1999,
our business-to-business channel originated and closed $579.5 million, 38% of
which were originated through the Internet. We funded $485.9 million of those
loans.
"Private Label" Web Sites for Mortgage Lenders
We create and maintain private label Web sites for mortgage lenders,
including banks, thrifts and credit unions of any size or sophistication.
These private label Web sites are operated in the name of the client, while
we provide the technology and management support in the background through
CLOser. We create and maintain prime and sub-prime private label Web sites
for such clients as SouthTrust
37
<PAGE>
Mortgage and NetB@nk, and the mortgage companies owned by CPS Realty,
Arvida Homebuilders and Keyes Realty.
The Web sites we create are custom-tailored to our clients and offer
online applications, full integration with processing and underwriting
systems and call center support. Just as with our own www.mortgage.com Web
site, the private label Web sites we create for clients allow borrowers the
opportunity to shop and apply for mortgage loans at their convenience. They
also allow borrowers constant access to the status of their loans.
"Co-Branded" Web Sites
We have entered into marketing agreements that provide for advertising
and promotion of our mortgage.com brand and Internet links to
www.mortgage.com, through established home and financial information Web
sites such as www.homefair.com, www.financenter.com and
www.homepricecheck.com. When a potential borrower is browsing one of these
sites for home buying or financial information, he is presented with an
opportunity to apply for a mortgage online, without having to search for a
separate Web site. The borrower can click on a link that takes him to a
version of our Web site that displays both our mortgage.com brand and the
brand of the information site that provided the link. We refer to these Web
sites as "co-branded."
Through these relationships, our co-branding partners can provide
their customers with more than mere home buying and financial information.
Those customers will gain access to convenient online mortgage financing
through www.mortgage.com, including our call center support and the ability
to monitor the status of their loans through closing. We process,
underwrite and fund the mortgage loans and then sell them in the secondary
market.
Relationship with Intuit Lender Services and Participating Lenders on
www.quickenmortgage.com
Some of our clients, such as First Union Capital Markets Group, Fleet
Mortgage and GE Capital Mortgage Services, are provided online marketing
and application capabilities through www.quickenmortgage.com, which is a
multi-lender Web site operated by Intuit Lender Services. These clients
recognize that we have the expertise to fully integrate the information
they receive online with their own call centers and internal processing and
underwriting systems. We provide them with call center support, as well as
processing, underwriting, funding and secondary marketing services as their
back office solution.
The processing, underwriting and funding services we provide to
participating lenders on www.quickenmortgage.com are subject to performance
standards relating to the number of applications and inquiries we convert
to funded loans and the level of customer service we provide. We currently
are not meeting the performance standards which relate to converting
applications and inquiries to closed loans. If we continue to fail to meet
these performance standards, Intuit Lender Services may cancel the
agreement. A cancellation of the agreement would have a negative effect on
our online loan originations and our business as a whole. We believe we
will either be able to meet the conversion ratios in the future or reach an
appropriate accommodation with Intuit Lender Services so that we may
continue providing services on www.quickenmortgage.com.
We are also a participating lender on www.quickenmortgage.com. After a
potential borrower on the www.quickenmortgage.com Web site chooses one of
our or our clients' loan products, the information collected about the
borrower is transferred to us through an electronic link to the CLOser
software system. Information about a potential borrower may come to us at
any stage of the process, from a mere inquiry initiated through
www.quickenmortgage.com, to a potential borrower that has pre-qualified on
the site, to a potential borrower that has filled out an application on the
site. Regardless of the stage at which borrower information is transferred
to us, our call center personnel complete the origination process. If the
borrower chooses one of our loan products, we process, underwrite, fund
with our own warehouse lending arrangements and close the loan in our name.
We then sell the loan in the secondary market. If the borrower chooses one
of our clients' loan products, we also fund the loan with our own warehouse
lending arrangements and close the loan in our name. Then, we immediately
sell the mortgage loan to our client along with the servicing rights.
38
<PAGE>
Point-of-Sale Access to Borrowers
We have developed strategic alliances with Realtors and homebuilders
so that borrowers have access to efficient mortgage services at the
point-of-sale of homes, much like a car buyer can get financial services in
the showroom of an auto dealer. This saves borrowers the extra visits and
phone calls to lenders that are necessary in traditional mortgage lending.
It also allows us to increase our share of the more stable purchase
mortgage business and gives our clients the ability to offer home buyers
point-of-sale mortgage financing. We provide these services through a
membership structure.
Princeton Capital, Advantage Financial and Western America
Mortgage. A significant portion of our point-of-sale business operates
under the trade names Princeton Capital, Advantage Financial and Western
America Mortgage. In each case, our loan counselors are located in the
office of a network member. These loan counselors use CLOser to improve the
application and pre-qualification process. CLOser electronically handles
credit reports and other third party approvals and electronically transmits
the resulting information to our processing and underwriting departments,
saving time and reducing paperwork and errors. Because CLOser is integrated
with our Web site, point-of-sale borrowers have access to our Web site 24
hours a day, 7 days a week to monitor the status of their loans.
The network member for whom we employ our Western America Mortgage
loan counselors is Mason-McDuffie Real Estate, which does business in
northern California as Prudential California Realty. Our Western America
Mortgage loan counselors service 20 Prudential California Realty offices in
northern California. Through our Princeton Capital operations, we have loan
counselors stationed in 14 Century 21 real estate offices in the San
Francisco Bay area. Through our Advantage Financial operations, we have
loan counselors positioned in 23 Coldwell Banker real estate offices. We
also have a relationship with Cendant Mortgage by which Cendant has waived
its exclusive rights to market in certain real estate offices so that our
Princeton Capital and Advantage Financial loan counselors can originate
mortgage loans through those offices. We pay Cendant a monthly fee and have
agreed to sell a certain number of loans to them.
Establishing Separate Mortgage Brokerage Entities for Clients. In
some cases, we assist Realtors and homebuilders in establishing separate
mortgage brokerage entities by providing them with licensing, recruiting,
formation and management services. These entities become network members
and use CLOser over a secure wide area network because they generally do
not have the expertise and financial resources to keep up with complex
mortgage lending regulations, to develop automated origination, processing
and underwriting systems or to handle all of the administrative and
managerial aspects of the mortgage business. We provide the expertise and
resources without requiring network members to disclose that we are the
provider for their mortgage services.
Major homebuilders and real estate companies that have formed mortgage
brokerage affiliates and have become network members include Arvida, one of
Florida's largest homebuilders, Keyes Realty, one of Florida's largest
realty firms, and CPS Realty, a California realty firm.
Technology Correspondent Member Relationships. We have additional
strategic alliances with one of 1998's top Prudential Real Estate
franchises in the nation, based on home sales, and a large mortgage broker
in San Diego. Under our agreements with these mortgage lenders, they will
process mortgage loans using CLOser, fund the loans in their own names and
then sell the loans to us, so that we can then resell them in the secondary
market. Technology correspondent member arrangements allow us to provide
mortgage companies fully automated point-of-sale services and support while
we incur very little overhead.
Openclose.com
We are developing, in cooperation with Fannie Mae, a new Web site where
participating mortgage lenders, brokers and loan correspondents can exchange
lender product and pricing information, automated underwriting data, mortgage
insurance certificates and borrower application information in a neutral
environment. This Web site, www.openclose.com, is designed to expand the
availability of important underwriting information, which results in faster
transactions, cost savings for borrowers, brokers and lenders by eliminating
unnecessary paperwork, and improved communications between lenders and their
customers.
39
<PAGE>
The site also offers lenders access to a greater number of brokers and
correspondents. The Web site is currently being tested and we expect to expand
its availability beginning in August 1999.
As of April 30, 1999, eight mortgage bankers have agreed to participate in
the www.openclose.com pilot program. We expect more will participate when we
expand www.openclose.com to a nationwide operation. Participating mortgage
bankers will pay us a fee for each mortgage loan sent to them through
openclose.com for their review, a loan transfer fee and an access fee for each
of the mortgage brokerage offices that access participating mortgage banker
sections of the Web site. In addition, participating mortgage bankers will pay
us a fee for each sub-prime mortgage loan transmitted through www.openclose.com
for review. The fees we charge participating mortgage bankers for each viewing
of the mortgage banker's page on the Web site by brokers are split equally
between us and GHR Information Systems, from whom we license some of the tools
available on www.openclose.com.
We expect to begin marketing to brokers on a wide scale basis in June.
Mortgage brokers will pay us a fee for each loan submitted to www.openclose.com
for review by lenders. There are no monthly participation fees charged to
mortgage brokers.
We pay Fannie Mae a licensing fee for Desktop Underwriter based on the
volume of mortgage loans submitted for automated underwriting.
CUSTOMERS
Our direct-to-consumer customers consist of borrowers who contact us
through www.mortgage.com and our OnLine Capital loan counselors. We provided
4,317 home buyers and home owners with mortgage financing totaling more than
$798 million in 1998 through these channels.
Our business-to-business client base consists of mortgage banks, mortgage
brokers, banks, thrifts, credit unions, Realtors and homebuilders throughout the
United States. Mortgage banks, mortgage brokers, banks, thrifts and credit
unions look to us primarily to establish an online presence or to provide
integrated call centers and back office support for their current online
systems. Realtors and homebuilders look to us primarily for turnkey solutions
that allow them to make mortgage services available to their customers with very
little cost. Through us our clients can get increased access to borrowers, call
center support and efficient processing, underwriting, funding, closing and
secondary marketing services. Among our representative clients and key
relationships are:
Arvida Home Builders
Cendant Mortgage
Century 21 Filer Realty
Consumer Finance Network
CPS Real Estate
First Union Capital Markets
Fleet Mortgage
GE Capital Mortgage Services
Intuit Lender Services
Mason-McDuffie Real Estate (doing business as Prudential California Realty in
northern California)
NetB@nk
Pickford Realty (doing business as Prudential California Realty in southern
California)
Southtrust Bank
Superior Bank FSB
Our relationship with Mason-McDuffie Real Estate accounted for 10% or more
of our total revenues in 1998.
The chart on the following page demonstrates a few of the ways that we can
solve the mortgage lending problems faced by our clients:
40
<PAGE>
SELECTED CLIENT APPLICATIONS
<TABLE>
<CAPTION>
CLIENTS PROBLEM SOLUTION
- ---------------------- -------------------------------------------- --------------------------------------------
<S> <C> <C>
Arvida Home Builders Arvida is one of Florida's largest We assisted Arvida in forming a mortgage
homebuilders. It wanted to offer its brokerage subsidiary which became a member
customers the opportunity to obtain mortgage of our network using CLOser at the
financing on-site. However, as a point-of-sale of Arvida homes in conjunction
homebuilder, Arvida had limited experience with loan counselor's personal Web sites. We
in the mortgage business and did not have perform all of the origination, processing,
the technical expertise to automate the underwriting, funding and secondary
mortgage process. marketing services they need to provide
Arvida home buyers with home financing.
Valley National Bank Valley National Bank is a Super Regional Valley National Bank engaged us to provide a
Community Bank with 105 branches private label prime loan Web site and the
concentrated in Northern New Jersey. Valley complete CLOser system package to support
National Bank supports multi-state mortgage its own call center and mortgage lending
origination through a marketing agreement systems.
with a national insurance company's
independent insurance agents. It is large
enough to attract a significant number of
potential mortgage loan borrowers, but too
small to carry out its own technical
development of mortgage banking systems.
</TABLE>
SALES AND MARKETING
We market our products and services to consumers through targeted online
advertising, such as mortgage and real estate banners on Internet portals and
Web site sponsorship opportunities, as well as through more traditional means,
such as direct mail. Our marketing efforts focus on what we believe customers
want most, namely:
o secure online transactions;
o the ability to compare rates and get current information;
o availability of human assistance through a toll-free number; and
o a trusted brand.
Our marketing campaigns have an overall goal of increasing the general awareness
of the Mortgage.com brand and the products and services we provide.
We have a sales team dedicated to marketing our online and call center
business-to-business services, including our private label Web sites. We have
licensed to GHR Information Systems the computer
41
<PAGE>
programming code that underlies our prime mortgage loan Web site platform so
that it can create private label Web sites for lenders. We receive a portion of
the installation, transaction, software maintenance and other fees GHR receives
from the creation of private label Web sites based on our "prime" Web site
product. GHR also markets our other mortgage banking services.
We have a separate sales team dedicated solely to www.openclose.com. We are
developing a national marketing plan to build awareness among mortgage brokers,
mortgage lenders and mortgage insurance companies. The plan includes direct mail
advertising with promotional CD-Roms included, direct sales, lender
sponsorships, online advertising and free trial offers. We also intend to
participate in numerous industry trade shows, including regional trade shows in
Florida and California, and the trade shows held for the National Association of
Mortgage Brokers and the Mortgage Bankers Association.
We currently rely primarily on management to market our services to
Realtors, homebuilders and other potential network members, such as financial
planners. We intend to hire an internal sales force so that our network and
technology correspondent memberships can expand geographically.
OPERATIONS
PRODUCTION OF MORTGAGE LOANS
At the initiation of the mortgage banking process is the generation of
leads and the completion of loan applications. We perform this function
(1) online, (2) through loan counselors that we employ, (3) through network
members and (4) through mortgage lenders acting as loan correspondents. In the
case of the first three, we evaluate the loan applications and fund those loans
that meet our underwriting criteria. We then sell the mortgage loans in the
secondary market. In the fourth case, we will underwrite and purchase mortgage
loans from loan correspondents and sell the mortgage loans in the secondary
market.
As a step to evaluating mortgage loan applications, our processing
department evaluates credit reports and property appraisals when required,
verifies borrowers' income and assets and obtains any additional third party
verifications relating to the borrowers and the mortgaged properties. We
maintain processing centers in Walnut Creek, California, Los Gatos, California
and Plantation, Florida, where as of March 31, 1999, 162 employees execute the
processing functions. Our operations managers approve and monitor third party
sources who have originated the loans, and third parties from whom we receive
credit reports, appraisals and similar verifications, based on criteria
established by our chief underwriter.
We underwrite mortgage loans based on criteria established by secondary
market investors. Underwriting criteria may include the borrower's credit
standing and repayment ability and the value and adequacy of the mortgaged
property as collateral. Our underwriting department consists of a team of
17 underwriters in Plantation, Florida, Walnut Creek, California and Los Gatos,
California. The underwriting evaluation is done primarily through our CLOser
software system and through links to the automated underwriting systems of
Fannie Mae and Freddie Mac.
CLOser acts as a pre-funding quality control department because it will not
generate closing documents for a mortgage loan that does not meet the
underwriting criteria. If a mortgage loan meets the underwriting criteria,
CLOser automatically generates closing documents tailored to the loan product,
the borrower, secondary marketing requirements and state laws and regulations.
SECONDARY MARKETING OF MORTGAGE LOANS
We originate all of our mortgage loans with the intent of selling those
loans in the secondary market. Our secondary marketing department monitors the
prices secondary market investors are willing to pay for various loan products.
We then add an appropriate profit margin to the interest rate for the loan and
publish our price for that loan on our Web site, in CLOser and on various
industry databases and price sheets. Our price includes a premium that we charge
investors for the value of the servicing rights associated with the mortgage
loans we sell in the secondary market. When we sell a loan in the secondary
market, we achieve a net gain, or suffer a net loss, equal to the difference
between the amount we paid for the loans and the price at which the loans are
sold to secondary market investors.
42
<PAGE>
We obtain commitments from secondary market investors for the purchase of
substantially all the prime mortgage loans we fund on the same day that we lock
in a rate for a borrower. This protects us against changes in interest rates
between the date we issue a loan commitment at a locked-in interest rate to the
borrower and the date we sell the loan in the secondary market. Our obligations
to sell to secondary market investors are generally on a "best efforts" basis,
which means we are required to sell the loan to a committed secondary market
investor only if the loan closes within an agreed upon time period. However,
occasionally a borrower will elect to not lock an interest rate until the
closing. In those cases, we may choose to sell the loan on a short-term
"mandatory" basis, which means we are required to sell the loan to a secondary
market investor within a specified number of days after the closing. We sell
loans on a mandatory basis only when we are confident that the loan will close.
We also accumulate sub-prime mortgage loans for sale in pools of between
$1 million and $3 million. While this entails additional credit risk because we
hold the mortgage loan for a longer period of time, sales of these pooled
sub-prime loans typically bring higher net gains than the net gains earned on
the sale of prime loans. If we are particularly concerned about the credit risk
on a sub-prime mortgage loan, we will obtain an investor commitment in advance,
which reduces our credit risk but decreases the amount we receive on the sale of
the mortgage loan to secondary market investors.
The following list shows some of the secondary market investors who
commonly purchase mortgage loans from us:
<TABLE>
<S> <C>
Norwest Funding Fleet Mortgage
Cendant Mortgage GE Capital Mortgage Services
Residential Funding Corporation Interfirst Mortgage
Citicorp Mortgage
</TABLE>
In most cases when we sell a mortgage loan in the secondary market, there
is no recourse to us. However, inaccuracies in loan documents, information about
the borrower or information about the mortgaged property may require us to
repurchase the mortgage loans from the investors and indemnify them for any
damages caused by the inaccuracies. Since our inception, mortgage loans that we
have repurchased from investors have represented an insignificant percentage of
our total mortgage loan originations.
FUNDING MORTGAGE LOANS
After a mortgage loan has been approved for funding, we generally borrow
from one of our warehouse lines of credit or other financing vehicles to fund
and close the mortgage loan. We currently have warehouse lending or loan
repurchase arrangements with five large financial entities. Our aggregate
borrowing limits are currently set at approximately $220 million.
After we borrow funds to fund a mortgage loan, we must pledge the mortgage
loan to the lender as security for our repayment of the borrowed money. During
the time a mortgage loan is pledged to the lender, it is considered
"warehoused." A mortgage loan is warehoused until we sell it in the secondary
market, at which time we repay the lender and the pledge is released. Prime
mortgage loans are warehoused for an average of approximately 25 days. Sub-prime
mortgage loans are warehoused for an average of approximately 40 days. In cases
where we hold loans for more than 30 days, we perform some interim servicing on
those loans using computer software licensed from a third party.
We have entered into a letter of intent with Telebanc Financial Corp. to
provide a committed $200.0 million repurchase agreement which will allow us to
sell our closed mortgage loans to Telebanc instead of holding them in our
warehouse lines of credit. The net effect of this arrangement should be to
provide us with lower financing costs between closing and ultimate delivery to
investors. In addition, the letter of intent outlines the parameters for the
development of an electronic mortgage conduit with the intent of streamlining
the financing process. Telebanc would work with us to create a dedicated
e-commerce platform that will enable the efficient transmission of loan
information from originators to the secondary market. Although we expect this
financing arrangement to become available by the end of July 1999, we cannot
assure you that it will be available at that time, if at all.
43
<PAGE>
POST-CLOSING QUALITY CONTROL
After we have funded and closed a mortgage loan, we submit 10% of funded
loans for a post-funding review. A post-funding review includes a
re-verification of credit, employment income and source of funds, as well as a
review of closing documentation. These reviews also include procedures designed
to detect evidence of fraudulent documentation or unacceptable activities during
the processing, funding or selling of the mortgage loan. We have hired an
independent third party to handle post-funding reviews and to recommend internal
corrective actions.
TECHNOLOGY
The CLOser software system encompasses an Internet platform, local and wide
area networks, back office modules for processing, underwriting, closing and
secondary marketing, automated call and e-mail distribution links and
computer-based training. As of March 31, 1999, we employed 35 software
developers who are continually working towards developing new technological
solutions for the mortgage industry. As of that date, we employed 31 systems
support and operations personnel who provide communications and infrastructure
support for our direct-to-consumer and business-to-business channels and
training services for clients who use our technology. We also employed 15
customer service employees who provide technical help desk services. Last year
we spent approximately $2.9 million on research and development and we intend to
continue devoting substantial resources toward that end.
TECHNOLOGY INFRASTRUCTURE AND SECURITY
We have 80 computer servers which house all of our computer-based
technology, from our Internet Web sites to our e-mail capabilities. All of our
server hardware is provided by Dell Computer Corp. and our routers and switches
are provided by Cisco Systems. Our servers run on the Microsoft Windows NT
operating system software. We have redundant high-speed data lines from multiple
vendors for Internet access. We stock additional hardware parts and have
designed system and power supply redundancies to ensure that there are no
interruptions in service based on hardware failures. In addition, we monitor our
servers to ensure that we have sufficient space to handle software upgrades and
that at least 35% of our disk drive space is free for performance
considerations. All software and data in the system is backed up to magnetic
tape each night, which is stored off-site.
Our technology security systems are designed to prevent unauthorized access
to internal systems and illegal third-party access to our data. Internally, log
in identifications and passwords are maintained for all systems, and personnel
have access only to those areas they are responsible for. We rely on encryption
and authentication technology licensed from third parties to provide secure
transmission of confidential information, such as employment and income items
submitted with online applications. Our servers are protected by firewalls and
no outside access is permitted.
Our technology must accommodate a large number of users and must deliver
frequently updated information. Some components of our technology have
experienced outages or slower response times in the past, but none have had a
material effect on our business.
OTHER LICENSED TECHNOLOGY
Our www.openclose.com Web site will use a wide range of internally
developed software, as well as the Desktop Underwriter(Registered) software,
which we license from Fannie Mae. Our Desktop Underwriter(Registered) license
expires October 15, 2003, with provision for automatic year to year renewals.
Fannie Mae can amend our license by issuing a bulletin. If we object to the
amendment, Fannie Mae can terminate our license.
We license from GHR Information Systems, Inc. portions of their
PremierSuite software, which we use to publish our prices on quickenmortgage.com
and which we use to access pricing information for participating lenders on
quickenmortgage.com who are our clients. Our license for this software expires
February 29, 2000, with successive one year automatic renewals unless one party
decides not to renew.
44
<PAGE>
[The chart appearing here represents the types of customers in each of the
two segments of Mortgage.com's business across the top of the page. Down the
side of the page are the Mortgage and technology services Mortgage.com offers.
Dots in the table represent the specific services utilized the corresponding
customer.]
COMPETITION
Many of our business-to-business clients also compete with us for mortgage
loan originations. We compete with other mortgage bankers, mortgage brokers and
financial institutions such as Norwest Bank, Countrywide Mortgage, Chase
Mortgage, Headlands Mortgage, Cendant Mortgage, Citibank and Fleet Mortgage for
the origination and funding of mortgage loans directly with borrowers. Many of
our competitors have branch offices in the same areas where our loan counselors
and network members operate. We also compete with mortgage companies whose focus
is on telemarketing, such as The Money Store.
Our online competition also is substantial. In addition to the traditional
mortgage companies and financial institutions who have or are developing an
online presence, we compete with other online financial service providers, such
as Intuit's Quickenmortgage, iOwn, E-LOAN and Finet. Our primary competitors for
business-to-business mortgage banking technology solutions are FiServ, Inc. and
Alltel Corporation.
We believe that the principal competitive factors in our markets are:
o brand recognition;
o ability to attract borrowers;
o a broad selection of mortgage loan products;
o access to low cost financing arrangements;
o comprehensiveness of information services;
o quality and responsiveness of customer service; and
o ease of use of computer technology.
We must continue to enhance our mortgage.com brand and enhance our
technology to effectively compete. Many of our current and potential competitors
are profitable, have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial resources than we do. In
addition, other financial-related businesses with these characteristics are
likely to enter into the online mortgage origination business. We cannot be sure
that we will be able to compete successfully against current and future
competitors.
INTELLECTUAL PROPERTY
We regard substantial elements of our Web sites and underlying technology
as proprietary and attempt to protect them by relying on trademark, service
mark, copyright and trade secret laws and restrictions on disclosure. We also
generally enter into confidentiality agreements with all technical employees and
consultants, and with third parties in connection with our license agreements.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our proprietary information without our authorization.
Third parties may also develop similar technology independently from us.
We have registered CLOser as a federal trademark. We also have registered
the Internet domain names "mortgage.com," "openclose.com" and other domain names
we use. This gives us the exclusive rights to use these names as the addresses
for our Web sites. We have pledged the domain name "mortgage.com" to Credit.com
to secure our obligations to Credit.com resulting from our purchase of the
domain name "mortgage.com."
We may not be able to register "mortgage.com" and certain other of our
trade names as federal trademarks because those names may be too generic to
qualify for federal trademark protection. Accordingly, we may not be able to
prevent other people from using those names in their businesses. It is possible
that others could use "mortgage.com" and our other trade names in such a way as
to damage our reputation, which could ultimately affect our revenues.
45
<PAGE>
Legal standards relating to the validity, enforceability and scope of
protection of our proprietary rights are uncertain and are still evolving,
especially as they relate to Internet-related rights. In addition, the laws of
some foreign countries may not protect our rights to the same degree as the
United States. For these reasons, we cannot be sure that the steps we take will
adequately protect our proprietary rights. We also may be required to litigate
to enforce our intellectual property rights or to determine the validity and
scope of the proprietary rights of others. This could create substantial costs
and a diversion of management's attention.
REGULATION
Our mortgage banking business is subject to the rules and regulations of
the Department of Housing and Urban Development, Federal Housing Administration,
Veteran's Administration, Federal National Mortgage Association, Federal Home
Loan Mortgage Corporation, Government National Mortgage Association and other
regulatory agencies in connection with originating, processing, underwriting and
selling mortgage loans. These rules and regulations, among other things, impose
licensing obligations on us, prohibit discrimination and establish underwriting
guidelines. We also are required to comply with each regulatory entity's
financial requirements.
Mortgage origination activities are further subject to the provisions of
various federal and state statutes including the Equal Credit Opportunity Act,
the Fair Housing Act, the Federal Truth-in-Lending Act, the Fair Credit
Reporting Act and the Real Estate Settlement Procedures Act. The Equal Credit
Opportunity Act and the Fair Housing Act prohibit us from discriminating against
applicants on the basis of race, color, religion, national origin, familial
status, sex, age, marital status or other prohibited characteristics. It also
requires us to disclose certain matters to applicants, such as the reason for
any credit denial. The Truth-in-Lending Act requires us to provide borrowers
with uniform, understandable information about the terms and conditions of
mortgage loans so that they can compare credit terms. It also guarantees
borrowers a three-day right to cancel certain credit transactions. If we fail to
comply with Truth-in-Lending, aggrieved customers could have the right to
rescind their loan transaction with us and to demand the return of finance
charges paid to us. The Fair Credit Reporting Act requires us to supply loan
applicants with a name and address of the credit reporting agency we use when
the applicant is denied credit or when the rate or charge for a loan increases
as a result of information we obtained from a credit reporting agency.
Some of our client relationships are "affiliated business arrangements"
that must comply with complex limitations under the Real Estate Settlement
Procedures Act and to regulation by the Department of Housing and Urban
Development. Affiliated business arrangements permit companies to refer real
estate settlement business to us without violating the Real Estate Settlement
Procedures Act's prohibition on "kickbacks" to the referring company. There are
limitations on the types of payments that can be made to the referring company
and disclosures that are required to be made to borrowers. The Real Estate
Settlement Procedures Act also requires us to collect certain applicant
information and file an annual report with the Department of Housing and Urban
Development. Failure to comply with the Real Estate Settlement Procedures Act
could result in administrative enforcement actions which could eliminate
important revenue sources for us and could lead to demands for indemnification
or loan repurchases.
Industry participants are frequently named as defendants in class-action
and other litigation involving alleged violations of federal and state consumer
lending laws and regulations. Some of the practices which have been the subject
of lawsuits against other companies include:
o "add on" fees;
o truth in lending calculations and disclosures;
o escrow and adjustable rate mortgage calculations;
o private mortgage insurance calculations and disclosures;
o forced-placed hazard, flood and optional insurance; and
o unfair lending practices.
46
<PAGE>
If a significant judgment were rendered against us in connection with any
litigation, it could have a material adverse effect on our business and results
of operations.
Although our operations on the Internet are not currently regulated by any
government agency in the United States beyond the mortgage-related regulations
described above and regulations applicable to businesses generally, it is likely
that a number of laws and regulations may be adopted governing the Internet. In
addition, existing laws may be interpreted to apply to the Internet. There may
be claims that our services violate those laws.
Regulatory and legal requirements are subject to change and may become more
restrictive, making our compliance more difficult or expensive or otherwise
restricting our ability to conduct our business as it is now conducted. Such
changes could hurt our business.
EMPLOYEES
At March 31, 1999, we had 594 full-time employees. Management expects to
hire an additional 150 employees in 1999, primarily to support our online
direct-to-consumer channels. Our success depends upon our ability to attract,
train and retain qualified personnel. We have a comprehensive training program
which explains our customer service philosophies and techniques, and we have
developed a sophisticated computer-based training program for CLOser and its
Internet component. To date, our attrition rate has been low. However, as we
develop new business alliances that increase the mortgage loan volumes we handle
through our call centers and processing centers, finding personnel to
participate in these training programs may become more difficult. We cannot be
sure that we will be able to find qualified personnel who can be trained in
sufficient time to handle increased mortgage loan volumes.
None of our employees are represented by a union. We believe we have a good
relationship with our employees.
FACILITIES
We are headquartered in Plantation, Florida, where we currently lease
approximately 53,300 square feet of space. Our lease for the building which
houses our executive offices and a portion of our call centers expires in 2007.
A second building houses the remainder of our call centers under a lease that
expires in 2002. Our California operations are contained in several locations in
the San Jose/San Francisco metropolitan area, totaling approximately 29,200
square feet. A majority of our technology personnel reside primarily in
approximately 15,000 square feet of space in Montvale, New Jersey. Our Montvale
office sub-lease expires in 2002 and without provision for extension and
renewal. We also have a 2,500 square foot office in Santa Rosa, California and a
1,000 square foot office in Reno, Nevada.
We are currently negotiating to obtain approximately 100,000 square feet of
additional office space in Sunrise, Florida, with an option for 50,000 square
feet of expansion. If obtained, our executive offices and call centers would be
relocated to this building in September 1999 at a cost of approximately
$1 million. We then would sublease our current executive offices. If we are able
to obtain this new space for our executive offices and call centers, we believe
our facilities will be satisfactory for our current needs. If we are unable to
obtain that space upon favorable terms, we will actively seek alternative
arrangements to accommodate the growth in our direct-to-consumer business and
personnel. However, as our business grows, we anticipate needing additional
space for our direct-to-consumer business. We believe we will be able to secure
additional space on commercially reasonable terms.
LEGAL PROCEEDINGS
We are not a party to any material litigation.
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Each member of our board of directors serves for a one-year term and until
their successors are elected and qualified. Our executive officers and directors
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Seth S. Werner(1)(2)............................ 53 Chairman of the Board; President; and Chief
Executive Officer
John J. Hogan(1)................................ 37 Executive Vice President and Director
David W. Larson(1).............................. 48 Executive Vice President and Director
John Buscema.................................... 42 Executive Vice President
Stephen L. Green(2)(3).......................... 48 Director
Edwin Johnson................................... 42 Chief Financial Officer and Senior Vice
President
Michael K. Lee(2)(3)............................ 42 Director
George A. Naddaff............................... 69 Vice Chairman of the Board
John T. Rodgers................................. 37 Executive Vice President
</TABLE>
- ------------------
(1) The employment agreement for this officer requires us to nominate him for
election to the board of directors at each annual meeting.
(2) Member of the Compensation Committee.
(3) Mr. Green and Mr. Lee have been elected to the board of directors under the
terms of the Series B Preferred Stock. Those terms provide that each holder
or affiliated group of holders of 363,000 or more shares of Series B
Preferred Stock have the right to elect one director to our board of
directors. All of the outstanding shares of Series B Preferred Stock will
automatically convert to common stock upon completion of this offering, at
which time the rights to elect one director cease.
Seth S. Werner founded our company in September 1993, has served as
Chairman of the Board and Chief Executive Officer since the company's inception,
and as President from 1993 to 1997 and again in 1999. From 1973 to 1995,
Mr. Werner was the President and Chief Executive Officer of Werner Capital
Corporation, a Miami-based real estate investment banking firm which served as a
consultant to some of the largest financial institutions in the United States
and to the United States government on matters concerning its real estate
portfolios. He also was founder, Chairman and Chief Executive Officer of First
Capital Financial Corporation, a national real estate investment banking firm,
from 1974 through 1984. He is a director and President of SSW, Inc., general
partner of Kendall Racquetball Investments, Ltd., and a director, President,
Secretary and Treasurer of Harbour Real Estate Corporation.
John J. Hogan has been an Executive Vice President and a member of our
board of directors since July 1997. Mr. Hogan heads our mortgage banking group.
From February 1995 to June 1997, he served as the President of OnLine Capital,
which merged into our company in June 1997. From March 1986 to February 1995,
Mr. Hogan served in several capacities, including Vice President of Loan
Administration, Senior Vice President of Mortgage Operations and Senior Vice
President and Chief Financial Officer of First Franklin Financial Corporation in
San Jose, California.
David W. Larson has been a member of our board of directors since 1997 and
served as President from June 1997 through December 1998. Mr. Larson now is an
Executive Vice President who heads our broker services group. From January 1989
to October 1996, Mr. Larson served as the President and Chief Executive Officer
of B.F. Saul Mortgage Company, a $10 billion mortgage bank in Chevy Chase,
Maryland. Prior to that, Mr. Larson was the President of San Jacinto Savings and
Loan in Houston, Texas.
John Buscema has been an Executive Vice President since April 1995, and
heads our advanced technology group. Mr. Buscema was responsible for developing
the ParEx software module, an integral part of our CLOser
48
<PAGE>
software system. From 1990 to April 1995, he served as President of Morbank
Financial Systems, Inc., the company which developed the ParEx module, and also
oversaw all MIS-related issues for Globe Mortgage Company.
Stephen L. Green has been a director since March 1996. Since 1991,
Mr. Green has served as a general partner of Canaan Partners, a principal
shareholder in our company. He serves on the boards of directors of Advance
Paradigm, Inc., a provider of pharmacy benefit management services, Chartwell Re
Corporation, an insurance holding company, and Suiza Foods Corporation, a
manufacturer and distributor of dairy products and plastic packaging, as well as
a number of private companies.
Edwin D. Johnson has been Senior Vice President and Chief Financial Officer
since November 1998. From June 1998 through October 1998, Mr. Johnson was a
principal in JR Capital, Inc., an acquisition firm. From March 1996 to June
1998, Mr. Johnson was Chief Financial Officer of MasTec, Inc., a
telecommunications infrastructure company. From January 1995 to March 1996, he
was a private real estate consultant and from October 1984 to January 1995
Mr. Johnson was worldwide Chief Financial Officer for Attwoods, plc, an
international services company.
Michael K. Lee has been a director since March 1996. In 1985 Mr. Lee
founded Dominion Ventures, Inc., a venture capital firm specializing in emerging
growth companies, and has served as its President and Chief Executive Officer
since its founding. Affiliates of Dominion Ventures, Inc. are principal
stockholders in our company, and Mr. Lee is the managing general partner of
those affiliates. He serves on the boards of directors of Advanced Access,
Gateway Insurance Co., Online Resources & Communications Corp., a provider of
financial e-commerce hubs, Paragon Acceptance Corp. and Relax the Back Corp.
George A. Naddaff is Vice Chairman of our board of directors and has been a
director since September 1995. Mr. Naddaff is the controlling shareholder and a
director of Business Expansion Capital Corporation, a venture capital firm he
founded in 1987. From 1994 to 1996, he served as a director and Chairman of Food
Trends Acquisition Corporation, a publicly-traded corporation. Mr. Naddaff also
is the Chairman and Chief Executive Officer of Ranch 1, Inc. which has operated
a chain of sandwich shops since November 1997, and since June 1997, Mr. Naddaff
has been Chairman of Frame King Express, Inc. which sells framed art. He
currently is a consultant to Jreck Subs Group, Inc. Mr. Naddaff also is a
consultant to, and a director of, numerous private companies.
John T. Rodgers has been an Executive Vice President since April 1998 and
heads our consumer services group. In 1993 Mr. Rodgers co-founded American
Finance and Investment and served as its President until April 1998 when it was
merged into our company. He also serves as a member of Microsoft's Real Estate
Advisory Board.
COMMITTEES OF THE BOARD OF DIRECTORS
The audit committee of the board of directors will be established
immediately following the completion of this offering and will consist of three
directors, Michael Lee, Stephen Green and George Naddaff, two of whom are
independent directors. The audit committee will review and recommend outside
auditors and compensation paid to outside auditors, review results and
recommendations in each external audit, assist external auditors in connection
with the preparation of financial statements, review the procedures we use to
prepare financial statements and related management commentary and meet
periodically with management to review our major financial risk exposures.
The compensation committee of the board of directors will be re-constituted
immediately following the completion of this offering and will consist of two
non-employee directors, Stephen Green and George Naddaff. The compensation
committee will oversee and review all decisions regarding the compensation of
executive officers and directors and the granting of stock options under our
stock option plan.
DIRECTORS' COMPENSATION
After this offering, each non-employee director will be reimbursed for
expenses incurred in attending the meetings. No director who is an employee will
receive separate compensation for services rendered as a director. Non-employee
directors are eligible to participate in our stock option plan.
49
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation we paid or accrued for
services rendered for the year ended December 31, 1998, to our Chief Executive
Officer and each of the four other most highly compensated executive officers
who earned more than $100,000 in salary and bonus for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION NUMBER OF
------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- ---------------------------------------------------------- -------- -------- ------------------- ------------
<S> <C> <C> <C> <C>
Seth S. Werner, Chief Executive Officer................... $190,000 $100,000 50,000 $ 26,165(1)
David Larson, Executive Vice President.................... 190,000 100,000 50,000 53,841(2)
John J. Hogan, Executive Vice President................... 161,347 100,000 20,000 22,248(3)
John Buscema, Executive Vice President.................... 161,465 10,000 5,500 3,925(4)
John T. Rodgers, Executive Vice President................. 142,536 -- -- 6,576(5)
</TABLE>
- ------------------
(1) Consists of an $18,000 car allowance, $5,000 in matching company
contributions to the 401(k) plan and $3,165 in life insurance premiums.
(2) Consists of an $18,000 car allowance, $3,633 in matching company
contributions to the 401(k) plan, $1,808 in life insurance premiums and a
$30,400 relocation allowance.
(3) Consists of an $18,000 car allowance and $4,248 in matching company
contributions to the 401(k) plan.
(4) Consists of $3,925 in matching company contributions to the 401(k) plan.
(5) Consists of a $4,500 car allowance and $2,076 in matching company
contributions to the 401(k) plan.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with most of our executive
officers. Each employment agreement entitles the executive officer to
participate in our company's benefits plans, including health insurance plans,
401(k) plan and stock option plan. Each also prohibits the executive officer
from making any unauthorized disclosures of our confidential information.
Mr. Werner's employment agreement requires him to be our President and
Chief Executive Officer and also requires us to nominate him for the board of
directors at each annual meeting. His employment agreement expires December 31,
2003, with provision for annual one year renewals. Effective January 1, 1999,
his base salary is $350,000 per year, subject to annual increases. He is
entitled to bonuses based on merit and on the financial performance of our
company. We also pay premiums on a life insurance policy of which Mr. Werner is
the beneficiary. If Mr. Werner is terminated without cause or if he quits for
good reason, we must pay him a lump sum cash severance amount.
Mr. Werner's employment agreement contains provisions to provide him
economic security after a change of control. Mr. Werner may terminate his
employment for good reason any time within two years after a change of control.
If that happens, or if we terminate him without cause within two years after a
change of control, Mr. Werner is entitled to a lump sum cash payment equal to
three times his base salary and three times his bonuses. Mr. Werner also may
terminate his employment for any reason after 120 days have passed since the
change of control. If that happens, Mr. Werner is entitled to a lump sum cash
payment equal to his base salary and his average bonus over the three prior
years. In either case, he is entitled to immediate vesting of all of his stock
options and the deadline for exercise of those options may be extended. To the
extent Mr. Werner incurs any federal excise taxes on the severance amount or the
value of the accelerated stock options, Mr. Werner is entitled to be reimbursed
by us for those tax consequences.
If we terminate Mr. Werner for cause or if he terminates his employment for
good reason within two years after a change of control, he is prohibited from
competing with the company for three years following the date of his
termination. If we terminate Mr. Werner without cause, or if he terminates his
employment without good reason after 120 days have passed since a change of
control, he is prohibited from competing with the company for one year following
the date of his termination. In addition, if we terminate Mr. Werner for cause
or if he
50
<PAGE>
leaves voluntarily, he is prohibited from soliciting our employees or any of the
businesses with whom we have business relationships for a period of two years
after the date of termination.
Mr. Hogan's employment agreement requires him to be an executive vice
president and to head our mortgage banking group. The agreement also requires us
to nominate him for the board of directors at each annual meeting during the
term of his employment agreement. His employment agreement expires by its terms
on December 31, 2001, with provision for annual one year renewals. Effective
January 1, 1999, Mr. Hogan's base salary is $250,000 per year, subject to annual
increases. Mr. Hogan is entitled to merit bonuses at the discretion of the board
of directors. We also pay premiums on a life insurance policy of which he is the
beneficiary. If Mr. Hogan is terminated without cause or if he quits for good
reason, we must pay him a lump sum cash severance amount.
Mr. Hogan's employment agreement contains change of control provisions
substantially similar to the change of control provisions in Mr. Werner's
employment agreement. In addition, the non-competition and non-solicitation
provisions in Mr. Hogan's agreement are substantially similar to Mr. Werner's
agreement.
Mr. Larson's employment agreement requires him to head our broker services
group, which administers openclose.com. The agreement also requires us to
nominate him for the board of directors at each annual meeting. His employment
agreement expires February 28, 2002, with provision for annual one year
renewals. Mr. Larson is entitled to merit bonuses based on the number of lenders
and brokers who have committed to openclose.com. We also pay premiums on a life
insurance policy of which he is the beneficiary. If Mr. Larson is terminated
without cause, we must pay him a lump sum cash severance amount and all of
Mr. Larson's stock options become fully vested.
As additional incentive compensation, Mr. Larson is entitled to receive,
beginning on January 1, 2001, a portion of the pre-tax net profits earned by
openclose.com. His percentage interest peaks at 10% on January 1, 2004.
Mr. Larson may, for 90 days after the earlier of January 1, 2001 or the date his
employment is terminated by us, elect to trade his interest in openclose.com for
(1) cash or common stock in an amount equal to the then current market price of
the common stock less the aggregate exercise price of options to purchase 50,000
shares of common stock which Mr. Larson has foregone in consideration of
receiving a portion of the pre-tax net profits of openclose.com or (2) cash or
common stock equal to the amount of the appraised value of his interest in
openclose.com. After that 90 day period, he may elect to trade his interest in
openclose.com for cash or stock equal to the appraised value of his interest in
openclose.com. Until December 31, 2001, or in the event we sell the assets of
openclose.com, we may redeem his interest in openclose.com for cash equal to the
appraised value of his interest in openclose.com. Mr. Larson's employment
agreement further provides that (1) if the openclose.com assets are distributed
to a separate entity controlled by us and such entity raises money in a debt or
equity financing from unaffiliated third parties, then Mr. Larson will be
entitled to the same percentage of the net proceeds as he is entitled to of the
pre-tax net profits earned by openclose.com and (2) if we discontinue operating
openclose.com, he may elect to have us assign to him all broker and lender
contracts for openclose.com, as well as the then current contract with Fannie
Mae.
Vesting of the unvested stock options Mr. Larson has been granted under the
stock option plan accelerate to 20% vesting each 6 months following the initial
public offering. If Mr. Larson is terminated for any reason, he is prohibited
from competing with the company for one year following the date of his
termination. In addition, if Mr. Larson is terminated for cause or if he quits
voluntarily, he is prohibited from soliciting our employees or any of the
businesses with whom we have business relationships for a period of one year
after the date of termination.
In connection with the acquisition of our CLOser software system, we
entered into employment terms with John Buscema. Mr. Buscema is required to be
the president of a division of the company. If we fail to renew his employment
each year, we are required to purchase Mr. Buscema's stock options for 25,000
shares of common stock at a price of $5.00 per share. If Mr. Buscema is
terminated for any reason, he is prohibited from competing with the company for
one year following the date of his termination. In addition, if Mr. Buscema is
terminated for any reason, he is prohibited from soliciting our employees or any
of the businesses with whom we have business relationships for a period of one
year after the date of termination.
Our employment arrangement with John T. Rodgers makes him an executive vice
president and the head of our consumer services group. Effective April 1, 1999,
his base salary is $200,000. Mr. Rodgers is entitled to
51
<PAGE>
bonuses based on merit and on the financial performance of our company. If
Mr. Rodgers is terminated for any reason, he is prohibited from competing with
the company for one year following the date of his termination. In addition, if
Mr. Rodgers is terminated for any reason, he is prohibited from soliciting our
employees or any of the businesses with whom we have business relationships for
a period of one year after the date of termination.
STOCK OPTION PLAN
We have adopted a stock option plan as of April 24, 1996 to assist us in
attracting and retaining highly competent people to serve as employees,
directors and advisors who will contribute to our success and the success of the
members of our network. We also seek to motivate those people to achieve
long-term objectives which will benefit our stockholders. The following groups
of people are eligible to receive options under the stock option plan:
o employees
o directors
o advisors and consultants, including former employees who have become
members of our network or have become employees of members of our
network, at our request
The compensation committee administers the stock option plan and has wide
discretion to award options. Subject to the provisions of the stock option plan,
the compensation committee determines who will be granted options, the type and
timing of options to be granted, vesting schedules and other terms and
conditions of options, including the exercise price. All of our employees are
granted options. The number of options awarded to a person is based on the
person's potential ability to contribute to our company's success, the person's
position with our company and, in certain instances, length of service. The
compensation committee makes its granting decisions monthly.
The compensation committee may award "incentive" options or "non-qualified"
options. We have granted both incentive and non-qualified options under the
stock option plan. If the holder of an incentive option exercises the option and
holds the shares of common stock he receives for the holding periods required by
the Internal Revenue Code, the exercise of the option does not result in taxable
income to the holder. We are therefore not entitled to a corresponding tax
deduction. The incentive options we grant under the stock option plan are
designed to meet the requirements of the Internal Revenue Code, including a
requirement that the exercise price is at least 100% of the fair market value of
our common stock on the date we grant the option and that the option has a term
no longer than ten years.
By contrast, if the holder of a non-qualified option exercises the option,
the holder will be required to recognize taxable income on the date of exercise.
The taxable income is equal to the difference between the fair market value of
the shares acquired by exercising the option and the exercise price of the
option. We are then entitled to a corresponding tax deduction.
We have reserved 3,000,000 shares of common stock for issuance through our
stock option plan. Only options that are vested may be exercised. The options
terminate after a period of time following the termination of employment.
Options that expire unexercised or that are forfeited become available again for
issuance under the stock option plan. All of the option agreements contain
customary anti-dilution adjustments which provide for adjustments to the
exercise price and number of shares subject to the warrants upon certain events,
such as stock splits, stock dividends and consolidations. The vesting of many of
the options accelerates upon a change of control of the company.
The compensation committee may not grant options if the granting of the
options would make the total number of shares issuable upon exercise of all
outstanding options exceed 30% of the then outstanding shares of common stock
(including any convertible preferred on an "as if converted" basis). However, a
higher percentage may be approved by at least two-thirds of the outstanding
shares entitled to vote.
52
<PAGE>
We have awarded the following options under the stock option plan during
the last fiscal year to the executive officers named in the summary compensation
table:
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
% OF TOTAL ASSUMED
OPTIONS MARKET POTENTIAL REALIZABLE VALUE AT
GRANTED TO VALUE ASSUMED RATES OF STOCK PRICE
SHARES EMPLOYEES IN ON APPRECIATION FOR OPTION TERM(3)
COVERED BY FISCAL EXERCISE GRANT EXPIRATION --------------------------------
NAME OPTIONS(1) YEAR(2) PRICE DATE DATE 0%($) 5%($) 10%($)
- ----------------------------- ---------- ------------ -------- ------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Seth Werner.................. 50,000 8.0% $11.50 $11.50 5/20/08 -- $ 361,614 $ 916,402
David Larson................. 50,000 8.0 11.50 11.50 5/20/08 -- 361,614 916,402
John J. Hogan................ 20,000 3.2 11.50 15.00 10/31/08 $ 70,000 258,668 548,123
John Buscema................. 3,000 .5 7.50 11.50 5/20/08 12,000 33,697 66,984
John Buscema................. 2,500 .4 11.50 15.00 10/31/08 8,750 32,334 68,515
John T. Rodgers.............. -- -- -- -- -- -- -- --
</TABLE>
- ------------------
(1) All options are either incentive stock options or nonqualified stock options
and generally vest over five years at the rate of 20% of the shares on each
anniversary of the date of grant. Options expire ten years from the date of
grant.
(2) Based on options to purchase a total of 628,667 shares of common stock
granted under the stock option plan in 1998.
(3) Potential realizable values are computed by (1) multiplying the number of
shares of common stock subject to a given option by the assumed market value
on the date of grant, (2) assuming that the aggregate stock value derived
from that calculation compounds at the annual 0%, 5% or 10% rates shown in
the table for the entire ten-year term of the option and (3) subtracting
from that result the aggregate option exercise price. The 0%, 5% and 10%
assumed annual rates of stock price appreciation are mandated by the rules
of the Securities and Exchange Commission and do not represent our estimate
or projection of future common stock prices.
In February 1999, we granted to named executive officers options to
purchase an additional 150,000 shares of common stock at an exercise price of
$15.00 per share and in April 1999, we granted to an executive officer options
to purchase 15,000 shares of common stock at an exercise price of $30.00 per
share.
None of the named executive officers or directors who have been granted
options under the stock option plan exercised any of the options in fiscal year
1998. The following table sets forth information regarding exercisable and
unexercisable stock options held as of December 31, 1998 by the named executive
officers. There was no public trading market for the common stock as of December
31, 1998. Accordingly, as permitted by the rules of the Securities and Exchange
Commission, the value of unexercised in-the-money options has been calculated by
determining the difference between the exercise price per share payable upon
exercise of such options and an assumed initial public offering price of
$ .
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR END
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Seth Werner................................................ 50,000 50,000
David Larson............................................... 30,000 170,000
John J. Hogan.............................................. 25,000 20,000
John Buscema............................................... 10,500 12,500
John T. Rodgers............................................ -- -- -- --
</TABLE>
53
<PAGE>
401(K) SAVINGS PLAN
We maintain a 401(k) savings plan which is intended to satisfy the tax
qualification requirements of the Internal Revenue Code of 1986, as amended. All
of our employees aged 18 or older are eligible to participate in the
401(k) plan after two months of service with us. The 401(k) plan permits
participants to contribute up to 15% of their annual compensation. We match up
to 50% of an employee's contributions to the 401(k) plan, not to exceed 2.5% of
their annual compensation. We contributed $341,000 to the 401(k) plan in 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, the compensation committee of the board of
directors consisted of Seth S. Werner, Stephen Green and Michael Lee. The
compensation committee historically recommended to the board of directors
appropriate executive officer compensation and the granting of stock options
under the stock option plan. Mr. Werner did not participate in making
recommendations to the board of directors when his compensation was being
reviewed and approved. The board of directors historically made all final
decisions regarding executive officer compensation and the granting of stock
options under the stock option plan.
54
<PAGE>
CERTAIN TRANSACTIONS
VENTURE CAPITAL FINANCINGS
Each share of preferred stock described in this section will be converted
to common stock upon completion of this offering, and will receive one share of
common stock upon conversion.
In January 1998, we sold $2,000,000 of Senior Subordinated Convertible
Notes due January 31, 2003 to Canaan Equity, L.P. and Dominion Fund III. In
connection with that sale, we issued warrants to purchase an aggregate of 66,667
shares of our common stock at an exercise price of $7.50 per share. In May 1998,
the principal of the Senior Subordinated Convertible Notes was converted into an
aggregate of 173,912 shares of Series D Preferred Stock based on a conversion
value of $11.50 per share.
Also in May 1998, we sold an aggregate of 6,520 shares of Series D
Preferred Stock to directors Stephen Green and Michael K. Lee for $11.50 per
share. The aggregate consideration was $74,980. In August 1998, Stephen Green
purchased an additional 8,695 shares of Series D Preferred Stock for $11.50 per
share, for aggregate consideration of $99,992.50.
In April 1998, we entered into a settlement agreement with FMN Associates
Limited Partnership. FMN Associates was the sole holder of the Series A
Preferred Stock which will convert to common stock upon the closing of this
offering. Under an earlier agreement with FMN Associates, we agreed to become a
licensed insurance agent and pay FMN Associates a portion of the profits we
generated from that business. In consideration of foregoing this right,
FMN Associates received in the settlement agreement warrants to purchase 36,000
shares of our common stock at an exercise price of $11.50 per share.
FMN Associates has since distributed those warrants to its partners.
In February 1999, we sold $2,000,000 of Senior Subordinated Notes due
February 9, 2000 to Canaan Equity, L.P., Intuit, Inc., Dominion Fund IV, which
is an affiliate of Dominion Fund III, and Technology Crossover Venture funds,
each of whom are principal shareholders. In connection with that sale we issued
warrants to purchase an aggregate of 6,668 shares of common stock at an exercise
price equal to the initial public offering price in this offering. Later the
same month, we sold $8,000,000 of Senior Subordinated Notes due February 26,
2001 to Intuit, Dominion Fund IV and Technology Crossover Ventures. In
connection with that sale we issued warrants to purchase an aggregate of 53,344
shares of common stock at an exercise price equal to the initial public offering
price in this offering. The number of shares of common stock issuable under the
warrants we issued in these financings may be reduced pursuant to a formula
based on the initial public offering price of our common stock and will be
reduced by 26,672 shares upon application of the net proceeds of this offering
to retirement of all the debt held by the holders of these warrants.
In May 1999, we sold $27.5 million of Senior Subordinated Convertible Notes
due May 5, 2001 to Intuit Inc. The Notes are convertible at Intuit's option into
common stock upon completion of this initial public offering at a conversion
value of $60 per share.
In May 1999, we sold 250,001 shares of Series F Preferred Stock to Dominion
Fund IV, L.P., Canaan Equity, L.P., and nine funds operated by Technology
Crossover Ventures. The Series F Preferred Stock was sold for $60 per share, for
aggregate consideration of $15.0 million. Each of the purchasers is a principal
stockholder of our company.
We believe that each of these transactions were completed on terms no less
favorable to us than would have been obtained from unrelated third parties.
TRANSACTIONS WITH SUPERIOR BANK FSB
We are a party to a sales and marketing agreement with Superior Bank FSB,
which beneficially owns more than 5% of our outstanding securities prior to the
offering. In 1998, we earned approximately $1.6 million in management,
technology and other fees under this sales and marketing agreement.
In May 1999, we agreed with Superior Bank to redeem their warrants to
purchase 400,000 shares of common stock with exercise prices of $5.00 per share
and a warrant to purchase 100,000 shares of common
55
<PAGE>
stock with an exercise price of $7.50 per share. The aggregate redemption price
for the warrants is $25 million. On May 10, 1999 we paid the first $6 million
installment for the warrants. Another $6 million is due on June 30, 1999, with
the remainder due upon the closing of this offering. We also agreed to purchase
from Superior certain rights to CLOser and the related intellectual property for
an aggregate purchase price of $3.5 million. This purchase was completed on
May 10, 1999.
We believe that the terms of these transactions are no less favorable to us
than would have been obtained in arm's length transactions.
TRANSACTIONS WITH DOMINION VENTURES, INC.
We have obtained a lease line of credit from Dominion Ventures, Inc., an
affiliate of two of our principal stockholders: Dominion Fund III and Dominion
Fund IV, L.P. Dominion Ventures has agreed to acquire computer and office
equipment when we request it, and to lease the equipment to us. Upon signing the
agreement we were required to pay Dominion Ventures advance rent of
approximately $89,667. In addition, each time Dominion Ventures leases us
equipment, we are required to make monthly rental payments equal to 2.81% of the
cost of the equipment. Prior to the end of the lease term on each piece of
equipment, we have an option to purchase the equipment for its fair market
value. The total value of the equipment leased under the lease line of credit
cannot exceed $1,595,500.
In consideration of Dominion Ventures providing us with the lease line of
credit, we issued to Dominion Fund III a warrant to purchase 9,800 shares of our
Series D Preferred Stock at an exercise price of $11.50 per share and issued to
Dominion Capital Management LLC a warrant to purchase 8,850 shares of our
Series D Preferred Stock at an exercise price of $11.50 per share. Upon closing
of this offering, those warrants will become warrants to purchase 18,650 shares
of our common stock at an exercise price of $11.50 per share. We believe that
the lease line of credit we obtained from Dominion Ventures contains rental
rates and terms no less favorable to us than would have been obtained in an
arm's length transaction with another lease line of credit provider.
TRANSACTIONS WITH INTUIT LENDER SERVICES
On May 26, 1999, we entered into a distribution, marketing, facilities
and services agreement with Intuit Lender Services, a wholly-owned subsidiary of
Intuit Inc., which is a principal stockholder in our company. Under the
agreement, we will provide sub-prime mortgage support services to Intuit Lender
Services and will pay it fees for services and facilities. We also will pay an
exclusivity fee on August 10, 1999 if Intuit Lender Services has begun sub-prime
services by that date, and will pay an additional annual exclusivity fee. We
believe this agreement contains terms no less favorable to us than would have
been obtained in an arm's-length transaction.
TRANSACTIONS WITH EXECUTIVE OFFICERS
In 1997, we merged OnLine Capital into our company and paid for the merger
with a combination of cash and common stock for an approximate aggregate
purchase price of $780,000. In addition, we entered into an employment agreement
with John Hogan, who was the sole shareholder of OnLine Capital and who is now
an executive vice president and a member of our board of directors. In 1998, we
revised Mr. Hogan's compensation. In consideration of the revisions, Mr. Hogan,
or any entity designated by Mr. Hogan, is entitled to receive cash in an amount
equal to a percentage of the quarterly pre-tax profits of our mortgage services
group and Mr. Hogan received 100,000 shares of common stock. The amount of cash
which can be earned is capped at $3,400,000 and Mr. Hogan's right to earn the
cash consideration ends on June 30, 2001. Mr. Hogan has designated
J.J.H. Financial, LLC, a company principally owned by him, as the recipient of
the cash consideration. Through the date of this prospectus, we have paid
J.J.H. Financial $1,634,000. We believe that the revised terms are no less
favorable to us than would have been obtained in an arm's length transaction.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of May 28, 1999, and as adjusted as if the
convertible notes and all of the preferred stock, other than the Special
Preferred Stock (Northern California Division), had converted to common stock
and the sale of the common stock we are offering had already taken place. As of
that date, there were 43 holders of record of our common stock. We have listed
each person that beneficially owns more than 5% of the outstanding common stock,
each of our directors and executive officers identified in the executive
compensation table who beneficially owns any common stock and all directors and
executive officers as a group. Unless otherwise indicated, each of the
stockholders has sole voting and investment power with respect to the shares
beneficially owned. Unless otherwise noted in the footnotes, the address for
each principal stockholder is 8751 Broward Boulevard, Fifth Floor, Plantation,
FL 33324.
For purposes of calculating amounts beneficially owned before the offering,
the number of shares deemed outstanding includes (1) 1,392,624 shares of common
stock outstanding as of May 28, 1999; (2) 3,906,407 shares of common stock
issuable upon conversion of convertible notes and preferred stock, other than
the Special Preferred Stock (Northern California Division); and (3) the shares
of common stock subject to options or warrants held by that person that are
currently exercisable within 60 days after May 28, 1999. It excludes shares of
common stock issuable upon conversion of the Special Preferred Stock (Northern
California Division) upon closing of this offering. Of the 1,000 outstanding
shares of Special Preferred Stock (Northern California Division), 660 shares
will convert, upon closing of this offering, to the number of shares of common
stock as is obtained by dividing $2,640,000 by the initial public offering
price. The remaining 340 shares will remain outstanding.
For purposes of calculating the percentage beneficially owned after the
offering, the number of shares deemed outstanding includes (1) all shares deemed
to be outstanding before the offering and (2) shares being sold in this
offering, assuming no exercise of the underwriters' overallotment option.
<TABLE>
<CAPTION>
PERCENT OF COMMON STOCK
NUMBER OF SHARES OF ---------------------------------
NAME AND ADDRESS COMMON STOCK BEFORE OFFERING AFTER OFFERING
- ------------------------------------------------------------- ------------------- --------------- --------------
<S> <C> <C> <C>
Stephen Green(1),(2)......................................... 1,226,519 22.8%
Canaan Partners(2)........................................... 1,215,647 22.6
Intuit Inc.(3)............................................... 1,015,079 20.0
Michael K. Lee(4),(5)........................................ 896,361 16.7
Dominion Ventures(5)......................................... 892,014 16.6
Technology Crossover Ventures(6)............................. 646,741 12.2
Superior Bank, FSB(7)........................................ 400,000 7.3
Seth S. Werner(8)............................................ 257,500 5.0
George A. Naddaff(9)......................................... 232,455 4.5
John Hogan(10)............................................... 166,168 3.3
David Larson(11)............................................. 70,000 1.4
John T. Rodgers(12).......................................... 35,561 *
John Buscema(13)............................................. 34,600 *
All directors and executive officers as a group
(9 persons)................................................ 2,919,164 50.3
</TABLE>
- ------------------
* Represents less than 1%.
(1) Mr. Green is a member of our board of directors and is a partner in Canaan
Partners. Mr. Green has shared voting power with respect to the shares
owned by Canaan Partners and shared investment power with respect to the
shares and warrants owned by Canaan Partners. See footnote (2).
(2) Includes 55,769 shares beneficially owned by Canaan Capital Limited
Partnership; 465,444 shares beneficially owned by Canaan Capital Offshore
Limited Partnership, C.V.; 51,733 shares beneficially owned by Canaan
Ventures II Limited Partnership; 81,600 shares beneficially owned by Canaan
Ventures II Offshore, C.V.; and 476,101 shares beneficially owned by Canaan
Equity, L.P. Canaan Equity, L.P. also holds warrants to purchase common
stock in the following amounts and at the following prices: (a) 1,667 at
the initial public offering price, though the number of shares subject to
the warrant may be reduced by a formula based on the
(Footnotes continued on next page)
57
<PAGE>
(Footnotes continued from previous page)
initial offering price; and (b) 83,333 at $7.50 per share. The address for
each of these entities is 105 Rowayton Avenue, Rowayton, Connecticut 06853.
(3) Includes 521,739 shares of common stock beneficially owned by Intuit Inc.,
458,333 shares of common stock issuable to Intuit upon conversion of the
12% Senior Subordinated Convertible Notes due May 5, 2001 and warrants to
purchase 35,007 shares of common stock at the initial public offering
price, though the number of shares subject to the warrant may be reduced by
a formula based on the initial offering price and will be further reduced
by 16,670 shares upon application of the net proceeds of this offering to
retirement of debt held by Intuit Inc. The address for Intuit Inc. is 2535
Garcia Avenue, Mountain View, California 94043.
(4) Mr. Lee is a member of our board of directors and is a principal in the
general partner of the Dominion Ventures entities. Mr. Lee has sole voting
power with respect to the shares owned by Dominion Ventures and has shared
investment power with respect to the shares and warrants owned by Dominion
Ventures. See footnote (5).
(5) Includes 766,693 shares beneficially owned by Dominion Fund III and 58,334
shares beneficially owned by Dominion Fund IV, L.P. Dominion Fund III holds
a warrant to purchase 9,800 shares of Series D Preferred Stock at $11.50
per share and Dominion Capital Management LLC holds a warrant to purchase
8,850 shares of Series D Preferred Stock at $11.50 per share. Those
warrants will become warrants to purchase 18,650 shares of common stock at
$11.50 per share upon closing of this offering. Dominion Fund III also
holds warrants to purchase 33,334 shares of common stock at $7.50 per
share. Dominion Fund IV, L.P. holds warrants to purchase 15,003 shares of
common stock at the initial public offering price, though the number of
shares subject to the warrant may be reduced by a formula based on the
initial offering price and will be further reduced by 6,668 shares upon
application of the net proceeds of this offering to retirement of the debt
held by Dominion Fund IV, L.P. The address for Dominion Fund III, Dominion
Capital Management LLC and Dominion Fund IV, L.P. is 44 Montgomery Street,
#4200, San Francisco, California 94104.
(6) Consists of 257,559 shares beneficially owned by Technology Crossover
Ventures II, L.P. and warrants to purchase 3,987 shares of common stock at
the initial public offering price; 8,367 shares beneficially owned by TCV
II, V.O.F. and warrants to purchase 130 shares of common stock at the
initial public offering price; 198,019 shares beneficially owned by TCV II
(Q), L.P. and warrants to purchase 3,065 shares of common stock at the
initial public offering price; 35,141 shares beneficially owned by TCV II
Strategic Partners, L.P. and warrants to purchase 545 shares of common
stock at the initial public offering price; 39,324 shares beneficially
owned by Technology Crossover Ventures II, C.V. and warrants to purchase
608 shares of common stock at the initial public offering price; and
100,000 shares beneficially owned by TCV III (GP), TCV III L.P., TCV III
(Q) and TCV III Strategic Partners, L.P. (collectively, the "TCV Funds").
The number of shares subject to warrants held by the TCV Funds may be
reduced by a formula based on the initial offering price and will be
further reduced by 3,334 shares upon application of the net proceeds of
this offering to retirement of debt held by the TCV Funds. These entities
also have an option to purchase up to $3 million of our common stock from
the underwriters in this offering at the initial public offering price per
share. Jay C. Hoag and Richard H. Kimball are the sole managing members of
Technology Crossover Management II, L.L.C. ("TCM II"), the general partner
of each of the TCV Funds. Consequently, TCM II and Messrs. Hoag and Kimball
may each be deemed to beneficially own all of the shares held by the TCV
Funds. TCM II and Messrs. Hoag and Kimball each disclaim beneficial
ownership of such shares, except to the extent of their pecuniary interests
in those shares. The address for each of these entities is 575 High Street,
Suite 400, Palo Alto, California 94301.
(7) Consists of 400,000 shares of common stock issuable pursuant to presently
exercisable warrants. On June 30, 1999, we expect to repurchase 100,000 of
the warrants from Superior Bank for an aggregate price of $6 million. In
addition, a portion of the net proceeds of this offering is expected to be
used to repurchase the remaining warrants for an aggregate price of
$13 million. The address for Superior Bank, FSB is One Lincoln Centre,
Oakbrook Terrace, Illinois 60181.
(8) Consists of 197,500 shares of common stock beneficially owned by The Seth
Werner Revocable Trust dated October 1, 1996, presently exercisable options
to purchase 50,000 shares of common stock at $5.50 per share and presently
exercisable options to purchase 10,000 shares of common stock at $11.50 per
share.
(9) Consists of 72,727 shares of common stock, presently exercisable options to
purchase 50,000 shares of common stock at $5.50 per share, presently
exercisable options to purchase 36,576 shares of common stock at $8.00 per
share, presently exercisable options to purchase 36,576 shares of common
stock at $10.50 per share and presently exercisable options to purchase
36,576 shares of common stock at $13.00 per share, each held by FirstMN,
LLC, of which George A. Naddaff, a member of our board of directors, is 50%
owner.
(10) Consists of 141,168 shares of common stock and presently exercisable
options to purchase 25,000 shares of common stock at $7.50 per share.
(11) Consists of presently exercisable options to purchase 60,000 shares of
common stock at $5.50 per share and presently exercisable options to
purchase 10,000 shares of common stock at $11.50 per share.
(12) Consists of 27,540 shares of common stock and presently exercisable
warrants to purchase 8,021 shares of common stock at $7.50 per share.
(13) Consists of presently exercisable warrants to purchase 20,000 shares of
common stock at $5.00 per share, presently exercisable options to purchase
6,000 shares of common stock at $5.50 per share and presently exercisable
options to purchase 8,600 shares of common stock at $7.50 per share.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue up to 30,000,000 shares of common stock, $.01
par value per share, and 15,000,000 shares of preferred stock, $.01 par value
per share. At the date of this prospectus, 1,392,624 shares of common stock and
3,449,074 shares of preferred stock were issued and outstanding. All of the
outstanding capital stock is and will be, fully paid and non-assessable.
COMMON STOCK
Holders of common stock are entitled to one vote per share. All actions
submitted to a vote of stockholders are voted on by holders of common stock
voting together as a single class. Holders of common stock are not entitled to
cumulative voting in the election of directors.
Holders of common stock are entitled to receive dividends in cash or in
property on an equal basis, if and when dividends are declared on the common
stock by our board of directors, subject to any preference in favor of
outstanding shares of preferred stock, if there are any.
In the event of liquidation of our company, all holders of common stock
will participate on an equal basis with each other in our net assets available
for distribution after payment of our liabilities and payment of any liquidation
preferences in favor of outstanding shares of preferred stock, if there are any.
Holders of common stock are not entitled to preemptive rights and the
common stock is not subject to redemption.
The rights of holders of common stock are subject to the rights of holders
of any preferred stock which we designate or have designated. The rights of
preferred stockholders may adversely affect the rights of the common
stockholders.
PREFERRED STOCK
Our board of directors has the ability to issue up to 15,000,000 shares of
preferred stock in one or more series, without stockholder approval. The board
of directors may designate for the series (1) the number of shares and name of
the series, (2) the voting powers of the series, including the right to elect
directors, if any, (3) the dividend rights and preferences, if any,
(4) redemption terms, if any, (5) liquidation preferences and the amounts
payable on liquidation or dissolution, (6) the terms upon which such series may
be converted into any other series or class of our stock, including the common
stock and (7) any other terms that are not prohibited by law.
It is impossible for us to state the actual effect it will have on common
stock holders if the board of directors designates a new series of preferred
stock. The effects of such a designation will not be determinable until the
rights accompanying the series have been designated. The issuance of preferred
stock could adversely affect the voting power, liquidation rights or other
rights held by owners of common stock or other series of preferred stock. The
board of directors' authority to issue preferred stock without shareholder
approval could make it more difficult for a third party to acquire control of
our company, and could discourage any such attempt. We have no present plans to
issue any additional shares of preferred stock.
All outstanding shares of preferred stock (other than Special Preferred
Stock (Northern California Division)) will automatically convert into an
aggregate of 3,448,074 shares of common stock upon closing of this offering.
SPECIAL PREFERRED STOCK (NORTHERN CALIFORNIA DIVISION)
Of the 1,000 outstanding shares of Special Preferred Stock (Northern
California Division) 660 shares will convert, upon closing of this offering, to
the number of shares of common stock as is obtained by dividing $2,640,000 by
the initial public offering price. We currently are negotiating with the holder
of all of the outstanding shares of Special Preferred Stock (Northern California
Division) to convert all of the outstanding Special Preferred Stock to the
number of shares of common stock as is obtained by dividing
59
<PAGE>
$2,040,000 by the initial public offering price, pursuant to a recapitalization
agreement. If we are unable to successfully negotiate a 100% conversion of the
Special Preferred Stock, 340 shares will remain outstanding following closing of
this offering.
The rights, preferences and limitations of the Special Preferred Stock are
summarized below. Because it is a summary, you should refer to our Articles of
Incorporation, which contain the complete designation of the rights, preferences
and limitations of the Special Preferred Stock.
Voting Rights
The holder of Special Preferred Stock is entitled to vote on any action
that would (1) change any rights of the Special Preferred Stock or increase or
decrease the number of authorized shares of Special Preferred Stock, (2) create
any new series or class of stock that is senior to or on a parity with the
Special Preferred Stock, (3) create any obligations that would be convertible
into or exchangeable for shares of stock senior to or on a parity with the
Special Preferred Stock, (4) create any option rights to purchase shares of
stock senior to or on a parity with the Special Preferred Stock or
(5) reclassify any class or series of common stock into shares of stock senior
to or on a parity with the Special Preferred Stock. The Special Preferred Stock
carries no additional voting rights beyond those required by Florida law.
Dividends
Upon conversion of 660 shares of Special Preferred Stock, the holder of
Special Preferred Stock will be entitled to receive quarterly dividends in cash
equal to 6.8% of the net profits of our Northern California Division, which
includes the operations of Advantage Financial, Princeton Capital and Western
America Mortgage. This dividend has a preference over any other dividend payable
to holders of our capital stock. The holder is not entitled to any other
dividends.
Liquidation Rights
Upon liquidation of the company or the Northern California Division, the
holder of Special Preferred Stock will be entitled to receive the following
before any payment or distribution on any class or series of stock is made:
(1) 6.8% of the fair market value of the Northern California Division, (2) an
assignment of all of our rights to mortgage loans that have been originated and
processed through the joint efforts of our company and the holder, but which
have not yet been closed and (3) a return of the holder's capital contributions
provided to the Northern California Division (presently $20,000). Such amounts
are payable solely from the assets of the Northern California Division, and not
from any other of our assets.
Redemption Rights
If (1) we and the holder of the Special Preferred Stock mutually agree to
terminate our relationship within the Northern California Division, (2) we fail
to pay a dividend to the holder within 45 days after our board of directors has
legally approved the dividend or (3) we fail to maintain sufficient financing
arrangements, such as warehouse lines of credit, to carry out our obligations in
the Northern California Division, then we are required to redeem the Special
Preferred Stock. The redemption price is payable in cash or assets equal to 6.8%
of the fair market value of the Northern California Division.
60
<PAGE>
OPTIONS AND WARRANTS
As of May 27, 1999, 1,808,888 options were outstanding under our stock
option plan and 1,190,487 options were available for issuance under our stock
option plan. In addition to options granted through the stock option plan, the
following options and warrants were outstanding as of May 27, 1999 and except as
noted below are presently exercisable for shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES PURCHASABLE EXERCISE PRICE
- ---------------------------- --------------------------------
<S> <C>
572,500(1) $ 5.00
62,484 5.50
281,745(2) 7.50
36,576 8.00
36,576 10.50
54,650(3) 11.50
36,576 13.00
84,016(4) Offering price in this offering
</TABLE>
- ------------------
(1) Includes warrants to purchase 100,000 shares of common stock held by
Superior Bank which we are required to redeem for $6 million by June 30,
1999. Also includes warrants to purchase 200,000 shares of common stock held
by Superior Bank which we will redeem from the net proceeds of this
offering.
(2) Includes warrants to purchase 100,000 shares of common stock held by
Superior Bank which we will redeem from the net proceeds of this offering.
(3) Includes warrants to purchase 18,650 shares of Series D Preferred Stock at
$11.50 per share which will become warrants to purchase 18,650 shares of
common stock at $11.50 per share upon closing of this offering.
(4) The number of shares subject to warrants having an exercise price equal to
the offering price in this offering may be reduced by a formula based on the
offering price. In addition, the number of shares subject to these warrants
will be further reduced by 36,674 shares upon application of the net
proceeds of the offering to retirement of all the debt held by certain
holders of these warrants. Warrants to purchase 3,175 shares of common stock
are not presently exercisable.
Holders of options and warrants do not have any of the rights or privileges
of our stockholders, including voting rights, prior to exercise of the options
and warrants. We have reserved sufficient shares of authorized common stock to
cover the issuance of common stock subject to the options and warrants.
CERTAIN STATUTORY PROVISIONS AND PROVISIONS OF OUR ARTICLES OF INCORPORATION AND
BYLAWS
The following provisions of the Florida Business Corporation Act and our
articles of incorporation and bylaws could have the effect of preventing or
delaying a person from acquiring or seeking to acquire a substantial equity
interest in, or control of, our company.
STATUTORY PROVISIONS
We are subject to several anti-takeover provisions under Florida law that
apply to public corporations organized under Florida law unless the corporation
has elected to opt out of those provisions in its articles of incorporation or
its bylaws. We have not elected to opt out of these provisions.
The Florida Business Corporation Act prohibits the voting of shares in a
publicly held Florida corporation that are acquired in a "control share
acquisition" unless (1) the board of directors approves the control share
acquisition or (2) the holders of a majority of the corporation's voting shares
(not counting shares held by officers of the corporation, inside directors or
the acquiring party) approve the granting of voting rights to the acquiring
party. A "control share acquisition" is defined as an acquisition that
immediately thereafter entitles the acquiring party, directly or indirectly, to
vote in the election of directors within any of the following ranges of voting
power:
o 1/5 or more but less than 1/3
o 1/3 or more but less than a majority
o a majority or more
61
<PAGE>
There are some exceptions to the "control share acquisition" rules.
The Florida Business Corporation Act also contains an "affiliated
transaction" provision that prohibits a publicly-held Florida corporation from
engaging in a broad range of business combinations or other extraordinary
corporate transactions with an "interested shareholder" unless
o the transaction is approved by a majority of disinterested directors
before the person becomes an interested shareholder
o the corporation has not had more than 300 stockholders of record
during the past three years
o the interested shareholder has owned at least 80% of the
corporation's outstanding voting shares for at least five years
o the interested shareholder is the beneficial owner of at least 90%
of the voting shares (excluding shares acquired directly from the
corporation in a transaction not approved by a majority of the
disinterested directors)
o consideration is paid to the holders of the corporation's shares
equal to the highest amount per share paid by the interested
shareholder for the acquisition of the corporation's shares in the
last two years or fair market value, and certain other conditions
are met or
o the transaction is approved by the holders of two-thirds of the
Company's voting shares other than those owned by the interested
shareholder.
An "interested shareholder" is defined as a person who, together with
affiliates and associates, beneficially owns more than 10% of a company's
outstanding voting shares. The Florida Business Corporation Act defines
"beneficial ownership" in more detail.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Florida Business Corporation Act authorizes Florida corporations under
certain circumstances to indemnify any person who was or is a party to any
proceeding (other than an action by, or in the right of, the corporation), by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation. The indemnity also applies to any person who is or was serving
at the request of the corporation as a director, officer, employee, or agent of
another corporation or other entity. The indemnification applies against
liability incurred in connection with such a proceeding, including any appeal
thereof, if the person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation. To
be eligible for indemnity with respect to any criminal action or proceeding, the
person must have had no reasonable cause to believe his conduct was unlawful.
In the case of an action by or on behalf of a corporation, indemnification
may not be made if the person seeking indemnification is found liable, unless
the court in which the action was brought determines such person is fairly and
reasonably entitled to indemnification.
The indemnification provisions of the Florida Business Corporation Act
require indemnification if a director, officer, employee or agent has been
successful in defending any action, suit or proceeding to which he was a party
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation. The indemnity covers expenses actually and reasonably
incurred in defending the action.
The indemnification authorized under Florida law is not exclusive and is in
addition to any other rights granted to officers and directors under the
articles of incorporation or bylaws of the corporation or any agreement between
officers and directors and the corporation. Each of our directors and executive
officers, other than John Buscema, has signed an indemnification agreement. The
indemnification agreements provide for full indemnification under Florida law.
The indemnification agreements also provide that we will indemnify the officer
or director against liabilities and expenses incurred in a proceeding to which
the officer or director is a party or is threatened to be made a party, or in
which the officer or director is called upon to testify as a witness or
deponent, in each case arising out of actions of the officer or director in his
official capacity. Exceptions to this additional indemnification include
criminal violations by the officer or director,
62
<PAGE>
transactions involving an improper personal benefit to the officer or director,
unlawful distributions of our assets under Florida law and wilful misconduct or
conscious disregard for our best interests.
Our bylaws provide for the indemnification of directors, former directors
and officers to the maximum extent permitted by Florida law and for the
advancement of expenses incurred in connection with the defense of any action,
suit or proceeding that the director or officer was a party to by reason of the
fact that he is or was a director or officer of our corporation, or at our
request, a director, officer, employee or agent of another corporation. Our
bylaws also provide that we may purchase and maintain insurance on behalf of any
director against liability asserted against the director in such capacity.
Under the Florida Business Corporation Act, a director is not personally
liable for monetary damages to us or to any other person for acts or omissions
in his capacity as a director except in certain limited circumstances. Those
circumstances include certain violations of criminal law and transactions in
which the director derived an improper personal benefit. As a result,
stockholders may be unable to recover monetary damages against directors for
actions taken by them which constitute negligence or gross negligence or which
are in violation of their fiduciary duties, although injunctive or other
equitable relief may be available.
TRANSFER AGENT AND REGISTRAR
The transfer agent for our common stock is .
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect the market price of our common stock. Furthermore, since only a
limited number of shares will be available for sale shortly after this offering
because of certain contractual and legal restrictions on resale, sales of
substantial amounts of common stock in the public market after the restrictions
lapse could adversely affect the market price of our common stock and our
ability to raise capital in the future.
Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options or
warrants, based on shares outstanding as of May 28, 1999. Of these shares, the
shares of common stock sold in this offering will be freely
tradable, unless shares are purchased by an existing "affiliate". Our affiliates
are people or entities that directly or indirectly control our company, are
controlled by our company, or are under common control with our company. For
instance, our directors, executive officers and principal stockholders are
deemed to control our company, and thus are affiliates.
The remaining outstanding shares of common stock will be
"restricted" securities within the meaning of Rule 144 under the Securities Act
of 1933, as amended, and may not be sold in the absence of registration under
the securities laws unless an exemption from registration is available.
One of those exemptions is Rule 144. In general, Rule 144 allows a
shareholder (including an affiliate) who has beneficially owned restricted
shares for at least one year to sell within any three-month period shares which
do not exceed the greater of (1) 1% of the outstanding shares of common stock of
the company or (2) the average weekly trading volume during the four calendar
weeks preceding the sale. Sales under Rule 144 also must be sold through brokers
or "market makers" and there must be current public information about the
company available. Shares properly sold in reliance on Rule 144 to persons who
are not affiliates become freely tradable without restriction or registration
under the securities laws. The Rule 144 restrictions are not applicable to a
person who has beneficially owned shares for at least two years (including
"tacked on" holding periods) and who is not an affiliate of the company.
Another exemption is Rule 701 of the Securities Act of 1933. Subject to
certain limitations on the aggregate offering price of a transaction and other
conditions, Rule 701 may be relied upon by stockholders with respect to the
resale of securities originally purchased by employees, directors, officers and
consultants under stock options issued under our stock option plan. To be
eligible for resale under Rule 701, shares must have been issued pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the Securities and Exchange
Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, including exercises after the date of this
offering. Securities issued in reliance on Rule 701 are restricted securities.
Subject to the contractual restrictions described below, securities may be sold
under Rule 701 beginning 90 days after the date of this prospectus by affiliates
if they comply with Rule 144, other than the holding period requirement, and by
non-affiliates, subject only to the manner of sale provisions of Rule 144.
All of the executive officers and directors and certain stock holders and
option holders have signed lock-up agreements in favor of the underwriters which
prohibit them from selling or otherwise disposing of any shares of common stock
or convertible securities for a period of 180 days after the date of this
prospectus. Credit Suisse First Boston currently has no plans to release any
portion of the securities subject to these lock-up agreements. When determining
whether or not to release shares from lock-up agreements, Credit Suisse First
Boston will consider, among other factors, the stockholder's reasons for
requesting the release, the number of shares for which the release is being
requested and market conditions at the time.
Following this offering, we intend to file registration statements covering
approximately 1,800,000 shares of common stock issued pursuant to the exercise
of stock options issued under our stock option plan. Accordingly, shares to be
registered in this manner will be available for sale in the open market, except
to the extent the shares are subject to the lock-up agreements. Affiliates will
still be required to comply with Rule 144.
64
<PAGE>
As a result of Rule 144, Rule 701, the lock-up agreements and our intention
to file registration statements covering shares of common stock subject to
outstanding stock options under our stock option plan, approximately
shares will be eligible for sale in the public market during the 180 days after
the date of this prospectus. In addition, approximately shares will become
eligible for sale in the public market upon expiration of the lock-up agreements
180 days after the date of this prospectus.
65
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , the underwriters named below for whom Credit
Suisse First Boston Corporation, BT Alex. Brown Incorporated and U.S. Bancorp
Piper Jaffray are acting as representatives, have severally but not jointly
agreed to purchase from Mortgage.com the following respective numbers of shares
of common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- -------------------------------------------------------------------------------- ----------
<S> <C>
Credit Suisse First Boston Corporation..........................................
BT Alex. Brown Incorporated.....................................................
U.S. Bancorp Piper Jaffray......................................................
----------
Total......................................................................
----------
----------
</TABLE>
The underwriting agreement provides that the underwriters are subject to
certain conditions and that the underwriters will be obligated to purchase all
of the shares of the common stock offered hereby (other than those shares
covered by the over-allotment option described below) if any are purchased. The
underwriting agreement provides that, in the event of a default by an
underwriter, in certain circumstances the purchase commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated.
Mortgage.com has granted to the underwriters an option, expiring on the
30th day after the date of this prospectus, to purchase up to
additional shares of common stock at the initial public offering price, less
underwriting discounts and commissions, all as set forth on the cover page of
this prospectus. Such option may be exercised only to cover over-allotments in
the sale of shares of common stock. To the extent such option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of common stock as
it was obligated to purchase pursuant to the underwriting agreement.
Mortgage.com has been advised by the representatives that the underwriters
propose to offer the shares of common stock to the public initially at the
public offering price set forth on the cover page of this prospectus and,
through the representatives, to certain dealers (who may include the
underwriters) at such price less a concession of $ per share, and the
underwriters and such dealers may allow a discount of $ per share on sales
to certain other dealers. After the offering, the public offering price and
concession and discount to dealers may be changed by the representatives.
The following table summarizes the compensation to be paid to the
underwriters by Mortgage.com and the expenses payable by Mortgage.com:
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions.......................
Expenses payable.............................................
</TABLE>
The representatives have informed Mortgage.com that they do not expect
discretionary sales by the underwriters to exceed 5% of the shares being offered
hereby.
Mortgage.com, its officers and directors, and certain other existing
stockholders and optionholders of Mortgage.com have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or, in the case of Mortgage.com, file with the Securities and
Exchange Commission, a registration statement relating to any shares of common
stock or securities exhangeable or exercisable for or convertible into shares of
common stock or publicly disclose the intention to do any of the foregoing
without
66
<PAGE>
the prior written consent of Credit Suisse First Boston for a period of
180 days after the date of this prospectus, except under certain circumstances.
Of the shares of common stock to be sold in this offering, the
underwriters have reserved for sale, at the price to public set forth on the
cover page of this prospectus, up to shares as follows: (1) at
Mortgage.com's request, up to shares for Mortgage.com's directors,
officers, employees and business associates and (2) up to an additional
shares for a holder of Mortgage.com's preferred stock in connection with a
pre-existing contractual agreement between Mortgage.com and such holder. As a
result, the number of shares of common stock available for sale to the general
public will be reduced to the extent such persons purchase the reserved shares.
The underwriters will offer to the general public, on the same basis as the
other shares to be sold in this offering, any reserved shares that are not so
purchased.
Mortgage.com has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the underwriters may be required to make in respect thereof.
Mortgage.com has applied to list the shares of common stock on The Nasdaq
Stock Market's National Market under the symbol "MDCM."
Prior to the offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between Mortgage.com and the representatives. The principal factors considered
in determining the public offering price will include:
o the information set forth in this prospectus and otherwise available to
the representatives;
o the history of, and the prospects for, Mortgage.com and the mortgage
banking industry;
o an assessment of Mortgage.com's management;
o the prospects for, and the timing of, future earnings of Mortgage.com;
o the present state of Mortgage.com's development and its current financial
condition;
o the general condition of the securities markets at the time of the
offering;
o the recent market prices of, and the demand for, publicly-traded common
stock of companies in businesses similar to those of Mortgage.com;
o market conditions for initial public offerings; and
o other relevant factors.
There can be no assurance that an active trading market will develop for
the common stock or that the common stock will trade in the market subsequent to
the offering at or above the initial public offering price.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
shares of the common stock in the open market after the distribution has been
completed to cover syndicate short positions. Penalty bids permit the
underwriters' representatives to reclaim a selling concession from a syndicate
when shares of the common stock originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
67
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis and is exempt from the requirement that we prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that:
o such purchaser is entitled under applicable provincial securities laws to
purchase such common stock without the benefit of a prospectus qualified
under such securities laws,
o where required by law, that such purchaser is purchasing as principal and
not as agent, and
o such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named in
this prospectus may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada upon
the issuer or such persons. All or a substantial portion of the assets of the
issuer and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such issuer
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to the offering. Such a report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
68
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock issued in this offering will be
passed upon for us by the law firm of Foley & Lardner, Jacksonville, Florida. An
individual attorney at Foley & Lardner beneficially owns 4,347 shares of our
common stock. Certain legal matters in connection with this offering will be
passed upon for the underwriters by the law firm of Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.
EXPERTS
Our financial statements as of December 31, 1997 and 1998, and for each of
the three years in the period ended December 31, 1998, have been included in
this prospectus and in the Registration Statement filed with the Securities and
Exchange Commission in reliance upon the report of KPMG LLP, independent
certified public accountants, upon its authority as experts in accounting and
auditing. KPMG LLP's report on the financial statements can be found at the end
of this prospectus and in the Registration Statement.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement (of which this prospectus is a part) under the Securities Act of 1933,
as amended, relating to the common stock we are offering. This prospectus does
not contain all the information that is in the Registration Statement. Certain
portions of the Registration Statement have been omitted as allowed by the rules
and regulations of the Securities and Exchange Commission. Statements in this
prospectus which summarize documents are not necessarily complete, and in each
case you should refer to the copy of the document filed as an exhibit to the
Registration Statement. For further information regarding our company and our
common stock, please see the Registration Statement and its exhibits and
schedules. You may examine the Registration Statement free of charge at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661 and 7 World Trade Center, Thirteenth Floor, New York, New York
10048. Copies of the Registration Statement may also be obtained from the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, or by calling the Commission at 1-800-SEC-0330, at prescribed rates.
In addition, the Registration Statement and other public filings can be obtained
from the Commission's Web site at http://www.sec.gov.
We intend to furnish our stockholders written annual reports containing
audited financial statements certified by an independent public accounting firm.
69
<PAGE>
MORTGAGE.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................................................... F-3
Consolidated Balance Sheets as of December 31, 1998, 1997 and March 31, 1999 (unaudited)................... F-4
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996, and for the
three months ended March 31, 1999 (unaudited) and 1998 (unaudited)....................................... F-5
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1998, 1997 and
1996, and for the three months ended March 31, 1999
(unaudited).............................................................................................. F-6
Consolidated Statements of Cash Flow for the years ended December 31, 1998, 1997 and 1996, and for the
three months ended March 31, 1999 (unaudited) and 1998 (unaudited)....................................... F-7
Notes to Consolidated Financial Statements................................................................. F-10
</TABLE>
F-1
<PAGE>
MORTGAGE.COM, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
AND
MARCH 31, 1999 AND 1998 (UNAUDITED)
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Mortgage.com, Inc.
We have audited the accompanying consolidated balance sheets of Mortgage.com,
Inc. (formerly known as First Mortgage Network, Inc.) (the "Company") as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the years
in the three year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in note 12 to the accompanying consolidated financial statements,
the Company is currently in discussions with a number of venture-capital firms
to provide additional capital for the operations and growth of the Company. The
Company's ability to function at or beyond their current level and achieve their
growth strategy may be affected by the amount of capital available to it.
In our opinion, the consolidated financial statements referred to above presents
fairly, in all material respects, the financial position of Mortgage.com, Inc.
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
March 26, 1999
except for
note 2
which is as of
May 26, 1999
F-3
<PAGE>
MORTGAGE.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------- ------------
1998 1997 1999
------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 3,412,283 $ 1,679,722 $ 6,250,720
Mortgage loans available for sale, net.................. 176,372,516 73,737,933 166,149,185
Accounts and notes receivable, net...................... 1,243,571 1,228,762 1,939,110
Private placement receivables........................... -- 2,000,000 --
Accrued interest receivable............................. 196,943 197,659 231,041
Prepaid expenses and deposits........................... 1,280,133 639,100 1,761,451
Property and equipment, net............................. 5,265,877 1,339,237 5,597,006
Capitalized software development costs.................. 978,261 639,123 1,317,903
Intangible asset........................................ -- -- 873,630
Goodwill, net........................................... 4,688,125 465,434 4,685,117
------------ ----------- ------------
Total assets....................................... $193,437,709 $81,926,970 $188,805,163
------------ ----------- ------------
------------ ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Warehouse notes payable................................. $171,777,572 $72,223,912 $159,650,534
Accounts payable, accrued expenses and other
liabilities........................................... 5,538,021 1,908,303 5,957,345
Notes payable........................................... 288,701 70,833 386,980
Capital lease obligations............................... 1,565,778 -- 2,074,831
Lines of credit......................................... -- 395,899 --
Subordinated debt, net of discount...................... 100,000 2,500,000 9,722,774
Deferred revenue........................................ 1,011,987 1,011,987 --
Deferred rent........................................... 19,481 19,481 19,481
------------ ----------- ------------
Total liabilities.................................. 180,301,540 78,130,415 177,811,945
------------ ----------- ------------
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 15,000,000
shares, issued and outstanding 3,199,073, 1,925,175
and 3,199,073 shares at December 31, 1998 and 1997,
and March 31, 1999, respectively................... 31,991 19,252 31,991
Common stock, $.01 par value. Authorized 15,000,000
shares, issued and outstanding 1,342,610, 1,098,610
and 1,362,730 shares at December 31, 1998 and 1997
and March 31, 1999, respectively................... 13,426 10,985 13,627
Unearned compensation................................. (631,000) -- (15,187,000)
Additional paid-in capital............................ 31,612,112 14,828,493 47,403,353
Accumulated deficit................................... (17,890,360) (11,062,175) (21,268,753)
------------ ----------- ------------
Total shareholders' equity......................... 13,136,169 3,796,555 10,993,218
------------ ----------- ------------
Commitments and contingencies...........................
------------ ----------- ------------
Total liabilities and shareholders' equity......... $193,437,709 $81,926,970 $188,805,163
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MORTGAGE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1998 1997 1996 1999 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Secondary marketing revenue, net... $28,597,825 $11,594,660 $ 4,101,341 $ 8,599,974 $ 5,407,489
Loan production and processing
fees, net....................... 5,337,625 2,347,321 820,469 2,598,337 921,584
Management, technology and other
fees............................ 1,868,202 2,032,428 2,577,296 1,991,360 545,795
Interest income.................... 6,998,242 3,549,599 921,825 2,676,232 1,068,976
Interest expense................... (7,111,344) (3,049,591) (904,622) (2,650,395) (1,125,060)
----------- ----------- ----------- ----------- -----------
Net interest (expense) income... (113,102) 500,008 17,203 25,837 (56,084)
----------- ----------- ----------- ----------- -----------
Total revenue........................ 35,690,550 16,474,417 7,516,309 13,215,508 6,818,784
----------- ----------- ----------- ----------- -----------
Expenses:
Compensation and employee
benefits........................ 26,074,914 13,083,250 6,527,303 9,645,103 4,927,394
Marketing.......................... 1,335,494 237,868 94,541 1,536,187 85,295
Research and development........... 2,888,159 1,079,257 496,568 776,565 433,224
Depreciation and amortization...... 1,873,119 480,338 652,136 697,759 153,633
General and administrative......... 9,596,652 5,125,570 3,763,936 3,758,804 1,589,398
----------- ----------- ----------- ----------- -----------
Total expenses....................... 41,768,338 20,006,283 11,534,484 16,414,418 7,188,944
----------- ----------- ----------- ----------- -----------
Net loss............................. $(6,077,788) $(3,531,866) $(4,018,175) $(3,198,910) $ (370,160)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net loss per share, basic and
diluted............................ $ (7.17) $ (3.85) $ (3.92) $ (3.05) $ (0.63)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MORTGAGE.COM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN UNEARNED ACCUMULATED TREASURY
STOCK STOCK CAPITAL COMPENSATION DEFICIT STOCK TOTAL
--------- ------- ----------- ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995
(unaudited)................... $ 2,252 $10,319 $ 3,846,219 $ -- $(3,512,134) $ -- $ 346,656
Issuance of preferred stock... 12,273 -- 6,698,413 -- -- -- 6,710,686
Issuance of common stock...... -- 1,000 533,024 -- -- -- 534,024
Issuance of common stock
warrants.................... -- -- 260,000 -- -- -- 260,000
Purchase of treasury stock.... -- -- -- -- -- (550,000) (550,000)
Net loss...................... -- -- -- -- (4,018,175) -- (4,018,175)
------- ------- ----------- ------------ ------------ --------- ------------
Balance at December 31, 1996.... 14,525 11,319 11,337,656 -- (7,530,309) (550,000) 3,283,191
Issuance of preferred stock... 4,727 -- 3,495,273 -- -- -- 3,500,000
Issuance of common stock...... -- 716 536,794 -- -- -- 537,510
Issuance of common stock
warrants.................... -- -- 7,720 -- -- -- 7,720
Retirement of treasury
stock....................... -- (1,050) (548,950) -- -- 550,000 --
Net loss...................... -- -- -- -- (3,531,866) -- (3,531,866)
------- ------- ----------- ------------ ------------ --------- ------------
Balance at December 31, 1997.... 19,252 10,985 14,828,493 -- (11,062,175) -- 3,796,555
Issuance of preferred stock... 12,739 -- 14,208,914 -- -- -- 14,221,653
Issuance of common stock...... -- 2,441 1,827,560 -- -- -- 1,830,001
Issuance of common stock
warrants.................... -- -- 87,145 -- -- -- 87,145
Stock option plan
compensation................ -- -- 660,000 (660,000) -- -- --
Amortization of unearned
compensation................ -- -- -- 29,000 -- -- 29,000
Dividends paid................ -- -- -- -- (750,397) -- (750,397)
Net loss...................... -- -- -- -- (6,077,788) -- (6,077,788)
------- ------- ----------- ------------ ------------ --------- ------------
Balance at December 31, 1998.... $31,991 13,426 $31,612,112 (631,000) (17,890,360) -- 13,136,169
Costs ascribed to issuance of
preferred stock............. -- -- (1,538) -- -- -- (1,538)
Issuance of common stock...... -- 201 646,699 -- -- -- 646,900
Issuance of common stock
warrants.................... -- -- 397,080 -- -- -- 397,080
Stock option plan
compensation................ -- -- 14,749,000 (14,749,000) -- -- --
Amortization of unearned
compensation................ -- -- -- 193,000 -- -- 193,000
Dividends paid................ -- -- -- -- (179,483) -- (179,483)
Net loss...................... -- -- -- -- (3,198,910) -- (3,198,910)
------- ------- ----------- ------------ ------------ --------- ------------
Balance at March 31, 1999
(unaudited)................... $31,991 $13,627 $47,403,353 $(15,187,000) $(21,268,753) $ -- $ 10,993,218
------- ------- ----------- ------------ ------------ --------- ------------
------- ------- ----------- ------------ ------------ --------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MORTGAGE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ------------------------------
1998 1997 1996 1999 1998
------------- ------------- ------------ ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash flows from operating activities:
Net loss................................... $ (6,077,788) $ (3,531,866) $ (4,018,175) $ (3,198,910) $ (370,160)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 1,873,119 480,338 652,136 697,759 153,633
Amortization of unearned compensation.... 29,000 -- -- 193,000 --
Provision for losses..................... 898,593 133,499 27,170 111,278 --
Amortization of discount on subordinated
debt................................... -- -- -- 19,854 --
(Increase) decrease in mortgage loans
available for sale, net.................. (102,703,406) (36,490,196) (15,972,647) 10,211,703 6,232,290
Changes in operating assets and
liabilities:
(Increase) decrease in accounts and notes
receivable, net........................ (939,570) 684,498 (1,473,091) (795,180) 27,558
Decrease in private placement
receivables............................ 2,000,000 1,000,000 -- -- 2,000,000
(Increase) decrease in accrued interest
receivable............................. (53,403) 247,382 (49,350) (34,098) 101,026
Increase in prepaid expenses and
deposits............................... (644,710) (86,233) (59,521) (481,318) (1,978,785)
Increase (decrease) in accounts payable,
accrued expenses and other
liabilities............................ 2,911,531 (4,263,100) 1,802,139 419,324 434,650
(Decrease) increase in deferred
revenue................................ -- (20,078) 1,032,065 (1,011,987) --
(Decrease) increase in deferred rent..... -- (169,329) 188,812 -- --
------------- ------------- ------------ ------------- -----------
Net cash (used in) provided by
operating activities............... (102,706,634) (42,015,085) (17,870,462) 6,131,425 6,600,212
------------- ------------- ------------ ------------- -----------
Cash flows from investing activities:
Additions to capitalized software
development costs........................ (831,559) (517,955) (218,745) (500,776) (133,724)
Additions to property and equipment........ (4,146,001) (1,065,482) (146,522) (767,367) (197,622)
Purchase of companies, net of cash
acquired................................. (2,650,321) 366,035 -- (91,455) --
Purchase of intangible asset............... -- -- -- (233,563) --
------------- ------------- ------------ ------------- -----------
Net cash used in investing
activities......................... (7,627,881) (1,217,402) (365,267) (1,593,161) (331,346)
------------- ------------- ------------ ------------- -----------
Cash flows from financing activities:
Proceeds from and cost ascribed to common
stock warrants........................... -- 7,720 260,000 -- --
(Repayment of) proceeds from issuance of
subordinated debentures.................. (200,000) 1,500,000 (1,134,625) 10,000,000 --
Payment of notes payable................... (70,832) (31,095) -- (1,721) --
Proceeds from notes payable................ -- -- -- 100,000 --
Proceeds from issuance of common stock..... -- -- 534,424 900 --
Proceeds from issuance of preferred
stock.................................... 12,364,766 2,000,000 6,582,411 (1,538) 15,440
Proceeds from capital lease obligations.... 1,565,778 -- -- 509,053 --
(Payment of) proceeds from lines of
credit................................... (395,899) 395,899 -- -- (21,667)
Dividends paid............................. (750,397) -- -- (179,483) (15,438)
Purchase of treasury stock................. -- -- (550,000) -- --
Proceeds from (reduction of) warehouse
notes payable............................ 99,553,660 39,031,320 14,330,094 (12,127,038) (6,924,374)
------------- ------------- ------------ ------------- -----------
Net cash provided by (used in)
financing activities............... 112,067,076 42,903,844 20,022,304 (1,699,827) (6,946,039)
------------- ------------- ------------ ------------- -----------
Net increase (decrease) in cash and
cash equivalents................... 1,732,561 (328,643) 1,786,575 2,838,437 (677,173)
Cash and cash equivalents at beginning of
year....................................... 1,679,722 2,008,365 221,790 3,412,283 1,679,722
------------- ------------- ------------ ------------- -----------
Cash and cash equivalents at end of year..... $ 3,412,283 $ 1,679,722 $ 2,008,365 $ 6,250,720 $ 1,002,549
------------- ------------- ------------ ------------- -----------
------------- ------------- ------------ ------------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
MORTGAGE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1998 1997 1996 1999 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.......... $6,731,503 $2,749,196 $1,125,753 $2,738,066 $1,094,177
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash paid during the period for income taxes...... $ 26,356 $ -- $ 1,986 $ 827 $ 4,941
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
During the three months ended March 31, 1999 (unaudited), in
conjunction with the issuance of subordinated debt of $2,000,000 and
$8,000,000, the Company issued 6,668 and 26,672, respectively, of common
stock warrants which are convertible to common stock at $30 per share.
During the three months ended March 31, 1999 (unaudited), in
conjunction with the Internet domain name purchase of www.mortgage.com, the
Company issued 20,000 shares of common stock at $32.30 per share.
During the three months ended March 31, 1999 (unaudited), an employee
exercised stock options for 120 shares of common stock at $7.50 per share.
During June 1998, the Company issued 44,000 shares of common stock at a
value of $7.50 to a brokerage firm in payment for the facilitation of
capital investments in the Company by unaffiliated firms.
During April 1998, the Company purchased all of the outstanding common
stock of RM Holdings, Inc. In conjunction with the acquisition, fair value
of assets acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets....................................... $ 427,219
Goodwill................................................... 2,112,629
Accounts payable and accrued expenses...................... (1,230,101)
-----------
Cash paid, net of cash received............................ $ 1,309,747
-----------
-----------
</TABLE>
In conjunction with this purchase, the Company issued 100,000 shares of
common stock at a price of $7.50 to the shareholders of RM Holdings, Inc.
During 1997, the Company purchased all of the outstanding common stock
of Online Capital. In conjunction with the acquisition, fair value of assets
acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets...................................... $ 13,799,201
Goodwill.................................................. 325,696
Accounts payable and accrued expenses..................... (13,758,862)
------------
Cash received, net of cash paid........................... $ 366,035
------------
------------
</TABLE>
In conjunction with this purchase, the Company issued 71,668 shares of
common stock at a price of $7.50 to the sole shareholder of Online Capital
during 1997. As an adjunct to this purchase, the Company entered into an
earnout agreement in 1998 providing for payments to the shareholder of a
percentage of the profits over the next three years of the division of the
Company that he directs and the issuance of 100,000 shares of common stock
at a price of $7.50. The payments under the earnout agreement will cease
once a maximum of $3,400,000 is paid. The payments and stock issuance during
1998 were:
<TABLE>
<S> <C>
Additions to goodwill....................................... $2,402,694
Stock issued................................................ (750,000)
Accounts payable............................................ (312,120)
----------
Cash paid under earnout agreement........................... $1,340,574
----------
----------
</TABLE>
F-8
<PAGE>
MORTGAGE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Land and building was acquired in satisfaction of a note receivable
owed to the Company. The book value of assets acquired was $419,800 at
December 31, 1998. The building is subject to a mortgage of $288,701 at
December 31, 1998.
In the fourth quarter of 1998, the board of directors granted incentive
stock options for 162,026 shares of common stock to employees at a price of
$11.50 per share. The fair value of stock options was esimated to be greater
than the issue price of $11.50. Accordingly, the Company recorded unearned
compensation as the excess of fair value over the issuance price. The
Company is recognizing unearned compensation as compensation expense over
the vesting period of the options.
During 1998 and 1997, $2,200,000 and $1,500,000 of subordinated debt
converted to 193,471 and 206,000 shares of Series D and C preferred stock at
a price of $11.50 and $7.50, respectively.
On December 31, 1997, the Company entered into a subscription
receivable agreement with a venture capital firm, where the venture-capital
firm subscribed for the purchase of $2,000,000 of the Company's 12% senior
subordinated convertible notes due January 31, 2003. The proceeds were
received in January 1998.
During 1997, the Company retired 105,000 shares of outstanding treasury
stock.
On December 31, 1996, the Company sold $1,000,000 of 12% cumulative
Series C preferred stock in a private placement offering. The Company
received final payment from this sale in March 1997.
During 1996, the Company sold $5,150,000 of 12% cumulative Series B
preferred stock in a private placement offering. Net proceeds from this
transaction were $4,581,600. In addition, $127,875 of subordinated debt was
converted to Series B preferred stock. The remaining $1,134,625 of
subordinated debt was redeemed for cash in 1996.
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Mortgage.com, Inc., (formerly known as First Mortgage Network, Inc.) (the
"Company"), is incorporated in Florida and provides online mortgage services to
consumers and to other businesses. The Company has developed state-of-the-art
technology to support its own loan origination, processing, underwriting,
closing and secondary marketing of mortgage loans and is using this technology
as a platform to enable other industry participants to improve the efficiency
and effectiveness of their operations.
The Company commenced operations in 1994 as a wholesale mortgage lender
providing independent mortgage brokers with various support services, including
processing and closing services, as well as a source of funding for their loans.
In 1995, the Company acquired a software system designed to support mortgage
origination, processing, underwriting and closing operations. This system, known
as CLOser, became the platform that supports all of the services provided. The
system provides management, processing and other back-office services to
realtors and homebuilders on an outsource basis and provides funding for the
mortgages originated by the Company. The system is marketed to other mortgage
industry participants, providing technology and technical support services,
including private label web sites, on an outsource basis to numerous banks and
real estate related entities.
(b) Consolidation
The consolidated financial statements of the Company include all of its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Basis of Presentation
The financial statements of the Company have been prepared on the accrual
basis of accounting. A summary of the major accounting policies followed in the
preparation of the accompanying financial statements, which conform to generally
accepted accounting principles, is presented below.
(d) Unaudited Interim Consolidated Financial Statements
The consolidated financial statements for the three month periods ended
March 31, 1999 and 1998 are unaudited. The unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements. In the opinion of management, all adjustments of a
recurring nature which are necessary to present a fair statement of results for
the interim periods have been made. The unaudited results of operations for the
interim periods are not necessarily indicative of the results for the full year
or any future period.
(e) Acquisitions
On January 7, 1999, the Company purchased the Internet domain name of
www.Mortgage.com from an unaffiliated party and has changed the name of the
Company to Mortgage.com, Inc. The purchase price of the transaction was $200,000
in cash and 20,000 shares of common stock at a value of $32.30 per share.
Effective April 1, 1998, the Company purchased RM Holdings, Inc., an
internet-based mortgage lender and call center and merged its operations into a
division of the Company. The fair market value of assets acquired was $427,219.
Under the terms of the agreement, the stockholders of RM Holdings, Inc. received
100,000 shares of common stock at $7.50 per share and $1,471,000 in cash. This
transaction was accounted for under the purchase method of accounting. Under
this method of accounting, the purchase price is allocated to the respective
assets acquired and liabilities assumed based on their estimated fair values.
Goodwill recorded in conjunction with this purchase was $2,112,629.
F-10
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Effective June 2, 1997, the Company purchased Online Capital, a mortgage
lender located in San Jose, California, with net assets of $268,755. Under the
terms of the agreement, the sole shareholder of Online Capital received 35,834
shares of common stock and $255,672 in cash. An additional 35,834 shares of
common stock were issued to the shareholder during December 1997, based on
certain profitability criteria being met. In 1998, the Company finalized certain
contingent payment terms related to the transaction. An additional 100,000
shares of common stock were issued to the seller, and an agreement was entered
into which provides for contingent consideration of up to $3,400,000 as
calculated based upon a percentage of the profits of the division, payable
quarterly until the limit is reached or until June 30, 2001, whichever comes
first. Contingent consideration is added to the purchase price as earned. These
transactions were accounted for under the purchase method of accounting. Under
this method of accounting, the purchase price is allocated to the respective
assets acquired and liabilities assumed based on their estimated fair values.
Goodwill recorded under the 1998 contingent consideration agreement and the 1997
purchase of Online Capital was $2,402,694 and $476,475, respectively, through
December 31, 1998. An additional $91,455 of goodwill was recorded under the
contingent consideration agreement during the three months ended March 31, 1999.
(f) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
(g) Mortgage Loans Available For Sale, Net
Mortgage loans available for sale, net of discounts and deferred fees, are
carried at the lower of cost or market as determined by outstanding commitments
from investors or current investor yield requirements calculated on the
aggregate loan basis. The net deferred fees and costs are credited to income
when the related loans are sold. The loans are secured by one to four family
residential real estate located throughout the United States.
(h) Accounts and Notes Receivable, Net
The Company entered into an agreement on December 5, 1996, to sell
internally developed software to an investment firm. As a condition to the
agreement, the Company entered into a ten-year distribution and profit sharing
agreement for the software with the same investment firm. The purchase price of
the software was $10,800,000 of which $1,080,000 was received as of December 31,
1996, and $533,222 was received as of March 31, 1997. The proceeds from the
transaction, net of related costs, were recorded as deferred revenue. Due to
contract contingencies, whereby the deferred revenue could be refundable, the
Company elected to recognize the revenue when the remaining $9,180,000 note
becomes due. The note becomes due on or before November 30, 2006, and bears
interest at 5%. The note, included in accounts and notes receivable on the
balance sheets, has been discounted to its net present value and has been fully
reserved at December 31, 1998 and 1997. On March 31, 1999, this software profit
sharing agreement was sold to an unrelated company as part of a sale of a
subsidiary of the Company. The Company has been relieved of any further
obligations.
(i) Private Placement Receivables
Private placement receivables at December 31, 1997, consisted of a
subscription agreement between the Company and a venture-capital firm. Under
this agreement, the venture-capital firm subscribed for and purchased $2,000,000
of the Company's 12% senior subordinated convertible notes due January 31, 2003,
and warrants to purchase up to an aggregate of 66,667 shares of the Company's
common stock at a price of $7.50 per share. Net proceeds of $2,000,000 were
received during January 1998.
F-11
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
(j) Property and Equipment, Net
Property and equipment, consisting of computer hardware and software,
furniture and fixtures, assets under capital leases and telephone equipment are
recorded at cost. Depreciation is recorded on the straight-line method over the
estimated useful lives of the assets, which are 3 to 30 years.
(k) Capitalized Software Development Costs
Costs incurred internally in creating computer software products are
charged to expense when incurred as research and development costs, until
technological feasibility has been established for the product. Thereafter,
software production costs are capitalized and subsequently reported at the lower
of cost or net realizable value. Capitalized costs are amortized based on
current and future revenue for each product over three years. Prior to 1998,
capitalized costs were amortized over five years. Amortization of the
capitalized costs commences when individual products become available for
general release.
(l) Goodwill, Net
Upon the Company's acquisitions of Online Capital in 1997 and RM Holdings,
Inc. in 1998, the purchase price exceeded the fair value of the assets acquired
less liabilities assumed, thereby creating goodwill. In addition, payments due
under the contingent consideration agreement described in Note 1(c) above are
added to goodwill when incurred. Goodwill is being amortized using the
straight-line method over 15 years.
(m) Income Taxes
The Company records income taxes using the method required by Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Accordingly, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. SFAS 109 requires companies to set up a valuation
allowance for that component of net deferred tax assets which does not meet the
more likely than not criterion for realization.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(n) Allowance for Losses
The Company provides for losses relating to the origination and sale of
mortgage loans and accounts receivable. The allowance for losses is based on
management's evaluation of various factors, including potential for
repurchase-related expenses and contractual recourse obligations relating to
loans sold in the secondary market. While management uses the information
available to make evaluations, future adjustments to the allowance may be
necessary if future economic conditions differ substantially from the
assumptions used in making the evaluations. Management has considered all events
and/or transactions that are subject to reasonable and normal methods of
estimations, and the financial statements reflect that consideration.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when it is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan. When a loan is considered to be
impaired, the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the note's effective interest rate.
Impairment losses are included in the allowance for losses through a charge to
the provision.
The Company has agreements with several unaffiliated investors, whereby all
loans that are originated and funded are sold on an individual loan basis. The
agreements include clauses whereby loans that fail to meet specific criteria
require repurchase by the Company. Loans that are repurchased are usually resold
to
F-12
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
other investors once the specific deficiencies are resolved. The impact of such
repurchases has not been significant to date.
(o) Secondary Marketing Revenue, Net
Gains or losses on sales of mortgage loans are recognized based upon the
difference between the selling price and the carrying value of the related
mortgage loans. Loan origination fees and direct loan origination costs on one
to four family residential mortgage loans are deferred until the loans are sold
to permanent investors and are considered part of the carrying value of a loan.
Deferred origination fees and expenses, net of commitment fees paid in
connection with the sale of the loans, are recognized when the related loans are
sold.
(p) Loan Production and Processing Fees, Net
Loan production and processing fees, which are received for underwriting,
processing and preparing documents for loans originated, are recorded when the
loans are closed. Any disbursements incurred in originating the loans, such as
for credit reports, appraisals and flood certifications, are charged as an
offset against this revenue.
(q) Management, Technology and Other Fees
Revenue from software sales to unaffiliated third parties is recorded as
revenue in the period during which the sale occurs, when there are no further
obligations on behalf of the Company and no right of return exists. Maintenance
fees are recorded as revenue in the period when services are rendered.
Software sales, development, maintenance and user fees of approximately
$1,638,000, $1,854,000 and $1,966,800 were earned from one customer for the
years ended December 31, 1998, 1997 and 1996, respectively. (See note 13 for
warrants issued in conjunction with revenue generated by the Company.)
Research and development expenses are charged to operations in the year
incurred and are comprised of the compensation and general and administrative
expenses directly related to such activities.
(r) Use of Estimates
In preparation of the financial statements, management has considered all
events and/or transactions that are subject to reasonable and normal methods of
estimation, and the financial statements reflect that consideration.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-13
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
(s) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value, less costs to sell.
(t) Reclassifications
Certain prior year balances have been reclassified to conform to current
year presentation.
(u) Stock-Based Compensation
In 1997, the Company adopted the disclosure provisions of Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-based Compensation." The Company has
elected to continue accounting for stock-based compensation issued to employees
using Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, pro forma disclosures required under
SFAS No. 123 have been presented (See Note 15). Under APB No. 25, compensation
expense is based on the difference, if any, on the date of the grant, between
the fair value of the Company's stock and the exercise price. Stock issued to
non-employees has been accounted for in accordance with SFAS No. 123 and valued
using the Black-Scholes model.
(v) Unearned Compensation
Unearned compensation resulted when stock options were granted at prices
that were subsequently determined to be less than their estimated fair value.
The Company has recorded an estimate of the excess of fair value over the issue
price as unearned compensation as a separate component of shareholders' equity.
(w) Net Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
the provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed
by dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares, composed of unvested restricted
common stock and incremental common shares issuable upon the exercise of stock
options and warrants and upon conversion of Special Preferrred Stock (Northern
California Division), Series B, Series C, and Series D convertible preferred
stock, are included in the diluted net loss per share computation to the extent
such shares are dilutive.
F-14
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------- MARCH 31, MARCH 31,
1998 1997 1996 1999 1998
------- ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER (UNAUDITED)
SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Numerator:
Net Loss................................................ $(6,078) $(3,532) $(4,018) $(3,199) $ (370)
Dividends paid on special preferred stock............... (751) -- -- (178) --
Cumulative dividends on Series B convertible
preferred stock.................................... (618) (618) (413) (153) (155)
Cumulative dividends on Series C convertible
preferred stock.................................... (665) (335) (3) (164) (166)
Cumulative dividends on Series D convertible
preferred stock.................................... (831) -- -- (436) --
------- ------- ------- ------- -------
Net loss attributable to common shareholders............ $(8,943) $(4,485) $(4,434) $(4,130) $ (691)
------- ------- ------- ------- -------
Denominator:
Weighted average shares--basic and diluted.............. 1,247 1,166 1,132 1,356 1,098
------- ------- ------- ------- -------
Net loss per share--basic and diluted................... $ (7.17) $ (3.85) $ (3.92) $ (3.05) $ (0.63)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
Since the Company reported a net loss, the computation does not consider
the convertible preferred stock, common stock options and warrants due to the
anti-dilutive effect on net loss per share.
(x) Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and net
unrealized gains (losses) on securities and is presented in the consolidated
statements of shareholders' equity and comprehensive income. The Statement
requires only additional disclosures in the consolidated financial statements;
it does not affect the Company's consolidated balance sheets or statements of
operations. The adoption of SFAS No. 130 has had no effect on the Company's
consolidated financial statements.
(y) Segment Reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 established standards for
the way that a public enterprise reports information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997, and requires restatement of earlier periods presented.
Segment information is presented in note 21.
(z) Software Revenue Recognition
In March 1998, the AICPA issued Statement of Position 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2" ("SOP 98-4"). SOP 98-4 defers for
one year the application of certain provisions of Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"). Different informal and
unauthoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as result, the AICPA is deliberating amendments to SOP 97-2, so they can
issue interpretations regarding the applicability and the method of application
of those provisions. The adoption of SOP 97-2 has not had a material impact on
the Company's consolidated statements of operations, balance sheets or cash
flows.
F-15
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
(aa) Derivatives
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Financial Accounting Standards Board has
issued an exposed draft to delay the implementation of the Standard, however, it
is not presently known if such implementation will be delayed. As the Company
does not currently engage or plan to engage in derivative or hedging activities,
there will be no impact to the Company's consolidated statements of operations,
balance sheets or cash flows upon the adoption of this standard.
(2) RESTATEMENT
In preparation of the consolidated financial statements, management
considered all events and/or transactions that were subject to reasonable and
normal methods of estimation to determine a fair value of the Company's common
stock in order to estimate the unearned compensation amounts.
Subsequent to the issuance of the Company's financial statements as of and
for the year ended December 31, 1998, certain transactions were executed which
caused the Company's estimate of the fair value of its common stock to decrease.
Accordingly, the Company's 1998 financial statements have been restated to
reflect the impact of this decrease in fair value. The effect of this
restatement is a reclass between additional paid-in capital and unearned
compensation, thus having no effect on total shareholder's equity. In addition,
the amortization related to unearned compensation was decreased to reflect this
change.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------
AS
PREVIOUSLY
REPORTED RESTATED
------------ ------------
<S> <C> <C>
Consolidated Balance Sheet:
Unearned compensation....................................... $ (6,095,000) $ (631,000)
Additional paid-in capital.................................. $ 37,352,112 $ 31,162,112
Accumulated deficit......................................... $(18,166,360) $(17,890,360)
Total shareholder's equity.................................. $ 13,136,169 $ 13,136,169
Consolidated Statement of Operations:
Compensation and benefits................................... $ 26,350,914 $ 26,074,914
Net loss.................................................... $ (6,353,788) $ (6,077,788)
</TABLE>
(3) MORTGAGE LOANS AVAILABLE FOR SALE, NET
Mortgage loans available for sale, net are carried on the books at lower of
cost or market and consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ -----------
<S> <C> <C>
Mortgage loans available for sale............................. $175,683,013 $73,037,135
Loan broker premiums, origination points and
discounts, net.............................................. 185,933 572,618
Deferred loan origination costs............................... 503,570 128,180
------------ -----------
Mortgage loans available for sale, net........................ $176,372,516 $73,737,933
------------ -----------
------------ -----------
</TABLE>
F-16
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) ACCOUNTS AND NOTES RECEIVABLE, NET
Accounts and notes receivable, net, consist of the following at December
31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Notes receivable................................................ $ 6,158,654 $ 5,898,901
Broker fee receivables.......................................... 672,209 669,235
Other........................................................... 880,409 598,310
----------- -----------
Subtotal................................................... 7,711,272 7,166,446
Less: allowance for losses...................................... (6,467,701) (5,937,684)
----------- -----------
$ 1,243,571 $ 1,228,762
----------- -----------
----------- -----------
</TABLE>
The activity in the allowance for losses account was as follows at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Allowance at beginning of period.................................. $5,937,684 $5,893,929
Recoveries, transfers and charge offs, net........................ (299,753) (89,744)
Provision for losses.............................................. 829,770 133,499
---------- ----------
Allowance at end of period........................................ $6,467,701 $5,937,684
---------- ----------
---------- ----------
</TABLE>
F-17
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
Land............................................................. $ 132,000 $ --
Building......................................................... 287,800 --
Computer hardware and software................................... 3,515,647 1,523,408
Furniture and fixtures........................................... 729,222 295,939
Assets under capital leases...................................... 2,058,436 310,231
Leasehold improvements........................................... 346,056 148,579
Telephone equipment.............................................. 216,034 --
Vehicle.......................................................... 12,063 --
----------- ----------
7,297,258 2,278,157
----------- ----------
Less accumulated depreciation.................................... (2,031,381) (938,920)
----------- ----------
Property and equipment, net...................................... $ 5,265,877 $1,339,237
----------- ----------
----------- ----------
</TABLE>
Useful lives for property and equipment are as follows:
<TABLE>
<S> <C>
Building....................................................... 30 years
Computer hardware and software................................. 3 years
Furniture and fixtures, telephone equipment and vehicle........ 5 years
</TABLE>
The land and building were acquired in satisfaction of a note receivable
owed to the Company by an individual who subsequently became an employee of the
Company. The building is occupied by, and leased to, an auto maintenance
franchise that pays the Company rent of $4,000 monthly under a lease that
expires in 2015, with three subsequent five-year renewal periods. During 1998,
$24,000 in revenue was recorded under the lease.
Depreciation expense for the years ended 1998, 1997 and 1996 $1,092,000,
$331,000 and $573,000, respectively.
(6) CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalized software costs at December 31, 1998, 1997 and 1996, were net of
accumulated amortization of $666,253, $173,832 and $250,000, respectively.
Information related to net capitalized software costs is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Balance at beginning of year.......................................... $639,123 $250,000
Capitalized costs..................................................... 831,559 517,955
Amortization.......................................................... (492,421) (128,832)
-------- --------
$978,261 $639,123
-------- --------
-------- --------
</TABLE>
F-18
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) GOODWILL, NET
Goodwill, net consists of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- --------
<S> <C> <C>
Online Capital, Inc. acquisition.................................... $ 476,475 $476,475
RM Holdings, Inc. acquisition....................................... 2,112,629 --
Online Capital, Inc. earnout agreement.............................. 2,402,694 --
---------- --------
4,991,798 476,475
Less accumulated amortization....................................... (303,673) (11,041)
---------- --------
Goodwill, net....................................................... $4,688,125 $465,434
---------- --------
---------- --------
</TABLE>
Goodwill is amortized on a straight-line basis over 15 years. The
amortization of goodwill in the years ended 1998, 1997 and 1996 was $293,000,
$21,000 and $0, respectively.
(8) WAREHOUSE NOTES PAYABLE
Under the terms of the Company's warehouse agreements, all mortgage loans
available for sale are pledged as collateral for the warehouse notes payable.
The Company had warehouse lines of credit totaling $205,000,000,
$90,000,000 and $195,000,000 at December 31, 1998 and 1997 and March 31, 1999
(unaudited), respectively, from unaffiliated entities. These lines are used to
support the funding of mortgage loans as follows:
(a) The Company has a $75,000,000 credit line at March 31, 1999. This
credit line was $65,000,000 at December 31, 1998, and was
temporarily increased from $45,000,000 to $75,000,000 during 1998.
At December 31, 1998 and 1997 and March 31, 1999 (unaudited),
$71,918,148, $37,890,528 and $69,432,892, respectively, were
outstanding on this facility, with a weighted average interest
rate of 7.60%, 8.47% and 7.01%, respectively. The line of credit
is collateralized by a portion of the Company's mortgage loans
available for sale, which amounted to $73,931,690, $48,120,268 and
$72,300,119 at December 31, 1998 and 1997 and March 31, 1999,
respectively. The line of credit requires the Company to maintain
certain financial covenants, which were not met at December 31,
1998. The lender has provided the Company with a waiver of this
default pending the receipt of additional capital, which was
received in February and March 1999. The Company met the financial
covenants at March 31, 1999.
(b) The Company has a $60,000,000 credit line with an entity, which
temporarily was increased to $70,000,000 for December 31, 1998.
This credit line was increased from $35,000,000 during 1998. At
December 31, 1998 and 1997 and March 31, 1999 (unaudited),
$62,486,268, $20,209,540 and $55,298,564, respectively, was
outstanding on this facility, with a weighted average interest
rate of 7.33%, 8.65% and 6.82%, respectively. The line of credit
is collateralized by a portion of the Company's mortgage loans
available for sale, which amounted to $67,518,557, $19,551,770 and
$60,390,766 at December 31, 1998 and 1997 and March 31, 1999
(unaudited), respectively. The line of credit requires the Company
to maintain certain financial covenants, which were not met at
December 31, 1998 or March 31, 1999. The lender has provided the
Company with a waiver of this default pending the receipt of
additional capital, which was received in February, March and
April 1999.
(c) The Company received a $25,000,000 credit line with an entity
during 1998. At December 31, 1998 and March 31, 1999 (unaudited),
$24,417,181 and $25,628,993, respectively, was outstanding on this
facility, with a weighted average interest rate of 7.29% and
6.74%, respectively. The line of credit is collateralized by a
portion of the Company's mortgage loans
F-19
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) WAREHOUSE NOTES PAYABLE--(CONTINUED)
available for sale, which amounted to $26,320,308 and $26,690,321 at
December 31, 1998 and March 31, 1999 (unaudited), respectively.
The line of credit requires the Company to maintain certain
financial covenants, which were not met at December 31, 1998. The
lender has provided the Company with a waiver of this default
pending the receipt of additional capital, which was received in
February and March 1999. The Company met the financial covenants
at March 31, 1999.
(d) The Company received a $25,000,000 repurchase credit line from an
entity during 1998. At December 31, 1998 and March 31, 1999
(unaudited), there was no outstanding amount on this facility.
(e) Since 1996, the Company has had a $10,000,000 line of credit by an
entity. The line of credit bears interest at prime less 0.25% and
has no maturity date. At December 31, 1998 and 1997 and March 31,
1999 (unaudited), $7,367,831, $5,123,845 and $6,422,858,
respectively, were outstanding on this facility. This line of
credit is collateralized by a portion of the Company's mortgage
loans available for sale, which amounted to $7,067,801, $5,167,405
and $6,300,955 at December 31, 1998 and 1997 and March 31, 1999
(unaudited), respectively. Under the terms of the Company's
warehouse agreements, all mortgage loans available for sale are
pledged as collateral for the warehouse notes payable.
The warehouse lines of credit described in (a) through (c) above were in
default as to requirements for ratios of tangible net worth and leverage at
December 31, 1998. The creditors have given the Company waivers on these
requirements pending receipt of additional capital, which was received as
described in note 13. The additional capital received in the form of
Subordinated Debt eliminated the defaults as of February 28, 1999. However, the
line of credit described in (b) above was in default again at March 31, 1999.
The creditor has given the Company a waiver on these requirements due to the
receipt of additional capital.
(9) NOTE PAYABLE
A note payable in the amount of $291,456 with an interest rate of 9.25% was
assumed through the acquisition of the land and building described in note 4. At
December 31, 1998, this note payable has an outstanding balance of $288,701 and
matures on April 10, 2002.
The note payable in the amount of $70,833 at December 31, 1997, arose
through the Online Capital acquisition in the amount of $99,999 and had an
interest rate of 10%. The note was paid in full when it matured in 1998.
(10) LINES OF CREDIT
The Company has three lines of credit with entities under which furniture
and equipment are leased. One line of credit is with the unaffiliated financing
subsidiary of a computer manufacturer and is accounted for as an operating
lease. No equipment at December 31, 1998, was under lease in this line of
credit. The Company accounts for the other two lease lines as capital leases.
One of these lease credit lines is with an affiliated entity and has an
available limit of $1,595,000 in equipment value, bears interest at
approximately 10% per annum and had an outstanding balance of $996,610 at
December 31, 1998. The other lease credit line is with an unaffiliated entity
and has no stated limit, bears interest at varying rates according to the
purchase amount of the underlying equipment and had an outstanding balance of
$520,167 at December 31, 1998. (See note 19 for capital lease obligation).
During 1998 and 1997, the Company had a line of credit of $110,000 from an
unaffiliated financial institution for the use of purchasing equipment, which
had an outstanding balance of $49,001 and $85,668 at
F-20
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) LINES OF CREDIT--(CONTINUED)
December 31, 1998 and 1997, respectively. The note matures on August 18, 2002,
and bears interest at the prime rate, which was 8.25% at December 31, 1998.
During 1997, the Company opened a $200,000 working capital line of credit
with an unaffiliated financial institution. At December 31, 1998 and 1997, there
was no balance outstanding.
(11) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Accounts payable.................................................. $3,225,450 $1,143,321
Accrued expenses.................................................. 1,488,223 471,637
Profit distribution payable....................................... 312,120 160,958
Warehouse line interest payable................................... 512,228 132,387
---------- ----------
Total accounts payable and accrued expenses.................. $5,538,021 $1,908,303
---------- ----------
---------- ----------
</TABLE>
(12) LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded operations primarily through net
cash proceeds from private placements of preferred and common stock totaling
$36 million through December 31, 1998. As of December 31, 1998, the Company had
cash and cash equivalents of $3.4 million. During the three month period ended
March 31, 1999 (unaudited), the Company has raised an additional $10 million in
cash through the issuance of senior subordinated debentures, and is currently in
discussion with various potential investors to provide additional capital for
the operations and growth of the Company. The Company's primary need for
operating capital is for the funding of mortgage loans between closing and
eventual sale to investors, which is accomplished through the use of warehouse
lines of credit and the funding of operating losses. There can be no assurance
that the Company will be able to continue raising capital sufficient to fund its
operations or obtain sufficient warehouse borrowing capacity to maintain current
operating levels.
(13) SUBORDINATED DEBT, NET OF DISCOUNT
Subordinated debt, net of discount at March 31, 1999 (unaudited), of
$9,622,774, consists of convertible debentures at a fixed rate of interest of
12%, $2,000,000 of which matures on February 9, 2000 and $8,000,000 matures on
February 26, 2001. The holders of these notes received 6,668 and 26,672,
respectively of common stock warrants that are convertible to common stock at
$30 per share at any time prior to or upon maturity.
Subordinated debt at December 31, 1998 of $100,000 consists of convertible
debentures, at a fixed rate of interest of 12%, which mature May 1, 1999.
Interest is due and payable monthly through maturity. At the option of the
holders, the debt can be converted to equity at the rate of $15 per share in
multiples of $15,000 at any time prior to or upon maturity. The debentures are
subordinated to any future indebtedness of the Company that is wholly secured by
first mortgage loans.
During December 1997, the Company issued $2,400,000 of convertible
subordinated debt, of which $2,200,000 subsequently converted to preferred stock
at $11.50 per share during 1998. The remaining $200,000 was redeemed for cash
during 1998.
During August 1997, the Company issued $1,500,000 of convertible
subordinated debt, which subsequently converted to preferred stock at $7.50 per
share during December 1997.
F-21
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SHAREHOLDERS' EQUITY
(a) Common Stock Transactions
During January 1999, the Company issued 20,000 shares of common stock at a
value of $32.30 per share in connection with the acquisition of the Internet
domain name www.mortgage.com as described in note 1(c).
Options to purchase 120 shares of common stock were exercised during the
three-month period ending March 31, 1999.
During April 1998, the Company issued 100,000 shares of common stock at a
value of $7.50 per share in connection with the acquisition of RM Holdings, Inc.
as described in note 1(c).
During March 1998, the Company issued 100,000 shares of common stock at a
value of $7.50 per share in accordance with the contingent consideration
agreement as described in note 1(c).
During June 1998, the Company issued 44,000 shares of common stock at a
value of $7.50 per share to a brokerage firm in consideration for the
facilitation of capital investments in the Company by unaffiliated firms.
During 1997, the Company issued 71,668 shares of common stock at a value of
$7.50 per share in connection with the acquisition of Online Capital as
described in note 1(c).
(b) Preferred Stock Transactions
During 1998, the Company issued 1,273,898 shares of $.01 par value Series D
preferred stock at a price of $11.50 per share. Of these shares, 191,301 were
issued upon conversion of $2,200,000 of subordinated debt. Net proceeds from the
issuance of preferred stock, other than those converted from subordinated debt,
were $12,224,971. All Series D preferred stock will automatically convert into
common stock if the Company sells shares of its stock in an initial public
offering meeting certain specific criteria and the shareholders have not
redeemed their shares or upon the consent of holders of two-thirds of the
outstanding Series D preferred shares. These shares are entitled to voting
rights equal to those of the common stock of the Company and have liquidation
preference to all other shares of stock.
During 1997 and 1996, the Company issued 472,668 and 133,333 shares,
respectively, of $.01 par value Series C preferred stock at a price of $7.50 per
share. Of these shares, 206,000 were issued upon conversion of $1,500,000 of
subordinated debt. Net proceeds from the issuance of preferred stock, other than
those converted from subordinated debt, were $2,000,000. All Series C preferred
stock will automatically convert into common stock if the Company sells shares
of its stock in an initial public offering meeting certain specific criteria and
the shareholders have not redeemed their shares or upon the consent of holders
of two-thirds of the outstanding Series C preferred shares. These shares are
entitled to voting rights equal to those of the common stock of the Company and
have liquidation preference to all other shares of stock.
F-22
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SHAREHOLDERS' EQUITY--(CONTINUED)
During 1996, the Company sold $5,150,000 of 12% cumulative Series B
preferred stock in a private-placement offering. Net proceeds from this
transaction were $4,581,600. In addition, $127,875 of the 14% subordinated debt
was converted to Series B preferred stock. The remaining $1,134,625 of the 14%
subordinated debt was subsequently redeemed for cash in May 1996. All Series B
preferred stock will convert into common stock if the Company sells it's stock
in an initial public offering. These shares are also redeemable, at the
discretion of the holders, if the Company sells shares of its stock in an
initial public offering or private offering meeting certain specified criteria.
These shares are entitled to voting rights equal to those of the common stock of
the Company and have liquidation preference to all other shares of stock.
Pursuant to the acquisition of Western American Mortgage, Inc. ("WAM") in
1996, the Company issued a class of preferred stock with special dividend
requirements equal to 50% of the net profits, as defined, of the WAM operations.
In July 1997, in conjunction with the acquisition of Online Capital, Inc., the
operations of WAM were integrated with other California operations of the
Company and the dividend requirements were amended to 20% of the net profit of
the Company's Northern California Division. Dividends paid for the year ending
December 31, 1998 and 1997 and the three month period ending March 31, 1999
(unaudited) to holders of this class of preferred stock amounted to $750,397, $0
and $179,483, respectively.
Cumulative dividends, not declared, on the Series B preferred stock totaled
$1,649,129, $1,031,129 and $1,801,513 as of December 31, 1998 and 1997 and
March 31, 1999 (unaudited), respectively. Cumulative dividends, not declared, on
the Series C preferred stock totaled $1,002,924, $337,522 and $1,166,996 as of
December 31, 1998 and 1997 and March 31, 1999 (unaudited), respectively.
Cumulative dividends, not declared, on the Series D preferred stock totaled
$831,342, $-0- and $1,264,816 as of December 31, 1998 and 1997 and March 31,
1999 (unaudited), respectively. No liability has been established for the
cumulative dividends, inasmuch as they have not been declared.
The Company's preferred stock has a liquidation preference to common stock.
(c) Stock Warrant Transactions
During the three month period ending March 31, 1999, 25,000 common stock
warrants converted to common stock options at $5.00 per share.
In connection with certain operational and capital transactions, the
Company issued 175,650, 50,000, 363,000 and 33,340 common and preferred stock
warrants during 1998, 1997 and 1996 and the three months ended March 31, 1999
(unaudited), respectively. Total warrants outstanding as of December 31, 1998
and March 31, 1999 were 1,179,314 and 1,187,654 shares, respectively, with
exercise prices on the warrants ranging from $5.00 to $30.00 per share. The
Company has agreed to repurchase 500,000 of these warrants in the event that the
Company issues equity rights, either through a public or private placement of
shares, of 25% or more of the then outstanding total equity of the Company or if
the Company sells substantially all of its assets. Subsequent to March 31, 1999,
under this agreement the Company repurchased 100,000 of these warrant and
expects to repurchase the remaining 400,000 warrants by June 30, 1999.
(d) Other
During 1997, the Company retired 105,000 shares of outstanding treasury
stock.
F-23
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SHAREHOLDERS' EQUITY--(CONTINUED)
The following summarizes the activity in the number of shares outstanding
at December 31, 1998 and 1997 and March 31, 1999 (unaudited):
<TABLE>
<CAPTION>
COMMON PREFERRED
COMMON PREFERRED STOCK STOCK
STOCK STOCK WARRANTS WARRANTS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1996.................................... 1,131,942 1,452,507 953,664 --
Issuance of common stock...................................... 71,668 -- -- --
Issuance of preferred stock................................... -- 472,668 -- --
Common stock warrants granted................................. -- -- 50,000 --
Preferred stock warrants granted.............................. -- -- -- --
Retirement of treasury stock.................................. (105,000) -- -- --
--------- --------- --------- -------
Balance at December 31, 1997.................................... 1,098,610 1,925,175 1,003,664 --
Issuance of common stock...................................... 244,000 -- -- --
Issuance of preferred stock................................... -- 1,273,898 -- --
Common stock warrants granted................................. -- -- 157,000 --
Preferred stock warrants granted.............................. -- -- -- 18,650
--------- --------- --------- -------
Balance at December 31, 1998.................................... 1,342,610 3,199,073 1,160,664 18,650
Issuance of common stock...................................... 20,120 -- -- --
Common stock warrants granted................................. -- -- 33,340 --
Warrants converted to options................................. -- -- (25,000) --
--------- --------- --------- -------
Balance at March 31, 1999 (unaudited)........................... 1,362,730 3,199,073 1,169,004 18,650
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
(15) STOCK OPTION PLANS
The Company's 1996 Employee Stock Option Plan (the "Plan") covered 350,000
shares of the Company's common stock and has been amended in 1997 and 1998 to
include a total of 1,190,000 shares. Subsequent to 1998, the Plan was amended to
increase the total shares to 1,590,000. Under the terms of the Plan, officers,
directors, key employees and consultants of the Company are eligible to receive
incentive as well as nonqualified stock options. Incentive stock options granted
under the Plan vest 40% on the second anniversary from the date of grant and 20%
in each of three years thereafter, except that California residents vest 20% on
the first anniversary. The options are exercisable for a period of up to ten
years from the date of grant at an exercise price which is not less than the
fair market value of the Company's common stock on the date of the grant. For
any stockholder owning more than 10% of the outstanding common stock, incentive
stock options are exercisable for a period of up to ten year exercise price
which is not less than 110% of the fair market value of the Company's common
stock on the date of the grant. Nonqualified options vest at 40% after the
second anniversary of the date of first service as an employee or consultant to
the Company and then equally over three years on the anniversary date of
service, and are granted on terms determined by the Company's board of
directors.
The Company's Directors' 1996 Stock Option Plan (the "Directors' Plan")
covers 60,000 shares of the Company's common stock and provides for the grant of
nonqualified stock options to the Company's nonemployee directors. Stock options
granted under the Directors' Plan vest 66.67% on the second anniversary of the
date of first service as a director of the Company and entirely on the third
anniversary and are exercisable for a period of up to 3 1/2 years from the date
of grant at an exercise price which is not less than the fair market value of
the Company's common stock on the date of grant. The Directors' Plan is
administered by the board of directors or a committee appointed by the board of
directors consisting of at least three of its members.
F-24
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(15) STOCK OPTION PLANS--(CONTINUED)
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee and non-employee directors' stock options.
Accordingly, no compensation expense has been recognized for the options, as the
exercise price equals or exceeds the market price of the underlying stock on the
date of grant.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
OPTIONS PRICE
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1995................................................ -- $ --
Granted....................................................................... 392,000 5.50
Exercised..................................................................... -- --
Forfeited..................................................................... (17,500) 5.50
--------- -------
Outstanding at December 31, 1996................................................ 374,500 5.50
Granted....................................................................... 233,000 7.47
Exercised..................................................................... -- --
Forfeited..................................................................... (49,100) 6.34
--------- -------
Outstanding at December 31, 1997................................................ 558,400 6.33
Granted....................................................................... 628,677 10.30
Exercised..................................................................... -- --
Forfeited..................................................................... (66,125) 8.12
--------- -------
Outstanding at December 31, 1998................................................ 1,120,952 8.45
Granted....................................................................... 649,296 15.13
Exercised..................................................................... (120) 7.50
Forfeited..................................................................... (14,760) 13.63
--------- -------
Outstanding at March 31, 1999 (unaudited)....................................... 1,755,368 $ 10.72
--------- -------
--------- -------
</TABLE>
Weighted-average fair value of options granted during 1998, 1997, 1996 and
1999 (unaudited) were $2.56, $0.69, $0.26 and $22.70, respectively.
F-25
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(15) STOCK OPTION PLANS--(CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ---------------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE OUTSTANDING AT AVERAGE
EXERCISE PRICE 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE 12/31/98 EXERCISE PRICE
- --------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$5.50-11.50 1,120,952 9.26 years $ 8.45 399,117 $ 6.20
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ---------------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE OUTSTANDING AT AVERAGE
EXERCISE PRICE 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE 12/31/97 EXERCISE PRICE
- --------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$5.50-7.50 558,400 9 years $ 6.33 233,000 $ 6.34
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ---------------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE OUTSTANDING AT AVERAGE
EXERCISE PRICE 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE 12/31/96 EXERCISE PRICE
- --------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$5.50 374,500 7.8 years $ 5.50 148,502 $ 5.50
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1999 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ---------------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE OUTSTANDING AT AVERAGE
EXERCISE PRICE 3/31/99 CONTRACTUAL LIFE EXERCISE PRICE 3/31/99 EXERCISE PRICE
- --------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$5.50-$30.00 1,755,368 9.0 years $10.72 506,652 $ 6.31
</TABLE>
Aggregate proceeds realizable upon the exercise of all options outstanding
at December 31, 1998, 1997, 1996 and March 31, 1999 (unaudited) approximates
$9.5 million, $3.5 million, $2.1 million and $18.8 million, respectively.
F-26
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(15) STOCK OPTION PLANS--(CONTINUED)
Pro forma information regarding results of operations had compensation
expense been recorded at the grant date for awards consistent with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") has been determined as if the Company had
accounted for the employee and nonemployee directors' stock options granted
during the years ended December 31, 1998 and 1997, under the fair value method
of SFAS No. 123. The fair value of each employee stock option grant has been
estimated on the date of grant with the following assumptions for the years
ended December 31, 1998, 1997 and 1996 and the three month period ending
March 31, 1999 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------------- ------------
1998 1997 1996 1999
------------ ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Weighted-average risk-free interest rate........ 4.42-5.74% 6.12-6.73% 6.46% 4.63%-5.30%
Dividend yield.................................. -- -- -- --
Weighted-average expected option life........... 6 years 5 years 4-10 years 5 years
Fair market value of the common stock........... $7.50-25.40 $5.00 $5.00 $32.30-42.40
</TABLE>
The Black-Scholes Model was used in estimating the fair market value of
options and warrants and a discount for lack of marketability was used as the
warrants and options are not traded on a public market. Management of the
Company has reviewed both internal and external factors which influence the
value of the warrants and options. Internal factors include, among other things,
the Company's financial position, results of its operations and the size and
marketability of the interest being valued. External factors include, among
other things, the status of the industry, the position of the Company relative
to the industry and the local, national and international economic environment.
For the purposes of pro forma disclosure, the estimated fair value of the
options is amortized over the options' vesting period.
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant date for awards in 1998, 1997 and 1996 and
the three month period ending March 31, 1999 (unaudited), consistent with the
provisions of SFAS 123, the Company's net loss and basic and diluted net loss
per share would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS
----------------------------- ENDED
1998 1997 1996 MARCH 31, 1999
------- ------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Loss--attributable to common shareholders........... $(8,943) $(4,485) $(4,433) $ (4,133)
Net Loss--atrributable to common shareholders--as
adjusted.............................................. $(9,077) $(4,524) $(4,445) $ (4,488)
Basic and diluted net loss per share--as reported....... $ (7.17) $ (3.85) $ (3.92) $ (3.05)
Basic and diluted net loss per share--as adjusted....... $ (7.28) $ (3.88) $ (3.93) $ (3.31)
</TABLE>
The effects of applying SFAS 123 in this disclosure are not indicative of
future amounts. Additional grants in future years are anticipated.
(16) INCOME TAXES
No current or deferred provision for income taxes was recorded for the
years ended December 31, 1998 and 1997, due to the Company's operating losses in
the respective periods.
F-27
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) INCOME TAXES--(CONTINUED)
At December 31, 1998, the Company had approximately $16.1 million of tax
net operating loss carryforwards. The net operating loss carryforwards will
expire as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------- -----------
<S> <C>
2010....................................................... $ 2,200,000
2011....................................................... 2,900,000
2012....................................................... 1,900,000
2013....................................................... 3,100,000
2018....................................................... 6,000,000
-----------
Total...................................................... $16,100,000
-----------
-----------
</TABLE>
Utilization of these carryforwards is dependent on the future profitability
of the Company and may be limited if certain changes in ownership occur. If
certain substantial changes in the Company's ownership should occur, or have
already occurred, there would be an annual limitation in the amount of tax net
operating loss carryforwards which could be utilized.
The composition of net deferred tax assets at December 31, 1998 and 1997,
is as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Tax net operating loss carryforward.... $ 6,052,874 $ 3,568,212
Software sale.......................... 607,055 607,055
Organization costs..................... 29,881 59,682
Provision for losses................... 181,969 71,340
Property and equipment................. 37,650 57,533
Other.................................. 10,915 67,042
----------- -----------
6,920,344 4,430,864
Valuation allowance......................... (6,479,601) (4,190,362)
----------- -----------
Net deferred tax asset................. 440,743 240,502
Deferred tax liabilities:
Capitalized software development
costs................................ 440,743 240,502
----------- -----------
Total............................. $ -- $ --
----------- -----------
----------- -----------
</TABLE>
A 100 percent valuation allowance was established against the net deferred
tax asset at December 31, 1998 and 1997.
(17) RELATED PARTIES
The Company has a consulting agreement with a consulting firm of which the
two principle owners are shareholders of the Company. Total consulting fees
expensed related to this consulting firm were $604,600, $300,100 and $266,000
for the years ended December 31, 1998, 1997 and 1996, respectively. As of
December 31, 1998, total unpaid fees for services rendered during 1998 under
such agreement totaled $115,000.
(18) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value.
F-28
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(18) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
Financial instruments include such items as mortgage loans available for
sale, warehouse notes payable and other instruments.
Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and the relevant market
information. Where available, quoted market prices are used. In other cases,
fair values are based on estimates using other valuation techniques, such as
discounting estimated future cash flows using a rate commensurate with the risks
involved or other acceptable methods. These techniques involve uncertainties and
are significantly affected by the assumptions used and the judgements made
regarding risk characteristics of various financial instruments, prepayments,
discount rates, estimates of future cash flows, future expected loss experience,
and other factors. Changes in assumptions could significantly affect these
estimates. Derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in an immediate
sale of the instrument. Also, because of differences in methodologies and
assumption used to estimate fair value, the Company's fair values should not be
compared to those of other companies.
Under the Statement, fair value estimates are based on existing financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Accordingly, the aggregate fair value amount presented
does not represent the underlying value of the Company. For certain assets and
liabilities, the information required under the Statement is supplemental with
additional information relevant to an understanding of the fair value.
The methods and assumptions used to estimate the fair values of each class
of financial instruments are as follows:
Cash and Cash Equivalents
The carrying amount reported in the balance sheet approximates fair
value.
Mortgage Loans Available For Sale, Net
Fair values are based on the estimated value at which the loans could
be sold in the secondary market. These loans are priced to be sold with
servicing rights released, as is the Company's normal business practice.
Accounts and Notes Receivable, Net
Carrying amounts are considered to approximate fair value. All amounts
that are assumed to be uncollectible within a reasonable time are written
off and or reserved.
Warehouse Notes Payable
The carrying amount of warehouse notes payable reported in the balance
sheet approximates its fair value.
Note Payable
Fair value of note payable is estimated by discounting estimated
future cash flows using a rate commensurate with the risks involved.
Subordinated Debt
Fair value is estimated using the estimated fair value of the
preferred stocks into which the subordinated debt can be converted.
Lines of Credit
The carrying amount of amounts outstanding on lines of credit is
estimated by discounting estimated future cash flows using a rate
commensurate with the risks involved.
F-29
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(18) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
The estimated fair values of the Company's financial investments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 3,412,283 $ 3,412,283 $ 1,679,722 $ 1,679,722
Mortgage loans available for sale, net.. 176,372,516 177,167,458 73,737,933 74,316,028
Accounts and notes receivable, net...... 1,243,571 1,243,571 1,228,762 1,228,762
LIABILITIES
Warehouse notes payable................. $171,777,572 $171,777,572 $72,223,912 $72,223,912
Note payable............................ 288,701 295,934 70,833 70,833
Lines of credit......................... 1,565,778 1,565,778 395,899 395,899
Subordinated debt....................... 100,000 333,350 2,500,000 2,500,000
</TABLE>
(19) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company is obligated under various operating lease agreements relating
to branch and executive offices and equipment. Lease terms expire during the
years 1998 to 2003, subject to renewal options. The following is a schedule of
future minimum rental payments under non-cancelable operating leases for office
space and equipment as of December 31, 1998:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------ ----------
<S> <C>
1999........................................................ $2,342,000
2000........................................................ 1,940,000
2001........................................................ 1,449,000
2002........................................................ 1,089,000
2003 and thereafter......................................... 896,000
----------
Total minimum payments................................. $7,716,000
----------
----------
</TABLE>
Beginning in 1998, the Company is obligated under various capital lease
agreements relating to computer equipment, furniture and leasehold improvements.
Lease terms are from 36 to 42 months and expire from 1999 to 2002, subject to
renewal options.
At December 31, 1998 and 1997, the gross amount of equipment, furniture and
leasehold improvements and related accumulated amortization recorded under
capital leases is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- --------
<S> <C> <C>
Computer hardware and software...................................... $1,101,804 $310,231
Furniture and fixtures.............................................. 322,420 --
Telephone equipment................................................. 526,947 --
Leasehold improvements.............................................. 107,265 --
---------- --------
2,058,436 310,231
Less: accumulated amortization...................................... (397,089) --
---------- --------
$1,661,347 $310,231
---------- --------
---------- --------
</TABLE>
F-30
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(19) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The following is a schedule of future minimum rental payments under capital
leases as of December 31, 1998:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------ ----------
<S> <C>
1999........................................................ $ 829,000
2000........................................................ 704,000
2001........................................................ 447,000
2002........................................................ 70,000
2003 and thereafter......................................... --
----------
Total minimum lease payments................................ 2,050,000
Less amount representing interest at 12%.................... (502,000)
----------
Present value of net minimum capital lease payments......... 1,548,000
Less current installments of obligations under capital
leases.................................................... (665,000)
----------
Obligations under capital leases excluding current
installments.............................................. $ 883,000
----------
----------
</TABLE>
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$1,343,053, $739,805 and $453,029, respectively. Included in the rent for 1998
is $647,577 relating to the capital leases.
(b) Litigation
The Company is a defendant in various lawsuits arising during the ordinary
course of business. Management has consulted with legal counsel and is of the
opinion, based on legal counsel's advice, that none of these matters will have a
material adverse effect on the financial position of the Company. Where
appropriate, the Company has adequately reserved for fees and costs.
(c) Software Rights
The Company sold its CLOser software to a customer under a financing
arrangement whereby the Company retained licensing rights to the software and a
repurchase option. Under certain events, including a public offering of stock in
the Company, the Company is required to repurchase the CLOser software for $3.5
million.
(d) Other
On December 3, 1996, the Company entered into a partnership agreement whose
primary function is the ownership of rental office space in Plantation, Florida.
The Company had a 25% interest in this partnership and entered into a ten-year
lease for approximately 22% of the rentable space in the partnership's office
building. In addition, the partnership committed to reimburse the Company for
approximately $146,000 in rental expense in 1997 attributable to the Company's
prior leased headquarters. During 1997, the Company sold its investment in the
partnership for $247,000.
The Company has entered into arrangements with certain employees and third
parties which provide for profit sharing based on results of operations of
specified products or divisions of the Company. In conjunction with these
arrangements, the Company has also entered into employment and noncompetitive
agreements with certain individuals.
(20) SUBSEQUENT EVENTS
During the three month period ended March 31, 1999 (unaudited), the
Company's Board of Directors authorized management of the Company to file a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public.
F-31
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(21) YEAR 2000
Many currently installed computer systems and software products are
designed to accept only two digit entries in the date code field. As a result,
they may have problems properly recognizing 1/1/00 as January 1, 2000. In less
than a year, computer systems and/or software used by many companies may need to
be upgraded to comply with "Year 2000" or "Y2K" requirements. Significant
uncertainty exists concerning the potential effects associated with the Year
2000 issue on business operations.
In early 1998, the Company commenced a program to review the Y2K compliance
status of the software and systems used in its internal business processes, its
technology platforms licensed to others and other systems and services provided
by third-party vendors on which the Company is reliant. The assessment and the
research and strategy phases of the program have been completed and strategies
are being implemented, including the development of contingency plans for
potential third-party Y2K compliance problems that management believes could
affect business continuity. There can be no assurance that all potential Y2K
effects on the Company's business will be anticipated or identified by the
program or that contingency plans developed will be effective.
The Company has fully integrated Y2K testing into the development process
for all of its own software. The Company believes that the entire technology
platform on which it operates and which provides for use by clients is generally
Y2K compliant. In certain circumstances, the Company has warranted to customers
that the use or occurrence of dates on or after January 1, 2000, will not
adversely affect the performance of the Company's systems with respect to the
ability to create, store, process and output information related to such data.
If any of these customers experience Y2K problems, such customers could assert
claims for damages against the Company.
To date the Company has not maintained a complete and separate budget for
investigation and remediation related to Y2K compliance of its own software and
underlying systems used in internal operations. The costs of the Company's Y2K
initiative have been incorporated into existing workloads and budgets within the
technology group and are not expected to be material to the Company's results of
operations or financial position. Management will develop a contingency plan in
the second and third quarter of 1999 based upon the results of supplier and
customer readiness reviews. To the extent the Company has not adequately
assessed its Y2K compliance deficiencies, additional and possibly significant
Company resources may be spent on investigating and remedying Y2K issues. The
expenditure of such resources may have a material adverse effect on the
Company's business, financial condition and results of operations.
(22) SEGMENT INFORMATION
The Company operates in two reportable business segments: the Direct to
Consumer reportable Segment, which includes the Mortgage.com internet web site
and retail mortgage brokerage operations, both of which originate mortgage loans
that are subsequently sold in the secondary market; and the Business to Business
reportable Segment, which includes back-office mortgage services for lenders,
realtors, homebuilders and software and internet conduits, technology platform
licenses to mortgage industry participants and the Openclose.com website that
enables brokers, correspondents and insurance companies to conduct their
business through a neutral internet site with selected financial institutions
using automated underwriting capabilities provided by the Federal National
Mortgage Association. The Business to Business reportable Segment generates
revenues by charging fees for these services. These segments are characterized
by the nature of their customers. Summarized financial information concerning
the business segments is shown in the following table: (Certain expenses that
are not directly attributable to the business channels have been reclassified to
Overhead in these tables.)
F-32
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(22) SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
DIRECT TO BUSINESS TO
TOTAL CONSUMER BUSINESS
------------ ----------- -----------
<S> <C> <C> <C>
Year ended December 31, 1998
Revenue:
Secondary marketing revenue, net................................. $ 28,597,825 $12,571,230 $16,026,595
Loan production and processing fees, net......................... 5,337,625 1,826,050 3,511,575
Management, technology and other fees............................ 1,868,202 -- 1,868,202
Net interest (expense) income.................................... (113,102) (217,118) 104,016
------------ ----------- -----------
Total revenue...................................................... 35,690,550 14,180,162 21,510,388
------------ ----------- -----------
Expenses:
Compensation and employee benefits............................... 23,640,569 10,732,442 12,908,127
Marketing........................................................ 1,324,760 613,465 711,295
Depreciation and amortization.................................... 742,661 240,424 502,237
General and administrative....................................... 7,997,176 3,007,596 4,989,580
------------ ----------- -----------
Total segment expenses........................................... 33,705,166 14,593,927 19,111,239
----------- -----------
Segment (loss)/income............................................ $ (413,765) $ 2,399,149
----------- -----------
Research and development not allocated to segments............... 2,888,159
Overhead expenses not allocated to segments...................... 5,175,013
------------
Total expenses..................................................... 41,768,338
------------
Net loss........................................................... $ (6,077,788)
------------
------------
Segment assets..................................................... $176,372,516 $93,324,622 $83,047,894
------------ ----------- -----------
------------ ----------- -----------
Year ended December 31, 1997
Revenue:
Secondary marketing revenue, net................................. $ 11,594,660 $ 4,997,935 $ 6,596,726
Loan production and processing fees, net......................... 2,347,321 788,358 1,558,963
Management, technology and other fees............................ 2,032,428 90 2,032,338
Net interest (expense) income.................................... 500,008 58,022 441,985
------------ ----------- -----------
Total revenue...................................................... 16,474,417 5,844,405 10,630,012
------------ ----------- -----------
Expenses:
Compensation and employee benefits............................... 12,057,725 4,781,058 7,276,667
Marketing........................................................ 57,586 51,007 6,579
Depreciation and amortization.................................... 318,704 91,236 227,468
General and administrative....................................... 3,258,339 714,118 2,544,221
------------ ----------- -----------
Total segment expenses........................................... 15,692,354 5,637,419 10,054,935
----------- -----------
Segment income................................................... $ 206,986 $ 575,077
----------- -----------
Research and development not allocated to segments............... 1,079,257
Overhead expenses not allocated to segments...................... 3,234,672
------------
Total expenses..................................................... 20,006,283
------------
Net loss........................................................... $ (3,531,866)
------------
------------
Segment assets..................................................... $ 73,737,933 $31,243,110 $42,494,823
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
F-33
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(22) SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
DIRECT TO BUSINESS TO
TOTAL CONSUMER BUSINESS
------------ ----------- ------------
<S> <C> <C> <C>
Year ended December 31, 1996
Revenue:
Secondary marketing revenue, net............................... $ 4,101,341 $ 1,466,111 $ 2,635,230
Loan production and processing fees, net....................... 820,469 256,766 563,703
Management, technology and other fees.......................... 2,577,296 (2,250) 2,579,546
Net interest (expense) income.................................. 17,203 18,826 (1,623)
------------ ----------- ------------
Total revenue.................................................... 7,516,309 1,739,453 5,776,855
------------ ----------- ------------
Expenses:
Compensation and employee benefits............................. 5,810,129 1,538,761 4,271,368
Marketing...................................................... 17,795 4,162 13,633
Depreciation and amortization.................................. 42,728 2,361 40,367
General and administrative..................................... 2,224,406 394,214 1,830,192
------------ ----------- ------------
Total segment expenses......................................... 8,095,058 1,939,498 6,155,560
----------- ------------
Segment loss................................................... $ (200,045) $ (378,705)
----------- ------------
Research and development not allocated to segments............. 496,568
Overhead expenses not allocated to segments.................... 2,942,858
------------
Total expenses................................................... 11,534,484
------------
Net loss......................................................... $ (4,018,175)
------------
------------
Segment assets................................................... $ 24,701,486 $ 3,705,223 $ 20,996,263
------------ ----------- ------------
------------ ----------- ------------
Three months ended March 31, 1999 (unaudited)
Revenue:
Secondary marketing revenue, net............................... $ 8,599,974 $ 2,421,061 $ 6,178,913
Loan production and processing fees, net....................... 2,598,337 533,640 2,064,697
Management, technology and other fees.......................... 1,991,360 -- 1,991,360
Net interest (expense) income.................................. 25,837 12,362 13,475
------------ ----------- ------------
Total revenue.................................................... 13,215,508 2,967,063 10,248,445
------------ ----------- ------------
Expenses:
Compensation and employee benefits............................. 8,753,356 2,507,748 6,245,608
Marketing...................................................... 1,349,337 350,964 998,373
Depreciation and amortization.................................. 384,764 91,277 293,487
General and administrative..................................... 2,987,684 505,815 2,481,869
------------ ----------- ------------
Total segment expenses......................................... 13,475,141 3,455,804 10,019,337
----------- ------------
Segment (loss)/income.......................................... $ (448,741) $ 229,108
----------- ------------
Research and development not allocated to segments............. 776,565
Overhead expenses not allocated to segments.................... 2,162,712
------------
Total expenses................................................... 16,414,418
------------
Net loss......................................................... $ 3,198,910
------------
------------
Segment assets................................................... $166,149,185 $52,436,683 $113,712,502
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
F-34
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(22) SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------ ------------
1998 1997 1996 1999
Total Assets ------------ ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total assets for reportable segments.............. $176,372,516 $73,737,933 $24,701,486 $166,149,185
Other assets not allocated to segments............ 17,065,193 8,189,037 6,009,641 22,655,978
------------ ----------- ----------- ------------
Total consolidated assets......................... $193,437,709 $81,926,970 $30,711,127 $188,805,163
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
Assets not allocated to reportable segments include all assets other than
mortgage loans available for sale, net. All segment revenues are from external
customers. Expenses not allocated to reportable segments include corporate
overhead related to facilities, general and administrative costs and executive
salaries. Certain costs are allocated between segments based on either the
number of loans processed and/or originated. Research and development costs are
not allocated as the development efforts are primarily related to the technology
platform which is used to support activities conducted by all segments.
F-35
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(23) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents the Company's statements of operation on a
quarterly basis for the years ended December 31, 1998 and 1997 (amounts in
thousands):
<TABLE>
<CAPTION>
QUARTER ENDED: MARCH JUNE SEPTEMBER DECEMBER
- ----------------------------------------------------------- ------- ------ ---------- ---------
<S> <C> <C> <C> <C>
1998:
Revenue:
Secondary marketing revenue, net...................... $ 5,407 $6,620 $ 7,632 $ 8,938
Loan production and processing fees, net.............. 922 1,278 1,329 1,809
Management, technology and other fees................. 546 649 539 134
Net interest (expense) income......................... (56) (22) 108 (143)
------- ------ -------- -------
Total revenue....................................... 6,819 8,525 9,608 10,738
------- ------ -------- -------
Expenses:
Compensation and employee benefits.................... 4,927 5,892 6,653 8,602
Marketing............................................. 85 258 454 539
Research and development.............................. 434 578 722 1,155
Depreciation and amortization......................... 154 268 337 1,114
General and administrative............................ 1,589 2,292 2,721 2,994
------- ------ -------- -------
Total expenses...................................... 7,189 9,288 10,887 14,404
------- ------ -------- -------
Net loss................................................. $ (370) $ (763) $ (1,279) $(3,666)
------- ------ -------- -------
------- ------ -------- -------
Net loss per share, basic and dilutive................... $ (0.83) $(1.16) $ (1.62) $ (3.56)
------- ------ -------- -------
------- ------ -------- -------
1997:
Revenue:
Secondary marketing revenue, net...................... $ 997 $2,116 $ 4,052 $ 4,430
Loan production and processing fees, net.............. 300 521 685 842
Management, technology and other fees................. 416 359 707 551
Net interest (expense) income......................... 144 137 155 63
------- ------ -------- -------
Total revenue....................................... 1,857 3,133 5,599 5,886
------- ------ -------- -------
Expenses:
Compensation and employee benefits.................... 1,754 2,534 4,067 4,728
Marketing............................................. 26 49 79 84
Research and development.............................. 162 216 269 432
Depreciation and amortization......................... 110 123 143 105
General and administrative............................ 869 1,205 1,574 1,478
------- ------ -------- -------
Total expenses...................................... 2,921 4,127 6,132 6,827
------- ------ -------- -------
Net loss................................................. $(1,064) $ (994) $ (533) $ (941)
------- ------ -------- -------
------- ------ -------- -------
Net loss per share, basic and dilutive................... $ (1.11) $(1.06) $ (0.67) $ (1.02)
------- ------ -------- -------
------- ------ -------- -------
</TABLE>
F-36
<PAGE>
[The graphic appearing here is a picture of the real estate section of a
newspaper with the Mortgage.com logo and slogan in the middle of the page.]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the registrant in connection with the sale of
the common stock being registered. All amounts are estimates, except for the
Securities and Exchange Commission registration fee, the NASD filing fee and the
Nasdaq listing fee. All of these costs and expenses will be borne by the
registrant.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee.................. $31,171
NASD filing fee................................................ 11,713
Nasdaq listing fee............................................. 5,000
Blue Sky fees and expenses..................................... *
Transfer agent expenses and fees............................... *
Printing and engraving......................................... *
Accountants' fees and expenses................................. *
Legal fees and expenses........................................ *
Miscellaneous.................................................. *
-------
TOTAL..................................................... $ *
-------
-------
</TABLE>
---------------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0850 of the Florida Business Corporation Act authorizes a court
to award, or permits a Florida corporation to grant, indemnity to present or
former directors and officers, as well as certain other persons serving at the
request of the corporation in related capacities. This permitted indemnity is
sufficiently broad to permit indemnification for liabilities arising under the
Securities Act of 1933, including reimbursement for expenses incurred.
The indemnification authorized under Florida law is not exclusive and is in
addition to any other rights granted to officers and directors under the
Articles of Incorporation or Bylaws of the corporation or any agreement between
officers and directors and the corporation. The registrant's Bylaws provide for
the indemnification of directors, former directors and officers to the maximum
extent permitted by Florida law. The registrant's Bylaws also provide that it
may purchase and maintain insurance on behalf of a director or officer against
liability asserted against the director or officer in such capacity. In
addition, the registrant has entered into Indemnification Agreements (Exhibits
10.32, 10.33 and 10.34 hereto) with each officer and director, other than John
Buscema. The Underwriting Agreement (Exhibit 1.1) also provides for
cross-indemnification among the registrant and the Underwriters with respect to
certain matters, including matters arising under the Securities Act.
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 foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against such public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act, and will be governed by the final adjudication
of such issues.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the registrant has sold the following
securities which were not registered under the Securities Act. The purchases and
sales were exempt pursuant to Section 4(2) of the Securities Act (and/or
Regulation D promulgated thereunder) as transactions by an issuer not involving
a public offering, where the purchasers represented their intention to acquire
the securities for investment only, not with a view to distribution, and
received or had access to adequate information about the registrant.
1. Between December 24, 1996 and June 30, 1997, the registrant issued
533,336 shares of Series C Preferred Stock to six accredited institutional
investors, Canaan Equity, L.P., Canaan Ventures II Limited Partnership, Canaan
Ventures II Offshore CV, Canaan Capital Limited Partnership, Canaan Capital
Offshore Limited Partnership, CV, and Dominion Fund III, for aggregate
consideration of approximately $4,000,000. In connection with this issuance and
sale, between December 24, 1996 and March 10, 1997, the registrant also issued
warrants to purchase 14,952 shares of common stock at $7.50 per share to Raymond
James and Associates, Inc. in consideration for its services as placement agent
in the sale of Series C Preferred Stock. The purchases and sales were exempt
pursuant to Rule 506 and Regulation D as transactions by an issuer not involving
a public offering, where the purchasers were accredited investors, represented
their intention to acquire the securities for investment only, not with a view
to distribution, and received or had access to adequate information about the
registrant.
2. As of June 30, 1997, the registrant issued 35,834 shares of common stock
to John Hogan in consideration for the merger of OnLine Capital into the
registrant. On January 1, 1998, the registrant issued an additional 35,834
shares of common stock to John Hogan pursuant to a clause in the OnLine Capital
merger agreement. As of January 1, 1998, the registrant issued 100,000 shares of
common stock to John Hogan in consideration of changing John Hogan's
compensation plan.
3. As of August 31, 1997, the registrant issued $1,500,000 in face amount
of 12% Senior Subordinated Convertible Notes due September 30, 2002 and warrants
to purchase 50,000 shares of common stock at $7.50 per share to two accredited,
institutional investors, Canaan Equity, L.P. and Dominion Fund III. The
purchases and sales were exempt pursuant to Rule 506 and Regulation D as
transactions by an issuer not involving a public offering, where the purchasers
were accredited investors, represented their intention to acquire the securities
for investment only, not with a view to distribution, and received or had access
to adequate information about the registrant.
4. As of December 31, 1997, the registrant issued 206,000 shares of Series
C Preferred Stock to two accredited, institutional investors, Canaan Equity,
L.P. and Dominion Fund III, upon their conversion of $1,500,000 in face amount
of 12% Senior Subordinated Convertible Notes due September 30, 2002. The
purchases and sales were exempt pursuant to Rule 506 and Regulation D as
transactions by an issuer not involving a public offering, where the purchasers
were accredited investors, represented their intention to acquire the securities
for investment only, not with a view to distribution and received or had access
to adequate information about the registrant.
5. As of January 30, 1998, the registrant issued $2,000,000 of 12% Senior
Subordinated Convertible Notes due January 31, 2003 and warrants to purchase
66,667 shares of common stock at $7.50 per share to two accredited,
institutional investors, Canaan Equity, L.P. and Dominion Fund III. The
purchases and sales were exempt pursuant to Rule 506 and Regulation D as
transactions by an issuer not involving a public offering, where the purchasers
were accredited investors, represented their intention to acquire the securities
for investment only, not with a view to distribution, and received or had access
to adequate information about the registrant.
6. As of March 31, 1998, the registrant issued 100,000 shares of common
stock to John Rodgers, Andrew Heller and Kyle Meyer as consideration for the
merger of RM Holdings, Inc. into the registrant. The merger agreement also
contained an earn-out provision which provided for the issuance of warrants to
purchase 100,000 shares of common stock at $7.50 per share, pursuant to a
formula. On December 31, 1998, the registrant issued warrants to purchase 29,126
shares of common stock at $7.50 per share to John Rodgers, Andrew Heller and
Kyle Meyer pursuant to the earn-out provision.
7. As of April 1, 1998 the registrant issued a warrant to purchase 300,000
shares of common stock at $5.00 per share and a warrant to purchase 100,000
shares of common stock at $7.50 per share to an accredited,
II-2
<PAGE>
institutional investor, Superior Bank, FSB, in consideration of services under
the Sale and Marketing Agreement between the registrant and Superior Bank dated
as of April 28, 1995, as amended.
8. As of April 15, 1998, the registrant issued a warrant to purchase 36,000
shares of common stock with an exercise price of $11.50 per share to FMN
Associates Limited Partnership in consideration for the settlement of a dispute.
9. As of April 15, 1998, the registrant issued warrants to purchase 21,000
shares of common stock with an exercise price of $7.50 per share and 44,000
shares of common stock to an accredited, institutional investor, Raymond James &
Associates, Inc., in settlement of a dispute regarding services as a placement
agent in connection with the sale of Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock.
10. As of April 1, 1998, the registrant issued a warrant to purchase 9,800
shares of Series D Preferred Stock with an exercise price of $11.50 per share to
an accredited, institutional investor, Dominion Fund III, as consideration for
the establishment of an equipment lease line of credit with an affiliate of
Dominion Fund III. As of November 20, 1998, the registrant issued a warrant to
purchase 8,850 shares of Series D Preferred Stock with an exercise price of
$11.50 per share to Dominion Capital Management, LLC, an affiliate of the
lessor, for an aggregate price of $672.60 in connection with an increase of
$925,000 in the equipment lease line of credit.
11. Between May 29, 1998 and August 31, 1998, the registrant issued
1,273,898 shares of Series D Preferred Stock to sixteen investors in exchange
for the retirement of $200,000 in face amount of 12% Senior Subordinated Notes
due January 31, 2003 and $14,900,000 in cash. The purchases and sales were
exempt pursuant to Rule 506 and Regulation D as transactions by an issuer not
involving a public offering, where the purchasers represented their intention to
acquire the securities for investment only, not with a view to distribution, and
received or had access to adequate information about the registrant.
12. As of January 1, 1999, the registrant issued 20,000 shares of common
stock to Credit.Com, LLC as partial consideration for the acquisition of the
domain name "www.mortgage.com".
13. As of February 9, 1999, the registrant issued an aggregate amount of
$2,000,000 of 12% Senior Subordinated Notes due February 9, 2000 and warrants to
purchase 6,668 shares common stock with an adjustable exercise price (initially
$30 per share) to eight accredited, institutional investors. The purchases and
sales were exempt pursuant to Rule 506 and Regulation D as transactions by an
issuer not involving a public offering, where the purchasers were accredited
investors, represented their intention to acquire the securities for investment
only, not with a view to distribution, and received or had access to adequate
information about the registrant.
14. As of February 26, 1999, the registrant issued an aggregate amount of
$8,000,000 of 12% Senior Subordinated Notes due February 26, 2001 and warrants
to purchase 53,334 shares of common stock with an adjustable exercise price
(initially $30 per share) to seven accredited, institutional investors. The
purchases and sales were exempt pursuant to Rule 506 and Regulation D as
transactions by an issuer not involving a public offering, where the purchasers
were accredited investors, represented their intention to acquire the securities
for investment only, not with a view to distribution, and received or had access
to adequate information about the registrant.
15. As of April 5, 1999, the registrant issued an aggregate amount of
$3,000,000 of 12% Senior Subordinated Notes due April 5, 1999 and a warrant to
purchase 20,004 shares of common stock with an adjustable exercise price
(initially $30 per share) to an accredited, institutional investor, TeleBanc
Capital Markets, Inc. The purchase and sale was exempt pursuant to Rule 506 and
Regulation D as a transaction by an issuer not involving a public offering,
where the purchaser was an accredited investor, represented its intention to
acquire the securities for investment only, not with a view to distribution, and
received or had access to adequate information about the registrant.
16. As of April 15, 1999, the registrant issued warrants to purchase an
aggregate of 4,000 shares of common stock with an exercise price equal to the
initial public offering price of the common stock in consideration for the
waiver by First Capital Corporation of Los Angeles and Mortgage Loan
Specialists, Inc. of their respective conversion rights pursuant to Technology
Member Correspondent Agreements dated as of November 1, 1998.
II-3
<PAGE>
17. As of April 30, 1999, the registrant issued 6,667 shares of common
stock to Harris Friedman in conversion of a 12% Convertible Subordinated
Debenture with a principal amount of $100,000 due May 1, 1999.
18. As of May 6, 1999, the registrant issued $27,500,000 in face amount of
12% Senior Subordinated Convertible Debentures, due May 6, 2001, convertible in
certain circumstances to common stock or Series E Preferred Stock, to an
accredited, institutional investor, Intuit Inc. The purchase and sale was exempt
pursuant to Rule 506 and Regulation D as a transaction by an issuer not
involving a public offering, where the purchaser was an accredited investor,
represented its intention to acquire the securities for investment only, not
with a view to distribution, and received or had access to adequate information
about the registrant.
19. As of May 28, 1999, the registrant issued 250,001 shares of its
Series F Preferred Stock to three accredited institutional investors, consisting
of affiliates of Dominion Fund III, Canaan Equity, L.P. and Technology Crossover
Ventures, for aggregate consideration of $15,000,000. The purchases and sales
were exempt pursuant to Rule 506 and Regulation D as transactions by an issuer
not involving a public offering, where the purchasers were accredited investors,
represented their intention to acquire the securities for investment only, not
with a view to distribution, and received or had access to adequate information
about the registrant.
20. Since May 1996, the registrant granted stock options to purchase
1,766,583 shares of common stock with exercise prices ranging from $5.50 to
$60.00 per share, to employees, directors, and consultants pursuant to the
registrant's employee stock option plan. As of May 1, 1997, the Registrant also
granted an option outside of the plan to an employee for 6,000 shares of common
stock with an exercise price of $5.50 per share as part of a severance
arrangement. Of these options, 625 have been exercised for an aggregate
consideration of $4,678.50. The issuance of common stock upon exercise of the
options was exempt either pursuant to Rule 701, as a transaction pursuant to a
compensatory benefit plan, or pursuant to Section 4(2) as a transaction by an
issuer not involving a public offering.
No underwriters were employed in any of the above transactions. Appropriate
legends were affixed to the share certificates and warrants issued in the
transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1* -- Form of Underwriting Agreement
3.1* -- Fourth Amended and Restated Articles of Incorporation
(a) Form of Amendment to Fourth Amended and Restated Articles of Incorporation
3.2 -- Amended and Restated Bylaws
4.1 -- $27,500,000 Note Purchase Agreement dated as of May 5, 1999
4.2 -- $8,000,000 Note Purchase Agreement dated as of February 26, 1999
4.3 -- $3,000,000 Note Purchase Agreement dated as of April 19, 1999
4.4 -- Registration Rights Agreement dated March 15, 1996, between the Registrant and Mason-McDuffie Real
Estate, Inc.
4.5 -- Registration Rights Agreement dated May 1, 1996, between the Registrant and Raymond James &
Associates, Inc.
4.6 -- Registration Rights Agreement dated as of January 1, 1998, between the Registrant and Credit.com,
LLC
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.7 -- Series B Preferred Stock Purchase Agreement dated as of March 29, 1996 among the Registrant,
purchasers of the Series B Preferred Stock, Purchasers of the Series C Preferred Stock, Purchasers
of the Series D Preferred Stock, Andrew Heller, Kyle Meyer, John T. Rodgers, TeleBanc Capital
Markets, Inc. and Dominion Fund IV, L.P.
(a) First Amendment to Series B Purchase Agreement
(b) Second Amendment to Series B Purchase Agreement
(c) Third Amendment to Series B Purchase Agreement
(d) Fourth Amendment to Series B Purchase Agreement
(e) Fifth Amendment to Series B Purchase Agreement
(f) Sixth Amendment to Series B Purchase Agreement
(g) Seventh Amendment to Series B Purchase Agreement
4.8* -- Specimen certificate for shares of the Registrant's common stock.
5.1* -- Legal Opinion of Foley & Lardner as to legality of securities
10.1* -- Employment Agreement between the Registrant and Seth S. Werner dated
10.2* -- Employment Agreement between the Registrant and John J. Hogan dated
10.3* -- Amended and Restated Employment Agreement between the Registrant and David Larson dated
10.4* -- Letter re Employment of John T. Rodgers dated May 21, 1999
(a) Noncompetition Agreement between the Registrant and John T. Rodgers
10.5* -- Noncompetition Agreement between the Registrant and John Buscema
10.6 -- Purchase and Sale Agreement dated April 7, 1995 among the Registrant, Morbank Financial Systems,
Inc., Globe Mortgage Company, John Buscema, and Financial Resources Group (a) Waiver of Rights to
Software
10.7 -- Amended and Restated Stock Option Plan (as of March 24, 1999)
10.8 -- Form of Stock Option Agreements under Employee Stock Option Plan
(a) Mortgage.com, Inc. (f/k/a First Mortgage Network, Inc.) Non-Qualified Stock Option Agreement
(b) Mortgage.com, Inc. (f/k/a First Mortgage Network, Inc.) Non-Qualified Stock Option Agreement
(For Employees of Network Members)
(c) Mortgage.com, Inc. (f/k/a First Mortgage Network, Inc.) Incentive Stock Option Agreement
(d) Mortgage.com, Inc. Non-Qualified Stock Option Agreement (Revised April 26, 1999)
(e) Mortgage.com, Inc. Non-Qualified Stock Option Agreement (For Employees of Network Members
Revised April 26, 1999)
(f) Mortgage.com, Inc. Incentive Stock Option Agreement (Revised April 26, 1999)
10.9 -- Superior Bank Warrant Repurchase Agreement between Registrant and Superior Bank, FSB dated May 4,
1999
10.10 -- Agreement between Registrant and Superior Bank, FSB dated as of April 1, 1998
10.11 -- Common Stock Warrant dated April 1, 1998 to Superior Bank, FSB to purchase 300,000 shares of
Common Stock at $5.00 per share
10.12 -- Common Stock Warrant dated April 1, 1998 to Superior Bank, FSB to purchase 100,000 shares of
Common Stock at $7.50 per share
10.13+ -- Amended and Restated Desktop Underwriter Seller/Servicer Software License and Subscription
Agreement between Registrant and Fannie Mae executed October 15, 1998
10.14+ -- Distribution, Marketing, Facilities and Service Agreement between Registrant and Intuit Lender
Services, Inc. dated as of May 31, 1998, as amended
10.15 -- Mortgage Loan Processing Agreement between the Registrant and Atlanta Internet Bank, FSB dated as
of April 1, 1998
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.16 -- Atlanta Internet Bank Mortgage Center Mortgage Loan Origination, Processing, Purchase and Sale
Agreement between Registrant and Atlanta Internet Bank, FSB dated as of April 1, 1998
10.17+ -- License, Staffing, Purchase and Sale Agreement between Registrant and Atlanta Internet Bank, FSB
dated as of April 1, 1998
10.18 -- Letter Agreement dated May 20, 1999, between the Registrant and NetBank
10.19 -- $2,000,000 Note Purchase Agreement dated as of February 9, 1999
10.20 -- Form of Common Stock Warrant dated August 31, 1997 with an exercise price of $7.50 per share
(50,000 shares)
10.21 -- Form of Common Stock Warrant dated January 30, 1998 with an exercise price of $7.50 per share
(66,667 shares)
10.22 -- Form of Warrant dated February 9, 1999 with an exercise price of $30.00 per share (6,668 shares)
10.23 -- Form of Warrant dated February 26, 1999 with an exercise price of $30.00 per share
(53,334 shares)
10.24 -- Form of Warrant dated April 19, 1999 with an exercise price of $30.00 per share (20,004 shares)
10.25+ -- Warehousing Credit and Security Agreement (Single-Family Mortgage Loans) between Registrant and
Bank United dated as of July 1, 1998
10.26+ -- First Amended and Restated Warehousing Credit and Security Agreement (Single Family Mortgage
Loans) between Registrant and Residential Funding Corporation dated as of June 8, 1998
(a) First Amendment to First Amended and Restated Warehousing Credit and Security Agreement
(Single Family Mortgage Loans)
(b) Second Amendment to First Amended and Restated Warehousing Credit and Security Agreement
(Single Family Mortgage Loans)
(c) Third Amendment to First Amended and Restated Warehousing Credit and Security Agreement
(Single Family Mortgage Loans)
(d) Fourth Amendment to First Amended and Restated Warehousing Credit and Security Agreement
(Single Family Mortgage Loans)
10.27 -- Master Lease Agreement between Dominion Ventures, Inc. and Registrant dated as of April 1, 1998
10.28+ -- $25,000,000 Warehouse Credit Agreement among Registrant, Cooper River Funding, Inc. and GE Capital
Mortgage Services, Inc. dated as of August 7, 1998
10.29 -- Amended and Restated Operating Agreement for the Northern California Division dated as of July 1,
1998, between the Registrant and Mason-McDuffie Real Estate, Inc.
10.30 -- Domain Name Assignment Agreement dated as of January 1, 1999, between the Registrant and
Credit.com, LLC
10.31+ -- Intuit Lender Services, Inc. Subprime Agreement for Distribution, Marketing, Facilities and
Services dated as of May 26, 1999, between the Registrant and Intuit Lender Services, Inc.
10.32 -- Form of Director Indemnification Agreement dated as of April 15, 1999
10.33 -- Form of Director/Officer Indemnification Agreement dated as of April 15, 1999
10.34 -- Form of Officer Indemnification Agreement dated as of April 15, 1999
21.1 -- List of Subsidiaries
23.1 -- Consent of KPMG LLP
23.2 -- Consent of Foley & Lardner (included in Exhibit 5.1)
24.1 -- Power of Attorney (included on signature page hereto)
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
(Footnotes on next page)
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
</TABLE>
(Footnotes from previous page)
- ------------------
* To be filed by amendment
+ Confidential treatment requested
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules for which provision is made in the applicable accounting
regulations of the Securites and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act 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.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANTATION,
STATE OF FLORIDA, ON MAY 28, 1999.
MORTGAGE.COM, INC.
By: /s/ SETH S. WERNER
----------------------------------
Seth S. Werner
Chairman, President and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS BELOW
CONSTITUTES AND APPOINTS SETH S. WERNER, JOHN HOGAN AND EDWIN JOHNSON, AND EACH
OF THEM INDIVIDUALLY, AS HIS OR HER TRUE AND LAWFUL ATTORNEYS-IN-FACT AND
AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM OR HER AND
IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND
ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION
STATEMENT AND ANY RULE 462(B) REGISTRATION STATEMENT AND TO FILE THE SAME, WITH
ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN CONNECTION THEREWITH,
AS FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR COULD DO IN PERSON,
HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR
ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE
TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<C> <S> <C>
/s/ SETH S. WERNER Chairman of the Board, President and Chief May 28, 1999
- ------------------------------------------ Executive Officer
Seth S. Werner
/s/ JOHN HOGAN Executive Vice President and Director May 28, 1999
- ------------------------------------------
John Hogan
/s/ DAVID W. LARSON Executive Vice President and Director May 28, 1999
- ------------------------------------------
David W. Larson
/s/ GEORGE A. NADDAFF Vice-Chairman of the Board May 28, 1999
- ------------------------------------------
George A. Naddaff
/s/ EDWIN JOHNSON Senior Vice President, Chief Financial May 28, 1999
- ------------------------------------------ Officer and Chief Accounting Officer
Edwin Johnson
/s/ STEPHEN GREEN Director May 28, 1999
- ------------------------------------------
Stephen Green
/s/ MICHAEL K. LEE Director May 28, 1999
- ------------------------------------------
Michael K. Lee
</TABLE>
II-8
Ex-3.2
AMENDED AND RESTATED
BYLAWS
OF
MORTGAGE.com, INC.
(a Florida corporation)
Adopted May 27, 1999
(contingent upon completion of the Company's Initial Public Offering)
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE 1
Definitions
<S> <C> <C>
Section 1.1. Definitions..........................................................................................5
ARTICLE 2
Offices
Section 2.1. Principal and Business Offices.......................................................................5
Section 2.2. Registered Office....................................................................................5
ARTICLE 3
Shareholders
Section 3.1. Annual Meeting.......................................................................................6
Section 3.2. Special Meetings.....................................................................................6
Section 3.3. Place of Meeting.....................................................................................6
Section 3.4. Notice of Meeting....................................................................................6
Section 3.5. Waiver of Notice ....................................................................................7
Section 3.6. Fixing of Record Date ...............................................................................7
Section 3.7. Shareholders'List for Meetings.......................................................................8
Section 3.8. Quorum...............................................................................................9
Section 3.9. Voting of Shares....................................................................................10
Section 3.10. Vote Required......................................................................................10
Section 3.11. Conduct of Meeting.................................................................................10
Section 3.12. Inspectors of Election.............................................................................10
Section 3.13. Proxies............................................................................................11
Section 3.14. Shareholder Nominations and Proposals..............................................................11
Section 3.15. Action by Shareholders Without Meeting.............................................................11
Section 3.16. Acceptance of Instruments Showing Shareholder Action...............................................12
<PAGE>
ARTICLE 4
Board of Directors
Section 4.1. General Powers and Number...........................................................................13
Section 4.2. Qualifications......................................................................................13
Section 4.3. Term of Office......................................................................................13
Section 4.4. Removal.............................................................................................14
Section 4.5. Resignation.........................................................................................14
Section 4.6. Vacancies...........................................................................................14
Section 4.7. Compensation........................................................................................14
Section 4.8. Regular Meetings....................................................................................14
Section 4.9. Special Meetings....................................................................................15
Section 4.10. Notice.............................................................................................15
Section 4.11. Waiver of Notice...................................................................................15
Section 4.12. Quorum and Voting..................................................................................15
Section 4.13. Conduct of Meetings................................................................................15
Section 4.14. Committees ........................................................................................16
Section 4.15. Action Without Meeting.............................................................................17
ARTICLE 5
Officers
Section 5.1. Number..............................................................................................17
Section 5.2. Election and Term of Office.........................................................................17
Section 5.3. Removal.............................................................................................17
Section 5.4. Resignation.........................................................................................18
Section 5.5. Vacancies...........................................................................................18
-2-
<PAGE>
Section 5.6. Chief Executive Officer.............................................................................18
Section 5.7. President...........................................................................................18
Section 5.8. Vice Presidents.....................................................................................19
Section 5.9. Secretary...........................................................................................19
Section 5.10. Treasurer..........................................................................................20
Section 5.11. Assistant Secretaries and Assistant Treasurers.....................................................20
Section 5.12. Other Assistants and Acting Officers...............................................................20
Section 5.13. Salaries...........................................................................................20
ARTICLE 6
Contracts, Checks and Deposits; Special Corporate Acts
Section 6.1. Contracts...........................................................................................20
Section 6.2. Checks, Drafts, etc.................................................................................21
Section 6.3. Deposits............................................................................................21
Section 6.4. Voting of Securities Owned by Corporation...........................................................21
ARTICLE 7
Certificates for Shares; Transfer of Shares
Section 7.1. Consideration for Shares............................................................................21
Section 7.2. Certificates for Shares.............................................................................22
Section 7.3. Transfer of Shares..................................................................................22
Section 7.4. Restrictions on Transfer............................................................................23
Section 7.5. Lost, Destroyed, or Stolen Certificates.............................................................23
Section 7.6. Stock Regulations...................................................................................23
ARTICLE 8
Seal
Section 8.1. Seal................................................................................................23
-3-
<PAGE>
ARTICLE 9
Books and Records
Section 9.1. Books and Records...................................................................................23
Section 9.2. Shareholders'Inspection Rights......................................................................24
Section 9.3. Distribution of Financial Information...............................................................24
Section 9.4. Other Reports.......................................................................................24
ARTICLE 10
Indemnification
Section 10.1. Provision of Indemnification.......................................................................24
ARTICLE 11
Amendments
Section 11.1. Power to Amend.....................................................................................25
Section 11.2. Implied Amendments.................................................................................25
</TABLE>
-4-
<PAGE>
ARTICLE 1
Definitions
Section 1.1. Definitions. The following terms shall have the following
meanings for purposes of these bylaws:
"Act" means the Florida Business Corporation Act, as it may be
amended from time to time, or any successor legislation thereto.
"Deliver" or "delivery" includes delivery by hand; United
States mail; facsimile, telegraph, teletype or other form of electronic
transmission; and private mail carriers handling nationwide mail services.
"Distribution" means a direct or indirect transfer of money or
other property (except shares in the corporation) or an incurrence of
indebtedness by the corporation to or for the benefit of shareholders in respect
of any of the corporation's shares. A distribution may be in the form of a
declaration or payment of a dividend; a purchase, redemption, or other
acquisition of shares; a distribution of indebtedness; or otherwise.
"Principal office" means the office (within or without the
State of Florida) where the corporation's principal executive offices are
located.
"Voting group" means (a) as to any matters with respect to
which Florida law does not require class voting or the Articles of Incorporation
do not grant a class vote to any class or series of Preferred Stock, the Common
Stock and the Preferred Stock, voting together as a single class, and (b) as to
any matters with respect to which Florida law requires class voting or the
Articles of Incorporation grant a class vote to any class or series of Preferred
Stock or, in the event that one or more classes or series of Preferred Stock
shall be outstanding, all the shares of one or more classes or series of the
corporation's stock that are entitled to vote and be counted together.
ARTICLE 2
Offices
Section 2.1. Principal and Business Offices. The corporation may have
such principal and other business offices, either within or without the State of
Florida, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
Section 2.2. Registered Office. The registered office of the
corporation required by the Act to be maintained in the State of Florida may but
need not be identical with the principal office if located in the State of
Florida, and the address of the registered office may be changed from time to
time by the Board of Directors or by the registered agent. The business office
of the registered agent of the corporation shall be identical to such registered
office.
-5-
<PAGE>
ARTICLE 3
Shareholders
Section 3.1. Annual Meeting. The annual meeting of shareholders shall
be held within four months after the close of each fiscal year of the
corporation on a date and at a time and place designated by the Board of
Directors, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the election of directors
shall not be held on the day fixed as herein provided for any annual meeting of
shareholders, or at any adjournment thereof, the Board of Directors shall cause
the election to be held at a special meeting of shareholders as soon thereafter
as is practicable.
Section 3.2. Special Meetings.
(a) Call by Directors or Chief Executive Officer or President. Special
meetings of shareholders, for any purpose or purposes, may be called by the
Board of Directors, the Chairman of the Board (if any), the Chief Executive
Officer or the President.
(b) Call by Shareholders. The corporation shall call a special meeting
of shareholders in the event that the holders of at least ten percent of all of
the votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting, sign, date, and deliver to the Secretary one or more
written demands for the meeting describing one or more purposes for which it is
to be held. The corporation shall give notice of such a special meeting within
sixty days after the date that the demand is delivered to the corporation.
Section 3.3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Florida, as the place of meeting
for any annual or special meeting of shareholders. If no designation is made,
the place of meeting shall be the principal office of the corporation.
Section 3.4. Notice of Meeting.
(a) Content and Delivery. Written notice stating the date, time, and
place of any meeting of shareholders and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten days nor more than sixty days before the date of the meeting by or at
the direction of the Chief Executive Officer, President or the Secretary, or the
officer or persons duly calling the meeting, to each shareholder of record
entitled to vote at such meeting and to such other persons as required by the
Act. Unless the Act requires otherwise, notice of an annual meeting need not
include a description of the purpose or purposes for which the meeting is
called. If mailed, notice of a meeting of shareholders shall be deemed to be
delivered when deposited in the United States mail, addressed to the shareholder
at his or her address as it appears on the stock record books of the
corporation, with postage thereon prepaid.
-6-
<PAGE>
(b) Notice of Adjourned Meetings. If an annual or special meeting of
shareholders is adjourned to a different date, time, or place, the corporation
shall not be required to give notice of the new date, time, or place if the new
date, time, or place is announced at the meeting before adjournment; provided,
however, that if a new record date for an adjourned meeting is or must be fixed,
the corporation shall give notice of the adjourned meeting to persons who are
shareholders as of the new record date who are entitled to notice of the
meeting.
(c) No Notice Under Certain Circumstances. Notwithstanding the other
provisions of this Section, no notice of a meeting of shareholders need be given
to a shareholder if: (1) an annual report and proxy statement for two
consecutive annual meetings of shareholders, or (2) all, and at least two checks
in payment of dividends or interest on securities during a twelve-month period,
have been sent by first-class, United States mail, addressed to the shareholder
at his or her address as it appears on the share transfer books of the
corporation, and returned undeliverable. The obligation of the corporation to
give notice of a shareholders' meeting to any such shareholder shall be
reinstated once the corporation has received a new address for such shareholder
for entry on its share transfer books.
Section 3.5. Waiver of Notice.
(a) Written Waiver. A shareholder may waive any notice required by the
Act or these bylaws before or after the date and time stated for the meeting in
the notice. The waiver shall be in writing and signed by the shareholder
entitled to the notice, and be delivered to the corporation for inclusion in the
minutes or filing with the corporate records. Neither the business to be
transacted at nor the purpose of any regular or special meeting of shareholders
need be specified in any written waiver of notice.
(b) Waiver by Attendance. A shareholder's attendance at a meeting, in
person or by proxy, waives objection to all of the following: (1) lack of notice
or defective notice of the meeting, unless the shareholder at the beginning of
the meeting objects to holding the meeting or transacting business at the
meeting; and (2) consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
Section 3.6. Fixing of Record Date.
(a) General. The Board of Directors may fix in advance a date as the
record date for the purpose of determining shareholders entitled to notice of a
shareholders' meeting, entitled to vote, or take any other action. In no event
may a record date fixed by the Board of Directors be a date preceding the date
upon which the resolution fixing the record date is adopted or a date more than
seventy days before the date of meeting or action requiring a determination of
shareholders.
-7-
<PAGE>
(b) Special Meeting. The record date for determining shareholders
entitled to demand a special meeting shall be the close of business on the date
the first shareholder delivers his or her demand to the corporation.
(c) Shareholder Action by Written Consent. If no prior action is
required by the Board of Directors pursuant to the Act, the record date for
determining shareholders entitled to take action without a meeting shall be the
close of business on the date the first signed written consent with respect to
the action in question is delivered to the corporation, but if prior action is
required by the Board of Directors pursuant to the Act, such record date shall
be the close of business on the date on which the Board of Directors adopts the
resolution taking such prior action unless the Board of Directors otherwise
fixes a record date.
(d) Absence of Board Determination for Shareholders' Meeting. If the
Board of Directors does not determine the record date for determining
shareholders entitled to notice of and to vote at an annual or special
shareholders' meeting, such record date shall be the close of business on the
day before the first notice with respect thereto is delivered to shareholders.
(e) Adjourned Meeting. A record date for determining shareholders
entitled to notice of or to vote at a shareholders' meeting is effective for any
adjournment of the meeting unless the Board of Directors fixes a new record
date, which it must do if the meeting is adjourned to a date more than 120 days
after the date fixed for the original meeting.
(f) Certain Distributions. If the Board of Directors does not determine
the record date for determining shareholders entitled to a distribution (other
than one involving a purchase, redemption, or other acquisition of the
corporation's shares or a share dividend), such record date shall be the close
of business on the date on which the Board of Directors authorizes the
distribution.
Section 3.7. Shareholders' List for Meetings.
(a) Preparation and Availability. After a record date for a meeting of
shareholders has been fixed, the corporation shall prepare an alphabetical list
of the names of all of the shareholders entitled to notice of the meeting. The
list shall be arranged by class or series of shares, if any, and show the
address of and number of shares held by each shareholder. Such list shall be
available for inspection by any shareholder for a period of ten days prior to
the meeting or such shorter time as exists between the record date and the
meeting date, and continuing through the meeting, at the corporation's principal
office, at a place identified in the meeting notice in the city where the
-8-
<PAGE>
meeting will be held, or at the office of the corporation's transfer agent or
registrar, if any. A shareholder or his or her agent may, on written demand,
inspect the list, subject to the requirements of the Act, during regular
business hours and at his or her expense, during the period that it is available
for inspection pursuant to this Section. The corporation shall make the
shareholders' list available at the meeting and any shareholder or his or her
agent or attorney may inspect the list at any time during the meeting or any
adjournment thereof.
(b) Prima Facie Evidence. The shareholders' list is prima facie
evidence of the identity of shareholders entitled to examine the shareholders'
list or to vote at a meeting of shareholders.
(c) Failure to Comply. If the requirements of this Section have not
been substantially complied with, or if the corporation refuses to allow a
shareholder or his or her agent or attorney to inspect the shareholders' list
before or at the meeting, on the demand of any shareholder, in person or by
proxy, who failed to get such access, the meeting shall be adjourned until such
requirements are complied with.
(d) Validity of Action Not Affected. Refusal or failure to prepare or
make available the shareholders' list shall not affect the validity of any
action taken at a meeting of shareholders.
Section 3.8. Quorum.
(a) What Constitutes a Quorum. Shares entitled to vote as a separate
voting group may take action on a matter at a meeting only if a quorum of those
shares exists with respect to that matter. A majority of the votes entitled to
be cast on the matter shall constitute a quorum of the voting group for action
on that matter.
(b) Presence of Shares. Once a share is represented for any purpose at
a meeting, other than for the purpose of objecting to holding the meeting or
transacting business at the meeting, it is considered present for purposes of
determining whether a quorum exists for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for the
adjourned meeting.
(c) Adjournment in Absence of Quorum. Where a quorum is not present,
the holders of a majority of the shares represented and who would be entitled to
vote at the meeting if a quorum were present may adjourn such meeting from time
to time.
Section 3.9. Voting of Shares. Each share of Common Stock is entitled
to one vote on each matter voted on at a meeting of shareholders. In the event
that any classes or series of Preferred Stock shall be outstanding, such classes
or series shall have such voting rights, if any, as shall be set forth in the
articles of amendment creating the class or series and as shall be required in
the Act.
-9-
<PAGE>
Section 3.10. Vote Required.
(a) Matters Other Than Election of Directors. If a quorum exists,
except in the case of the election of directors, action on a matter shall be
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action, unless the Act requires a greater number of
affirmative votes.
(b) Election of Directors. Each director shall be elected by a
plurality of the votes cast at a meeting at which a quorum is present. Each
shareholder who is entitled to vote at an election of directors has the right to
vote the number of votes entitled to be cast by him or her for as many persons
as there are directors to be elected. Shareholders do not have a right to
cumulate their votes for directors.
Section 3.11. Conduct of Meeting. The Chairman of the Board of
Directors, and if there be none, or in his or her absence, the Chief Executive
Officer, or in his or her absence, the President, and in his or her absence, a
Vice President in the order provided under the Section of these bylaws titled
"Vice Presidents," and in their absence, any person chosen by the shareholders
present shall call a shareholders' meeting to order and shall act as presiding
officer of the meeting, and the Secretary of the corporation shall act as
secretary of all meetings of the shareholders, but, in the absence of the
Secretary, the presiding officer may appoint any other person to act as
secretary of the meeting. The presiding officer of the meeting shall have broad
discretion in determining the order of business at a shareholders' meeting. The
presiding officer's authority to conduct the meeting shall include, but in no
way be limited to, recognizing shareholders entitled to speak, calling for the
necessary reports, stating questions and putting them to a vote, calling for
nominations, and announcing the results of voting. The presiding officer also
shall take such actions as are necessary and appropriate to preserve order at
the meeting. The rules of parliamentary procedure need not be observed in the
conduct of shareholders' meetings; however, meetings shall be conducted in
accordance with accepted usage and common practice with fair treatment to all
who are entitled to take part.
Section 3.12. Inspectors of Election. Inspectors of election may be
appointed by the Board of Directors to act at any meeting of shareholders at
which any vote is taken. If inspectors of election are not so appointed, the
presiding officer of the meeting may, and on the request of any shareholder
shall, make such appointment. The inspectors of election shall determine the
number of shares outstanding, the voting rights with respect to each, the shares
represented at the meeting, the existence of a quorum, and the authenticity,
validity, and effect of proxies; receive votes, ballots, consents, and waivers;
hear and determine all challenges and questions arising in connection with the
vote; count and tabulate all votes, consents, and waivers; determine and
announce the result; and do such acts as are proper to conduct the election or
vote with fairness to all shareholders. No inspector, whether appointed by the
Board of Directors or by the person acting as presiding officer of the meeting,
need be a shareholder.
-10-
<PAGE>
Section 3.13. Proxies.
(a) Appointment. At all meetings of shareholders, a shareholder may
vote his or her shares in person or by proxy. A shareholder may appoint a proxy
to vote or otherwise act for the shareholder by signing an appointment form,
either personally or by his or her attorney-in-fact. If an appointment form
expressly provides, any proxy holder may appoint, in writing, a substitute to
act in his or her place. A telegraph, telex, or a cablegram, a facsimile
transmission of a signed appointment form, or a photographic, photostatic, or
equivalent reproduction of a signed appointment form is a sufficient appointment
form.
(b) When Effective. An appointment of a proxy is effective when
received by the Secretary or other officer or agent of the corporation
authorized to tabulate votes. An appointment is valid for up to eleven months
unless a longer period is expressly provided in the appointment form. An
appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest.
Section 3.14. Shareholder Nominations and Proposals. Any shareholder
nomination or proposal for action at a forthcoming shareholder meeting must be
delivered to the corporation no later than the deadline for submitting
shareholder proposals pursuant to Securities and Exchange Commission Regulations
Section 240.14a-8. The presiding officer at any shareholder meeting shall not be
required to recognize any proposal or nomination which did not comply with such
deadline.
Section 3.15. Action by Shareholders Without Meeting.
(a) Requirements for Written Consents. Any action required or permitted
by the Act to be taken at any annual or special meeting of shareholders may be
taken without a meeting, without prior notice, and without a vote if one or more
written consents describing the action taken shall be signed and dated by the
holders of outstanding stock entitled to vote thereon having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Such consents must be delivered to the principal office of the
corporation in Florida, the corporation's principal place of business, the
Secretary, or another officer or agent of the corporation having custody of the
books in which proceedings of meetings of shareholders are recorded. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the date of the earliest dated consent delivered in
the manner required herein, written consents signed by the number of holders
required to take action are delivered to the corporation by delivery as set
forth in this Section.
(b) Revocation of Written Consents. Any written consent may be revoked
prior to the date that the corporation receives the required number of consents
to authorize the proposed action. No revocation is effective unless in writing
and until received by the corporation at its principal office in Florida or its
principal place of business, or received by the Secretary or other officer or
agent having custody of the books in which proceedings of meetings of
shareholders are recorded.
-11-
<PAGE>
(c) Notice to Nonconsenting Shareholders. Within ten days after
obtaining such authorization by written consent, notice must be given in writing
to those shareholders who have not consented in writing or who are not entitled
to vote on the action. The notice shall fairly summarize the material features
of the authorized action and, if the action be such for which dissenters' rights
are provided under the Act, the notice shall contain a clear statement of the
right of shareholders dissenting therefrom to be paid the fair value of their
shares upon compliance with the provisions of the Act regarding the rights of
dissenting shareholders.
(d) Same Effect as Vote at Meeting. A consent signed under this Section
has the effect of a meeting vote and may be described as such in any document.
Whenever action is taken by written consent pursuant to this Section, the
written consent of the shareholders consenting thereto or the written reports of
inspectors appointed to tabulate such consents shall be filed with the minutes
of proceedings of shareholders.
Section 3.16. Acceptance of Instruments Showing Shareholder Action. If
the name signed on a vote, consent, waiver, or proxy appointment corresponds to
the name of a shareholder, the corporation, if acting in good faith, may accept
the vote, consent, waiver, or proxy appointment and give it effect as the act of
a shareholder. If the name signed on a vote, consent, waiver, or proxy
appointment does not correspond to the name of a shareholder, the corporation,
if acting in good faith, may accept the vote, consent, waiver, or proxy
appointment and give it effect as the act of the shareholder if any of the
following apply:
(a) The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
(b) The name signed purports to be that of an administrator, executor,
guardian, personal representative, or conservator representing the shareholder
and, if the corporation requests, evidence of fiduciary status acceptable to the
corporation is presented with respect to the vote, consent, waiver, or proxy
appointment;
(c) The name signed purports to be that of a receiver or trustee in
bankruptcy, or assignee for the benefit of creditors of the shareholder and, if
the corporation requests, evidence of this status acceptable to the corporation
is presented with respect to the vote, consent, waiver, or proxy appointment;
(d) The name signed purports to be that of a pledgee, beneficial owner,
or attorney-in-fact of the shareholder and, if the corporation requests,
evidence acceptable to the corporation of the signatory's authority to sign for
the shareholder is presented with respect to the vote, consent, waiver, or proxy
appointment; or
-12-
<PAGE>
(e) Two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.
The corporation may reject a vote, consent, waiver, or proxy appointment if the
Secretary or other officer or agent of the corporation who is authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
ARTICLE 4
Board of Directors
Section 4.1. General Powers and Number. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation managed under the direction of, the Board of Directors, at least two
of whom shall be Independent Directors. The number of directors may be fixed
from time to time by resolution of the Board of Directors. "Independent
Director" shall mean a person other than an officer or employee of the
corporation or its subsidiaries or any other individual having a relationship
which, in the opinion or the Board of Directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director.
Section 4.2. Qualifications. Directors must be natural persons who are
eighteen years of age or older but need not be residents of this state or
shareholders of the corporation.
Section 4.3. Term of Office. Each director shall hold office until the
next annual meeting of shareholders and until his or her successor shall have
been elected and, if necessary, qualified, or until there is a decrease in the
number of directors which takes effect after the expiration of his or her term,
or until his or her prior death, resignation or removal.
Section 4.4. Removal. A voting group may remove one or more directors
elected by such voting group, with or without cause. A director may be removed
by the applicable voting group at a meeting of shareholders, provided that the
notice of the meeting states that the purpose, or one of the purposes, of the
meeting is such removal.
Section 4.5. Resignation. A director may resign at any time by
delivering written notice to the Board of Directors or its Chairman (if any) or
to the corporation. A director's resignation is effective when the notice is
delivered unless the notice specifies a later effective date.
-13-
<PAGE>
Section 4.6. Vacancies.
(a) Who May Fill Vacancies. Whenever any vacancy occurs on the Board of
Directors, including a vacancy resulting from an increase in the number of
directors, it may be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors, or by
the shareholders. If the directors first fill a vacancy, the shareholders shall
have no further right with respect to that vacancy, and if the shareholders
first fill the vacancy, the directors shall have no further rights with respect
to that vacancy.
(b) Prospective Vacancies. A vacancy that will occur at a specific
later date, because of a resignation effective at a later date or otherwise, may
be filled before the vacancy occurs, but the new director may not take office
until the vacancy occurs.
Section 4.7. Compensation. The Board of Directors, irrespective of any
personal interest of any of its members, may establish reasonable compensation
of all directors for services to the corporation as directors, officers, or
otherwise, or may delegate such authority to an appropriate committee. The Board
of Directors also shall have authority to provide for or delegate authority to
an appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers, and employees
and to their families, dependents, estates, or beneficiaries on account of prior
services rendered to the corporation by such directors, officers, and employees.
Section 4.8. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw immediately after
the annual meeting of shareholders and each adjourned session thereof. The place
of such regular meeting shall be the same as the place of the meeting of
shareholders which precedes it, or such other suitable place as may be announced
at such meeting of shareholders. The Board of Directors may provide, by
resolution, the date, time, and place, either within or without the State of
Florida, for the holding of additional regular meetings of the Board of
Directors without other notice than such resolution.
Section 4.9. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board (if any), the Chief
Executive Officer, the President, or one-third of the members of the Board of
Directors. The person or persons calling the meeting may fix any place, either
within or without the State of Florida, as the place for holding any special
meeting of the Board of Directors, and if no other place is fixed, the place of
the meeting shall be the principal office of the corporation in the State of
Florida.
Section 4.10. Notice. Special meetings of the Board of Directors must
be preceded by at least two days' notice of the date, time, and place of the
meeting. The notice need not describe the purpose of the special meeting.
Section 4.11. Waiver of Notice. Notice of a meeting of the Board of
Directors need not be given to any director who signs a waiver of notice either
before or after the meeting. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting and waiver of any and all
objections to the place of the meeting, the time of the meeting, or the manner
in which it has been called or convened, except when a director states, at the
beginning of the meeting or promptly upon arrival at the meeting, any objection
to the transaction of business because the meeting is not lawfully called or
convened.
-14-
<PAGE>
Section 4.12. Quorum and Voting. A quorum of the Board of Directors
consists of a majority of the number of directors serving on the Board of
Directors. If a quorum is present when a vote is taken, the affirmative vote of
a majority of directors present is the act of the Board of Directors. A director
who is present at a meeting of the Board of Directors or a committee of the
Board of Directors when corporate action is taken is deemed to have assented to
the action taken unless: (a) he or she objects at the beginning of the meeting
(or promptly upon his or her arrival) to holding it or transacting specified
business at the meeting; or (b) he or she votes against or abstains from the
action taken.
Section 4.13. Conduct of Meetings.
(a) Presiding Officer. The Board of Directors may elect from among its
members a Chairman of the Board of Directors, who shall preside at meetings of
the Board of Directors. The Chairman, and if there be none, or in his or her
absence, the Chief Executive Officer, or in his or her absence, the President,
and in his or her absence, a Vice President in the order provided under the
Section of these bylaws titled "Vice Presidents," and in their absence, any
director chosen by the directors present, shall call meetings of the Board of
Directors to order and shall act as presiding officer of the meeting.
(b) Minutes. The Secretary of the corporation shall act as secretary of
all meetings of the Board of Directors but in the absence of the Secretary, the
presiding officer may appoint any other person present to act as secretary of
the meeting. Minutes of any regular or special meeting of the Board of Directors
shall be prepared and distributed to each director.
(c) Adjournments. A majority of the directors present, whether or not a
quorum exists, may adjourn any meeting of the Board of Directors to another time
and place. Notice of any such adjourned meeting shall be given to the directors
who are not present at the time of the adjournment and, unless the time and
place of the adjourned meeting are announced at the time of the adjournment, to
the other directors.
(d) Participation by Conference Call or Similar Means. The Board of
Directors may permit any or all directors to participate in a regular or a
special meeting by, or conduct the meeting through the use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
-15-
<PAGE>
Section 4.14. Committees. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members an executive committee and one or more other committees (which may
include, by way of example and not as a limitation, a Compensation Committee and
an Audit Committee) each of which, to the extent provided in such resolution,
shall have and may exercise all the authority of the Board of Directors, except
that no such committee shall have the authority to:
(a) approve or recommend to shareholders actions or proposals required
by the Act to be approved by shareholders;
(b) fill vacancies on the Board of Directors or any committee thereof;
(c) adopt, amend, or repeal these bylaws;
(d) authorize or approve the reacquisition of shares unless pursuant to
a general formula or method specified by the Board of Directors; or
(e) authorize or approve the issuance or sale or contract for the sale
of shares, or determine the designation and relative rights, preferences, and
limitations of a voting group except that the Board of Directors may authorize a
committee (or a senior executive officer of the corporation) to do so within
limits specifically prescribed by the Board of Directors.
Each committee must have two or more members, who shall serve at the pleasure of
the Board of Directors. The Board of Directors, by resolution adopted in
accordance with this Section, may designate one or more directors as alternate
members of any such committee, who may act in the place and stead of any absent
member or members at any meeting of such committee. The provisions of these
bylaws which govern meetings, notice and waiver of notice, and quorum and voting
requirements of the Board of Directors apply to committees and their members as
well.
Section 4.15. Action Without Meeting. Any action required or permitted
by the Act to be taken at a meeting of the Board of Directors or a committee
thereof may be taken without a meeting if the action is taken by all members of
the Board or of the committee. The action shall be evidenced by one or more
written consents describing the action taken, signed by each director or
committee member and retained by the corporation. Such action shall be effective
when the last director or committee member signs the consent, unless the consent
specifies a different effective date. A consent signed under this Section has
the effect of a vote at a meeting and may be described as such in any document.
-16-
<PAGE>
ARTICLE 5
Officers
Section 5.1. Number. The principal officers of the corporation shall be
a Chief Executive Officer, President, the number of Vice Presidents, if any, as
authorized from time to time by the Board of Directors, a Secretary, and a
Treasurer, each of whom shall be elected by the Board of Directors. The Chief
Executive Officer and the President shall be the executive officers of the
corporation responsible for all policy making functions, under the direction of
the Board of Directors. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the Board of Directors. The
Board of Directors may also authorize any duly appointed officer to appoint one
or more officers or assistant officers. The same individual may simultaneously
hold more than one office.
Section 5.2. Election and Term of Office. The officers of the
corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as is
practicable. Each officer shall hold office until his or her successor shall
have been duly elected or until his or her prior death, resignation, or removal.
Section 5.3. Removal. The Board of Directors may remove any officer
and, unless restricted by the Board of Directors, an officer may remove any
officer or assistant officer appointed by that officer, at any time, with or
without cause and notwithstanding the contract rights, if any, of the officer
removed. The appointment of an officer does not of itself create contract
rights.
Section 5.4. Resignation. An officer may resign at any time by
delivering notice to the corporation. The resignation shall be effective when
the notice is delivered, unless the notice specifies a later effective date and
the corporation accepts the later effective date. If a resignation is made
effective at a later date and the corporation accepts the future effective date,
the pending vacancy may be filled before the effective date but the successor
may not take office until the effective date.
Section 5.5. Vacancies. A vacancy in any principal office because of
death, resignation, removal, disqualification, or otherwise, shall be filled as
soon thereafter as practicable by the Board of Directors for the unexpired
portion of the term.
Section 5.6. Chief Executive Officer. The Chief Executive Officer shall
be the principal executive officer of the corporation and, subject to the
direction of the Board of Directors, shall in general supervise all of the
business operations and affairs of the corporation, the daily operations of
which shall be under the control of the President. The Chief Executive Officer
shall, when present, preside at all meetings of the shareholders. The Chief
Executive Officer shall have authority, subject to such rules as may be
prescribed by the Board of Directors, to direct the President in the performance
of the President's duties. The Chief Executive Officer shall have authority,
subject to such rules as may be prescribed by the Board of Directors, to appoint
-17-
<PAGE>
such agents and employees of the corporation as he shall deem necessary, to
prescribe their powers, duties and compensation, and to delegate authority to
them. Such agents and employees shall hold office at the discretion of the Chief
Executive Officer. The Chief Executive Officer shall have authority to sign
certificates for shares of the corporation the issuance of which shall have been
authorized by resolution of the Board of Directors, and to execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds,
contracts, leases, reports, and all other documents or instruments necessary or
proper to be executed in the course of the corporation's regular business, or
which shall be authorized by resolution of the Board of Directors; and except as
otherwise provided by law or the Board of Directors, the Chief Executive Officer
may authorize the President, any Vice President or other officer or agent of the
corporation to execute and acknowledge such documents or instruments in his
place and stead. In general, he or she shall perform all duties as may be
prescribed by the Board of Directors from time to time.
Section 5.7. President. The President shall be the principal operating
officer of the corporation and, subject to the direction of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. If the Chief Executive Officer is not present, the
President shall preside at all meetings of the shareholder. The President shall
have authority, subject to such rules as may be prescribed by the Board of
Directors, to appoint such agents and employees of the corporation as he or she
shall deem necessary, to prescribe their powers, duties and compensation, and to
delegate authority to them. Such agents and employees shall hold office at the
discretion of the President. The President shall have authority to sign
certificates for shares of the corporation the issuance of which shall have been
authorized by resolution of the Board of Directors, and to execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds,
contracts, leases, reports, and all other documents or instruments necessary or
proper to be executed in the course of the corporation's regular business, or
which shall be authorized by resolution of the Board of Directors; and, except
as otherwise provided by law or the Board of Directors or the Chief Executive
Officer, the President may authorize any Vice President or other officer or
agent of the corporation to execute and acknowledge such documents or
instruments in his or her place and stead. In general he or she shall perform
all duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 5.8. Vice Presidents. In the absence of the President or in the
event of the President's death, inability or refusal to act, or in the event for
any reason it shall be impracticable for the President to act personally, the
Vice President, if any (or in the event there be more than one Vice President,
the Vice Presidents in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election), shall perform
the duties of the President, and when so acting, shall have all the powers of
-18-
<PAGE>
and be subject to all the restrictions upon the President. Any Vice President
may sign certificates for shares of the corporation the issuance of which shall
have been authorized by resolution of the Board of Directors; and shall perform
such other duties and have such authority as from time to time may be delegated
or assigned to him or her by the President or by the Board of Directors. The
execution of any instrument of the corporation by any Vice President shall be
conclusive evidence, as to third parties, of his or her authority to act in the
stead of the President.
Section 5.9. Secretary. The Secretary shall: (a) keep, or cause to be
kept, minutes of the meetings of the shareholders and of the Board of Directors
(and of committees thereof) in one or more books provided for that purpose
(including records of actions taken by the shareholders or the Board of
Directors (or committees thereof) without a meeting); (b) be custodian of the
corporate records and of the seal of the corporation, if any, and if the
corporation has a seal, see that it is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (c)
authenticate the records of the corporation; (d) maintain a record of the
shareholders of the corporation, in a form that permits preparation of a list of
the names and addresses of all shareholders, by class or series of shares and
showing the number and class or series of shares held by each shareholder; (e)
have general charge of the stock transfer books of the corporation; and (f) in
general perform all duties incident to the office of Secretary and have such
other duties and exercise such authority as from time to time may be delegated
or assigned by the President or by the Board of Directors.
Section 5.10. Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the corporation;
(b) maintain appropriate accounting records; (c) receive and give receipts for
moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies, or other depositaries as shall be selected in accordance with the
provisions of these bylaws; and (d) in general perform all of the duties
incident to the office of Treasurer and have such other duties and exercise such
other authority as from time to time may be delegated or assigned by the
President or by the Board of Directors. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of his or her duties
in such sum and with such surety or sureties as the Board of Directors shall
determine.
Section 5.11. Assistant Secretaries and Assistant Treasurers. There
shall be such number of Assistant Secretaries and Assistant Treasurers as the
Board of Directors may from time to time authorize. The Assistant Treasurers
shall respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties and have such authority as
shall from time to time be delegated or assigned to them by the Secretary or the
Treasurer, respectively, or by the President or the Board of Directors.
-19-
<PAGE>
Section 5.12. Other Assistants and Acting Officers. The Board of
Directors shall have the power to appoint, or to authorize any duly appointed
officer of the corporation to appoint, any person to act as assistant to any
officer, or as agent for the corporation in his or her stead, or to perform the
duties of such officer whenever for any reason it is impracticable for such
officer to act personally, and such assistant or acting officer or other agent
so appointed by the Board of Directors or an authorized officer shall have the
power to perform all the duties of the office to which he or she is so appointed
to be an assistant, or as to which he or she is so appointed to act, except as
such power may be otherwise defined or restricted by the Board of Directors or
the appointing officer.
Section 5.13. Salaries. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors or by a duly authorized
committee thereof, and no officer shall be prevented from receiving such salary
by reason of the fact that he or she is also a director of the corporation.
ARTICLE 6
Contracts, Checks and Deposits; Special Corporate Acts
Section 6.1. Contracts. The Board of Directors may authorize any
officer or officers, or any agent or agents to enter into any contract or
execute or deliver any instrument in the name of and on behalf of the
corporation, and such authorization may be general or confined to specific
instances. In the absence of other designation, all deeds, mortgages, and
instruments of assignment or pledge made by the corporation shall be executed in
the name of the corporation by the President or one of the Vice Presidents; the
Secretary or an Assistant Secretary, when necessary or required, shall attest
and affix the corporate seal, if any, thereto; and when so executed no other
party to such instrument or any third party shall be required to make any
inquiry into the authority of the signing officer or officers.
Section 6.2. Checks, Drafts, etc. All checks, drafts or other orders
for the payment of money, notes, or other evidences of indebtedness issued in
the name of the corporation, shall be signed by such officer or officers, agent
or agents of the corporation and in such manner as shall from time to time be
determined by or under the authority of a resolution of the Board of Directors.
Section 6.3. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies, or other depositaries as may be selected by or
under the authority of a resolution of the Board of Directors.
Section 6.4. Voting of Securities Owned by Corporation. Subject always
to the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
-20-
<PAGE>
corporation may be voted at any meeting of security holders of such other
corporation by the President of this corporation if he or she be present, or in
his or her absence by any Vice President of this corporation who may be present,
and (b) whenever, in the judgment of the President, or in his or her absence, of
any Vice President, it is desirable for this corporation to execute a proxy or
written consent in respect of any such shares or other securities, such proxy or
consent shall be executed in the name of this corporation by the President or
one of the Vice Presidents of this corporation, without necessity of any
authorization by the Board of Directors, affixation of corporate seal, if any,
or countersignature or attestation by another officer. Any person or persons
designated in the manner above stated as the proxy or proxies of this
corporation shall have full right, power, and authority to vote the shares or
other securities issued by such other corporation and owned or controlled by
this corporation the same as such shares or other securities might be voted by
this corporation.
ARTICLE 7
Certificates for Shares; Transfer of Shares
Section 7.1. Consideration for Shares. The Board of Directors may
authorize shares to be issued for consideration consisting of any tangible or
intangible property or benefit to the corporation, including cash, promissory
notes, services performed, promises to perform services evidenced by a written
contract, or other securities of the corporation. Before the corporation issues
shares, the Board of Directors shall determine that the consideration received
or to be received for the shares to be issued is adequate. The determination of
the Board of Directors is conclusive insofar as the adequacy of consideration
for the issuance of shares relates to whether the shares are validly issued,
fully paid, and nonassessable. The corporation may place in escrow shares issued
for future services or benefits or a promissory note, or make other arrangements
to restrict the transfer of the shares, and may credit distributions in respect
of the shares against their purchase price, until the services are performed,
the note is paid, or the benefits are received. If the services are not
performed, the note is not paid, or the benefits are not received, the
corporation may cancel, in whole or in part, the shares escrowed or restricted
and the distributions credited.
Section 7.2. Certificates for Shares. Every holder of shares in the
corporation shall be entitled to have a certificate representing all shares to
which he or she is entitled unless the Board of Directors authorizes the
issuance of some or all shares without certificates. Any such authorization
shall not affect shares already represented by certificates until the
certificates are surrendered to the corporation. If the Board of Directors
authorizes the issuance of any shares without certificates, within a reasonable
time after the issue or transfer of any such shares, the corporation shall send
the shareholder a written statement of the information required by the Act to be
set forth on certificates, including any restrictions on transfer. Certificates
representing shares of the corporation shall be in such form, consistent with
the Act, as shall be determined by the Board of Directors. Such certificates
-21-
<PAGE>
shall be signed (either manually or in facsimile) by the Chief Executive
Officer, President or any Vice President or any other persons designated by the
Board of Directors and may be sealed with the seal of the corporation or a
facsimile thereof. All certificates for shares shall be consecutively numbered
or otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. Unless the
Board of Directors authorizes shares without certificates, all certificates
surrendered to the corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except as provided in these
bylaws with respect to lost, destroyed, or stolen certificates. The validity of
a share certificate is not affected if a person who signed the certificate
(either manually or in facsimile) no longer holds office when the certificate is
issued.
Section 7.3. Transfer of Shares. Prior to due presentment of a
certificate for shares for registration of transfer, the corporation may treat
the registered owner of such shares as the person exclusively entitled to vote,
to receive notifications, and otherwise to have and exercise all the rights and
power of an owner. Where a certificate for shares is presented to the
corporation with a request to register a transfer, the corporation shall not be
liable to the owner or any other person suffering loss as a result of such
registration of transfer if (a) there were on or with the certificate the
necessary endorsements, and (b) the corporation had no duty to inquire into
adverse claims or has discharged any such duty. The corporation may require
reasonable assurance that such endorsements are genuine and effective and
compliance with such other regulations as may be prescribed by or under the
authority of the Board of Directors.
Section 7.4. Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation as required by
the Act of any restriction imposed by the corporation upon the transfer of such
shares.
Section 7.5. Lost, Destroyed, or Stolen Certificates. Unless the Board
of Directors authorizes shares without certificates, where the owner claims that
certificates for shares have been lost, destroyed, or wrongfully taken, a new
certificate shall be issued in place thereof if the owner (a) so requests before
the corporation has notice that such shares have been acquired by a bona fide
purchaser, (b) files with the corporation a sufficient indemnity bond if
required by the Board of Directors or any principal officer, and (c) satisfies
such other reasonable requirements as may be prescribed by or under the
authority of the Board of Directors.
Section 7.6. Stock Regulations. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with law as they may deem expedient concerning the issue, transfer,
and registration of shares of the corporation.
-22-
<PAGE>
ARTICLE 8
Seal
Section 8.1. Seal. The Board of Directors may provide for a corporate
seal for the corporation.
ARTICLE 9
Books and Records
Section 9.1. Books and Records.
(a) The corporation shall keep as permanent records minutes of all
meetings of the shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a record
of all actions taken by a committee of the Board of Directors in place of the
Board of Directors on behalf of the corporation.
(b) The corporation shall maintain accurate accounting records.
(c) The corporation or its agent shall maintain a record of the
shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each.
(d) The corporation shall keep a copy of all written communications
within the preceding three years to all shareholders generally or to all
shareholders of a class or series, including the financial statements required
to be furnished by the Act, and a copy of its most recent annual report
delivered to the Department of State.
Section 9.2. Shareholders' Inspection Rights. Shareholders are entitled
to inspect and copy records of the corporation as permitted by the Act.
Section 9.3. Distribution of Financial Information. The corporation
shall prepare and disseminate financial statements to shareholders as required
by the Act.
Section 9.4. Other Reports. The corporation shall disseminate such
other reports to shareholders as are required by the Act, including reports
regarding indemnification in certain circumstances and reports regarding the
issuance or authorization for issuance of shares in exchange for promises to
render services in the future.
-23-
<PAGE>
ARTICLE 10
Indemnification
Section 10.1. Provision of Indemnification. The corporation shall, to
the fullest extent permitted or required by the Act, including any amendments
thereto (but in the case of any such amendment, only to the extent such
amendment permits or requires the corporation to provide broader indemnification
rights than prior to such amendment), indemnify its Directors and Executive
Officers against any and all Liabilities, and advance any and all reasonable
Expenses, incurred thereby in any Proceeding to which any such Director or
Executive Officer is a Party because he or she is or was a Director or Executive
Officer. The rights to indemnification granted hereunder shall not be deemed
exclusive of any other rights to indemnification against Liabilities or the
advancement of Expenses which a Director or Executive Officer may be entitled
under any written agreement, Board resolution, vote of shareholders, the Act, or
otherwise. The corporation may, but shall not be required to, supplement the
foregoing rights to indemnification against Liabilities and advancement of
Expenses by the purchase of insurance on behalf of any one or more of its
Directors or Executive Officers whether or not the corporation would be
obligated to indemnify or advance Expenses to such Director or Executive Officer
under this Article. For purposes of this Article, the term "Directors" includes
former directors of the corporation and any directors of the corporation who are
or were serving at the request of the corporation as directors, officers,
employees, or agents of another corporation, partnership, joint venture, trust,
or other enterprise, including, without limitation, any employee benefit plan
(other than in the capacity as agents separately retained and compensated for
the provision of goods or services to the enterprise, including, without
limitation, attorneys-at-law, accountants, and financial consultants). The term
"Executive Officers" refers to those persons described in Securities and
Exchange Commission Regulations Section 240.3b-7. All other capitalized terms
used in this Article and not otherwise defined herein shall have the meaning set
forth in Section 607.0850, Florida Statutes (1993). The provisions of this
Article are intended solely for the benefit of the indemnified parties described
herein, their heirs and personal representatives and shall not create any rights
in favor of third parties. No amendment to or repeal of this Article shall
diminish the rights of indemnification provided for herein prior to such
amendment or repeal.
ARTICLE 11
Amendments
Section 11.1. Power to Amend. These bylaws may be amended or repealed
by either the Board of Directors or the shareholders, unless the Act reserves
the power to amend these bylaws generally or any particular bylaw provision, as
the case may be, exclusively to the shareholders or unless the shareholders, in
amending or repealing these bylaws generally or any particular bylaw provision,
provide expressly that the Board of Directors may not amend or repeal these
bylaws or such bylaw provision, as the case may be.
-24-
<PAGE>
Section 11.2. Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors which would be inconsistent with the
bylaws then in effect but which is taken or authorized by affirmative vote of
not less than the number of shares or the number of directors required to amend
the bylaws so that the bylaws would be consistent with such action shall be
given the same effect as though the bylaws had been temporarily amended or
suspended so far, but only so far, as is necessary to permit the specific action
so taken or authorized.
-25-
$27,500,000 NOTE PURCHASE AGREEMENT
dated as of May 5, 1999
between
MORTGAGE.COM, INC.
and INTUIT INC.
<PAGE>
TABLE OF CONTENTS
-----------------
1. PURCHASE, SALE AND TERMS OF NOTE........................................ 1
1.01. Authorization of Notes........................................ 1
1.02. The Shares.................................................... 1
1.03. Purchase Price and Closing.................................... 1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 2
2.01. Organization, Standing and Power.............................. 2
2.02. Authority; Enforceability No Conflict......................... 2
2.03. Capitalization................................................ 3
2.04. Subsidiaries.................................................. 6
2.05. Status of Note and Shares..................................... 6
2.06. Financial Statements.......................................... 6
2.07. Actions Pending............................................... 6
2.08. Compliance with Law........................................... 7
2.09. No Material Adverse Change.................................... 7
2.10. Certain Fees.................................................. 7
2.11. Disclosure.................................................... 7
2.12. Securities Act of 1933........................................ 8
2.13. Governmental Approvals........................................ 8
2.14. Unites States Real Property Holding Corporation............... 8
2.15. Representations Under Series B Purchase Agreeement............ 8
2.16. Year 2000 Compliances......................................... 8
2.17. Patents and Other Proprietary Rights.......................... 9
2.18. No Conflict of Interest....................................... 10
2.19. Merger or Sale................................................ 10
2.20. Disclosure.................................................... 10
2.21. Tax Returns and Payments...................................... 11
2.22. Labor Agreements and Actions.................................. 11
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................... 11
3.01. Organization and Standing of the Purchaser.................... 11
3.02. Authority; Enforceability; No Conflict........................ 11
3.03. Acquisition for Investment.................................... 12
3.04. Financing..................................................... 12
4. CONDITIONS TO PURCHASER'S OBLIGATIONS FOR CLOSING....................... 12
4.01. Representations and Warranties................................ 13
4.02. Secretary's Certificate....................................... 13
4.03. Officer's Certificate......................................... 13
<PAGE>
4.04. Series E Preferred Stock...................................... 13
4.05. Consents, Licenses, Approvals, etc............................ 13
4.06. Good Standing Certifcates..................................... 13
4.07. No Proceedings or Litigation.................................. 14
4.08. [Intentionally Omitted]....................................... 14
4.09. Legal Opinions................................................ 14
4.10. Consents and Waivers of Equity Holders........................ 14
4.11. Other Consents................................................ 14
4.12. Expenses...................................................... 14
4.13. Compliance with this Agreement................................ 14
4.14. Proceedings Satisfactory...................................... 14
4.15. Proxy......................................................... 15
5. COVENANTS OF THE COMPANY
5.01. Covenants of the Company Under the Series B Purchase
Agreement..................................................... 15
5.02 Future Senior Subordinated Obligations........................ 15
5.03. Issuance of Equity Securities................................. 15
6. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTE......................... 16
6.01. Note Register; Ownership of Notes............................. 16
6.02. Transfer and Exchange of the Note............................. 16
6.03. Replacement of Notes.......................................... 16
7. PAYMENTS ON NOTES; REDEMPTION; CONVERSION............................... 16
7.01. Place of Payment.............................................. 16
7.02. [Intentionally Omitted]....................................... 16
7.03. Mandatory Redemption.......................................... 16
7.04. Optional Redemption........................................... 17
7.05. [Intentionally Omitted]....................................... 17
7.06. Maturity; Surrender; etc...................................... 17
7.07. Conversion Privilege.......................................... 17
8. SUBORDINATION OF SENIOR SUBORDINATED OBLIGATIONS........................ 18
8.01. Generally..................................................... 18
8.02. Restrictions.................................................. 18
8.03. Permitted Payments............................................ 18
8.04. Turnover of Payments.......................................... 19
8.05. Insolvency, etc............................................... 19
8.06. Obligations Not Impaired...................................... 19
8.07. Payment of Senior Deby; Subrogation........................... 19
ii
<PAGE>
9. EVENTS OF DEFAULT AND ACCELERATION...................................... 20
10. REMEDIES ON DEFAULT, ETC................................................ 21
10.01. Remedies...................................................... 21
10.02. Annulment of Defaults......................................... 21
10.03. Waivers....................................................... 22
11. DEFINITIONS AND ACCOUNTING TERMS........................................ 22
11.01. Certain Defined Terms......................................... 22
11.02. Accounting Terms.............................................. 27
12. INDEMNIFICATION......................................................... 27
12.01. General Indemnity............................................. 27
12.02. Indemnification Procedures.................................... 27
13. MISCELLANEOUS........................................................... 29
13.01. No Waiver; Cumulative Remedies................................ 29
13.02. Amendment, Waivers and Consents............................... 29
13.03. Addresses for Notices......................................... 29
13.04 Costs, Expenses and Taxes..................................... 30
13.05 Binding Effect ; Assignment................................... 30
13.06. Survival of Representations and Warranties.................... 30
13.07. Prior Agreements.............................................. 31
13.08. Severability.................................................. 31
13.09. Confidentiality............................................... 31
13.10. Governing Law................................................. 31
13.11. Headings...................................................... 31
13.12. Counterparts.................................................. 31
13.13. Further Assurances............................................ 32
13.14. Waiver........................................................ 32
13.15. Specific Enforcement.......................................... 32
iii
<PAGE>
$27,500,000 NOTE PURCHASE AGREEMENT
Dated as of May 5, 1999.
Intuit Inc.
Ladies and Gentlemen :
MORTGAGE.COM, INC., a Florida coporation (the "company"), hereby agrees
with Intuit Inc. as follows :
1. PURCHASE, SALE AND TERMS OF NOTE
1.01. Authorization of Note. The Company has authorized the issuance
and sale of a $27,500,000, 12% Seniuor Subordinated Convertible Note (the
"Note") due May 5, 2001 (the "Final Maturity Date"), to be substantially in the
form of Exhibit A and to be convertible into shares of Series E Preferred Stock
or Common Stock as provided in Section 7.07.
1.02. The Shares. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemtive rights and other similar
contractual rights of stockholders, (a) a sufficient number of authorized but
unissued shares of Series E Preferred Stock (the "Preferred Shares") to satisfy
the rights of conversion of the Note, and (b) a sufficient number of authorized
but unissued shares of Common Stock (the "Common Shares") to satisfy the rights
of conversion of the Note or Preferred Shares.
1.03. Purchase Price and Closing. The Company agrees to issue and sell
to Intuit Inc. (the "Purchaser") and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Purchaser Agrees to purchase the Note for an amount equal
to one hundred percent (100%) of the principal amount thereof. The closing of
the purchase and sale of the Note hereunder (the "Closing") shall take place at
the offices of Messrs. LeBoeuf, Lamb, Greens and MacRac, L.L.P., 225 Asylum
Styreet, Harford, CT 06103 at 10:00 a.m. on May 5, 1999, or at such time and
date thereafter as the Purchaser and the Company may agree (the "Closing Date").
At the Closing, the Company will deliver to the Purchaser the Note against
delivery of a check or checks payable to the order
<PAGE>
of the Company, or a transfer of funds to the account of the Company by wire
transfer, representing the net cash consideration for the Note.
1.04. Use of Proceeds. The Company shall use the cash proceeds from the
sale of the Note for general working capital purpose.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
2.01. Organization, Standing and Power. Each of the Company and the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of the
Company and the Subsidiaries has all requisite power and authority to own, lease
and operate its properties and assets and to conduct its business as now being
conducted and is duly qualified to do business in good standing in those foreign
jurisdictions in which such qualification is required.
2.02. Authority; Enforceability; No Conflict. The Company has all
requisite corporate power and authority to enter into this Agreement to issue,
and sell the Note, and to carry out its obligations hereunder. The execution
delivery and performance of this Agreement by the Company and the issuance and
sale of the Note by the Company have been duly and validly authorized by all
requisite corporate proceedings on the part of the Company. This Agreement when
executed and delivered by the Company is a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium, rehabilitation, liquidation, conservatorship,
receivership, or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any preceeding therefor
may be brought. Except as set forth on Schedule 2.02, the execution and delivery
of the Agreement by the Company does not, and the consummation by the Company of
the transactions contemplated hereby and thereby will not result in or
constitute; (a) a default, breach or violation of or under the Articles of
Incorporation or the By-laws, (b) a default, breach or violation of or under any
mortgage, deed of trust, indenture, note, bond, license, lease agreement or
other instrument or obligation to which the Company or any Subsidary is a party
or by which any of their respective properties or assets are bound, (c) a
violation of any statue, rule, regulation, order, judgement or decree of any
court, public body or authority by which the Company, any Subsidiary or any of
their respective properties or assets are bound, (d) an event which (with notice
or lapse of time or both) would permit any Person to terminate, accelerate the
performance required by, or accelerate the maturity of any indebtedness or
obligation of the Company or any Subsidiary under
2
<PAGE>
any agreement or commitment to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary is bound or by which any of
their respective properties or assets are bound, (e) the creation or imposition
of any lien, charge or encumbrance on any property of the Company or any
Subsidiary under any agreement or commitment to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound or by
which any of their respective properties or assets are bound, or (f) an event
which would require any consent under any agreement to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound or by
which any of their respective properties or assets are bound.
2.03. Capitalization. The authorized capital stock of the Company
consists of:
(a) 30,000,000 shares of Common Stock, of which (1) 1,385,457
shares are outstanding, (2) 225,225 are reserved for issuance upon conversion of
the Series A Preferred Stock, (3) 1,171,191 are reserved for issuance upon
conversion of the Series B Preferred Stock, (4) 1,107,000 are reserved for
issuance upon conversion of the Series C Preferred Stock, (5) 1, 350,000 are
reserved for issuance upon conversion of the Series D Preferred Stock, (6)
500,000 are reserved for issuance upon conversion of the Series E Preferred
Stock or this Note, (7) 100,000 are reserved for issuance upon conversion of the
Special Preferred Stock (Northern California Division). (8) 3,000,000 are
reserved for issuance under the Company's stock option plan, (9) 247,500 are
reserved for issuance upon the exercise of warrants held by former 14%
Subordinated Debenture holders, (10) 500,000 are reserved for issuance upon the
exercise of warrants held by Superior Bank, FSB, pursuant to a Sale and
Marketing Agreement dated as of April 28, 1995, as amended between the Company
and Superior Bank, FSB (the "Sale and Marketing Agreement"), (11) 13,333 are
reserved for issuance upon conversion of the 12% Convertible Debenture maturing
May 1, 1999, (12) 25,000 are reserved for issuance upon the exercise of options
held by John Buscema and Glen Letizia (the "Buscema Options"). (13) 100,000 are
reserved for issuance upon conversion of rights, in the Releads Group held by
John Tomko, Jason Massey and Dennis Brunelle under an Agreement for Operation of
First Realty Network, Inc., dated as of December 5, 1996, as amended (the " FRN
Agreement"); (14) 109,728 are reserved for issuance upon the exercise of the
warrants held or which may be obtained by FirstMN, LLC (other than as former 14%
Subordinated Debenture holder,) (15) 92,436 are reserved for issuance upon the
exercise of warrants held by Raymond James & Associates, Inc., (16) 50,000 are
reserved for issuance upon the exercise of warrants held by former holders or
12% Senior Subordinated Convertible Notes dated August 31, 1997, (17) 66,667 are
reserved for issuance upon the exercise of warrants held by former holders of
12% Senior Subordinated Convertible Notes dated January 30, 1998, (18) 100,000
are reserved for issuance pursuant to the exercise of warrants which may be
earned by John T. Rodgers, Andrew M. Heller and Kyle Meyer,
3
<PAGE>
pursuant to the merger agreement with RM Holdings, Inc., (19) 36,000 are
reserved for issuance upon the exercise of warrants held by Richard A. Swartz,
Michael E. Rubin and Samuel S. Perlman, (20) 100,000 are reserved for issuance
upon conversion of rights held by Credit.com, LLC under the Domain Name
Assignment Agreement dated as of January 1, 1999, between the Company and
Credit.com LLC (the "Domain Name Assignment"), (21) 6,668 are reserved for
issuance upon exercise of the warrants held by holders of the 12% Senior
Subordinated Notes dated February 9, 1999, (22) 53,344 are reserved for issuance
upon exercise of warrants held by holders of the 12% Senior Subordinated Notes
dated February 26, 1999, (23) 20,000 are reserved for issuance upon exercise of
warrants held by holders of 12% Senior Subordinated Notes dated April 19, 1999,
(24) 4,000 are reserved for issuance upon exercise of warrants held by Mortgage
Loan Specialties, Inc. and First Capital Corporation of Los Angeles and (25)
8,000 are reserved for issuance upon exercise of warrants held by Frank
Trifeletti.
(b) 15,000,000 shares of Preferred Stock, of which (ii) 225,225
have been designated Series A Preferred Stock (all of which are outstanding),
(ii) 1,000 have been designated Special Preferred Stock (Northern California
Division) (all of which are outstanding), (iii) 1,171,191 have been designated
Series B Preferred Stock (959,614 of which are outstanding), (iv) 1,107,000 have
been designated Series C Preferred Stock (739,336 of which are outstanding), (v)
1,350,000 have been designated Series D Preferred Stock (1,273,898 of which are
outstanding and 18,650 of which have been reserved for issuance upon exercise of
warrants held by Dominion Fund III), and (vi) 500,000 have been designated
Series E Preferred Stock (458,334 of which have been reserved for issuance upon
conversion of the Note). All of the outstanding shares of Common Stock, Series
A Preferred Stock, Special Preferred Stock (Northern California Division),
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
have been duly authorized and validly issued, and are fully-paid and
non-assessable.
Except (i) the Preferred Stock referred to herein (ii) options and
warrants referred to herein, (iii) as required by the Sale and Marketing
Agreement, (iv) as required by the Series B Preferered Stock Purchase Agreement
dated as of March 29, 1996 among the Company, Purchasers of the Series B
Preferred Stock, purchases of the Series C Preferred Stock, purchasers of the
Series D Preferred Stock, John T. Rodgers, Andrew M. Haller and Kyle Meyer, as
amended ("Series B Purchase Agreement"), (v) as required by the Operating
Agreement for the Northern California Division dated July 1, 1997 among the
Company. Mason-McDuffie Real Estate, Inc. and John Hogan ("Operating
Agreement"), as amended, (vi) as required by the Agreement Relating to Purchase
of John Hogan's Rights in Northern California Division dated as of January 1,
1998, between the Company and John Hogan, (vii) as required by the Employment
Agreement dated July 18, 1997 between the Company and David Larson, (viii) as
required by the Employment Agreements dated on or about January 28, 1998,
between the Company and John T. Rodgers, Garth
4
<PAGE>
Graham and Barbara Mullen, (ix) as required by the Domain Name Assignment
Agreement, (x) as required by the Technology Member Correspondent Agreement
dated on or about November 1, 1998, between the Company and Mortgage Loan
Specialists, Inc. and (xi) as required by the Technology Member correspondent
Agreement dated on or about November 1, 1998, between the Company and First
Capital Corporation of Los Angeles, there are no outstanding preemptive,
conversion or other rights, options, warrants or agreements granted or issued by
or binding upon the Company for the purchase of acquisition of any shares of
capital stock of the Company or any other securities convertible into,
exchangeable for or evidencing the right to subscribe to any shares of such
capital stock.
All outstanding shares of capital stock, convertible securities,
rights, options and warrants of the Company are owned by the stockholders and in
the numbers specified on Schedule 2.03. Except as required by the terms of the
Buscema Options, the Special Preferred Stock (Northern California Division), the
contingent repurchase rights of Superior Bank, F.S.B. under the Sale and
Marketing Agreement, the Agreement dated as of April 1, 1998, between the
Company and Superior Bank, F.S.B., the FRN Agreement, the Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, the Operating Agreement and the Domain Name Assignment Agreement, the
Company is not subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or reetire any shares of its capital stock or any
convertible securities, rights or options of the type described in the preceding
sentence.
Except as required by the terms of the Registration Rights Agreement
dated May 1, 1996, between the Company and Raymond James & Associates, Inc., the
Registration Rights Agreement dated March 15, 1996, between the Company and
Mason-McDuffie Real Estate, Inc., the Operating Agreement, the Series B Purchase
Agreement, as amended, registration rights held by Dominion Fund III under the
Warrant to Purchase Shares of Series D Preferred Stock dated April 1, 1998 and
the Registration Rights Agreement dated as of January 1, 1999, between the
Company and Credit.com, LLC, the Company is not a party to any agreement
granting registration rights to any person with respect to any of its equity of
debt securities.
Except as set forth in the Related Agreements and the Mason-McDuffie
Merger Agreement (which restricts the transfer of the Special Preferred Stock
Northern California Division)), the Company is not a party to, and it has no
knowlege of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company other than agreements enforcing restrictions
under state and federal securities laws. The offer and sale of all capital
stock, convertible securities, rights or options of the Company issued prior to
the Closing Date complied with or was exempt from all applicable federal and
state securities laws and no stockholder has a right of recission or damages
with respect thereto.
5
<PAGE>
2.04. Subsidiaries. Schedule 2.04 sets forth each Subsidiary and each
Independent Division, showing the jurisdiction of the incorporation or
organization of each Subsidiary and showing the percentage of each Person's
ownership of the outstanding stock or other interests of each such Subsidiary or
Independent Division. All of the outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, and are fully paid and
non-assessable. Except as set forth on Schedule 2.04 (i) there are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary or the Company
with respect to any Subsidiary or Independent Division for the purchase or
acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock or any other similar ownership
interests of any Independent Division and (ii) neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of capital stock or any convertible
securities, rights, options or warrants of any Subsidiary or similar ownership
interests of any Independent Division. Except as set forth herein, neither the
Company nor any Subsidiary is a party to, nor has any knowledge of, any
agreement restricting the voting transfer of any shares of the capital stock of
any Subsidiary or similar ownership interests of any independent Division.
2.05. Statue of Note and Shares. The Note to be issued at the Closing
has been duly authorized by all necessary corporate action on the part of the
Company. The shares have been duly authorized by all necessary corporate action
on the part of the Company and have been duly reserved for issuance. When the
Shares are issued such shares will be validly issued and outstanding, fully paid
and nonassessable and the issuance of such shares will not be subject to
preemptive or other similar contractual rights of any other stockholder of the
Company.
2.06. Financial Statements. As set forth on Schedule 2.06 hereto, the
audited consolidated balance sheet of the Company and the Subsidiaries as at
December 31, 1998, and the related consolidated income statements and statments
of cash flows and changes in stockholders' equity of the Company and the
Subsidiaries' for the fiscal periods then ended, together with the opinion
thereon of KPMG Peat Marwick LLP, independant certified public accountants, are
complete and correct in all material respects and fairly present the financial
condition of the Company and the Subsidiaries at such dates and the results of
the operations of the Company and the Subsidiaries for the periods covered by
such statements, all in accordance with GAAP consistently applied.
2.07. Actions Pending. There is no action, suit, claim, investigation
or proceeding pending or, to the knowlege of the Company threatened against the
Company or any Subsidiary which questions the validity of this Agreement or any
of the Related Agreements or any action taken or to be taken, pursuant hereto or
thereto.
6
<PAGE>
Except as set forth on Schedule 2.07, there is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets. There are no outstanding orders, judgments,
injunctions, awards or decrease of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary.
2.08. Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted so as to comply with all
applicable federal, state, and local governmental laws, rules, regulations and
ordinances (including, without limitation, all rules and regulations pertaining
to the producing, processing, underwriting, selling and servicing of residential
mortgage loans, loan brokerage operations and the sale of "business
opportunities"). Each of the Company and the Subsidiaries has all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it.
2.09. No Material Adverse Change. Except as set forth on Schedule 2.09.
since December 31, 1998, (a) there has been no material adverse change in the
business, assets, operations, affairs, prospects or financial condition of the
Company or any Subsidiary; and (b) neither the business, financial condition,
operation, prospects or affairs of the company, any Subsidiary nor any of their
respective properties or assets have been adversely affected in any material
respect as the result of any legislative or regulatory change, any revocation or
change in any franchise, permit, license or right to do business, or any other
event or occurrence, whether or not insured against.
2.10. Certain Fees. No broker's, finder's or financial advisory fees or
commissions will be payable by the Company or any Subsidiary with respect to the
transactions contemplated by this Agreement and the Related Agreements.
2.11. Disclosure. Neither this Agreement or the Schedules hereto, nor
any other document, certificate or instrument furnished to the Purchaser by or
on behalf of the Company in connection with the transactions contemplated by
this Agreement, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading. The parties further agree that any agreement, event,
condition or other item which is disclosed on a particular Schedule hereto shall
be deemed to be disclosed for the purposes of all other Schedules to which it is
relevant, provided that all of the terms or effects of any such item which are
relevant to any Schedule hereto are adequately disclosed.
7
<PAGE>
2.12. Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Note and the Shares hereunder. Neither the
Company nor anyone acting on its behalf has or will sell, offer to sell or
solicit offers to buy the Note or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Note under the registration provisions of the Securities Act and
applicable state securities laws.
2.13. Governmental Approvals. Except as set forth on Schedule 2.13 and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or federal securities laws (which, if
required, shall be filed or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the execution and
delivery by the Company of this Agreement, for the offer, issue, sale, execution
or delivery of the Note, or for the performance by the Company of its
obligations under this Agreement.
2.14. United States Real Property Holding Corporation. Neither the
Company nor any Subsidiary is now nor has ever been a "United States Real
Property Holding Corporation" as defined in Section 897(c)(2) of the Code and
Section 1.897-2(b) of the Regulations promulgated by the Internal Revenue
Service.
2.15. Representations Under Series B Purchase Agreement. Except as set
forth on Schedule 2.15, the representations and warranties of the Company set
forth in Article 2 of the Series B Purchase Agreement are true and correct and
with the same effect as though made at and as of the date hereof, except for
those representations and warranties which speak of a specific date which remain
true and correct as of such date.
2.16. Year 2000 Compliance. The Company's web site and all of the
services and products of the Company, both individually and when operating in
conjunction with all other systems or products with which they are designed to
interface, are Year 2000 Compliant. "Year 2000 Compliant" means that such
hardware or software will: (a) process date data from at least the years 1900
through 2101 without error or interruption; (b) maintain functionality with
respect to the introduction, processing, or output of records containing dates
falling on or after January 1, 2000; and (c) be inoperable with other software
or hardware which may deliver records to, receive records from, or interact with
such hardware or software in the course of conducting the business of the
Company, including processing data and providing the services offered by the
Company. All of the Company's internal computer systems are, both individually
and in conjunction with all other systems with which they interface, Year 2000
Compliant. The Company has made inquiries
8
<PAGE>
of its manufacturers, suppliers and customers and, to its knowledge, the Company
is not relying on any third party whose systems are not Year 2000 Compliant.
Except as set forth on Schedule 2.16, the Company does not have any material
expenses or other material liabilities associated with securing Year 2000
Compliance, or making contingency arrangements to address Year 2000 Compliance
issues, with respect to the Company's web site, services or products, internal
computer systems or the computer systems or products or services of the
Company's manufacturers, suppliers or customers.
2.17. Patents and Other Proprietary Rights. Except as set forth on
Schedule 2.17, (a) To the knowledge of the Company after reasonable inquiry; (l)
the Company has sufficient title and ownership of all patents, patent
applications, trademarks, service marks, mask works, trade names, copyrights,
trade secrets, information, proprietary rights and processes ("Intellectual
Property") necessary for its business as now conducted, and believes it can
obtain, on commercially reasonable terms, any additional rights necessary for
its business as contemplated at the Closing, and (ii) the Company's Intellectual
Property does not, and would not, conflict with or constitute an infringement of
the rights of others;
(b) There are no outstanding options, licenses, or agreements of
any kind that grant rights to any other Person to manufacture, license,
products, assemble, market or sell the Company's products or services, nor is
the Company bound by or a party to any options, licenses, or agreements of any
kind with respect to the patents, trademarks, service marks, trade name,
copyrights, trade secrets, licenses, information, proprietary rights, and
processes of any other person or entity;
(c) The Company has not received any communications alleging that
the Company or its employees has violated or infringed or, by conducting its
business as proposed, would violate on infringe any of the patents, trademarks,
service marks, trade names, copyrights, or trade secrets, or any proprietary
rights of any other person or entity;
(d) To the knowledge of the Company after reasonable inquiry, no
employee is obligated under any applicable law or under any contract (including
licenses, covenants, or commitments of any nature) or other agreement, or
subject to any judgment, decree, or order of any court or administrative agency,
that would interfere with the use of such employee's best efforts to promote the
interests of the Company or that would conflict with the Company's business as
contemplated at the Closing; and
(e) Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as contemplated at the Closing, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions,
9
<PAGE>
or provisions of, or constitute a default under, any contract, covenant, or
instrument under which any of such employees is now obligated. The Company does
not believe it is or will be necessary to utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company where the Company does not otherwise have good title
or valid license to such inventions.
2.18. No Conflict of Interest. Except as set forth on Schedule 2.18,
(i) the Company is not indebted, directly or indirectly, to any of its officers
or directors or to their respective spouses or children, in any amount
whatsoever other than in connection with expenses or advances of expenses
incurred in the ordinary course of business; (ii) to the best of the Company's
knowledge, none of the Company's officers or directors, or any members of their
immediate families, are, directly or indirectly, indebted to the Company (other
than in connection with purchases of the Company's stock) or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company except that officers, directors
and/or shareholders of the Company may own stock in (but not exceeding two
percent of the outstanding capital stock of) any publicly traded companies that
may compete with the Company; (iii) to the best of the Company's knowledge, none
of the Company's officers or directors or any members of their immediate
families are, directly or indirectly, interested in any material contract with
the Company; and (iv) the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
2.19. Merger or Sale. The Company has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation or
corporations, except for the Purchaser, regarding the merger of the Company with
or into any such corporation or corporations, except to the extent such merger
has become effective prior to the date hereof, (ii) with any representative of
any corporation, partnership, association or other business entity or any
individual, except for the Purchaser, regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company would be disposed of, or (iii)
regarding any other form of liquidation, dissolution or winding up of the
Company.
2.20. Disclosure. The Company has fully provided Purchaser with all the
information that Purchaser has requested for deciding whether to purchase the
Note and all information that the Company believes is reasonably necessary to
enable Purchaser to make such a decision, including certain of the Company's
projections describing its proposed business (collectively, the "Business
Plan"). No representation or warranty of the Company contained in this Agreement
and the exhibits attached hereto, any certificate furnished or to be furnished
to Purchaser at the Closing, or the Business Plan (when read together) contains
any untrue statement
10
<PAGE>
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. To the extent the Business Plan was
prepared by management of the Company, the Business Plan and the financial and
other projections contained in the Business Plan were prepared in good faith;
however, the Company does not warrant that it will achieve such projections.
2.21. Tax Returns Payments. The Company has filed all tax returns and
reports as required by law. These returns and reports are true and correct in
all material respects. The Company has paid all taxes and other assessments due.
2.22. Labor Agreements and Actions. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
The Company has complied in all material respects with all applicable state and
federal equal employment opportunity laws and with other laws related to
employment.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
3.01. Organization and Standing of the Purchaser. The Purchaser is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.
3.02. Authority; Enforceability; No Conflict. The Purchaser has all
requisite power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution, delivery and performance of this Agreement
by the Purchaser has been duly and validly authorized by all requisite
proceedings on the part of the Purchaser. This Agreement when executed and
delivered by the Purchase is a valid and binding obligation of the Purchaser,
enforceable against it in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, rehabilitation, liquidation, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion
11
<PAGE>
of the court before which any proceeding therefore may be brought. The execution
and delivery of this Agreement by the Purchaser does not, and consummation by
the Purchaser of the transactions contemplated hereby will not, result in or
constitute (a) a default, breach or violation of or under the organizational
documents of the Purchaser, (b) a default, breach or violation of or under any
mortgage, deed of trust, indenture, note, bond, license, lease agreement or
other instrument or obligation to which the Purchaser is a party or by which any
of its properties or assets are bound, except for any defaults, breaches or
violations which would not, individually or in the aggregate, have Material
Adverse Effect on the Purchase or prevent or materially delay the consummation
by the Purchaser of the transactions contemplated hereby, or (c) a violation of
any statute, rule, regulation, order, judgment or decree of any court, public
body or authority, except for any violations which would not, individually or in
the aggregate, have Material Adverse Effect on the Purchaser or prevent or
materially delay the consummation by the Purchaser of the transactions
contemplated hereby.
3.03. Acquisition for Investment. The Purchaser is an "accredited
investor" as defined in Regulation D under the Securities Act, and is acquiring
the Note solely for its own account for the purposes of investment and not with
a view to or for sale in connection with any distribution thereof, and it has no
present intention or plan to effect any distribution of the Note. The Purchaser
acknowledges that it is able to bear the financial risks associated with an
investment in the Note and that it has been given full access to such records of
the Company and the Subsidiaries and to the officers of the Company and the
Subsidiaries as it has deemed necessary and appropriate to conducting its due
diligence investigation. The Note may bear a legend to the following effect:
"This security has not been registered under the Securities
Act of 1933, as amended, or the laws of any state and may
not be sold or transferred except in compliance with that
Act and such laws."
3.04. Financing. The Purchaser has sufficient funds and will have
sufficient funds at all times through the Closing Date to consummate the
transactions contemplated hereby. The Purchaser will not be rendered insolvent
by reason of its investments in the Company nor will be left with unreasonably
small capital for purposes at operating its businesses.
4. CONDITIONS TO PURCHASER'S OBLIGATIONS FOR CLOSING
The obligation of the Purchaser to purchase and pay for the Note to be
purchased by it at the Closing is subject to the following conditions:
12
<PAGE>
4.01. Representations and Warranties. Each of the representations and
warranties set forth in Section 2 hereof shall be true, accurate and correct at
the Closing Date with the same effect as though made at end as of such time.
4.02. Secretary's Certificate. The Purchaser shall have received a
certificate of the Secretary or an Assistant Secretary of the Company, dated
the Closing Date, (a) attesting to corporate action taken by the Company,
including resolutions of the Board of Directors authorizing (i) the execution,
delivery and performance by the Company of this Agreement, (ii) the issuance of
the Note to be issued to the Purchaser, (iii) the amendment of the Company's
Articles of Incorporation to authorize Series E Preferred Stock, and (iv) the
execution, delivery and performance by the Company of all other agreements or
matters contemplated hereby or executed in connection herewith, (b) certifying
the names and true signatures of the officers or the Company authorized to sign
this Agreement, the Note, and the other documents, instruments or certificates
to be delivered pursuant hereto and thereto, together with the true signatures
of such officers and (c) verifying that the Articles of Incorporation and the
By-Laws (see attached thereto) are true, correct and complete as of the Closing
Date.
4.03. Officer's Certificate. The Purchaser shall have received a
certificate of the President and Treasurer of the Company (an "Officer's
Certificate"), dated the Closing Date, which shall certify that the
representations and warranties contained in Section 2 hereof are true and
correct as of the Closing Date and that all conditions required to be performed
prior to or at the Closing have been performed as of the Closing Date.
4.04. Series E Preferred Stock. The Company shall have amended and
restated its Articles of Incorporation in the form attached as Exhibit B. The
Company shall not take any corporate action or otherwise amend its Articles of
Incorporation prior to the conversion of the Note hereunder without the written
consent of the holder of the Note, if such corporate action or amendment would
change any of the rights, preferences, privileges of or limitations provided in
the Company's Articles of Incorporation with respect to the Series E Preferred
Stock.
4.05. Consents, Licenses, Approvals, etc. The Purchaser shall have
received certified true copies of all consents, licenses and approvals required
or advisable in connection with the execution, delivery, performance, validity
and enforceability of this Agreement, and such consents, licenses and approvals
shall be in full force and effect and be reasonably satisfactory in form and
substance to the Purchaser.
4.06. Good Standing Certificates. The Purchaser shall have received a
certificate of the appropriate public official in the jurisdiction of
incorporation of the Company and each Subsidiary as to the due incorporation and
good standing of the
13
<PAGE>
Company and such Subsidiary together with, in the case of the Company, a
certified copy of the Articles of Incorporation of the Company.
4.07. No Proceedings of Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers or directors of
the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
4.08. [Intentionally Omitted]
4.09. Legal Opinions. The Purchaser shall have received a legal opinion
from Foley & Lardner, counsel to the Company, dated the Closing Date and
substantially in the form of opinion attached as Exhibit C.
4.10. Consents and Waivers of Equity Holders. The Company shall have
obtained written agreements from a majority of the holders of each of the Series
A, Series B, Series C and Series D Preferred Stock consenting to the issuance of
the Note and to the establishment and conversion of the Series E Preferred Stock
and waiving any rights of first offer such holders may otherwise have with
respect to the issuance of the Note or the Shares.
4.11. Other Consents. The Company shall have obtained consent to the
transactions contemplated hereby from Cooper River Funding, Inc. Residential
Funding Corporation and Bank United pursuant to the terms of the Cooper River
Funding Agreement, Residential Funding Agreement and Bank United Funding
Agreement, respectively. The Company shall have obtained a written agreeement
from Superior Bank FSB that the transactions contemplated hereby do not
constitute a "Material Transaction Event" in accordance with the provisions of
that certain Buyback Agreement by and between the Company and Superior Bank FSB,
dated April 1, 1998.
4.12. Expenses. All fees and disbursements required to be paid pursuant
to Section 13.04 hereof shall have been paid in full.
4.13. Compliance with this Agreement. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
4.14. Proceedings Satisfactory. All proceedings taken in connection
with the issuance and sale of the Note and all documents and papers relating
thereto shall be satisfactory in form and substance to the Purchaser. The
Purchaser shall have
14
<PAGE>
received copies of such documents and papers as they may reasonably request in
connection with this Agreement.
4.15. Proxy. The Seth Werner Revocable Trust shall have executed an
irrevocable proxy in favor of the Purchaser in the form attached as Exhibit D.
5. COVENANTS OF THE COMPANY
5.01. Covenants of the Company Under the Series B Purchase Agreement.
The Company covenants and agrees that on and after the Closing Date and until
the earlier of (i) the date on which the Note shall be paid in full and Shares
shall no longer be held of record by the Purchaser or (ii) the consummation of a
Qualified Public Offering (as defined in the Series B Purchase Agreement) it
will comply, for the benefit of the Purchaser, in all respects with the
covenants of the Company set forth in Articles 6 and 7 of the Series B Purchase
Agreement.
5.02. Future Senior Subordinated Obligations. The Company covenants and
agrees that on or after the Closing Date, it will not incur any liability for
borrowed money evidenced by a note or similar obligation, other than Senior
Debt, Future Senior Subordinated Obligations and trade accounts payable incurred
in the ordinary course of business, which is not expressly subordinate to,
junior in right of payment by its terms to, and on terms and conditions approved
by the holder of the Senior Subordinated Obligations.
5.03. Issuance of Equity Securities. The Company shall not issue any
equity securities or any warrants, options or other rights to acquire equity
securities or take any other action prior to the conversion of the Note
hereunder if such action would cause the Conversion Value to be less than
$60.00, unless prior to taking such action, the Company (a) shall have obtained
from a majority of the holders of Series B, Series C and Series D Preferred
Stock (i) a written consent to the issuance of the shares of Series E Preferred
Stock required to be issued upon conversion of the Note following such reduction
in the Conversion Value and to the amendment of the Articles of Incorporation to
authorize a sufficient number of shares for such conversion and (ii) a waiver of
any preemptive rights such holders may otherwise have with respect to the
insurance of such additional shares and (b) shall have amended its Articles of
Incorporation to authorize a sufficient number of shares of Series E Preferred
Stock and/or Common Stock to satisfy the conversion rights of the Purchaser
hereunder. The Company shall not issue shares of the Series E Preferred Stock
prior to the conversion of the Note hereunder without the written consent of the
holder of the Note.
15
<PAGE>
6. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTE
6.01 Note Register; Ownership of Notes. The Company will keep at its
principal office a register in which the Company will provide for the
registration of Notes and the registration of transfers of Notes. The Company
may treat the Person in whose name any Note is registered on such register as
the owner thereof for the purpose of receiving payment of the principal of and
the premium, if any, and interest on such Note and for all other purposes,
whether or not such Note shall be overdue, and the Company shall not be affected
by any notice to the contrary.
6.02. Transfer and Exchange of the Note. Upon surrender of the Note for
registration of transfer or for exchange to the Company at its principal office,
the Company at its expenses will execute and delivery in exchange therefor a new
Note or Notes of the same class as such surrendered Note in denominations, as
requested by the holder or transferee, which aggregate the unpaid principal
amount of such surrendered Note. Each such new Note shall be registered in the
name of such Person as such holder or transferee may request, shall be dated so
that there will be no loss of interest on such surrendered Note and shall be
otherwise of like tenor.
6.03. Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Note and, in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond in such reasonable amount as the Company may determine (or, in
the case of any Note held by a Purchaser or any institutional investor, of any
indemnity agreement from the Purchaser or such other holder reasonably
satisfactory to the Company), or in the case of any such mutilation, upon the
surrender of such Note for cancellation to the Company at its principal office,
the Company at its expense will execute and deliver, in lieu thereof, a new Note
of the same class and of like tenor, dated so that there will be no loss of
interest on such lost, stolen, destroyed or mutilated Note. Any Note in lieu of
which any such new Note has been executed and delivered by the Company shall not
be deemed to be an outstanding Note for any purpose hereof.
7. PAYMENTS ON NOTES: REDEMPTION; CONVERSION
7.01. Place of Payment. Payments of principal and interest becoming due
and payable on the Note shall be made at the address of each holder set forth on
Schedule 1.01 hereof, unless the Company, by written notice from each holder of
any Note, shall be notified to make payment at a different address.
7.02. [Intentionally Omitted].
7.03. Mandatory Redemption. The Company shall, upon notice not less
than 60 days prior to the date fixed for such redemption and after giving the
holder of the
16
<PAGE>
Note reasonable opportunity to convert the Note under Section 7.07 below, redeem
the Note at 100% of the principal amount thereof without premium on the earlier
of (a) the Final Maturity Date (b) the Initial Public Offering, or (c) a merger
of the Company with or into any other corporations, the conveyance transfer or
lease of substantially all of its assets in a single transaction or series of
transactions, or a sale in one or more transactions of more than 50% of the
Common Stock of the Company on a fully diluted basis. Failure to provide notice
as required above shall not invalidate any such redemption, except where failure
to provide such notice does not allow the holder of the Note reasonable
opportunity to convert the Note as provided in Section 7.07 below.
7.04. Optional Redemption. (a) At any time or from time to time the
Company may, at its option, upon notice to the Purchaser not less than 60 days
prior to the date fixed for such redemption and after giving the holder of the
Note reasonable opportunity to convert the Note under Section 7.07 below, redeem
all or any part of the Note at 100% of the principal amount of the Note so
redeemed. Failure to provide notice as required above shall not invalidate any
such redemption, except where failure to provide such notice does not allow the
holder of the Note reasonable opportunity to convert the Note as provided in
Section 7.07 below.
(b) Any redemption of the Note pursuant to this Section 7.04
shall be accompanied by an Officer's Certificate (a) stating the principal
amount of the Note to be redeemed, (b) stating the proposed date of redemption
(c) stating the accrued interest on each such Note to the proposed date of
redemption to be paid in accordance with Section 7.06 and (d) stating that the
proposed redemption does not violate Article 8 of this Agreement or the terms or
any subordination agreement to which the Note may be subject.
7.05. [Intentionally Omitted.]
7.06. Maturity; Surrender; etc. In the case of the redemption of the
Note, the principal amount of the Note to be redeemed shall mature and become
due and payable on the date fixed for such redemption, together with interest on
such principal amount accrued to such date. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest, interest on such principal amount shall cease to
accrue. Any Note redeemed in full shall be surrendered to the Company upon the
Company's written request and cancelled and shall not be reissued, and no Note
shall be issued in lieu of any repaid principal amount of any Note.
7.07. Conversion Privilege. In the event the Purchaser shall give
irrevocable written notice to the Company that it will not make an offer to the
Company to acquire, by merger or otherwise, 50% or more of the Common Stock or
assets of the Company (the date of such notice being the "Conversion Date"), the
unpaid principal
17
<PAGE>
amount of the Note outstanding or any portion thereof may, at the election of
the holder thereof, at any time on or after the Conversion Date, be converted
into the number of fully paid and nonassessable (i) shares of Series E Preferred
Stock, or (ii) if an event of automatic conversion shall have occurred with
respect to the Series E Preferred Stock, shares of Common Stock, determined
pursuant to this Section 7.O7. The number of shares of Series E Preferred Stock
or Common Stock to which the holder of the Note shall be entitled to receive
upon conversion shall be the product obtained by dividing the principal amount
of the Note being converted by the Conversion Value. The holder shall exercise
this privilege by delivery to the Company of a written notice at least 10 days
prior to the date fixed for conversion specifying the principal amount of the
Note to be converted.
8. SUBORDINATION OF SENIOR SUBORDINATED OBLIGATIONS
8.01. Generally. All Senior Subordinated Obligations are subordinate
and junior in right of payment to all Senior Debt, but only to the extent
provided in this Article 8.
8.02. Restrictions. Except to the extent expressly permitted in this
Article, or as otherwise consented to in writing by all holders of Senior Debt,
the Purchaser shall not (a) receive payment of or collect in whole or in part,
or sue upon, the Senior Subordinated Obligations; (b) sell, assign, transfer,
pledge, hypothecate or encumber the Senior Subordinated Obligations unless the
proposed purchaser, assignee, transferee or pledgee acknowledges in writing that
it is bound by this Article; (c) enforce any lien they may now or in the future
have on the Senior Subordinated Obligations; (d) join in any petition in
bankruptcy, assignment for the benefit of creditors or creditors' agreement,
other than the filing of a claim or proof of debt or except as directed by all
holders of Senior Debt, so long as the Senior Debt of Company, or commitment to
extend credit to the Company in respect thereof, is in existence; or (e) accept
any pledge or transfer of property (other than shares of stock of the Company)
as security for or in payment of the Senior Subordinated Obligations, or
otherwise deface the Senior Subordinated Obligations.
8.03. Permitted Payments. So long as no default shall have occurred in
payment or performance of any obligation of the Company with respect to the
Senior Debt, payments of interest and principal on the Senior Subordinated
Obligations may be made at payment dates as specified under the Note (it being
understood that no prepayment shall be made of the Senior Subordinated
Obligations and no modification, for default or otherwise, of such payment dates
as specified in the Note shall be permitted without the prior written consent of
all holders of the Senior Debt). Upon prior written notice to all holders of the
Senior Debt, the Purchaser shall be permitted to accelerate the Senior
Subordinated Obligations upon any Event of Default (as defined herein). In the
event the Company or any holder of Senior Debt provides notice to the Purchaser
of default with respect to the Senior Debt of the Company,
18
<PAGE>
no interest and no principal payments on the Senior Subordinated Obligations
shall be made without the prior written consent of all holders of such Senior
Debt. The subordination of claims of the Purchaser hereunder shall remain in
effect so long as there shall be outstanding any Senior Debt of the Company.
8.04. Turnover of Payments. In the event that the Purchaser receives a
payment from the Company in violation of the terms of this Article 8, the
Purchaser (a) shall hold such money in trust for the benefit of the holders of
Senior Debt, and (b) shall, upon request of the holders of Senior Debt,
forthwith remit an amount equal to such payment to such holders, or the payment
in the exact form received (but with any necessary endorsement to such holders
without recourse). After the Purchaser has received notice that a payment has
been made to the Purchaser in violation of the terms of this Article 8, the
Purchaser shall segregate such payment from (and shall not commingle such
payment with any of) the other funds of the Purchaser.
8.05. Insolvency, etc. In case of any assignment of the Company for the
benefit of creditors, or in case of any bankruptcy proceedings instituted by or
against the Company, or in case of the appointment of any receiver for the
Company's business or assets, or in case of any dissolution or winding up of the
affairs of the Company, the Company and any assignee, trustee in bankruptcy,
receiver, or other person or persons in charge, are hereby directed to pay to
the holders of Senior Debt the full amount of the Senior Debt of the Company
before making any payment of principal or interest to the Purchaser. Upon
payment in full of the amount of the Senior Debt, the Purchaser shall be
entitled to receive any excess proceeds.
8.06. Obligations Not Impaired. Nothing contained in this Article 8
shall impair, as between the Company and any holder of Senior Subordinated
Obligations, the obligation of the Company to pay to such holder the principal
thereof and premium, if any, and interest thereon as and when the same shall
become due and payable in accordance with the terms thereof, or prevent any
holder of Senior Subordinated Obligations from exercising all rights, powers and
remedies otherwise permitted by applicable law or under any agreement under
which such Senior Subordinated Obligations were incurred, all subject to the
rights of the holders of Senior Debt to receive cash, securities or other
property otherwise payable or deliverable to the holders of Senior Subordinated
Obligations.
8.07. Payment of Senior Debt Subrogation. Upon the payment in full in
cash of all Senior Debt, the holders of Senior Subordinated Obligations shall be
subrogated to all rights of any holder of Senior Debt to receive any further
payments or distributions applicable to Senior Debt until all Senior
Subordinated Obligations shall have been paid in full, and such payments or
distributions received by the holders of Senior Subordinated Obligations by
reason of such subrogation, of cash, securities or other property that otherwise
would be paid or distributed to the holders of Senior Debt, shall, as between
the Company and its creditors other than the holders of
19
<PAGE>
Senior Debt, on the one hand, and the holders of Senior Subordinated
Obligations, on the other hand, be deemed to be payment by the Company on
account of Senior Debt and not on account of Senior Subordinated Obligations.
9. EVENTS OF DEFAULT AND ACCELERATION
The following conditions or events shall constitute events of default
("Events of Default"):
(a) if the Company shall default in the payment of any principal
on any Note when the same becomes due and payable, whether at maturity or at a
date fixed for prepayment or by declaration or otherwise; or
(b) if the Company shall default in the payment of any interest on
any Note for more than five days after the same becomes due and payable; or
(c) if the Company shall default in the performance of or
compliance with any term contained in Article 5 hereto; or
(d) if the Company shall default in the performance of or
compliance with any other term contained herein or in the Related Agreements and
such default shall not have been remedies within 30 days after the earlier of
(x) an officer of the Company obtaining knowledge of such default and (y)
receipt by the Company of written notice of such default from any holder of any
Note; or
(e) if any representation or warranty made in writing by or on
behalf of the Company herein or in any instrument furnished in compliance with
or in reference hereto or otherwise in connection with the transactions
contemplated hereby shall prove to have been false or incorrect in any material
respect on the date as of which made; or
(f) if the Company or any Subsidiary shall be in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or interest on any indebtedness with a principal amount in excess of
$50,000 (other than the Note) or in the performance of or compliance with any
term of any evidence of any such indebtedness or of any mortgage, indenture or
other agreement relating thereto the effect of which is to cause such
indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment, and such default, event or condition shall
continue for more than the period of grace, if any, specified therein and shall
not have been waived pursuant thereto; or
(g) if the Company or any Subsidiary shall (i) be generally not
paying its debts as they become due, (ii) file, or consent by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition
20
<PAGE>
in bankruptcy, for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, (iii) make an assignment for the benefit of
its creditors, (iv) consent to the appointment of a custodian, receiver, trustee
or other officer with similar powers with respect to it or with respect to any
substantial part of its property, (v) be adjudicated an insolvent or be
liquidated, or (vi) take corporate action for the purpose of any of the
foregoing; or
(h) if a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by the Company or any
Subsidiary, a custodian, receiver, trustee or other officer with similar powers
with respect to it or with respect to any substantial part of its property, or
constituting an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of the Company or any Subsidiary, or
if any such petition shall be filed against the Company of any Subsidiary and
such petition shall not be dismissed within 30 days; or
(i) if a final judgment which, with other outstanding final
judgments against the Company and the Subsidiaries, exceeds $100,000 shall be
entered against the Company or any Subsidiary and if, within 60 days after entry
thereof, such judgment shall not have been discharged or execution thereof
stayed pending appeal, or if, within 60 days after the expiration of any such
stay, such judgment shall not have been discharged.
10. REMEDIES ON DEFAULT, ETC.
10.01. Remedies. Upon the occurrence of any Event of Default, the
holder of the Note may proceed to protect and enforce its rights by suit in
equity, action at law and/or other appropriate proceeding either for specific
performance of any covenant, provision or condition contained in this Agreement
or any Related Agreement, or in aid of the exercise of any power granted in this
Agreement or any Related Agreement, and (unless there shall have occurred an
Event of Default under Section 9(g) or 9(h), in which case the unpaid balance of
the Note shall automatically become due and payable) may at its option by notice
to the Company declare all or any part of the unpaid principal amount of the
Note then outstanding to be forthwith due and payable, and thereupon such unpaid
principal amount or part thereof, together with interest accrued thereon and all
other sums, if any, payable under this Agreement, the Note or the other Related
Agreements, shall become so due and payable without presentation, presentment,
protest or further demand or notice of any kind, all of which are hereby
expressly waived, and such holder or holders may proceed to enforce payment of
such amount or part thereof in such manner as it or they may elect.
21
<PAGE>
10.02 Annulment of Defaults. An Event of Default shall not be deemed
to be in existence or to have occurred for any purpose of this Agreement until
the expiration of all grace periods under this Agreement or if the holder of the
Note shall have waived such event in writing or stated in writing that the same
has been cured to its reasonable satisfaction. No waiver or statement of
satisfactory cure pursuant to this Section 10.02 shall extend to or affect any
subsequent or other Event of Default not specifically identified in such waiver
or statement of satisfactory cure pursuant to this Section 10.02 shall extend to
or affect any subsequent or other Event of Default not specifically identified
in such waiver or statement of satisfactory cure or impair any of rights of the
holder of any Note or Shares upon the occurence thereof.
10.03 Waivers. The Company hereby waives to the extent not prohibited
by applicable law which cannot be waived (a) all presentments, demands for
performance, notice of nonperformance (except to the extent specifically
required by the provisions hereof), (b) any requirement of diligence or
promptness on the part of any holder of the Note or the Shares in the
enforcement of its rights under this Agreement or the Note, (c) except to the
extent required by other provisions of this Agreement, any and all notices of
every kind and description which may be required to be given by any statute or
rule of law, and (d) any defense of any kind (other than indefeasable payment)
which it may now or hereafter have with respect to its liability under this
Agreement.
11. DEFINITIONS AND ACCOUNTING TERMS
11.01. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"12% Subordinated Debentures" shall mean the 12% Convertible
Subordinated Debentures issued by the Company, maturing on May 1, 1999.
"14% Subordinated Debenture Holders" shall mean any holder of the 14%
Subordinated Debentures.
"14% Subordinated Debentures" shall mean the 14% Subordinated
Debentures, issued by the Company maturing on September 30, 1997.
"Additional Interest" shall have the meaning assigned to such term
inSection 7.02.
"Agreement" shall mean this $27,500,000 Note Purchase Agreement,
including all amendments, modifications or supplements thereto.
"Articles of Incorporation" shall mean the Articles of Incorporation of
the Company, including all amendments, modifications or supplements thereto.
22
<PAGE>
"Bank United Funding Agreement" shall mean that certain Warehousing
Credit and Security Agreement dated as of July 1, 1998 between the Company and
Bank United.
"Board of Directors" shall mean the Board of directors of the Company
as constituted from time to time.
"Buscema Options" shall have the meaning assigned to such term in
Section 2.03.
"Business Plan" shall have the meaning assigned to such term in Section
2.21.
"By-Laws" shall mean the By-Laws of the Company, including all the
amendments, modifications or supplements thereto.
"Closing" shall have the meaning assigned to such term in Section 1.03.
"Closing Date" shall have the meaning assigned to such term in Section
1.03.
"Common Shares" shall have the meaning assigned to such term in Section
1.02.
"Common Stock" shall mean (a) the Company's Common Stock, $0.01 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company, authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies or in the absence of any
provision to the contrary in the Certificate of Incorporation or the By-laws, be
entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency or provision), and (c) any other securities into which or for which
any of the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise.
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Conversion Date" shall have the meaning assigned to such term in
Section 7.07.
"Conversion Value" shall mean (i) $60.00 (with respect to conversion of
the Note to shares of Series E Preferred Stock), and (ii) the Series E
Applicable
23
<PAGE>
Conversion Value, as defined in the Articles of Incorporation of the Company, as
amended and restated (with respect to conversion of the Note to shares of Common
Stock).
"Cooper River Funding Agreement" shall mean that certain Warehousing
Credit Agreement dated as of August 7, 1998 between the Company and Cooper River
Funding, Inc.
"Domain Name Assignment Agreement" shall have the meaning assigned to
such term in Section 2.03.
"Event of Default" shall have the meaning assigned to such term in
Article 9.
"Final Maturity Date" shall have the meaning assigned to such term in
Section 1.01.
"FRN Agreement" shall mean that certain Second Amendment to Agreement
for the Operation of First Realty Network, Inc., dated on or about December 23,
1996, among the Company, Releads U.S.A., Inc., First Realty Network, Inc.,
Consumer Real Estate Research, Inc., and John Tomko, Jason Massey and Dennis
Brunelle.
"Future Senior Subordinated Obligations" shall mean any indebtedness
consented to by the holder of the Senior Subordinated Obligations.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 2.06 (except for changes concurred in by the independent
public accountants to the Company and the Subsidiaries).
"Indebtedness" shall mean (a) any liability for borrowed money or
evidenced by a note or similar obligation given in connection with the
acquisition of any property or other assets (other than trade accounts payable
incurred in the ordinary course of business); (b) all guaranties, endorsements
and other contingent obligations, in respect of indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business, and (c) the present value of any lease payments due under leases
required to be capitalized in accordance with GAAP.
"Independent Division" shall mean any division of the Company or any
Subsidiary which is organized or operated pursuant to an agreement with any
other.
24
<PAGE>
Person or Persons which grants such Person or Persons an ownership interest in
or other claim to the assets, revenue or value of such Division.
"Initial Public Offering" shall mean an initial public offering of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act of 1933, as amended.
"Intellectual Property" shall have the meaning assigned to such term in
Section 2.17.
"Mason-McDuffie Merger Agreement" shall mean the Agreement and Plan of
Merger dated as of March 15, 1996 among the Company, Western American Mortgage
Company and Mason McDuffie Real Estate, Inc. and the Amended and Restated
Operating Agreement as of July 1, 1998 among the Company, Mason-McDuffie Real
Estate, Inc. and John Hogan.
"Material Adverse Effect" means any material adverse effect on (a) the
business, profits, properties or condition of the Company and the Subsidiaries,
taken as a whole, (b) the ability of the Company to perform its obligations
under the Agreement or any Related Agreement and (c) the binding nature,
validity or enforceability of this Agreement or any Related Agreement, which, in
each case, arises from, or reasonably could be expected to arise from, any
action or omission of action on the part of the Company or any subsidiary or
the occurence of any event or the existence of any fact or condition in respect
of the Company or any Subsidiary or any of their respective properties.
"Note" shall have the meaning assigned to such term in Section 1.01.
"Operating Agreement" shall mean the Operating Agreement for the
Northern California Division, dated on or about July 1, 1997, among the Company,
Mason-McDuffie Real Estate, Inc., and John Hogan.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, university, or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Preferred Shares" shall have the meaning assigned to such term in
Section 1.02.
"Purchaser" shall have the meaning assigned to such term in Section
1.03.
"Residential Funding Agreement" shall mean that certain First Amended
and Restated Warehousing Credit and Security Agreement dated as of June 8, 1994
between the Company and Residential Funding Corporation, as amended.
25
<PAGE>
"Related Agreements" shall mean the Note, the Series B Purchase
Agreement and the "Related Documents" defined therein, including all amendments,
modifications or supplements thereto.
"Sale and Marketing Agreement" shall have the meaning assigned to such
term in Section 2.03.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time or any other federal set, rule or regulation requiring registration
with any federal agency in connection with a public offering of registration
securities.
"Senior Debt" shall mean the unpaid principal of, premium (if any) and
interest of the Warehouse Lines of Credit.
"Senior Subordinated Obligations" shall mean the unpaid principal of,
premium (if any) and interest on the Note and all other obligations of the
Company and the Subsidiaries of any kind whatsoever under or in respect of this
Agreement and the Related Agreements.
"Series A Preferred Stock" shall mean the shares of Preferred Stock
desginated Series A Referred Stock.
"Series B Preferred Stock" shall mean the shares of Preferred Stock
designated Series B Preferred Stock.
"Series B Purchase Agreement" shall mean that certain Series B
Preferred Stock Purchase Agreement, dated as of March 29, 1996, by and among
the Company and the Purchaser listed on Schedule 1.01 thereto, as amended.
"Series C Preferred Stock" shall mean the shares of Preferred Stock
designated Series C Preferred Stock.
"Series D Preferred Stock" shall mean the shares of Preferred Stock desginated
Series D Preferred Stock.
"Series E Preferred Stock" shall mean the shares of Preferred Stock
designated Series E Preferred Stock.
"Shares" shall have the meaning assigned to such term in Section 1.02.
"Special Preferred Stock (Northern California Division)" shall mean the
shares of Preferred Stock designated Special Preferred Stock (Northern
California Division).
26
<PAGE>
"Stock Option Plan" shall mean any qualified or non-qualified incentive
stock option plan of the Company which is adopted by the Board of Directors,
including all amendments, supplements or modifications thereto.
"Subsidiary" shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or
other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries.
"Warehouse Lines of Credit" shall mean collectively (i) the line of
credit of the Company with Residential Funding Corporation pursuant to the
Residential Funding Agreement, as the same may be amended or increased or
otherwise modified from time to time and any refinancing or replacements
thereof, (ii) the line of credit of the Company with Bank United pursuant to the
Bank United Funding Agreement, as the same way may be amended or increased or
otherwise modified from time to time any refinancing or replacements thereof,
{iii} the line of credit of the Company with Cooper River Funding Inc. pursuant
to the Cooper River Funding Agreement, as the same may be amended or increased
or otherwise modified from time to time and any refinancing or replacement
thereof and (iv) any other similar line of credit approval by the Required
Holders, the terms of which require the Senior Subordinated Obligations to be
subordinated to the borrowings by the Company thereunder.
"Year 2000 Compliment" shall have the meaning assigned to such term in
Section 5.05.
11.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistently applied, and all
financial data submitted pursuant to this Agreement, unless otherwise specified,
shall be prepared in accordance with GAAP.
12. INDEMNIFICATION
12.01. General Indemnity. The Company agrees to indemnify and save
harmless the Purchaser and its respective directors, officers, affiliates,
successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys' fees, charges and disbursements) incurred by the Purchaser
as a result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein or in any of the Related Agreements. The
Purchaser agrees to indemnify and save harmless the Company and its directors,
officers, affiliates, successors and assigns from and against any and all
losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and
27
<PAGE>
disbursements) incurred by any such Person as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Purchaser
herein.
12.02. Indemnification Procedure. Any party entitled to indemnification
under this Section 12 (an "indemnified party") will give written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
promptly after the discovery by such party of any matters giving rise to a claim
for indemnification; provided that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 12 except to the
extent that the indemnifying partying is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist in respect of such action, proceeding or
claim, to assume the defense thereof, with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within (30) days of receipt of any indemnification notice
to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expenses, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its written consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. Anything in this Section
12 to the contrary not withstanding, the indemnifying party shall not, without
the indemnified party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party, a release from all liability in respect of such claim. The
28
<PAGE>
indemnification required by this Section 12 shall be made by periodic
payments of the amount thereof during the course of the investigation of
defense, as and when bills are received or expense, loss, damage or liability is
incurred. The indemnity agreements contained herein shall be in addition to (a)
any cause of action or similar right of the indemnified party against the
indemnifying party or others, and (b) any liabilities the indemnifying party may
be subject to pursuant to the law.
13. MISCELLANEOUS
13.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
13.02. Amendments, Waivers and Consents. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement or any Related
Agreement may be made, and compliance with any covenant or provision set forth
herein may be omitted or waived, if the Company shall obtain consent thereto in
writing from the holder of the Note. Any waiver or consent may be given subject
to satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
13.03. Addresses for Notices. Any notice, demand, request, waiver or
other communication under this Agreement or any Related Agreement shall be in
writing and shall be deemed to have been duly given on the date of service if
personally served or on the third day after mailing to the party to whom notice
is to be given, by first class mail, registered, return receipt requested,
postage prepaid and addressed as follows:
To the Company: Mortgage.com, Inc.
8751 Broward Blvd., 5th Floor
Plantation, Florida 33324
Attention: Seth S. Werner
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luthor F. Sadler, Esq.
To the Purchaser: Intuit Inc.
2550 Garcia Avenue
Mountain View, CA 94043
Attention: Kristen Brown
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, Connecticut 06103
Attention: Edward A. Relly, Jr,. Esq.
29
<PAGE>
13.04. Costs Expenses and Taxes. As condition precedent to the Closing,
the Company afrees to pay at the Closing in connection with the preparation,
execution and delivery of the Agreement and the issuance of the Note to be
issued at the Closing, the reasonable fees and other out-of-pocket expenses of
Messrs. LeBeoeuf, Lamb, Greene & MacRae, L.L.P. In addition, the Company shall
pay the reasonable fees and out of pocket expenses of legal counsel, independant
public accountants, consultants and other outside experts retained by the
Purchaser in connection with any amendment or waiver to this Agreement or any
Related Agreement by the Purchaser. In addition, the Company shall pay any and
all stamp, or other similar taxes payable or determined to be payable in
connection with the execution and delivery of this Agreement, the issuance of
the Note and the other istruments and documents to be delivered hereunder or
thereunder, and agrees to save the Purchaser harmless from and against any and
all liabilities with respect to or resulting from any delay or omission to pay
such taxes.
13.05. Binding Effect; Assignment. This Agreement and each Related
Agreement to which it is a party shall be binding upon and inure to the benefit
of each of the Company and the Purchaser and its respective heirs, successors
and assigns, except that the Company shall not have the right to delegate its
obligations hereunder or to assign its rights hereunder or any interest herein
without the prior written consent of the holder of the Note. In addition, the
Company acknowledges and agrees that the Purchaser hereunder may assign all or
any portion of its rights under the Note held by it to any other Person not
currently a Purchaser hereunder. Upon any such assignment (i) the Purchaser
shall deliver the Note held by it to the Company for cancellation and reissuance
in the names and amounts as directed by the Purchaser, (ii) the Company, the
Purchaser and the assignee shall enter into an amendment to this Agreement in
order to make the assigneee a Purchaser hereunder and entitled to all the rights
evidenced hereby and to amend Schedule 1.01 hereto to reflect such assignment
and (iii) the Company shall cause to be issued to such assignee either a legal
opinion in the form issued to the assigning Purchaser pursuant to Section 4.09
of this Agreement or a letter from the issuer of such opinion stating that the
assignee may rely on such opinion as if it were issued to assignee hereunder.
30
<PAGE>
13.06. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, each Related Agreement, the Note, or any
other instrument or document delivered in connection herewith or therewith,
shall survive the execution and delivery hereof or thereof for a period of two
years.
13.07. Prior Agreements. This Agreement, each Related Agreement, and
the other agreements executed and delivered herewith constitute the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
13.08. Severability. The provisions of this Agreement, and each Related
Agreement are severable and, in the event that any court of competent
jurisdiction shall determine that any one or more of the provisions or part of a
provision contained in this Agreement, or any Related Agreement shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement shall be reformed and construed as if
such invalid or illegal or unenforceable provision, or part of a provision, had
never been contained herein, and such provisions or part reformed so that it
would be valid, legal and enforceable to the maximum extent possible.
13.09. Confidentially. The Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which the Purchaser may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
the Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder or under any Related Agreement, unless such
information is known, or until such information becomes known, to the public;
provided, however, that the Purchaser may disclose such information (a) on a
confidential basis to their attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in connection
with their investment in the COmpany, (b) to any prospective purchaser of the
Note or Shares from the Purchaser as long as such prospective purchaser agrees
in writing to be bound by the provisions of this Section 13.09, (c) to any
entity controlling, controlled by or under common control with the Purchaser, or
to any partner of the Purchaser, or (d) as required by applicable law.
13.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND
WITHOUT GIVING EFFECT TO CHOICE OF LAW PROVISIONS.
13.11. Headings. Article, section and subsection headings in this
.Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
31
<PAGE>
13.12 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
13.13. Further Assurances. From and after the date of this Agreement,
upon the request of the Purchaser or the Company, each of the Company and the
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, each related
Agreement and the Shares.
13.14. Waiver. At any time prior to the Closing Date, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party granting such waiver but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or future failure.
13.15. Specific Enforcement. The Purchaser and the Company acknowledge
and agree that irreparable damage would occur in the event that any of the
provisions of this Agreement and each Related Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement, each
Related Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which they may be entitled at law or
equity.
(SIGNATURE PAGE FOLLOWS)
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date and year first above written.
MORTGAGE.COM, INC.
By: /s/ Seth Werner
-------------------------
Name: Seth Werner
Title: Chairman/CEO
PURCHASER:
INTUIT INC.
By:/s/ Kristen S. Brown
-------------------------
Name: Kristen S. Brown
Title:VP Business Development
(SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT)
$8,000,000 NOTE PURCHASE AGREEMENT
dated as of February 26, 1999
among
MORTGAGE.COM, INC.
and
THE PURCHASERS LISTED ON SCHEDULE 1.01
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C>
1. PURCHASE, SALE AND TERMS OF NOTES........................................................................1
1.01. Authorization of Notes and Warrants..........................................................1
-----------------------------------
1.02. The Shares...................................................................................1
----------
1.03. Purchase Price and Closing...................................................................1
--------------------------
1.04. Use of Proceeds..............................................................................2
---------------
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................2
2.01. Organization, Standing and Power.............................................................2
--------------------------------
2.02. Authority; Enforceability; No Conflict.......................................................2
--------------------------------------
2.03. Capitalization...............................................................................3
--------------
2.04. Subsidiaries.................................................................................6
------------
2.05. Status of Notes, Warrants and Shares.........................................................6
------------------------------------
2.06. Financial Statements.........................................................................6
--------------------
2.07. Actions Pending..............................................................................7
---------------
2.08. Compliance with Law..........................................................................7
-------------------
2.09. No Material Adverse Change...................................................................7
--------------------------
2.10. Certain Fees.................................................................................7
------------
2.11. Disclosure...................................................................................7
----------
2.12. Securities Act of 1933.......................................................................8
----------------------
2.13. Governmental Approvals.......................................................................8
----------------------
2.14. United States Real Property Holding Corporation..............................................8
-----------------------------------------------
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.........................................................8
3.01. Organization and Standing of the Purchasers..................................................9
-------------------------------------------
3.02. Authority; Enforceability; No Conflict.......................................................9
--------------------------------------
3.03. Acquisition for Investment...................................................................9
--------------------------
3.04. Financing...................................................................................10
---------
4. CONDITIONS TO PURCHASERS' OBLIGATIONS FOR CLOSING.......................................................10
4.01. Representations and Warranties..............................................................10
------------------------------
4.02. Secretary's Certificate.....................................................................10
-----------------------
4.03. Officer's Certificate.......................................................................10
---------------------
4.04. [Intentionally Omitted].....................................................................11
4.05. Consents, Licenses, Approvals, etc..........................................................11
----------------------------------
4.06. Good Standing Certificates..................................................................11
--------------------------
4.07. No Proceedings or Litigation................................................................11
----------------------------
4.09. Legal Opinions..............................................................................11
--------------
4.10. Consents and Waivers of Equity Holders......................................................11
--------------------------------------
4.12. Expenses....................................................................................11
--------
i
<PAGE>
4.13. Compliance with this Agreement..............................................................12
4.14. Proceedings Satisfactory....................................................................12
5. COVENANTS OF THE COMPANY................................................................................12
5.01. Covenants of the Company Under the Series B Purchase Agreement
...........................................................................................12
5.02. Future Senior Subordinated Obligations......................................................12
6. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES........................................................12
6.01. Note Register; Ownership of Notes...........................................................12
---------------------------------
6.02. Transfer and Exchange of Notes..............................................................12
------------------------------
6.03. Replacement of Notes........................................................................13
--------------------
7. PAYMENTS ON NOTES; REDEMPTION; CONVERSION...............................................................13
7.01. Place of Payment............................................................................13
----------------
7.02. Additional Interest.........................................................................13
-------------------
7.03. Mandatory Redemption........................................................................13
--------------------
7.04. Optional Redemption.........................................................................13
-------------------
7.05. Allocation of Partial Redemptions...........................................................14
---------------------------------
7.06. Maturity; Surrender; etc....................................................................14
------------------------
8. SUBORDINATION OF SENIOR SUBORDINATED OBLIGATIONS........................................................14
8.01. Generally...................................................................................14
---------
8.02. Restrictions................................................................................14
------------
8.03. Permitted Payments..........................................................................15
------------------
8.04. Turnover of Payments........................................................................15
--------------------
8.05. Insolvency, etc.............................................................................15
---------------
8.06. Obligations Not Impaired....................................................................15
------------------------
8.07. Payment of Senior Debt; Subrogation.........................................................16
-----------------------------------
9. EVENTS OF DEFAULT AND ACCELERATION......................................................................16
10. REMEDIES ON DEFAULT, ETC................................................................................17
10.01. Remedies....................................................................................17
--------
10.02. Annulment of Defaults.......................................................................18
---------------------
10.03. Waivers.....................................................................................18
-------
11. DEFINITIONS AND ACCOUNTING TERMS........................................................................18
11.01. Certain Defined Terms.......................................................................18
11.02. Accounting Terms............................................................................23
12. INDEMNIFICATION.........................................................................................23
ii
<PAGE>
12.01. General Indemnity...........................................................................23
12.02. Indemnification Procedure...................................................................24
13. MISCELLANEOUS...........................................................................................25
13.01. No Waiver; Cumulative Remedies..............................................................25
------------------------------
13.02. Amendments, Waivers and Consents............................................................25
--------------------------------
13.03. Addresses for Notices.......................................................................25
---------------------
13.04. Costs, Expenses and Taxes...................................................................26
-------------------------
13.05. Binding Effect; Assignment..................................................................26
--------------------------
13.06. Survival of Representations and Warranties..................................................27
------------------------------------------
13.07. Prior Agreements............................................................................27
----------------
13.08. Severability................................................................................27
------------
13.09. Confidentiality.............................................................................27
---------------
13.10. Governing Law...............................................................................28
-------------
13.11. Headings....................................................................................28
--------
13.12. Counterparts................................................................................28
------------
13.13. Further Assurances..........................................................................28
------------------
13.14. Waiver......................................................................................28
------
13.15. Specific Enforcement........................................................................28
--------------------
</TABLE>
iii
<PAGE>
$8,000,000 NOTE PURCHASE AGREEMENT
Dated as of February 26, 1999
Each of the Purchasers Listed
on Schedule 1.01
Ladies and Gentlemen:
MORTGAGE.COM, INC., a Florida corporation (the "Company"), hereby
agrees with each of you as follows:
1. PURCHASE, SALE AND TERMS OF NOTES
1.01. Authorization of Notes and Warrants. The Company has authorized
the issuance and sale of $8,000,000 in aggregate principal amount of its 12%
Senior Subordinated Notes (the "Notes") due February 26, 2001 (the "Final
Maturity Date"), to be substantially in the form of Exhibit A. The Company has
authorized the issuance of Warrants to purchase up to an aggregate of 53,344
shares of Common Stock in the form of the Common Stock Purchase Warrant attached
hereto as Exhibit B (the "Warrants") to be issued to the Purchasers hereunder as
Additional Interest on the Notes pursuant to Section 7.02. The Company agrees
that the value of all Warrants to be issued through the Closing Date is $6,500
and the Company agrees to use the foregoing for all federal, state, and local
income tax purposes with respect to the transactions contemplated by this
Agreement.
1.02. The Shares. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, a sufficient number of authorized but
unissued shares of Common Stock (the "Common Shares") to satisfy the rights of
exercise of the Warrants. The Common Shares are sometimes referred to herein as
the "Shares."
1.03. Purchase Price and Closing. The Company agrees to issue and sell
to the Persons (individually a "Purchaser" and collectively the "Purchasers")
listed on Schedule 1.01 hereto and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchasers, severally but not jointly, agree to purchase, that
principal amount of Notes set forth opposite their respective names in Schedule
1.01, for an amount equal to one hundred percent (100%) of the principal amount
thereof. The closing
1
<PAGE>
of the purchase and sale of the Notes hereunder (the "Closing") shall take place
at the offices of Messrs. LeBoeuf, Lamb, Greene and MacRae, L.L.P., 225 Asylum
Street, Hartford, CT 06103 at 10:00 a.m. on February 26, 1999, or at such time
and date thereafter as the Purchasers and the Company may agree (the "Closing
Date"). At the Closing, the Company will deliver to each Purchaser (i) Notes in
the principal amount to be purchased by such Purchaser as set forth on Schedule
1.01 registered in the Purchaser's name (or its nominee) and (ii) Warrants in
the amount required to be issued to such Purchaser in accordance with Section
7.02 as Additional Interest, against delivery of a check or checks payable to
the order of the Company, or a transfer of funds to the account of the Company
by wire transfer, representing the net cash consideration for the Notes to be
purchased at such Closing set forth opposite each such Purchaser's name on
Schedule 1.01.
1.04. Use of Proceeds. The Company shall use the cash proceeds from the
sale of the Notes for general working capital purposes.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers as
follows:
2.01. Organization, Standing and Power. Each of the Company and the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of the
Company and the Subsidiaries has all requisite power and authority to own, lease
and operate its properties and assets and to conduct its business as now being
conducted and is duly qualified to do business in good standing in those foreign
jurisdictions in which such qualification is required.
2.02. Authority; Enforceability; No Conflict. The Company has all
requisite corporate power and authority to enter into this Agreement, to issue
and sell the Notes, to issue the Warrants, and to carry out its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Company, the issuance and sale of the Notes and the issuance of the Warrants by
the Company have been duly and validly authorized by all requisite corporate
proceedings on the part of the Company. This Agreement when executed and
delivered by the Company is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, rehabilitation, liquidation, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. Except as set
forth on Schedule 2.02, the execution and delivery of this Agreement by the
Company does not, and the consummation by the Company of the transactions
2
<PAGE>
contemplated hereby and thereby will not result in or constitute: (a) a default,
breach or violation of or under the Articles of Incorporation or the By-laws,
(b) a default, breach or violation of or under any mortgage, deed of trust,
indenture, note, bond, license, lease agreement or other instrument or
obligation to which the Company or any Subsidiary is a party or by which any of
their respective properties or assets are bound, (c) a violation of any statute,
rule, regulation, order, judgment or decree of any court, public body or
authority by which the Company, any Subsidiary or any of their respective
properties or assets are bound, (d) an event which (with notice or lapse of time
or both) would permit any Person to terminate, accelerate the performance
required by, or accelerate the maturity of any indebtedness or obligation of the
Company or any Subsidiary under any agreement or commitment to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound, (e) the
creation or imposition of any lien, charge or encumbrance on any property of the
Company or any Subsidiary under any agreement or commitment to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound, or (f) an
event which would require any consent under any agreement to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound.
2.03. Capitalization. The authorized capital stock of the Company
consists of:
(a) 30,000,000 shares of Common Stock, of which (i) 1,385,457
shares are outstanding, (ii) 225,225 are reserved for issuance upon conversion
of the Series A Preferred Stock, (iii) 1,171,191 are reserved for issuance upon
conversion of the Series B Preferred Stock, (iv) 1,107,000 are reserved for
issuance upon conversion of the Series C Preferred Stock, (v) 1,350,000 are
reserved for issuance upon conversion of the Series D Preferred Stock, (vi)
100,000 are reserved for issuance upon conversion of the Special Preferred Stock
(Northern California Division), (vii) 1,650,000 are reserved for issuance under
the Company's Stock Option Plan; (viii) 247,500 are reserved for issuance upon
the exercise of the warrants held by former 14% Subordinated Debenture Holders,
(ix) 500,000 are reserved for issuance upon the exercise of the warrants held by
Superior Bank, F.S.B., pursuant to a Sale and Marketing Agreement dated as of
April 28, 1995, between the Company and Superior Bank, F.S.B., as amended (the
"Sale and Marketing Agreement"), (x) 13,333 are reserved for issuance upon the
conversion of the 12% Subordinated Debentures, (xi) 25,000 are reserved for
issuance upon the exercise of options held by John Buscema and Glen Letizia (the
"Buscema Options"), (xii) 100,000 are reserved for issuance upon conversion of
rights in the Realeads Group held by John Tomko, Jason Massey and Dennis
Brunelle under a Second Amendment for the Agreement of Operation of First Realty
Network, Inc. dated on or about December 23, 1996 (the "FRN Agreement"), (xiii)
109,728 are reserved for
3
<PAGE>
issuance upon the exercise of the warrants held or which may be obtained by
George A. Naddaff (other than as a former 14% Subordinated Debenture Holder),
(xiv) 92,436 are reserved for issuance upon the exercise of warrants held by
Raymond James & Associates, (xv) 50,000 are reserved for issuance upon the
exercise of warrants held by former holders of 12% Senior Subordinated
Convertible Notes dated August 31, 1997, (xvi) 66,667 are reserved for issuance
upon the exercise of warrants held by former holders of 12% Senior Subordinated
Convertible Notes dated January 30, 1998, (xvii) 100,000 are reserved for
issuance pursuant to the Option Agreement dated January 28, 1998, between the
Company, RM Holdings, Inc., John T. Rodgers, Andrew M. Heller and Kyle Meyer,
(xviii) 36,000 are reserved for issuance upon the exercise of warrants held by
FMN Associates, Ltd., (xix) 100,000 are reserved for issuance upon conversion of
rights held by Credit.com, LLC under the Domain Name Assignment Agreement dated
as of January 1, 1999, between the Company and Credit.com, LLC (the "Domain Name
Assignment Agreement"), (xx) 6,668 are reserved for issuance upon exercise of
the warrants held by the holders of the 12% Senior Subordinated Notes dated
February 9, 1999; and (xxi) 53,344 are reserved for issuance upon exercise of
the Warrants; and
(b) 15,000,000 shares of Preferred Stock, of which (i) 225,225
have been designated Series A Preferred Stock (all of which are outstanding),
(ii) 1,000 have been designated Special Preferred Stock (Northern California
Division) (all of which are outstanding), (iii) 1,171,191 have been designated
Series B Preferred Stock (959,614 of which are outstanding), (iv) 1,107,000 have
been designated Series C Preferred Stock (739,336 of which are outstanding) and
(v) 1,350,000 have been designated Series D Preferred Stock (1,273,898 of which
are outstanding and 18,650 of which have been reserved for issuance upon
exercise of warrants held by Dominion Fund III). All of the outstanding shares
of Common Stock, Series A Preferred Stock, Special Preferred Stock (Northern
California Division), Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock have been duly authorized and validly issued, and are
fully-paid and non-assessable.
Except (i) the Preferred Stock referred to herein, (ii) options and
warrants referred to herein, (iii) as required by the Sale and Marketing
Agreement, (iv) as required by the Series B Preferred Stock Purchase Agreement
dated as of March 29, 1996 among the Company, Purchasers of the Series B
Preferred Stock, purchasers of the Series C Preferred Stock, purchasers of the
Series D Preferred Stock, John T. Rodgers, Andrew M. Heller and Kyle Meyer, as
amended ("Series B Purchase Agreement"), (v) as required by the Operating
Agreement for the Northern California Division dated July 1, 1997 among the
Company, Mason-McDuffie Real Estate, Inc. and John Hogan ("Operating
Agreement"), as amended, (vi) as required by the Agreement Relating to Purchase
of John Hogan's Rights in the Northern California Division dated as of January
1, 1998, between the Company and John Hogan, (vii) as required by the Employment
Agreement dated July 18, 1997 between the Company and David Larson, (viii) as
required by the Note Purchase Agreement dated
4
<PAGE>
January 28, 1998, (ix) as required by the Employment Agreements dated on or
about January 28, 1998, between the Company and Kyle Meyer, John T. Rodgers,
Garth Graham and Barbara Mullen, (x) as required by the Domain Name Assignment
Agreement, (xi) as required by the Technology Member Correspondent Agreement
dated on or about November 1, 1998, between the Company and Mortgage Loan
Specialists, Inc. and (xii) as required by the Technology Member Correspondent
Agreement dated on or about November 1, 1998, between the Company and First
Capital, Inc., there are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon the Company
for the purchase or acquisition of any shares of capital stock of the Company or
any other securities convertible into, exchangeable for or evidencing the right
to subscribe to any shares of such capital stock.
All outstanding shares of capital stock, convertible securities,
rights, options and warrants of the Company are owned by the stockholders and in
the numbers specified on Schedule 2.03. Except as required by the terms of the
Buscema Options, the Special Preferred Stock (Northern California Division), the
contingent repurchase rights of Superior Bank, F.S.B. under the Sale and
Marketing Agreement, the Agreement dated as of April 1, 1998, between the
Company and Superior Bank, F.S.B., the FRN Agreement, the Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, the Operating
Agreement, the Note Purchase Agreement and the Domain Name Assignment Agreement,
the Company is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or any
convertible securities, rights or options of the type described in the preceding
sentence.
Except as required by the terms of the Registration Rights Agreement
dated May 1, 1996, between the Company and Raymond James & Associates, Inc., the
Registration Rights Agreement dated March 15, 1996, between the Company and
Mason-McDuffie Real Estate, Inc., the Operating Agreement, the Series B Purchase
Agreement, as amended, registration rights held by Dominion Fund III under the
Warrant to Purchase Shares of Series D Preferred Stock dated April 1, 1998 and
the Registration Rights Agreement dated as of January 1, 1999, between the
Company and Credit.com, LLC, the Company is not a party to any agreement
granting registration rights to any person with respect to any of its equity or
debt securities.
Except as set forth in the Related Agreements and the Mason-McDuffie
Merger Agreement (which restricts the transfer of the Special Preferred Stock
(Northern California Division)), the Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company other than agreements enforcing restrictions
under state and federal securities laws. The offer and sale of all capital
stock, convertible securities, rights or options of the Company issued prior to
the Closing Date complied with or was
5
<PAGE>
exempt from all applicable federal and state securities laws and no stockholder
has a right of rescission or damages with respect thereto.
2.04. Subsidiaries. Schedule 2.04 sets forth each Subsidiary and each
Independent Division, showing the jurisdiction of the incorporation or
organization of each Subsidiary and showing the percentage of each Person's
ownership of the outstanding stock or other interests of each such Subsidiary or
Independent Division. All of the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, and are fully paid and
non-assessable. Except as set forth on Schedule 2.04 (i) there are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary or the Company
with respect to any Subsidiary or Independent Division for the purchase or
acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock or any other similar ownership
interests of any Independent Division and (ii) neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of capital stock or any convertible
securities, rights, options or warrants of any Subsidiary or similar ownership
interests of any Independent Division. Except as set forth herein, neither the
Company nor any Subsidiary is a party to, nor has any knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of any Subsidiary or similar ownership interests of any Independent Division.
2.05. Status of Notes, Warrants and Shares. The Notes and Warrants to
be issued at the Closing have been duly authorized by all necessary corporate
action on the part of the Company. The Shares have been duly authorized by all
necessary corporate action on the part of the Company and have been duly
reserved for issuance. When the Shares are issued such shares will be validly
issued and outstanding, fully paid and nonassessable and the issuance of such
shares will not be subject to preemptive or other similar contractual rights of
any other stockholder of the Company.
2.06. Financial Statements. As set forth on Schedule 2.06 hereto, the
audited consolidated balance sheets of the Company and the Subsidiaries as at
December 31, 1997, and the related consolidated income statements and statements
of cash flows and changes in stockholders' equity of the Company and the
Subsidiaries for the fiscal periods then ended, together with the opinion
thereon of KPMG Peat Marwick LLP, independent certified public accountants, and
the interim consolidated balance sheet of the Company and the Subsidiaries as at
December 31, 1998, and the related consolidated income statement and statement
of cash flows and changes in stockholders' equity of the Company and the
Subsidiaries for the twelve month period then ended, are complete and correct in
all material respects and fairly present the financial condition of the Company
and the Subsidiaries at such
6
<PAGE>
dates and the results of the operations of the Company and the Subsidiaries for
the periods covered by such statements, all in accordance with GAAP consistently
applied.
2.07. Actions Pending. There is no action, suit, claim, investigation
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary which questions the validity of this Agreement or
any of the Related Agreements or any action taken or to be taken pursuant hereto
or thereto. Except as set forth on Schedule 2.07, there is no action, suit,
claim, investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary.
2.08. Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted so as to comply with all
applicable federal, state, and local governmental laws, rules, regulations and
ordinances (including, without limitation, all rules and regulations pertaining
to the producing, processing, underwriting, selling and servicing of residential
mortgage loans, loan brokerage operations and the sale of "business
opportunities"). Each of the Company and the Subsidiaries has all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it.
2.09. No Material Adverse Change. Except as set forth on Schedule 2.09,
since December 31, 1998, (a) there has been no material adverse change in the
business, assets, operations, affairs, prospects or financial condition of the
Company or any Subsidiary; and (b) neither the business, financial condition,
operation, prospects or affairs of the Company, any Subsidiary nor any of their
respective properties or assets have been adversely affected in any material
respect as the result of any legislative or regulatory change, any revocation or
change in any franchise, permit, license or right to do business, or any other
event or occurrence, whether or not insured against.
2.10. Certain Fees. No broker's, finder's or financial advisory fees or
commissions will be payable by the Company or any Subsidiary with respect to the
transactions contemplated by this Agreement and the Related Agreements.
2.11. Disclosure. Neither this Agreement or the Schedules hereto, nor
any other document, certificate or instrument furnished to the Purchasers by or
on behalf of the Company in connection with the transactions contemplated by
this Agreement, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading.
7
<PAGE>
The parties further agree that any agreement, event, condition or other item
which is disclosed on a particular Schedule hereto shall be deemed to be
disclosed for the purposes of all other Schedules to which it is relevant,
provided that all of the terms or effects of any such item which are relevant to
any Schedule hereto are adequately disclosed.
2.12. Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Notes and the issuance of the Warrants
hereunder. Neither the Company nor anyone acting on its behalf has or will sell,
offer to sell or solicit offers to buy the Notes or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any Person, so as to bring
the issuance and sale of the Notes or the issuance of the Warrants under the
registration provisions of the Securities Act and applicable state securities
laws.
2.13. Governmental Approvals. Except as set forth on Schedule 2.13 and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or federal securities laws (which, if
required, shall be filed on a timely basis), no authorization, consent,
approval, license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution and delivery by the Company of this Agreement, for the offer, issue,
sale, execution or delivery of the Notes or the Warrants, or for the performance
by the Company of its obligations under this Agreement.
2.14. United States Real Property Holding Corporation. Neither the
Company nor any Subsidiary is now nor has ever been a "United States Real
Property Holding Corporation" as defined in Section 897(c)(2) of the Code and
Section 1.897-2(b) of the Regulations promulgated by the Internal Revenue
Service.
2.15. Representations Under Series B Purchase Agreement. Except as set
forth on Schedule 2.15, the representations and warranties of the Company set
forth in Article 2 of the Series B Purchase Agreement are true and correct and
with the same effect as though made at and as of the date hereof, except for
those representations and warranties which speak of a specific date which remain
true and correct as of such date.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers severally but not jointly hereby represents and
warrants to the Company as follows:
8
<PAGE>
3.01. Organization and Standing of the Purchasers. Each of the
Purchasers is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization.
3.02. Authority; Enforceability; No Conflict. Each of the Purchasers
has all requisite power and authority to enter into this Agreement and to carry
out its obligations hereunder. The execution, delivery and performance of this
Agreement by each of the Purchasers has been duly and validly authorized by all
requisite proceedings on the part of such Purchaser. This Agreement when
executed and delivered by each of the Purchasers is a valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, rehabilitation, liquidation,
conservatorship, receivership or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The execution and delivery of this Agreement
by each of the Purchasers does not, and consummation by such Purchaser of the
transactions contemplated hereby will not, result in or constitute (a) a
default, breach or violation of or under the organizational documents of such
Purchaser, (b) a default, breach or violation of or under any mortgage, deed of
trust, indenture, note, bond, license, lease agreement or other instrument or
obligation to which such Purchaser is a party or by which any of its properties
or assets are bound, except for any defaults, breaches or violations which would
not, individually or in the aggregate, have a Material Adverse Effect on such
Purchaser or prevent or materially delay the consummation by such Purchaser of
the transactions contemplated hereby, or (c) a violation of any statute, rule,
regulation, order, judgment or decree of any court, public body or authority,
except for any violations which would not, individually or in the aggregate,
have a Material Adverse Effect on such Purchaser or prevent or materially delay
the consummation by such Purchaser of the transactions contemplated hereby.
3.03. Acquisition for Investment. Each of the Purchasers is an
"accredited investor" as defined in Regulation D under the Securities Act, and
is acquiring the Notes and the Warrants solely for its own account for the
purpose of investment and not with a view to or for sale in connection with any
distribution thereof, and it has no present intention or plan to effect any
distribution of the Notes or the Warrants. Each of the Purchasers acknowledges
that it is able to bear the financial risks associated with an investment in the
Notes and that it has been given full access to such records of the Company and
the Subsidiaries and to the officers of the Company
9
<PAGE>
and the Subsidiaries as it has deemed necessary and appropriate to conducting
its due diligence investigation. The Notes and the Warrants may bear a legend to
the following effect:
"This security has not been registered under the Securities Act of
1933, as amended, or the laws of any state and may not be sold or
transferred except in compliance with that Act and such laws."
3.04. Financing. Each of the Purchasers has sufficient funds and will
have sufficient funds at all times through the Closing Date to consummate the
transactions contemplated hereby. None of the Purchasers will be rendered
insolvent by reason of its investments in the Company nor will it be left with
unreasonably small capital for purposes of operating its businesses.
4. CONDITIONS TO PURCHASERS' OBLIGATIONS FOR CLOSING
The obligation of each of the Purchasers to purchase and pay for the
Notes to be purchased by it at the Closing is subject to the following
conditions:
4.01. Representations and Warranties. Each of the representations and
warranties set forth in Section 2 hereof shall be true, accurate and correct at
the Closing Date with the same effect as though made at and as of such time.
4.02. Secretary's Certificate. The Purchasers shall have received a
certificate of the Secretary or an Assistant Secretary of the Company, dated the
Closing Date, (a) attesting to corporate action taken by the Company, including
resolutions of the Board of Directors authorizing (i) the execution, delivery
and performance by the Company of this Agreement, (ii) the issuance of the Notes
and the Warrants to be issued to the Purchasers and (iii) the execution,
delivery and performance by the Company of all other agreements or matters
contemplated hereby or executed in connection herewith, (b) certifying the names
and true signatures of the officers of the Company authorized to sign this
Agreement, the Notes, the Warrants, and the other documents, instruments or
certificates to be delivered pursuant hereto and thereto, together with the true
signatures of such officers and (c) verifying that the Articles of Incorporation
and the By-Laws (as attached thereto) are true, correct and complete as of the
Closing Date.
4.03. Officer's Certificate. The Purchasers shall have received a
certificate of the President and Treasurer of the Company (an "Officer's
Certificate"), dated the Closing Date, which shall certify that the
representations and warranties contained in Section 2 hereof are true and
correct as of the Closing Date and that all conditions required to be performed
prior to or at the Closing have been performed as of the Closing Date.
10
<PAGE>
4.04. [Intentionally Omitted]
4.05. Consents, Licenses, Approvals, etc. The Purchasers shall have
received certified true copies of all consents, licenses and approvals required
or advisable in connection with the execution, delivery, performance, validity
and enforceability of this Agreement, and such consents, licenses and approvals
shall be in full force and effect and be reasonably satisfactory in form and
substance to the Purchasers.
4.06. Good Standing Certificates. The Purchasers shall have received a
certificate of the appropriate public official in the jurisdiction of
incorporation of the Company and each Subsidiary as to the due incorporation and
good standing of the Company and such Subsidiary together with, in the case of
the Company, a certified copy of the Articles of Incorporation of the Company.
4.07. No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers or directors of
the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
4.08. Warrants. The Company shall have issued to the Purchasers the
number of Warrants required to be issued as Additional Interest on the Closing
Date pursuant to Section 7.02
4.09. Legal Opinions. The Purchasers shall have received a legal
opinion from Foley & Lardner, counsel to the Company, dated the Closing Date and
substantially in the form of opinion attached as Exhibit C.
4.10. Consents and Waivers of Equity Holders. The Company shall have
obtained written agreements from a majority of the holders of each of the Series
B, Series C and Series D Preferred Stock consenting to the issuance of the
Notes, the Warrants and the Shares upon the exercise of the Warrants and waiving
any rights of first offer such holders may otherwise have with respect to the
issuance of the Notes, Warrants or the Shares.
4.11. Consents of Lenders. The Company shall have obtained consent to
the transactions contemplated hereby from Residential Funding Corporation
pursuant to the terms of the Residential Funding Agreement.
4.12. Expenses. All fees and disbursements required to be paid pursuant
to Section 13.04 hereof shall have been paid in full.
11
<PAGE>
4.13. Compliance with this Agreement. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
4.14. Proceedings Satisfactory. All proceedings taken in connection
with the issuance and sale of the Notes and the issuance of the Warrants and all
documents and papers relating thereto shall be satisfactory in form and
substance to the Purchasers. The Purchasers shall have received copies of such
documents and papers as they may reasonably request in connection with this
Agreement.
5. COVENANTS OF THE COMPANY
5.01. Covenants of the Company Under the Series B Purchase Agreement.
The Company covenants and agrees that on and after the Closing Date and until
the earlier of (i) the date on which the Notes shall be paid in full and all
Warrants and Shares shall no longer be held of record by the Purchasers or (ii)
the consummation of a Qualified Public Offering (as defined in the Series B
Purchase Agreement) it will comply, for the benefit of the Purchasers, in all
respects with the covenants of the Company set forth in Articles 6 and 7 of the
Series B Purchase Agreement.
5.02. Future Senior Subordinated Obligations. The Company covenants and
agrees that on or after the Closing Date it will not incur any liability for
borrowed money evidenced by a note or similar obligation, other than Senior
Debt, Future Senior Subordinated Obligations and trade accounts payable incurred
in the ordinary course of business, which is not expressly subordinate to,
junior in right of payment by its terms to, and on terms and conditions approved
by the holders of a majority of (i) the Senior Subordinated Obligations, and
(ii) the Past Senior Subordinated Obligations.
6. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES
6.01. Note Register; Ownership of Notes. The Company will keep at its
principal office a register in which the Company will provide for the
registration of Notes and the registration of transfers of Notes. The Company
may treat the Person in whose name any Note is registered on such register as
the owner thereof for the purpose of receiving payment of the principal of and
the premium, if any, and interest on such Note and for all other purposes,
whether or not such Note shall be overdue, and the Company shall not be affected
by any notice to the contrary.
6.02. Transfer and Exchange of Notes. Upon surrender of any Note for
registration of transfer or for exchange to the Company at its principal office,
the Company at its expense will execute and deliver in exchange therefor a new
Note or Notes of the same class as such surrendered Note in denominations, as
requested by
12
<PAGE>
the holder or transferee, which aggregate the unpaid principal amount of such
surrendered Note. Each such new Note shall be registered in the name of such
Person as such holder or transferee may request, shall be dated so that there
will be no loss of interest on such surrendered Note and shall be otherwise of
like tenor.
6.03. Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Note and, in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond in such reasonable amount as the Company may determine (or, in
the case of any Note held by a Purchaser or any institutional investor, of any
indemnity agreement from such Purchaser or such other holder reasonably
satisfactory to the Company), or in the case of any such mutilation, upon the
surrender of such Note for cancellation to the Company at its principal office,
the Company at its expense will execute and deliver, in lieu thereof, a new Note
of the same class and of like tenor, dated so that there will be no loss of
interest on such lost, stolen, destroyed or mutilated Note. Any Note in lieu of
which any such new Note has been executed and delivered by the Company shall not
be deemed to be an outstanding Note for any purpose hereof.
7. PAYMENTS ON NOTES; REDEMPTION; CONVERSION
7.01. Place of Payment. Payments of principal and interest becoming due
and payable on the Notes shall be made at the address of each holder set forth
on Schedule 1.01 hereto, unless the Company, by written notice from each holder
of any Note, shall be notified to make payment at a different address.
7.02. Additional Interest. At the Closing, the Company shall issue to
each Purchaser, as additional interest on the Notes ("Additional Interest"), (a)
Warrants to purchase that number of shares of Common Stock equal to the amount
obtained by dividing (i) 20% of the principal amount of the Notes held by such
Purchaser, by (ii) the exercise price of the Warrants (as set forth therein),
and (b) in cash, 1% of the principal amount of the Notes held by such Purchaser.
7.03. Mandatory Redemption. The Company shall redeem all of the then
outstanding Notes at 100% of the principal amount thereof without premium on the
earlier of (a) the Final Maturity Date, (b) the Initial Public Offering, or (c)
a merger of the Company with or into any other corporations, the conveyance
transfer or lease of substantially all of its assets in a single transaction or
series of transactions, or a sale in one or more transactions of more than 50%
of the Common Stock of the Company on a fully diluted basis.
7.04. Optional Redemption. (a) At any time or from time to time the
Company may, at its option, upon notice to each holder of Notes not less than 30
days and not more than 60 days prior to the date fixed for such redemption,
redeem
13
<PAGE>
all or any part (in integral multiples of $100,000) of the Notes, each such
redemption to be made at 100% of the principal amount of the Notes so redeemed.
(b) Any redemption of Notes pursuant to this Section 7.04 shall
be accompanied by an Officer's Certificate (a) stating the principal amount of
each Note to be redeemed, (b) stating the proposed date of redemption (c)
stating the accrued interest on each such Note to the proposed date of
redemption to be paid in accordance with Section 7.06 and (d) stating that the
proposed redemption does not violate Article 8 of this Agreement or the terms or
any subordination agreement to which the Notes may be subject.
7.05. Allocation of Partial Redemptions. In the case of each partial
redemption, the principal amount of the Notes to be redeemed shall be allocated
among all of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof not theretofore
called for redemption, with adjustments, to the extent practicable, to
compensate for any prior redemptions not made exactly in such proportion.
7.06. Maturity; Surrender; etc. In the case of each redemption of the
Notes, the principal amount of each Note to be redeemed shall mature and become
due and payable on the date fixed for such redemption, together with interest on
such principal amount accrued to such date. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest, interest on such principal amount shall cease to
accrue. Any Note redeemed in full shall be surrendered to the Company upon the
Company's written request and cancelled and shall not be reissued, and no Note
shall be issued in lieu of any repaid principal amount of any Note.
8. SUBORDINATION OF SENIOR SUBORDINATED OBLIGATIONS
8.01. Generally. All Senior Subordinated Obligations are subordinate
and junior in right of payment to all Senior Debt, but only to the extent
provided in this Article 8.
8.02. Restrictions. Except to the extent expressly permitted in this
Article, or as otherwise consented to in writing by the holders of Senior Debt,
the Purchasers shall not (a) receive payment of or collect in whole or in part,
or sue upon, the Senior Subordinated Obligations; (b) sell, assign, transfer,
pledge, hypothecate or encumber the Senior Subordinated Obligations unless the
proposed purchaser, assignee, transferee or pledgee acknowledges in writing that
it is bound by this Article; (c) enforce any lien they may now or in the future
have on the Senior Subordinated Obligations; (d) join in any petition in
bankruptcy, assignment for the benefit of creditors or creditors' agreement,
other than the filing of a claim or proof of debt or except as directed by all
holders of Senior Debt, so long as the Senior Debt of
14
<PAGE>
Company, or commitment to extend credit to the Company in respect thereof, is in
existence; or (e) accept any pledge or transfer of property (other than shares
of stock of the Company) as security for or in payment of the Senior
Subordinated Obligations, or otherwise defease the Senior Subordinated
Obligations.
8.03. Permitted Payments. So long as no default shall have occurred in
payment or performance of any obligation of the Company with respect to the
Senior Debt, payments of interest and principal on the Senior Subordinated
Obligations may be made at payment dates as specified under the Notes (it being
understood that no prepayment shall be made of the Senior Subordinated
Obligations and no modification, for default or otherwise, of such payment dates
as specified in the Notes shall be permitted without the prior written consent
of all holders of the Senior Debt). Upon prior written notice to all holders of
the Senior Debt, the Purchasers shall be permitted to accelerate the Senior
Subordinated Obligations upon any Event of Default (as defined herein). In the
event the Company or any holder of Senior Debt provides notice to the Purchasers
of default with respect to the Senior Debt of the Company, no interest and no
principal payments on the Senior Subordinated Obligations shall be made without
the prior written consent of the holder of such Senior Debt. The subordination
of claims of the Purchasers hereunder shall remain in effect so long as there
shall be outstanding any Senior Debt of the Company.
8.04. Turnover of Payments. In the event that any Purchaser receives a
payment from the Company in violation of the terms of this Article 8, such
Purchaser (a) shall hold such money in trust for the benefit of the holders of
Senior Debt, and (b) shall, upon request of the holders of Senior Debt,
forthwith remit an amount equal to such payment to such holders, or the payment
in the exact form received (but with any necessary endorsement to such holders
without recourse). After any Purchaser has received notice that a payment has
been made to such Purchaser in violation of the terms of this Article 8, such
Purchaser shall segregate such payment from (and shall not commingle such
payment with any of) the other funds of such Purchaser.
8.05. Insolvency, etc. In case of any assignment of the Company for the
benefit of creditors, or in case of any bankruptcy proceedings instituted by or
against the Company, or in case of the appointment of any receiver for the
Company's business or assets, or in case of any dissolution or winding up of the
affairs of the Company, the Company and any assignee, trustee in bankruptcy,
receiver, or other person or persons in charge, are hereby directed to pay to
the holders of Senior Debt the full amount of the Senior Debt of the Company
before making any payment of principal or interest to the Purchasers. Upon
payment in full of the amount of the Senior Debt, the Purchasers shall be
entitled to receive any excess proceeds.
8.06. Obligations Not Impaired. Nothing contained in this Article 8
shall impair, as between the Company and any holder of Senior Subordinated
Obligations, the obligation of the Company to pay to such holder the principal
thereof and
15
<PAGE>
premium, if any, and interest thereon as and when the same shall become due and
payable in accordance with the terms thereof, or prevent any holder of Senior
Subordinated Obligations from exercising all rights, powers and remedies
otherwise permitted by applicable law or under any agreement under which such
Senior Subordinated Obligations were incurred, all subject to the rights of the
holders of Senior Debt to receive cash, securities or other property otherwise
payable or deliverable to the holders of Senior Subordinated Obligations.
8.07. Payment of Senior Debt; Subrogation. Upon the payment in full in
cash of all Senior Debt, the holders of Senior Subordinated Obligations shall be
subrogated to all rights of any holder of Senior Debt to receive any further
payments or distributions applicable to Senior Debt until all Senior
Subordinated Obligations shall have been paid in full, and such payments or
distributions received by the holders of Senior Subordinated Obligations by
reason of such subrogation, of cash, securities or other property that otherwise
would be paid or distributed to the holders of Senior Debt, shall, as between
the Company and its creditors other than the holders of Senior Debt, on the one
hand, and the holders of Senior Subordinated Obligations, on the other hand, be
deemed to be a payment by the Company on account of Senior Debt and not on
account of Senior Subordinated Obligations.
9. EVENTS OF DEFAULT AND ACCELERATION
The following conditions or events shall constitute events of default
("Events of Default"):
(a) if the Company shall default in the payment of any
principal on any Note when the same becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration or otherwise; or
(b) if the Company shall default in the payment of any
interest on any Note for more than five days after the same becomes due and
payable; or
(c) if the Company shall default in the performance of or
compliance with any term contained in Article 5 hereof; or
(d) if the Company shall default in the performance of or
compliance with any other term contained herein or in the Related Agreements and
such default shall not have been remedied within 30 days after the earlier of
(x) an officer of the Company obtaining knowledge of such default and (y)
receipt by the Company of written notice of such default from any holder of any
Note; or
(e) if any representation or warranty made in writing by or
on behalf of the Company herein or in any instrument furnished in compliance
with or in reference hereto or otherwise in connection with the transactions
contemplated
16
<PAGE>
hereby shall prove to have been false or incorrect in any material respect on
the date as of which made; or
(f) if the Company or any Subsidiary shall be in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or interest on any Indebtedness with a principal amount in excess of
$50,000 (other than the Notes) or in the performance of or compliance with any
term of any evidence of any such Indebtedness or of any mortgage, indenture or
other agreement relating thereto the effect of which is to cause such
Indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment, and such default, event or condition shall
continue for more than the period of grace, if any, specified therein and shall
not have been waived pursuant thereto; or
(g) if the Company or any Subsidiary shall (i) be generally
not paying its debts as they become due, (ii) file, or consent by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an
assignment for the benefit of its creditors, (iv) consent to the appointment of
a custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, (v) be
adjudicated an insolvent or be liquidated, or (vi) take corporate action for the
purpose of any of the foregoing; or
(h) if a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by the Company or
any Subsidiary, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any
Subsidiary, or if any such petition shall be filed against the Company or any
Subsidiary and such petition shall not be dismissed within 30 days; or
(i) if a final judgment which, with other outstanding final
judgments against the Company and the Subsidiaries, exceeds $100,000 shall be
entered against the Company or any Subsidiary and if, within 60 days after entry
thereof, such judgment shall not have been discharged or execution thereof
stayed pending appeal, or if, within 60 days after the expiration of any such
stay, such judgment shall not have been discharged.
10. REMEDIES ON DEFAULT, ETC.
10.01. Remedies. Upon the occurrence of any Event of Default the
holders of the majority of outstanding principal amount of the Notes (the
"Required Holders"),
17
<PAGE>
may proceed to protect and enforce its or their rights by suit in equity, action
at law and/or other appropriate proceeding either for specific performance of
any covenant, provision or condition contained in this Agreement or any Related
Agreement, or in aid of the exercise of any power granted in this Agreement or
any Related Agreement, and (unless there shall have occurred an Event of Default
under Section 9(g) or 9(h), in which case the unpaid balance of the Notes shall
automatically become due and payable) may at its or their option by notice to
the Company declare all or any part of the unpaid principal amount of the Notes
then outstanding to be forthwith due and payable, and thereupon such unpaid
principal amount or part thereof, together with interest accrued thereon and all
other sums, if any, payable under this Agreement, the Notes or the other Related
Agreements, shall become so due and payable without presentation, presentment,
protest or further demand or notice of any kind, all of which are hereby
expressly waived, and such holder or holders may proceed to enforce payment of
such amount or part thereof in such manner as it or they may elect.
10.02. Annulment of Defaults. An Event of Default shall not be deemed
to be in existence or to have occurred for any purpose of this Agreement until
the expiration of all grace periods under this Agreement or if the Required
Holders shall have waived such event in writing or stated in writing that the
same has been cured to their reasonable satisfaction. No waiver or statement of
satisfactory cure pursuant to this Section 10.02 shall extend to or affect any
subsequent or other Event of Default not specifically identified in such waiver
or statement of satisfactory cure or impair any of rights of the holder of any
Notes or Shares upon the occurrence thereof.
10.03. Waivers. The Company hereby waives to the extent not prohibited
by applicable law which cannot be waived (a) all presentments, demands for
performance, notice of nonperformance (except to the extent specifically
required by the provisions hereof), (b) any requirement of diligence or
promptness on the part of any holder of the Notes or the Shares in the
enforcement of its rights under this Agreement or the Notes, (c) except to the
extent required by other provisions of this Agreement, any and all notices of
every kind and description which may be required to be given by any statute or
rule of law, and (d) any defense of any kind (other than indefeasible payment)
which it may now or hereafter have with respect to its liability under this
Agreement.
11. DEFINITIONS AND ACCOUNTING TERMS
11.01. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"12% Subordinated Debentures" shall mean the 12% Convertible
Subordinated Debentures issued by the Company, maturing on May 1, 1999.
18
<PAGE>
"14% Subordinated Debenture Holders" shall mean any holder of the 14%
Subordinated Debentures.
"14% Subordinated Debentures" shall mean the 14% Subordinated
Debentures, issued by the Company maturing on September 30, 1997.
"Additional Interest" shall have the meaning assigned to such term in
Section 7.02.
"Agreement" shall mean this $8,000,000 Note Purchase Agreement,
including all amendments, modifications or supplements thereto.
"Articles of Incorporation" shall mean the Articles of Incorporation of
the Company, including all amendments, modifications or supplements thereto.
"Bank United Funding Agreement" shall mean that certain Warehousing
Credit and Security Agreement dated as of July 1, 1998 between the Company and
Bank United.
"Board of Directors" shall mean the board of directors of the Company
as constituted from time to time.
"Buscema Options" shall have the meaning assigned to such term in
Section 2.03.
"By-Laws" shall mean the By-Laws of the Company, including all
amendments, modifications or supplements thereto.
"Closing" shall have the meaning assigned to such term in Section 1.03.
"Closing Date" shall have the meaning assigned to such term in Section
1.03.
"Common Shares" shall have the meaning assigned to such term in
Section 1.02.
"Common Stock" shall mean (a) the Company's Common Stock, $0.01 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company, authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies or in the absence of any
provision to the contrary in the Certificate of Incorporation or the By-laws, be
entitled to vote for the election of a majority of directors of the
19
<PAGE>
Company (even though the right so to vote has been suspended by the happening of
such a contingency or provision), and (c) any other securities into which or for
which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Cooper River Funding Agreement" shall mean that certain Warehousing
Credit Agreement dated as of August 7, 1998 between the Company and Cooper River
Funding Inc.
"Domain Name Assignment Agreement" shall have the meaning assigned to
such term in Section 2.03.
"Event of Default" shall have the meaning assigned to such term in
Article 9.
"Final Maturity Date" shall have the meaning assigned to such term in
Section 1.01.
"FRN Agreement" shall mean that certain Second Amendment to Agreement
for the Operation of First Realty Network, Inc., dated on or about December 23,
1996, among the Company, Realeads U.S.A., Inc., First Realty Network, Inc.,
Consumer Real Estate Research, Inc., and John Tomko, Jason Massey and Dennis
Brunelle.
"Future Senior Subordinated Obligations" shall mean (i) indebtedness
incurred prior to March 31, 1999, which, when aggregated with Past Senior
Subordinated Obligations and Senior Subordinated Obligations, totals less than
$17 million and (ii) any indebtedness consented to by all holders of Past Senior
Subordinated Obligations and Senior Subordinated Obligations.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 2.06 (except for changes concurred in by the independent
public accountants to the Company and the Subsidiaries).
"Indebtedness" shall mean (a) any liability for borrowed money or
evidenced by a note or similar obligation given in connection with the
acquisition of any property or other assets (other than trade accounts payable
incurred in the ordinary course of business); (b) all guaranties, endorsements
and other contingent obligations in respect of indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement
20
<PAGE>
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business, and (c) the present value of any lease payments
due under leases required to be capitalized in accordance with GAAP.
"Independent Division" shall mean any division of the Company or any
Subsidiary which is organized or operated pursuant to an agreement with any
other Person or Persons which grants such Person or Persons an ownership
interest in or other claim to the assets, revenue or value of such Division.
"Initial Public Offering" shall mean an initial public offering of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act of 1933, as amended.
"Mason-McDuffie Merger Agreement" shall mean the Agreement and Plan of
Merger dated as of March 15, 1996 among the Company, Western American Mortgage
Company and Mason-McDuffie Real Estate, Inc. and the Amended and Restated
Operating Agreement as of July 1, 1998 among the Company, Mason- McDuffie Real
Estate, Inc. and John Hogan.
"Material Adverse Effect" means any material adverse effect on (a) the
business, profits, properties or condition of the Company and the Subsidiaries,
taken as a whole, (b) the ability of the Company to perform its obligations
under the Agreement or any Related Agreement and (c) the binding nature,
validity or enforceability of this Agreement or any Related Agreement, which, in
each case, arises from, or reasonably could be expected to arise from, any
action or omission of action on the part of the Company or any Subsidiary or the
occurrence of any event or the existence of any fact or condition in respect of
the Company or any Subsidiary or any of their respective properties.
"Notes" shall have the meaning assigned to such term in Section 1.01.
"Operating Agreement" shall mean the Operating Agreement for the
Northern California Division, dated on or about July 1, 1997, among the Company,
Mason- McDuffie Real Estate, Inc., and John Hogan.
"Past Senior Subordinated Obligations" shall mean the Senior
Subordinated Obligations as defined in that certain Note Purchase Agreement
dated February 9, 1999 by and among the Company, the Purchasers and Canaan
Equity, L.P.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, university, or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Purchaser" shall have the meaning assigned to such term in Section
1.03.
21
<PAGE>
"Residential Funding Agreement" shall mean that certain First Amended
and Restated Warehousing Credit and Security Agreement dated as of June 8, 1998
between the Company and Residential Funding Corporation, as amended.
"Related Agreements" shall mean the Notes, the Warrants and the
"Related Documents" defined therein, including all amendments, modifications or
supplements thereto.
"Required Holders" shall have the meaning assigned to such term in
Section 10.01.
"Sale and Marketing Agreement" shall have the meaning assigned to such
term in Section 2.03.
"Schindler Options" shall have the meaning assigned to such term in
Section 2.03.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time or any other federal act, rule or regulation requiring registration
with any federal agency in connection with a public offering of registrable
securities.
"Senior Debt" shall mean the unpaid principal of, premium (if any) and
interest of the Warehouse Lines of Credit.
"Senior Subordinated Obligations" shall mean the unpaid principal of,
premium (if any) and interest on the Notes and all other obligations of the
Company and the Subsidiaries of any kind whatsoever under or in respect of this
Agreement and the Related Agreements.
"Series A Preferred Stock" shall mean the shares of Preferred Stock
designated Series A Preferred Stock.
"Series B Preferred Stock" shall mean the shares of Preferred Stock
designated Series B Preferred Stock.
"Series B Purchase Agreement" shall mean that certain Series B
Preferred Stock Purchase Agreement, dated as of March 29, 1996, by and among the
Company and the Purchasers listed on Schedule 1.01 thereto.
"Series C Preferred Stock" shall mean the shares of Preferred Stock
designated Series C Preferred Stock.
"Series D Preferred Stock" shall mean the shares of Preferred Stock
designated Series D Preferred Stock.
22
<PAGE>
"Shares shall have the meaning assigned to such term in Section 1.02.
"Special Preferred Stock (Northern California Division)" shall mean the
shares of Preferred Stock designated Special Preferred Stock (Northern
California Division).
"Stock Option Plan" shall mean any qualified or non-qualified incentive
stock option plan of the Company which is adopted by the Board of Directors,
including all amendments, supplements or modifications thereto.
"Subsidiary" shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries.
"Warehouse Lines of Credit" shall mean collectively (i) the line of
credit of the Company with Residential Funding Corporation pursuant to the
Residential Funding Agreement, as the same may be amended or increased or
otherwise modified from time to time and any refinancings or replacements
thereof, (ii) the line of credit of the Company with Bank United pursuant to the
Bank United Funding Agreement, as the same may be amended or increased or
otherwise modified from time to time and any refinancings or replacements
thereof, (iii) the line of credit of the Company with Cooper River Funding Inc.
pursuant to the Cooper River Funding Agreement, as the same may be amended or
increased or otherwise modified from time to time and any refinancings or
replacements thereof and (iv) any other similar line of credit approved by the
Required Holders, the terms of which require the Senior Subordinated Obligations
to be subordinated to the borrowings by the Company thereunder.
"Warrants" shall have the meaning assigned to such term in Section
1.01.
11.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistently applied, and all
financial data submitted pursuant to this Agreement, unless otherwise specified,
shall be prepared in accordance with GAAP.
12. INDEMNIFICATION
12.01. General Indemnity. The Company agrees to indemnify and save
harmless the Purchasers and their respective directors, officers, affiliates,
successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys' fees, charges and disbursements) incurred by the
Purchasers as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein or in any of the Related
Agreements. Each Purchaser agrees severally but not
23
<PAGE>
jointly to indemnify and save harmless the Company and its directors, officers,
affiliates, successors and assigns from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
any such Person as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Purchaser herein.
12.02. Indemnification Procedure. Any party entitled to indemnification
under this Section 12 (an "indemnified party") will give written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
promptly after the discovery by such party of any matters giving rise to a claim
for indemnification; provided that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 12 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist in respect of such action, proceeding or
claim, to assume the defense thereof, with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its written consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. Anything in this Section
12 to the contrary notwithstanding, the indemnifying party shall not, without
the indemnified party's prior written consent, settle or compromise
24
<PAGE>
any claim or consent to entry of any judgment in respect thereof which imposes
any future obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party, a release from all liability in respect of such claim. The
indemnification required by this Section 12 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred. The
indemnity agreements contained herein shall be in addition to (a) any cause of
action or similar right of the indemnified party against the indemnifying party
or others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.
13. MISCELLANEOUS
13.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
13.02. Amendments, Waivers and Consents. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement or any Related
Agreement may be made, and compliance with any covenant or provision set forth
herein may be omitted or waived, if the Company (a) shall obtain consent thereto
in writing from the holders of at least a majority of the then outstanding
principal amount of the Notes and (b) shall deliver copies of such consent in
writing to any holders who did not execute such consent; provided that (a) no
consents shall be effective to reduce the percentage in interest of the Notes or
Shares the consent of the holders of which is required under this Section 13.02
and (b) no amendment of Article 8 of this Agreement shall be made without the
written consent of the holders of Senior Debt. Any waiver or consent may be
given subject to satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
13.03. Addresses for Notices. Any notice, demand, request, waiver or
other communication under this Agreement or any Related Agreement shall be in
writing and shall be deemed to have been duly given on the date of service if
personally served or on the third day after mailing if mailed to the party to
whom notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
25
<PAGE>
To the Company: Mortgage.com, Inc.
8751 Broward Blvd., 5th Floor
Plantation, Florida 33324
Attention: Seth S. Werner
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luther F. Sadler, Esq.
To any Purchaser: At its address or addresses specified
on Schedule 1.01 hereto
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, Connecticut 06103
Attention: Edward A. Reilly, Jr., Esq.
13.04. Costs, Expenses and Taxes. As a condition precedent to the
Closing, the Company agrees to pay at the Closing in connection with the
preparation, execution and delivery of this Agreement and the issuance of the
Notes and Warrants to be issued at the Closing, the reasonable fees and other
out-of-pocket expenses of Messrs. LeBoeuf, Lamb, Greene & MacRae, L.L.P. In
addition, the Company shall pay the reasonable fees and out of pocket expenses
of legal counsel, independent public accountants, consultants and other outside
experts retained by the Purchasers in connection with any amendment or waiver to
this Agreement or any Related Agreement or the successful enforcement of this
Agreement or any Related Agreement by the Purchasers. In addition, the Company
shall pay any and all stamp, or other similar taxes payable or determined to be
payable in connection with the execution and delivery of this Agreement, the
issuance of the Notes and the other instruments and documents to be delivered
hereunder or thereunder, and agrees to save the Purchasers harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes.
13.05. Binding Effect; Assignment. This Agreement and each Related
Agreement to which it is a party shall be binding upon and inure to the benefit
of each of the Company and the Purchasers and their respective heirs, successors
and assigns, except that the Company shall not have the right to delegate its
obligations hereunder or to assign its rights hereunder or any interest herein
without the prior written consent of the holders of at least a majority of the
then outstanding principal amount of the Notes. In addition, the Company
acknowledges and agrees that any Purchaser hereunder may assign all or any
portion of its rights under the Notes or
26
<PAGE>
Warrants held by it to any other Person not currently a Purchaser hereunder.
Upon any such assignment (i) the assigning Purchaser shall deliver the Notes and
Warrants held by it to the Company for cancellation and reissuance in the names
and amounts as directed by such Purchaser, (ii) the Company, the Purchasers and
the assignee shall enter into an amendment to this Agreement in order to make
the assignee a Purchaser hereunder and entitled to all the rights evidenced
hereby and to amend Schedule 1.01 hereto to reflect such assignment and (iii)
the Company shall cause to be issued to such assignee either a legal opinion in
the form issued to the assigning Purchaser pursuant to Section 4.09 of this
Agreement or a letter from the issuer of such opinion stating that the assignee
may rely on such opinion as if it were issued to assignee hereunder.
13.06. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, each Related Agreement, the Notes, or any
other instrument or document delivered in connection herewith or therewith,
shall survive the execution and delivery hereof or thereof for a period of two
years.
13.07. Prior Agreements. This Agreement, each Related Agreement, and
the other agreements executed and delivered herewith constitute the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
13.08. Severability. The provisions of this Agreement and each Related
Agreement are severable and, in the event that any court of competent
jurisdiction shall determine that any one or more of the provisions or part of a
provision contained in this Agreement or any Related Agreement shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or any Related Agreement; but this
Agreement and each Related Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of a provision, had never
been contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
13.09. Confidentiality. Each Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Purchaser may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
such Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder or under any Related Agreement, unless such
information is known, or until such information becomes known, to the public;
provided, however, that the Purchasers may disclose such information (a) on a
confidential basis to their attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in connection
with their investment in the Company, (b) to any
27
<PAGE>
prospective purchaser of any Notes or Shares from such Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section 13.09, (c) to any entity controlling, controlled by or under common
control with the Purchaser, or to any partner of such Purchaser, or (d) as
required by applicable law.
13.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND
WITHOUT GIVING EFFECT TO CHOICE OF LAW PROVISIONS.
13.11. Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
13.12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
13.13. Further Assurances. From and after the date of this Agreement,
upon the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, each Related
Agreement and the Shares.
13.14. Waiver. At any time prior to the Closing Date, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party granting such waiver but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or future failure.
13.15. Specific Enforcement. Each of the Purchasers and the Company
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement and each Related Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement, each
Related Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any
28
<PAGE>
state thereof having jurisdiction, this being in addition to any other remedy to
which they may be entitled at law or equity.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
MORTGAGE.COM, INC.
By:____________________________________
Name:
Title:
PURCHASERS:
DOMINION FUND IV, L.P.
By: Dominion Management IV, L.L.C.,
its General Partner
By: ___________________________________
Michael K. Lee
Managing Member
INTUIT INC.
By:___________________________________
Name:
Title:
[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]
30
<PAGE>
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: Investment General Partner
By:___________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
Technology Crossover Ventures II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By:____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By:____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]
31
<PAGE>
TCV II Strategic Partners, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By:_________________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
Technology Crossover Ventures II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: Investment General Partner
By:_________________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]
32
<PAGE>
SCHEDULE 1.01
-------------
PURCHASER PRINCIPAL AMOUNT OF NOTES
- --------------------------------------------------------------------------------
Dominion Fund IV, L.P. $2,000,000
c/o Dominion Ventures
44 Montgomery Street
Suite 4200
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Intuit Inc. $5,000,000
2550 Garcia Avenue
Mountain View, CA 94043
- --------------------------------------------------------------------------------
TCV II, V.O.F.* $15,540
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
- --------------------------------------------------------------------------------
Technology Crossover Ventures II, L.P.* $478,374
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
- --------------------------------------------------------------------------------
TCV II (Q), L.P.* $367,780
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
- --------------------------------------------------------------------------------
TCV II Strategic Partners, L.P.* $65,268
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
- --------------------------------------------------------------------------------
Technology Crossover Ventures II, C.V.* $73,038
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
- --------------------------------------------------------------------------------
TOTAL $8,000,000
- ---------------------------
* Each with a copy to:
Technology Crossover
Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
33
$3,000,000 NOTE PURCHASE AGREEMENT
dated as of April 19, 1999
among
MORTGAGE.COM, INC.
and
THE PURCHASER LISTED ON SCHEDULE 1.01
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1. PURCHASE, SALE AND TERMS OF NOTES........................................................................1
1.01. Authorization of Notes and Warrants..........................................................1
-----------------------------------
1.02. The Shares...................................................................................1
----------
1.03. Purchase Price and Closings..................................................................1
---------------------------
1.04. Use of Proceeds..............................................................................2
---------------
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................2
2.01. Organization, Standing and Power.............................................................2
--------------------------------
2.02. Authority; Enforceability; No Conflict.......................................................3
--------------------------------------
2.03. Capitalization...............................................................................3
--------------
2.04. Subsidiaries.................................................................................6
------------
2.05. Status of Notes, Warrants and Shares.........................................................6
------------------------------------
2.06. Financial Statements.........................................................................7
--------------------
2.07. Actions Pending..............................................................................7
---------------
2.08. Compliance with Law..........................................................................7
-------------------
2.09. No Material Adverse Change...................................................................8
--------------------------
2.10. Certain Fees.................................................................................8
------------
2.11. Disclosure...................................................................................8
----------
2.12. Securities Act of 1933.......................................................................8
----------------------
2.13. Governmental Approvals.......................................................................8
----------------------
2.14. United States Real Property Holding Corporation..............................................9
-----------------------------------------------
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..........................................................9
3.01. Organization and Standing of the Purchaser...................................................9
------------------------------------------
3.02. Authority; Enforceability; No Conflict.......................................................9
--------------------------------------
3.03. Acquisition for Investment..................................................................10
--------------------------
3.04. Financing...................................................................................10
---------
4. CONDITIONS TO PURCHASER'S OBLIGATIONS FOR CLOSING.......................................................10
4.01. Representations and Warranties..............................................................10
------------------------------
4.02. Secretary's Certificate.....................................................................10
-----------------------
4.03. Officer's Certificate.......................................................................11
---------------------
4.04. [Intentionally Omitted].....................................................................11
4.05. Consents, Licenses, Approvals, etc..........................................................11
----------------------------------
4.06. Good Standing Certificates..................................................................11
--------------------------
4.07. No Proceedings or Litigation................................................................11
----------------------------
4.09. Legal Opinions..............................................................................11
--------------
4.10. Consents and Waivers of Equity Holders......................................................12
--------------------------------------
4.12. Expenses....................................................................................12
--------
i
<PAGE>
4.13. Compliance with this Agreement..............................................................12
4.14. Proceedings Satisfactory....................................................................12
5. CONDITIONS TO PURCHASER'S OBLIGATIONS FOR SECOND CLOSING
.......................................................................................................12
5.01. Representations and Warranties..............................................................12
5.02. No Event of Default.........................................................................12
5.03. Officer's Certificate. ....................................................................12
5.04. Consents, Licenses, Approvals, etc..........................................................13
5.05. No Proceedings or Litigation................................................................13
5.06. Warrants. .................................................................................13
5.07. Expenses. .................................................................................13
5.08. Compliance with this Agreement..............................................................13
5.09. Proceedings Satisfactory....................................................................13
6. COVENANTS OF THE COMPANY................................................................................13
6.01. Covenants of the Company Under the Series B Purchase
Agreement...................................................................................13
6.02. Future Senior Subordinated Obligations......................................................13
7. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES........................................................14
7.01. Note Register; Ownership of Notes...........................................................14
---------------------------------
7.02. Transfer and Exchange of Notes..............................................................14
------------------------------
7.03. Replacement of Notes........................................................................14
--------------------
8. PAYMENTS ON NOTES; REDEMPTION; CONVERSION...............................................................14
8.01. Place of Payment............................................................................14
----------------
8.02. Additional Interest.........................................................................15
-------------------
8.03. Mandatory Redemption........................................................................15
--------------------
8.04. Optional Redemption.........................................................................15
-------------------
8.05. Allocation of Partial Redemptions...........................................................15
---------------------------------
8.06. Maturity; Surrender; etc....................................................................15
------------------------
9. SUBORDINATION OF SENIOR SUBORDINATED OBLIGATIONS........................................................16
9.01. Generally...................................................................................16
---------
9.02. Restrictions................................................................................16
------------
9.03. Permitted Payments..........................................................................16
------------------
9.04. Turnover of Payments........................................................................17
--------------------
9.05. Insolvency, etc.............................................................................17
---------------
9.06. Obligations Not Impaired....................................................................17
------------------------
9.07. Payment of Senior Debt; Subrogation.........................................................17
-----------------------------------
ii
<PAGE>
10. EVENTS OF DEFAULT AND ACCELERATION......................................................................17
11. REMEDIES ON DEFAULT, ETC................................................................................19
11.01. Remedies....................................................................................19
--------
11.02. Annulment of Defaults.......................................................................19
---------------------
11.03. Waivers.....................................................................................20
-------
12. DEFINITIONS AND ACCOUNTING TERMS........................................................................20
12.01. Certain Defined Terms.......................................................................20
12.02. Accounting Terms............................................................................25
13. INDEMNIFICATION.........................................................................................25
13.01. General Indemnity...........................................................................25
13.02. Indemnification Procedure...................................................................25
14. MISCELLANEOUS...........................................................................................26
14.01. No Waiver; Cumulative Remedies..............................................................26
------------------------------
14.02. Amendments, Waivers and Consents............................................................27
--------------------------------
14.03. Addresses for Notices.......................................................................27
---------------------
14.04. Costs, Expenses and Taxes...................................................................27
-------------------------
14.05. Binding Effect; Assignment..................................................................28
--------------------------
14.06. Survival of Representations and Warranties..................................................28
------------------------------------------
14.07. Prior Agreements............................................................................28
----------------
14.08. Severability................................................................................28
------------
14.09. Confidentiality.............................................................................29
---------------
14.10. Governing Law...............................................................................29
-------------
14.11. Headings....................................................................................29
--------
14.12. Counterparts................................................................................29
------------
14.13. Further Assurances..........................................................................29
------------------
14.14. Waiver......................................................................................30
------
14.15. Specific Enforcement........................................................................30
--------------------
</TABLE>
iii
<PAGE>
$3,000,000 NOTE PURCHASE AGREEMENT
Dated as of April 19, 1999
The Purchaser Listed on Schedule 1.01
Ladies and Gentlemen:
MORTGAGE.COM, INC., a Florida corporation (the "Company"), hereby
agrees with you as follows:
1. PURCHASE, SALE AND TERMS OF NOTES
1.01. Authorization of Notes and Warrants. The Company has authorized
the issuance and sale of $3,000,000 in aggregate principal amount of its 12%
Senior Subordinated Notes (the "Notes") due April 19, 2001 (the "Final Maturity
Date"), to be substantially in the form of Exhibits A-1 and A-2. The Company has
authorized the issuance of Warrants to purchase up to an aggregate of 20,004
shares of Common Stock in the form of the Common Stock Purchase Warrant attached
hereto as Exhibits B-1 and B-2 (the "Warrants") to be issued to the Purchaser
hereunder as Additional Interest on the Notes pursuant to Section 8.02. The
Company agrees that the value of all Warrants to be issued through the Closing
Date and the Second Closing Date, should it occur, is $2,500 and the Company
agrees to use the foregoing for all federal, state, and local income tax
purposes with respect to the transactions contemplated by this Agreement.
1.02. The Shares. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, a sufficient number of authorized but
unissued shares of Common Stock (the "Common Shares") to satisfy the rights of
exercise of the Warrants. The Common Shares are sometimes referred to herein as
the "Shares."
1.03. Purchase Price and Closings.
(a) The Company agrees to issue and sell to the Person (the
"Purchaser") listed on Schedule 1.01 hereto those principal amounts of Primary
and Secondary Notes set forth opposite Purchaser's name in Schedule 1.01, for an
amount equal to one hundred percent (100%) of the principal amounts thereof. In
consideration of and in express reliance upon the representations, warranties,
1
<PAGE>
covenants, terms and conditions of this Agreement, the Purchaser agrees to
purchase, that principal amount of Primary Notes set forth opposite its name in
Schedule 1.01, for an amount equal to one hundred percent (100%) of the
principal amount thereof.
(b) Until April 21, 1999, the Purchaser is granted an option to
purchase (whether or not the conditions contained in Article 5 have been
satisfied) that principal amount of Secondary Notes set forth opposite its name
in Schedule 1.01, for an amount equal to one hundred percent (100%) of the
principal amount thereof.
(c) The closing of the purchase and sale of the Primary Notes
hereunder (the "Closing") shall take place at the offices of Messrs. LeBoeuf,
Lamb, Greene and MacRae, L.L.P., 225 Asylum Street, Hartford, CT 06103 at 10:00
a.m. on April 19, 1999, or at such time and date thereafter as the Purchaser and
the Company may agree (the "Closing Date"). The closing of the purchase and sale
of the Secondary Notes hereunder (the "Second Closing"), should the Purchaser
exercise the option granted in Section 1.03(b) above, shall take place at the
offices of Messrs. LeBoeuf, Lamb, Greene & MacRae, L.L.P., 225 Asylum Street,
Hartford, CT 06103 at such time and date thereafter as the Purchaser and the
Company may agree (the "Second Closing Date"), which time and date shall be no
later than 5:00 p.m., April 21, 1999. At the Closing, and the Secondary Closing
should it occur, the Company will deliver to the Purchaser (i) the Primary or
Secondary Notes, respectively, in the principal amount to be purchased by the
Purchaser as set forth on Schedule 1.01 registered in the Purchaser's name (or
its nominee) and (ii) Warrants in the amount required to be issued to the
Purchaser in accordance with Section 8.02 as Additional Interest, against
delivery of a check or checks payable to the order of the Company, or a transfer
of funds to the account of the Company by wire transfer, representing the net
cash consideration for the Primary or Secondary Notes, respectively, to be
purchased at such Closing set forth opposite the Purchaser's name on Schedule
1.01.
1.04. Use of Proceeds. The Company shall use the cash proceeds from the
sale of the Notes for general working capital purposes.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
2.01. Organization, Standing and Power. Each of the Company and the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of the
Company and the Subsidiaries has all requisite power and authority to own, lease
and operate its properties and assets and to conduct its business as now being
conducted and is duly qualified to do business in good standing in those foreign
jurisdictions in which such qualification is required.
2
<PAGE>
2.02. Authority; Enforceability; No Conflict. The Company has all
requisite corporate power and authority to enter into this Agreement, to issue
and sell the Notes, to issue the Warrants, and to carry out its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Company, the issuance and sale of the Notes and the issuance of the Warrants by
the Company have been duly and validly authorized by all requisite corporate
proceedings on the part of the Company. This Agreement when executed and
delivered by the Company is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, rehabilitation, liquidation, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. Except as set
forth on Schedule 2.02, the execution and delivery of this Agreement by the
Company does not, and the consummation by the Company of the transactions
contemplated hereby and thereby will not result in or constitute: (a) a default,
breach or violation of or under the Articles of Incorporation or the By-laws,
(b) a default, breach or violation of or under any mortgage, deed of trust,
indenture, note, bond, license, lease agreement or other instrument or
obligation to which the Company or any Subsidiary is a party or by which any of
their respective properties or assets are bound, (c) a violation of any statute,
rule, regulation, order, judgment or decree of any court, public body or
authority by which the Company, any Subsidiary or any of their respective
properties or assets are bound, (d) an event which (with notice or lapse of time
or both) would permit any Person to terminate, accelerate the performance
required by, or accelerate the maturity of any indebtedness or obligation of the
Company or any Subsidiary under any agreement or commitment to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound, (e) the
creation or imposition of any lien, charge or encumbrance on any property of the
Company or any Subsidiary under any agreement or commitment to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound, or (f) an
event which would require any consent under any agreement to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound.
2.03. Capitalization. The authorized capital stock of the Company
consists of:
(a) 30,000,000 shares of Common Stock, of which (i) 1,385,457
shares are outstanding, (ii) 225,225 are reserved for issuance upon conversion
of the Series A Preferred Stock, (iii) 1,171,191 are reserved for issuance upon
conversion of the Series B Preferred Stock, (iv) 1,107,000 are reserved for
issuance upon conversion
3
<PAGE>
of the Series C Preferred Stock, (v) 1,350,000 are reserved for issuance upon
conversion of the Series D Preferred Stock, (vi) 100,000 are reserved for
issuance upon conversion of the Special Preferred Stock (Northern California
Division), (vii) 1,650,000 are reserved for issuance under the Company's Stock
Option Plan; (viii) 247,500 are reserved for issuance upon the exercise of the
warrants held by former 14% Subordinated Debenture Holders, (ix) 500,000 are
reserved for issuance upon the exercise of the warrants held by Superior Bank,
F.S.B., pursuant to a Sale and Marketing Agreement dated as of April 28, 1995,
between the Company and Superior Bank, F.S.B., as amended (the "Sale and
Marketing Agreement"), (x) 13,333 are reserved for issuance upon the conversion
of the 12% Subordinated Debentures, (xi) 25,000 are reserved for issuance upon
the exercise of options held by John Buscema and Glen Letizia (the "Buscema
Options"), (xii) 100,000 are reserved for issuance upon conversion of rights in
the Realeads Group held by John Tomko, Jason Massey and Dennis Brunelle under a
Second Amendment for the Agreement of Operation of First Realty Network, Inc.
dated on or about December 23, 1996 (the "FRN Agreement"), (xiii) 109,728 are
reserved for issuance upon the exercise of the warrants held or which may be
obtained by George A. Naddaff (other than as a former 14% Subordinated Debenture
Holder), (xiv) 92,436 are reserved for issuance upon the exercise of warrants
held by Raymond James & Associates, (xv) 50,000 are reserved for issuance upon
the exercise of warrants held by former holders of 12% Senior Subordinated
Convertible Notes dated August 31, 1997, (xvi) 66,667 are reserved for issuance
upon the exercise of warrants held by former holders of 12% Senior Subordinated
Convertible Notes dated January 30, 1998, (xvii) 100,000 are reserved for
issuance pursuant to the Option Agreement dated January 28, 1998, between the
Company, RM Holdings, Inc., John T. Rodgers, Andrew M. Heller and Kyle Meyer,
(xviii) 36,000 are reserved for issuance upon the exercise of warrants held by
FMN Associates, Ltd., (xix) 100,000 are reserved for issuance upon conversion of
rights held by Credit.com, LLC under the Domain Name Assignment Agreement dated
as of January 1, 1999, between the Company and Credit.com, LLC (the "Domain Name
Assignment Agreement"), (xx) 6,668 are reserved for issuance upon exercise of
the warrants held by the holders of the 12% Senior Subordinated Notes dated
February 9, 1999; (xxi) 53,344 are reserved for issuance upon exercise of the
warrants held by the holders of the 12% Senior Subordinated Notes dated February
26, 1999; and (xxii) 20,004 are reserved for issuance upon exercise of the
Warrants; and
(b) 15,000,000 shares of Preferred Stock, of which (i) 225,225
have been designated Series A Preferred Stock (all of which are outstanding),
(ii) 1,000 have been designated Special Preferred Stock (Northern California
Division) (all of which are outstanding), (iii) 1,171,191 have been designated
Series B Preferred Stock (959,614 of which are outstanding), (iv) 1,107,000 have
been designated Series C Preferred Stock (739,336 of which are outstanding) and
(v) 1,350,000 have been designated Series D Preferred Stock (1,273,898 of which
are outstanding and 18,650 of which have been reserved for issuance upon
exercise of warrants held by Dominion Fund III). All of the outstanding shares
of Common Stock, Series A Preferred Stock,
4
<PAGE>
Special Preferred Stock (Northern California Division), Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock have been duly
authorized and validly issued, and are fully-paid and non-assessable.
Except (i) the Preferred Stock referred to herein, (ii) options and
warrants referred to herein, (iii) as required by the Sale and Marketing
Agreement, (iv) as required by the Series B Preferred Stock Purchase Agreement
dated as of March 29, 1996 among the Company, Purchasers of the Series B
Preferred Stock, purchasers of the Series C Preferred Stock, purchasers of the
Series D Preferred Stock, John T. Rodgers, Andrew M. Heller and Kyle Meyer, as
amended ("Series B Purchase Agreement"), (v) as required by the Operating
Agreement for the Northern California Division dated July 1, 1997 among the
Company, Mason-McDuffie Real Estate, Inc. and John Hogan ("Operating
Agreement"), as amended, (vi) as required by the Agreement Relating to Purchase
of John Hogan's Rights in the Northern California Division dated as of January
1, 1998, between the Company and John Hogan, (vii) as required by the Employment
Agreement dated July 18, 1997 between the Company and David Larson, (viii) as
required by the Note Purchase Agreement dated January 28, 1998, (ix) as required
by the Employment Agreements dated on or about January 28, 1998, between the
Company and Kyle Meyer, John T. Rodgers, Garth Graham and Barbara Mullen, (x) as
required by the Domain Name Assignment Agreement, (xi) as required by the
Technology Member Correspondent Agreement dated on or about November 1, 1998,
between the Company and Mortgage Loan Specialists, Inc. and (xii) as required by
the Technology Member Correspondent Agreement dated on or about November 1,
1998, between the Company and First Capital, Inc., there are no outstanding
preemptive, conversion or other rights, options, warrants or agreements granted
or issued by or binding upon the Company for the purchase or acquisition of any
shares of capital stock of the Company or any other securities convertible into,
exchangeable for or evidencing the right to subscribe to any shares of such
capital stock.
All outstanding shares of capital stock, convertible securities,
rights, options and warrants of the Company are owned by the stockholders and in
the numbers specified on Schedule 2.03. Except as required by the terms of the
Buscema Options, the Special Preferred Stock (Northern California Division), the
contingent repurchase rights of Superior Bank, F.S.B. under the Sale and
Marketing Agreement, the Agreement dated as of April 1, 1998, between the
Company and Superior Bank, F.S.B., the FRN Agreement, the Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, the Operating
Agreement, the Note Purchase Agreement and the Domain Name Assignment Agreement,
the Company is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or any
convertible securities, rights or options of the type described in the preceding
sentence.
5
<PAGE>
Except as required by the terms of the Registration Rights Agreement
dated May 1, 1996, between the Company and Raymond James & Associates, Inc., the
Registration Rights Agreement dated March 15, 1996, between the Company and
Mason-McDuffie Real Estate, Inc., the Operating Agreement, the Series B Purchase
Agreement, as amended, registration rights held by Dominion Fund III under the
Warrant to Purchase Shares of Series D Preferred Stock dated April 1, 1998 and
the Registration Rights Agreement dated as of January 1, 1999, between the
Company and Credit.com, LLC, the Company is not a party to any agreement
granting registration rights to any person with respect to any of its equity or
debt securities.
Except as set forth in the Related Agreements and the Mason-McDuffie
Merger Agreement (which restricts the transfer of the Special Preferred Stock
(Northern California Division)), the Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company other than agreements enforcing restrictions
under state and federal securities laws. The offer and sale of all capital
stock, convertible securities, rights or options of the Company issued prior to
the Closing Date complied with or was exempt from all applicable federal and
state securities laws and no stockholder has a right of rescission or damages
with respect thereto.
2.04. Subsidiaries. Schedule 2.04 sets forth each Subsidiary and each
Independent Division, showing the jurisdiction of the incorporation or
organization of each Subsidiary and showing the percentage of each Person's
ownership of the outstanding stock or other interests of each such Subsidiary or
Independent Division. All of the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, and are fully paid and
non-assessable. Except as set forth on Schedule 2.04 (i) there are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary or the Company
with respect to any Subsidiary or Independent Division for the purchase or
acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock or any other similar ownership
interests of any Independent Division and (ii) neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of capital stock or any convertible
securities, rights, options or warrants of any Subsidiary or similar ownership
interests of any Independent Division. Except as set forth herein, neither the
Company nor any Subsidiary is a party to, nor has any knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of any Subsidiary or similar ownership interests of any Independent Division.
2.05. Status of Notes, Warrants and Shares. The Notes and Warrants to
be issued at the Closing have been duly authorized by all necessary corporate
action on the part of the Company. The Shares have been duly authorized by all
necessary corporate action on the part of the Company and have been duly
reserved for issuance.
6
<PAGE>
When the Shares are issued such shares will be validly issued and outstanding,
fully paid and nonassessable and the issuance of such shares will not be subject
to preemptive or other similar contractual rights of any other stockholder of
the Company.
2.06. Financial Statements. As set forth on Schedule 2.06 hereto, the
audited consolidated balance sheets of the Company and the Subsidiaries as at
December 31, 1997, and the related consolidated income statements and statements
of cash flows and changes in stockholders' equity of the Company and the
Subsidiaries for the fiscal periods then ended, together with the opinion
thereon of KPMG Peat Marwick LLP, independent certified public accountants, and
the interim consolidated balance sheet of the Company and the Subsidiaries as at
December 31, 1998, and the related consolidated income statement and statement
of cash flows and changes in stockholders' equity of the Company and the
Subsidiaries for the twelve month period then ended, are complete and correct in
all material respects and fairly present the financial condition of the Company
and the Subsidiaries at such dates and the results of the operations of the
Company and the Subsidiaries for the periods covered by such statements, all in
accordance with GAAP consistently applied.
2.07. Actions Pending. There is no action, suit, claim, investigation
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary which questions the validity of this Agreement or
any of the Related Agreements or any action taken or to be taken pursuant hereto
or thereto. Except as set forth on Schedule 2.07, there is no action, suit,
claim, investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary.
2.08. Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted so as to comply with all
applicable federal, state, and local governmental laws, rules, regulations and
ordinances (including, without limitation, all rules and regulations pertaining
to the producing, processing, underwriting, selling and servicing of residential
mortgage loans, loan brokerage operations and the sale of "business
opportunities"). Each of the Company and the Subsidiaries has all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it.
2.09. No Material Adverse Change. Except as set forth on Schedule 2.09,
since December 31, 1998, (a) there has been no material adverse change in the
business, assets, operations, affairs, prospects or financial condition of the
Company or any Subsidiary; and (b) neither the business, financial condition,
operation, prospects or affairs of the Company, any Subsidiary nor any of their
respective
7
<PAGE>
properties or assets have been adversely affected in any material respect as the
result of any legislative or regulatory change, any revocation or change in any
franchise, permit, license or right to do business, or any other event or
occurrence, whether or not insured against.
2.10. Certain Fees. No broker's, finder's or financial advisory fees or
commissions will be payable by the Company or any Subsidiary with respect to the
transactions contemplated by this Agreement and the Related Agreements.
2.11. Disclosure. Neither this Agreement or the Schedules hereto, nor
any other document, certificate or instrument furnished to the Purchaser by or
on behalf of the Company in connection with the transactions contemplated by
this Agreement, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading. The parties further agree that any agreement, event,
condition or other item which is disclosed on a particular Schedule hereto shall
be deemed to be disclosed for the purposes of all other Schedules to which it is
relevant, provided that all of the terms or effects of any such item which are
relevant to any Schedule hereto are adequately disclosed.
2.12. Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Notes and the issuance of the Warrants
hereunder. Neither the Company nor anyone acting on its behalf has or will sell,
offer to sell or solicit offers to buy the Notes or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any Person, so as to bring
the issuance and sale of the Notes or the issuance of the Warrants under the
registration provisions of the Securities Act and applicable state securities
laws.
2.13. Governmental Approvals. Except as set forth on Schedule 2.13 and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or federal securities laws (which, if
required, shall be filed on a timely basis), no authorization, consent,
approval, license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution and delivery by the Company of this Agreement, for the offer, issue,
sale, execution or delivery of the Notes or the Warrants, or for the performance
by the Company of its obligations under this Agreement.
2.14. United States Real Property Holding Corporation. Neither the
Company nor any Subsidiary is now nor has ever been a "United States Real
Property Holding Corporation" as defined in Section 897(c)(2) of the Code and
Section 1.897-2(b) of the Regulations promulgated by the Internal Revenue
Service.
8
<PAGE>
2.15. Representations Under Series B Purchase Agreement. Except as set
forth on Schedule 2.15, the representations and warranties of the Company set
forth in Article 2 of the Series B Purchase Agreement are true and correct and
with the same effect as though made at and as of the date hereof, except for
those representations and warranties which speak of a specific date which remain
true and correct as of such date.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
3.01. Organization and Standing of the Purchaser. The Purchaser is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.
3.02. Authority; Enforceability; No Conflict. The Purchaser has all
requisite power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution, delivery and performance of this Agreement
by the Purchaser has been duly and validly authorized by all requisite
proceedings on the part of the Purchaser. This Agreement when executed and
delivered by the Purchaser is a valid and binding obligation of the Purchaser,
enforceable against it in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, rehabilitation, liquidation, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. The execution and
delivery of this Agreement by the Purchaser does not, and consummation by the
Purchaser of the transactions contemplated hereby will not, result in or
constitute (a) a default, breach or violation of or under the organizational
documents of the Purchaser, (b) a default, breach or violation of or under any
mortgage, deed of trust, indenture, note, bond, license, lease agreement or
other instrument or obligation to which the Purchaser is a party or by which any
of its properties or assets are bound, except for any defaults, breaches or
violations which would not, individually or in the aggregate, have a Material
Adverse Effect on the Purchaser or prevent or materially delay the consummation
by the Purchaser of the transactions contemplated hereby, or (c) a violation of
any statute, rule, regulation, order, judgment or decree of any court, public
body or authority, except for any violations which would not, individually or in
the aggregate, have a Material Adverse Effect on the Purchaser or prevent or
materially delay the consummation by the Purchaser of the transactions
contemplated hereby.
3.03. Acquisition for Investment. The Purchaser is an "accredited
investor" as defined in Regulation D under the Securities Act, and is acquiring
the Notes and the Warrants solely for its own account for the purpose of
investment and not with a view
9
<PAGE>
to or for sale in connection with any distribution thereof, and it has no
present intention or plan to effect any distribution of the Notes or the
Warrants. The Purchaser acknowledges that it is able to bear the financial risks
associated with an investment in the Notes and that it has been given full
access to such records of the Company and the Subsidiaries and to the officers
of the Company and the Subsidiaries as it has deemed necessary and appropriate
to conducting its due diligence investigation. The Notes and the Warrants may
bear a legend to the following effect:
"This security has not been registered under the Securities Act of
1933, as amended, or the laws of any state and may not be sold or
transferred except in compliance with that Act and such laws."
3.04. Financing. The Purchaser has sufficient funds and will have
sufficient funds at all times through the Closing Date to consummate the
transactions contemplated hereby. The Purchaser will not be rendered insolvent
by reason of its investments in the Company nor will it be left with
unreasonably small capital for purposes of operating its businesses.
4. CONDITIONS TO PURCHASER'S OBLIGATIONS FOR CLOSING
The obligation of the Purchaser to purchase and pay for the Primary
Notes to be purchased by it at the Closing is subject to the following
conditions:
4.01. Representations and Warranties. Each of the representations and
warranties set forth in Section 2 hereof shall be true, accurate and correct at
the Closing Date with the same effect as though made at and as of such time.
4.02. Secretary's Certificate. The Purchaser shall have received a
certificate of the Secretary or an Assistant Secretary of the Company, dated the
Closing Date, (a) attesting to corporate action taken by the Company, including
resolutions of the Board of Directors authorizing (i) the execution, delivery
and performance by the Company of this Agreement, (ii) the issuance of the Notes
and the Warrants to be issued to the Purchaser and (iii) the execution, delivery
and performance by the Company of all other agreements or matters contemplated
hereby or executed in connection herewith, (b) certifying the names and true
signatures of the officers of the Company authorized to sign this Agreement, the
Notes, the Warrants, and the other documents, instruments or certificates to be
delivered pursuant hereto and thereto, together with the true signatures of such
officers and (c) verifying that the Articles of Incorporation and the By-Laws
(as attached thereto) are true, correct and complete as of the Closing Date.
4.03. Officer's Certificate. The Purchaser shall have received a
certificate of the President and Treasurer of the Company (an "Officer's
Certificate"), dated the Closing Date, which shall certify that the
representations and warranties contained in
10
<PAGE>
Section 2 hereof are true and correct as of the Closing Date and that all
conditions required to be performed prior to or at the Closing have been
performed as of the Closing Date.
4.04. [Intentionally Omitted]
4.05. Consents, Licenses, Approvals, etc. The Purchaser shall have
received certified true copies of all consents, licenses and approvals required
or advisable in connection with the execution, delivery, performance, validity
and enforceability of this Agreement, and such consents, licenses and approvals
shall be in full force and effect and be reasonably satisfactory in form and
substance to the Purchaser.
4.06. Good Standing Certificates. The Purchaser shall have received a
certificate of the appropriate public official in the jurisdiction of
incorporation of the Company and each Subsidiary as to the due incorporation and
good standing of the Company and such Subsidiary together with, in the case of
the Company, a certified copy of the Articles of Incorporation of the Company.
4.07. No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers or directors of
the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
4.08. Warrants. The Company shall have issued to the Purchaser the
number of Warrants required to be issued as Additional Interest on the Closing
Date pursuant to Section 8.02
4.09. Legal Opinions. The Purchaser shall have received a legal opinion
from Foley & Lardner, counsel to the Company, dated the Closing Date and
substantially in the form of opinion attached as Exhibit C.
4.10. Consents and Waivers of Equity Holders. The Company shall have
obtained written agreements from a majority of the holders of each of the Series
B, Series C and Series D Preferred Stock consenting to the issuance of the
Notes, the Warrants and the Shares upon the exercise of the Warrants and waiving
any rights of first offer such holders may otherwise have with respect to the
issuance of the Notes, Warrants or the Shares.
4.11. Consents of Lenders. The Company shall have obtained consent to
the transactions contemplated hereby from Cooper River Funding, Inc. pursuant to
the terms of the Cooper River Funding Agreement.
11
<PAGE>
4.12. Expenses. All fees and disbursements required to be paid pursuant
to Section 14.04 hereof shall have been paid in full.
4.13. Compliance with this Agreement. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
4.14. Proceedings Satisfactory. All proceedings taken in connection
with the issuance and sale of the Primary Notes and the issuance of the Warrants
and all documents and papers relating thereto shall be satisfactory in form and
substance to the Purchaser. The Purchaser shall have received copies of such
documents and papers as they may reasonably request in connection with this
Agreement.
5. CONDITIONS TO PURCHASER'S OBLIGATIONS FOR SECOND CLOSING
The obligation of the Purchaser to pay for the Secondary Notes to be
purchased by it at the Second Closing is subject to the following conditions:
5.01. Representations and Warranties. Each of the representations and
warranties set forth in Section 2 hereof shall be true, accurate and correct at
the Second Closing Date with the same effect as though made at and as of such
time.
5.02. No Event of Default. No Event of Default shall have occurred.
5.03. Officer's Certificate. The Purchaser shall have received an
Officer's Certificate, dated the Second Closing Date, which shall certify that
the representations and warranties contained in Section 2 hereof are true and
correct as of the Second Closing Date, that no Event of Default shall have
occurred as of the Second Closing Date and that all conditions required to be
performed prior to or at the Second Closing have been performed as of the Second
Closing Date.
5.04. Consents, Licenses, Approvals, etc. The Purchaser shall have
received certified true copies of all consents, licenses and approvals required
or advisable in connection with the execution, delivery, performance, validity
and enforceability of this Agreement, and such consents, licenses and approvals
shall be in full force and effect and be reasonably satisfactory in form and
substance to the Purchaser.
5.05. No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers or directors of
the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
12
<PAGE>
5.06. Warrants. The Company shall have issued to the Purchaser the
number of Warrants required to be issued as Additional Interest on the Second
Closing pursuant to Section 8.02.
5.07. Expenses. All fees and disbursements required to be paid pursuant
to Section 14.04 hereof shall have been paid in full.
5.08. Compliance with this Agreement. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Second Closing.
5.09. Proceedings Satisfactory. All proceedings taken in connection
with the issuance and sale of the Secondary Notes and the issuance of the
Warrants and all documents and papers relating thereto shall be satisfactory in
form and substance to the Purchaser. The Purchaser shall have received copies of
such documents and papers as they may reasonably request in connection with this
Agreement.
6. COVENANTS OF THE COMPANY
6.01. Covenants of the Company Under the Series B Purchase Agreement.
The Company covenants and agrees that on and after the Closing Date and until
the earlier of (i) the date on which the Notes shall be paid in full and all
Warrants and Shares shall no longer be held of record by the Purchaser or (ii)
the consummation of a Qualified Public Offering (as defined in the Series B
Purchase Agreement) it will comply, for the benefit of the Purchaser, in all
respects with the covenants of the Company set forth in Articles 6 and 7 of the
Series B Purchase Agreement.
6.02. Future Senior Subordinated Obligations. The Company covenants and
agrees that on or after the later to occur of (i) the Closing Date; and (ii) the
Second Closing Date, it will not incur any liability for borrowed money
evidenced by a note or similar obligation, other than Senior Debt, Future Senior
Subordinated Obligations and trade accounts payable incurred in the ordinary
course of business, which is not expressly subordinate to, junior in right of
payment by its terms to, and on terms and conditions approved by the holders of
a majority of (i) the Senior Subordinated Obligations, and (ii) the Past Senior
Subordinated Obligations.
7. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES
7.01. Note Register; Ownership of Notes. The Company will keep at its
principal office a register in which the Company will provide for the
registration of Notes and the registration of transfers of Notes. The Company
may treat the Person in whose name any Note is registered on such register as
the owner thereof for the purpose of receiving payment of the principal of and
the premium, if any, and interest
13
<PAGE>
on such Note and for all other purposes, whether or not such Note shall be
overdue, and the Company shall not be affected by any notice to the contrary.
7.02. Transfer and Exchange of Notes. Upon surrender of any Note for
registration of transfer or for exchange to the Company at its principal office,
the Company at its expense will execute and deliver in exchange therefor a new
Note or Notes of the same class as such surrendered Note in denominations, as
requested by the holder or transferee, which aggregate the unpaid principal
amount of such surrendered Note. Each such new Note shall be registered in the
name of such Person as such holder or transferee may request, shall be dated so
that there will be no loss of interest on such surrendered Note and shall be
otherwise of like tenor.
7.03. Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Note and, in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond in such reasonable amount as the Company may determine (or, in
the case of any Note held by a Purchaser or any institutional investor, of any
indemnity agreement from such Purchaser or such other holder reasonably
satisfactory to the Company), or in the case of any such mutilation, upon the
surrender of such Note for cancellation to the Company at its principal office,
the Company at its expense will execute and deliver, in lieu thereof, a new Note
of the same class and of like tenor, dated so that there will be no loss of
interest on such lost, stolen, destroyed or mutilated Note. Any Note in lieu of
which any such new Note has been executed and delivered by the Company shall not
be deemed to be an outstanding Note for any purpose hereof.
8. PAYMENTS ON NOTES; REDEMPTION; CONVERSION
8.01. Place of Payment. Payments of principal and interest becoming due
and payable on the Notes shall be made at the address of each holder set forth
on Schedule 1.01 hereto, unless the Company, by written notice from each holder
of any Note, shall be notified to make payment at a different address.
8.02. Additional Interest. At the Closing and the Second Closing,
should it occur, the Company shall issue to the Purchaser, as additional
interest on the Primary or Secondary Notes, respectively ("Additional
Interest"), (a) Warrants to purchase that number of shares of Common Stock equal
to the amount obtained by dividing (i) 20% of the principal amount of the
Primary or Secondary Notes, respectively, held by the Purchaser, by (ii) the
exercise price of the Warrants (as set forth therein), and (b) in cash, 1% of
the principal amount of the Primary or Secondary Notes, respectively held by the
Purchaser.
8.03. Mandatory Redemption. The Company shall redeem all of the then
outstanding Notes at 100% of the principal amount thereof without premium on the
earlier of (a) the Final Maturity Date, (b) the Initial Public Offering, or (c)
a merger of
14
<PAGE>
the Company with or into any other corporations, the conveyance transfer or
lease of substantially all of its assets in a single transaction or series of
transactions, or a sale in one or more transactions of more than 50% of the
Common Stock of the Company on a fully diluted basis.
8.04. Optional Redemption. (a) At any time or from time to time the
Company may, at its option, upon notice to each holder of Notes not less than 30
days and not more than 60 days prior to the date fixed for such redemption,
redeem all or any part (in integral multiples of $100,000) of the Notes, each
such redemption to be made at 100% of the principal amount of the Notes so
redeemed.
(b) Any redemption of Notes pursuant to this Section 8.04 shall
be accompanied by an Officer's Certificate (a) stating the principal amount of
each Note to be redeemed, (b) stating the proposed date of redemption (c)
stating the accrued interest on each such Note to the proposed date of
redemption to be paid in accordance with Section 8.06 and (d) stating that the
proposed redemption does not violate Article 8 of this Agreement or the terms or
any subordination agreement to which the Notes may be subject.
8.05. Allocation of Partial Redemptions. In the case of each partial
redemption, the principal amount of the Notes to be redeemed shall be allocated
among all of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof not theretofore
called for redemption, with adjustments, to the extent practicable, to
compensate for any prior redemptions not made exactly in such proportion.
8.06. Maturity; Surrender; etc. In the case of each redemption of the
Notes, the principal amount of each Note to be redeemed shall mature and become
due and payable on the date fixed for such redemption, together with interest on
such principal amount accrued to such date. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest, interest on such principal amount shall cease to
accrue. Any Note redeemed in full shall be surrendered to the Company upon the
Company's written request and cancelled and shall not be reissued, and no Note
shall be issued in lieu of any repaid principal amount of any Note.
9. SUBORDINATION OF SENIOR SUBORDINATED OBLIGATIONS
9.01. Generally. All Senior Subordinated Obligations are subordinate
and junior in right of payment to all Senior Debt, but only to the extent
provided in this Article 9.
9.02. Restrictions. Except to the extent expressly permitted in this
Article, or as otherwise consented to in writing by the holders of Senior Debt,
the Purchaser
15
<PAGE>
shall not (a) receive payment of or collect in whole or in part, or sue upon,
the Senior Subordinated Obligations; (b) sell, assign, transfer, pledge,
hypothecate or encumber the Senior Subordinated Obligations unless the proposed
purchaser, assignee, transferee or pledgee acknowledges in writing that it is
bound by this Article; (c) enforce any lien they may now or in the future have
on the Senior Subordinated Obligations; (d) join in any petition in bankruptcy,
assignment for the benefit of creditors or creditors' agreement, other than the
filing of a claim or proof of debt or except as directed by all holders of
Senior Debt, so long as the Senior Debt of Company, or commitment to extend
credit to the Company in respect thereof, is in existence; or (e) accept any
pledge or transfer of property (other than shares of stock of the Company) as
security for or in payment of the Senior Subordinated Obligations, or otherwise
defease the Senior Subordinated Obligations.
9.03. Permitted Payments. So long as no default shall have occurred in
payment or performance of any obligation of the Company with respect to the
Senior Debt, payments of interest and principal on the Senior Subordinated
Obligations may be made at payment dates as specified under the Notes (it being
understood that no prepayment shall be made of the Senior Subordinated
Obligations and no modification, for default or otherwise, of such payment dates
as specified in the Notes shall be permitted without the prior written consent
of all holders of the Senior Debt). Upon prior written notice to all holders of
the Senior Debt, the Purchaser shall be permitted to accelerate the Senior
Subordinated Obligations upon any Event of Default (as defined herein). In the
event the Company or any holder of Senior Debt provides notice to the Purchaser
of default with respect to the Senior Debt of the Company, no interest and no
principal payments on the Senior Subordinated Obligations shall be made without
the prior written consent of the holder of such Senior Debt. The subordination
of claims of the Purchaser hereunder shall remain in effect so long as there
shall be outstanding any Senior Debt of the Company.
9.04. Turnover of Payments. In the event that the Purchaser receives a
payment from the Company in violation of the terms of this Article 9, the
Purchaser (a) shall hold such money in trust for the benefit of the holders of
Senior Debt, and (b) shall, upon request of the holders of Senior Debt,
forthwith remit an amount equal to such payment to such holders, or the payment
in the exact form received (but with any necessary endorsement to such holders
without recourse). After the Purchaser has received notice that a payment has
been made to the Purchaser in violation of the terms of this Article 9, the
Purchaser shall segregate such payment from (and shall not commingle such
payment with any of) the other funds of the Purchaser.
9.05. Insolvency, etc. In case of any assignment of the Company for the
benefit of creditors, or in case of any bankruptcy proceedings instituted by or
against the Company, or in case of the appointment of any receiver for the
Company's business or assets, or in case of any dissolution or winding up of the
affairs of the Company, the Company and any assignee, trustee in bankruptcy,
receiver, or other
16
<PAGE>
person or persons in charge, are hereby directed to pay to the holders of Senior
Debt the full amount of the Senior Debt of the Company before making any payment
of principal or interest to the Purchaser. Upon payment in full of the amount of
the Senior Debt, the Purchaser shall be entitled to receive any excess proceeds.
9.06. Obligations Not Impaired. Nothing contained in this Article 9
shall impair, as between the Company and any holder of Senior Subordinated
Obligations, the obligation of the Company to pay to such holder the principal
thereof and premium, if any, and interest thereon as and when the same shall
become due and payable in accordance with the terms thereof, or prevent any
holder of Senior Subordinated Obligations from exercising all rights, powers and
remedies otherwise permitted by applicable law or under any agreement under
which such Senior Subordinated Obligations were incurred, all subject to the
rights of the holders of Senior Debt to receive cash, securities or other
property otherwise payable or deliverable to the holders of Senior Subordinated
Obligations.
9.07. Payment of Senior Debt; Subrogation. Upon the payment in full in
cash of all Senior Debt, the holders of Senior Subordinated Obligations shall be
subrogated to all rights of any holder of Senior Debt to receive any further
payments or distributions applicable to Senior Debt until all Senior
Subordinated Obligations shall have been paid in full, and such payments or
distributions received by the holders of Senior Subordinated Obligations by
reason of such subrogation, of cash, securities or other property that otherwise
would be paid or distributed to the holders of Senior Debt, shall, as between
the Company and its creditors other than the holders of Senior Debt, on the one
hand, and the holders of Senior Subordinated Obligations, on the other hand, be
deemed to be a payment by the Company on account of Senior Debt and not on
account of Senior Subordinated Obligations.
10. EVENTS OF DEFAULT AND ACCELERATION
The following conditions or events shall constitute events of default
("Events of Default"):
(a) if the Company shall default in the payment of any principal
on any Note when the same becomes due and payable, whether at maturity or at a
date fixed for prepayment or by declaration or otherwise; or
(b) if the Company shall default in the payment of any interest
on any Note for more than five days after the same becomes due and payable; or
(c) if the Company shall default in the performance of or
compliance with any term contained in Article 6 hereof; or
17
<PAGE>
(d) if the Company shall default in the performance of or
compliance with any other term contained herein or in the Related Agreements and
such default shall not have been remedied within 30 days after the earlier of
(x) an officer of the Company obtaining knowledge of such default and (y)
receipt by the Company of written notice of such default from any holder of any
Note; or
(e) if any representation or warranty made in writing by or on
behalf of the Company herein or in any instrument furnished in compliance with
or in reference hereto or otherwise in connection with the transactions
contemplated hereby shall prove to have been false or incorrect in any material
respect on the date as of which made; or
(f) if the Company or any Subsidiary shall be in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or interest on any Indebtedness with a principal amount in excess of
$50,000 (other than the Notes) or in the performance of or compliance with any
term of any evidence of any such Indebtedness or of any mortgage, indenture or
other agreement relating thereto the effect of which is to cause such
Indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment, and such default, event or condition shall
continue for more than the period of grace, if any, specified therein and shall
not have been waived pursuant thereto; or
(g) if the Company or any Subsidiary shall (i) be generally not
paying its debts as they become due, (ii) file, or consent by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an
assignment for the benefit of its creditors, (iv) consent to the appointment of
a custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, (v) be
adjudicated an insolvent or be liquidated, or (vi) take corporate action for the
purpose of any of the foregoing; or
(h) if a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by the Company or
any Subsidiary, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any
Subsidiary, or if any such petition shall be filed against the Company or any
Subsidiary and such petition shall not be dismissed within 30 days; or
(i) if a final judgment which, with other outstanding final
judgments against the Company and the Subsidiaries, exceeds $100,000 shall be
entered against
18
<PAGE>
the Company or any Subsidiary and if, within 60 days after entry thereof, such
judgment shall not have been discharged or execution thereof stayed pending
appeal, or if, within 60 days after the expiration of any such stay, such
judgment shall not have been discharged.
11. REMEDIES ON DEFAULT, ETC.
11.01. Remedies. Upon the occurrence of any Event of Default the
Purchaser may proceed to protect and enforce its rights by suit in equity,
action at law and/or other appropriate proceeding either for specific
performance of any covenant, provision or condition contained in this Agreement
or any Related Agreement, or in aid of the exercise of any power granted in this
Agreement or any Related Agreement, and (unless there shall have occurred an
Event of Default under Section 9(g) or 9(h), in which case the unpaid balance of
the Notes shall automatically become due and payable) may at its option by
notice to the Company declare all or any part of the unpaid principal amount of
the Notes then outstanding to be forthwith due and payable, and thereupon such
unpaid principal amount or part thereof, together with interest accrued thereon
and all other sums, if any, payable under this Agreement, the Notes or the other
Related Agreements, shall become so due and payable without presentation,
presentment, protest or further demand or notice of any kind, all of which are
hereby expressly waived, and such holder or holders may proceed to enforce
payment of such amount or part thereof in such manner as it or they may elect.
11.02. Annulment of Defaults. An Event of Default shall not be deemed
to be in existence or to have occurred for any purpose of this Agreement until
the expiration of all grace periods under this Agreement or if the Purchaser
shall have waived such event in writing or stated in writing that the same has
been cured to its reasonable satisfaction. No waiver or statement of
satisfactory cure pursuant to this Section 11.02 shall extend to or affect any
subsequent or other Event of Default not specifically identified in such waiver
or statement of satisfactory cure or impair any of rights of the holder of any
Notes or Shares upon the occurrence thereof.
11.03. Waivers. The Company hereby waives to the extent not prohibited
by applicable law which cannot be waived (a) all presentments, demands for
performance, notice of nonperformance (except to the extent specifically
required by the provisions hereof), (b) any requirement of diligence or
promptness on the part of any holder of the Notes or the Shares in the
enforcement of its rights under this Agreement or the Notes, (c) except to the
extent required by other provisions of this Agreement, any and all notices of
every kind and description which may be required to be given by any statute or
rule of law, and (d) any defense of any kind (other than indefeasible payment)
which it may now or hereafter have with respect to its liability under this
Agreement.
19
<PAGE>
12. DEFINITIONS AND ACCOUNTING TERMS
12.01. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"12% Subordinated Debentures" shall mean the 12% Convertible
Subordinated Debentures issued by the Company, maturing on May 1, 1999.
"14% Subordinated Debenture Holders" shall mean any holder of the 14%
Subordinated Debentures.
"14% Subordinated Debentures" shall mean the 14% Subordinated
Debentures, issued by the Company maturing on September 30, 1997.
"Additional Interest" shall have the meaning assigned to such term in
Section 8.02.
"Agreement" shall mean this $3,000,000 Note Purchase Agreement,
including all amendments, modifications or supplements thereto.
"Articles of Incorporation" shall mean the Articles of Incorporation of
the Company, including all amendments, modifications or supplements thereto.
"Bank United Funding Agreement" shall mean that certain Warehousing
Credit and Security Agreement dated as of July 1, 1998 between the Company and
Bank United.
"Board of Directors" shall mean the board of directors of the Company
as constituted from time to time.
"Buscema Options" shall have the meaning assigned to such term in
Section 2.03.
"By-Laws" shall mean the By-Laws of the Company, including all
amendments, modifications or supplements thereto.
"Closing" shall have the meaning assigned to such term in Section 1.03.
"Closing Date" shall have the meaning assigned to such term in Section
1.03.
"Common Shares" shall have the meaning assigned to such term in
Section 1.02.
20
<PAGE>
"Common Stock" shall mean (a) the Company's Common Stock, $0.01 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company, authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies or in the absence of any
provision to the contrary in the Certificate of Incorporation or the Bylaws, be
entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency or provision), and (c) any other securities into which or for which
any of the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise.
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Cooper River Funding Agreement" shall mean that certain Warehousing
Credit Agreement dated as of August 7, 1998 between the Company and Cooper River
Funding Inc.
"Domain Name Assignment Agreement" shall have the meaning assigned to
such term in Section 2.03.
"Event of Default" shall have the meaning assigned to such term in
Article 10.
"Final Maturity Date" shall have the meaning assigned to such term in
Section 1.01.
"FRN Agreement" shall mean that certain Second Amendment to Agreement
for the Operation of First Realty Network, Inc., dated on or about December 23,
1996, among the Company, Realeads U.S.A., Inc., First Realty Network, Inc.,
Consumer Real Estate Research, Inc., and John Tomko, Jason Massey and Dennis
Brunelle.
"Future Senior Subordinated Obligations" shall mean any indebtedness
consented to by all holders of Past Senior Subordinated Obligations and Senior
Subordinated Obligations.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 2.06 (except for changes concurred in by the independent
public accountants to the Company and the Subsidiaries).
21
<PAGE>
"Indebtedness" shall mean (a) any liability for borrowed money or
evidenced by a note or similar obligation given in connection with the
acquisition of any property or other assets (other than trade accounts payable
incurred in the ordinary course of business); (b) all guaranties, endorsements
and other contingent obligations in respect of indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business, and (c) the present value of any lease payments due under leases
required to be capitalized in accordance with GAAP.
"Independent Division" shall mean any division of the Company or any
Subsidiary which is organized or operated pursuant to an agreement with any
other Person or Persons which grants such Person or Persons an ownership
interest in or other claim to the assets, revenue or value of such Division.
"Initial Public Offering" shall mean an initial public offering of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act of 1933, as amended.
"Mason-McDuffie Merger Agreement" shall mean the Agreement and Plan of
Merger dated as of March 15, 1996 among the Company, Western American Mortgage
Company and Mason-McDuffie Real Estate, Inc. and the Amended and Restated
Operating Agreement as of July 1, 1998 among the Company, Mason- McDuffie Real
Estate, Inc. and John Hogan.
"Material Adverse Effect" means any material adverse effect on (a) the
business, profits, properties or condition of the Company and the Subsidiaries,
taken as a whole, (b) the ability of the Company to perform its obligations
under the Agreement or any Related Agreement and (c) the binding nature,
validity or enforceability of this Agreement or any Related Agreement, which, in
each case, arises from, or reasonably could be expected to arise from, any
action or omission of action on the part of the Company or any Subsidiary or the
occurrence of any event or the existence of any fact or condition in respect of
the Company or any Subsidiary or any of their respective properties.
"Notes" shall have the meaning assigned to such term in Section 1.01.
"Operating Agreement" shall mean the Operating Agreement for the
Northern California Division, dated on or about July 1, 1997, among the Company,
Mason- McDuffie Real Estate, Inc., and John Hogan.
"Past Senior Subordinated Obligations" shall mean the Senior
Subordinated Obligations as defined in (i) that certain Note Purchase Agreement
dated February 9, 1999 by and among the Company, the Purchasers (as defined
therein) and Canaan
22
<PAGE>
Equity, L.P.; and (ii) that certain Note Purchaser Agreement dated February 26,
1999 by and among the Company and the Purchasers (as defined therein).
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, university, or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Primary Notes" shall mean those Notes issued at Closing in such
principal amount as set forth on Schedule 1.01.
"Purchaser" shall have the meaning assigned to such term in Section
1.03.
"Related Agreements" shall mean the Notes, the Warrants and the
"Related Documents" defined therein, including all amendments, modifications or
supplements thereto.
"Sale and Marketing Agreement" shall have the meaning assigned to such
term in Section 2.03.
"Schindler Options" shall have the meaning assigned to such term in
Section 2.03.
"Second Closing" shall have the meaning assigned to such term in
Section 1.03(c).
"Second Closing Date" shall have the meaning assigned to such term in
Section 1.03(c).
"Secondary Notes" shall mean those Notes issued at the Second Closing
pursuant to the option, in such principal amount as set forth in Schedule 1.01.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time or any other federal act, rule or regulation requiring registration
with any federal agency in connection with a public offering of registrable
securities.
"Senior Debt" shall mean the unpaid principal of, premium (if any) and
interest of the Warehouse Lines of Credit.
"Senior Subordinated Obligations" shall mean the unpaid principal of,
premium (if any) and interest on the Notes and all other obligations of the
Company and the Subsidiaries of any kind whatsoever under or in respect of this
Agreement and the Related Agreements.
23
<PAGE>
"Series A Preferred Stock" shall mean the shares of Preferred Stock
designated Series A Preferred Stock.
"Series B Preferred Stock" shall mean the shares of Preferred Stock
designated Series B Preferred Stock.
"Series B Purchase Agreement" shall mean that certain Series B
Preferred Stock Purchase Agreement, dated as of March 29, 1996, by and among the
Company and the Purchasers listed on Schedule 1.01 thereto, as amended.
"Series C Preferred Stock" shall mean the shares of Preferred Stock
designated Series C Preferred Stock.
"Series D Preferred Stock" shall mean the shares of Preferred Stock
designated Series D Preferred Stock.
"Shares" shall have the meaning assigned to such term in Section 1.02.
"Special Preferred Stock (Northern California Division)" shall mean the
shares of Preferred Stock designated Special Preferred Stock (Northern
California Division).
"Stock Option Plan" shall mean any qualified or non-qualified incentive
stock option plan of the Company which is adopted by the Board of Directors,
including all amendments, supplements or modifications thereto.
"Subsidiary" shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries.
"Warehouse Lines of Credit" shall mean collectively (i) the line of
credit of the Company with Residential Funding Corporation pursuant to the
Residential Funding Agreement, as the same may be amended or increased or
otherwise modified from time to time and any refinancings or replacements
thereof, (ii) the line of credit of the Company with Bank United pursuant to the
Bank United Funding Agreement, as the same may be amended or increased or
otherwise modified from time to time and any refinancings or replacements
thereof, (iii) the line of credit of the Company with Cooper River Funding Inc.
pursuant to the Cooper River Funding Agreement, as the same may be amended or
increased or otherwise modified from time to time and any refinancings or
replacements thereof and (iv) any other similar line of credit approved by the
Required Holders, the terms of which require the Senior Subordinated Obligations
to be subordinated to the borrowings by the Company thereunder.
24
<PAGE>
"Warrants" shall have the meaning assigned to such term in Section
1.01.
12.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistently applied, and all
financial data submitted pursuant to this Agreement, unless otherwise specified,
shall be prepared in accordance with GAAP.
13. INDEMNIFICATION
13.01. General Indemnity. The Company agrees to indemnify and save
harmless the Purchaser and its respective directors, officers, affiliates,
successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys' fees, charges and disbursements) incurred by the Purchaser
as a result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein or in any of the Related Agreements. The
Purchaser agrees to indemnify and save harmless the Company and its directors,
officers, affiliates, successors and assigns from and against any and all
losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and disbursements)
incurred by any such Person as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Purchaser herein.
13.02. Indemnification Procedure. Any party entitled to indemnification
under this Article 13 (an "indemnified party") will give written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
promptly after the discovery by such party of any matters giving rise to a claim
for indemnification; provided that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 13 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist in respect of such action, proceeding or
claim, to assume the defense thereof, with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense,
25
<PAGE>
settlement or compromise of any such action, claim or proceeding shall be losses
subject to indemnification hereunder. The indemnified party shall cooperate
fully with the indemnifying party in connection with any negotiation or defense
of any such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the indemnified party
which relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. Anything in this Article 13 to the contrary
notwithstanding, the indemnifying party shall not, without the indemnified
party's prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof which imposes any future obligation on
the indemnified party or which does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party, a
release from all liability in respect of such claim. The indemnification
required by this Article 13 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred. The indemnity
agreements contained herein shall be in addition to (a) any cause of action or
similar right of the indemnified party against the indemnifying party or others,
and (b) any liabilities the indemnifying party may be subject to pursuant to the
law.
14. MISCELLANEOUS
14.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
14.02. Amendments, Waivers and Consents. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement or any Related
Agreement may be made, and compliance with any covenant or provision set forth
herein may be omitted or waived, if the Company (a) shall obtain consent thereto
in writing from the holders of at least a majority of the then outstanding
principal amount of the Notes and (b) shall deliver copies of such consent in
writing to any holders who did not execute such consent; provided that (a) no
consents shall be effective to reduce the percentage in interest of the Notes or
Shares the consent of the holders of which is required under this Section 14.02
and (b) no amendment of Article 9 of this
26
<PAGE>
Agreement shall be made without the written consent of the holders of Senior
Debt. Any waiver or consent may be given subject to satisfaction of conditions
stated therein and any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
14.03. Addresses for Notices. Any notice, demand, request, waiver or
other communication under this Agreement or any Related Agreement shall be in
writing and shall be deemed to have been duly given on the date of service if
personally served or on the third day after mailing if mailed to the party to
whom notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
To the Company: Mortgage.com, Inc.
8751 Broward Blvd., 5th Floor
Plantation, Florida 33324
Attention: Seth S. Werner
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luther F. Sadler, Esq.
To the Purchaser: At its address or addresses specified
on Schedule 1.01 hereto
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, Connecticut 06103
Attention: Edward A. Reilly, Jr., Esq.
14.04. Costs, Expenses and Taxes. As a condition precedent to the
Closing, the Company agrees to pay at the Closing in connection with the
preparation, execution and delivery of this Agreement and the issuance of the
Notes and Warrants to be issued at the Closing, the reasonable fees and other
out-of-pocket expenses of Messrs. LeBoeuf, Lamb, Greene & MacRae, L.L.P. In
addition, the Company shall pay the reasonable fees and out of pocket expenses
of legal counsel, independent public accountants, consultants and other outside
experts retained by the Purchaser in connection with any amendment or waiver to
this Agreement or any Related Agreement or the successful enforcement of this
Agreement or any Related Agreement by the Purchaser. In addition, the Company
shall pay any and all stamp, or other similar taxes payable or determined to be
payable in connection with the execution and delivery of this Agreement, the
issuance of the Notes and the other instruments and documents to be delivered
hereunder or thereunder, and agrees to save the Purchaser
27
<PAGE>
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes.
14.05. Binding Effect; Assignment. This Agreement and each Related
Agreement to which it is a party shall be binding upon and inure to the benefit
of each of the Company and the Purchaser and their respective heirs, successors
and assigns, except that the Company shall not have the right to delegate its
obligations hereunder or to assign its rights hereunder or any interest herein
without the prior written consent of the holders of at least a majority of the
then outstanding principal amount of the Notes. In addition, the Company
acknowledges and agrees that the Purchaser may assign all or any portion of its
rights under the Notes or Warrants held by it to any other Person. Upon any such
assignment (i) the Purchaser shall deliver the Notes and Warrants held by it to
the Company for cancellation and reissuance in the names and amounts as directed
by the Purchaser, (ii) the Company, the Purchaser and the assignee shall enter
into an amendment to this Agreement in order to make the assignee a Purchaser
hereunder and entitled to all the rights evidenced hereby and to amend Schedule
1.01 hereto to reflect such assignment and (iii) the Company shall cause to be
issued to such assignee either a legal opinion in the form issued to the
assigning Purchaser pursuant to Section 4.09 of this Agreement or a letter from
the issuer of such opinion stating that the assignee may rely on such opinion as
if it were issued to assignee hereunder.
14.06. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, each Related Agreement, the Notes, or any
other instrument or document delivered in connection herewith or therewith,
shall survive the execution and delivery hereof or thereof for a period of two
years.
14.07. Prior Agreements. This Agreement, each Related Agreement, and
the other agreements executed and delivered herewith constitute the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
14.08. Severability. The provisions of this Agreement and each Related
Agreement are severable and, in the event that any court of competent
jurisdiction shall determine that any one or more of the provisions or part of a
provision contained in this Agreement or any Related Agreement shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or any Related Agreement; but this
Agreement and each Related Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of a provision, had never
been contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
28
<PAGE>
14.09. Confidentiality. The Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which the Purchaser may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
the Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder or under any Related Agreement, unless such
information is known, or until such information becomes known, to the public;
provided, however, that the Purchaser may disclose such information (a) on a
confidential basis to their attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in connection
with their investment in the Company, (b) to any prospective purchaser of any
Notes or Shares from the Purchaser as long as such prospective purchaser agrees
in writing to be bound by the provisions of this Section 14.09, (c) to any
entity controlling, controlled by or under common control with the Purchaser, or
to any partner of such Purchaser, or (d) as required by applicable law.
14.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND
WITHOUT GIVING EFFECT TO CHOICE OF LAW PROVISIONS.
14.11. Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
14.12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
14.13. Further Assurances. From and after the date of this Agreement,
upon the request of the Purchaser or the Company, each of the Company and the
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, each Related
Agreement and the Shares.
14.14. Waiver. At any time prior to the Closing Date, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party granting such waiver but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or future failure.
29
<PAGE>
14.15. Specific Enforcement. The Purchaser and the Company acknowledge
and agree that irreparable damage would occur in the event that any of the
provisions of this Agreement and each Related Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement, each
Related Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which they may be entitled at law or
equity.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
MORTGAGE.COM, INC.
By:_______________________________________
Name:
Title:
PURCHASER:
TELEBANC CAPITAL MARKETS, INC.
By:_______________________________________
Steven Dervenis
Chief Executive Officer
[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]
31
<PAGE>
SCHEDULE 1.01
-------------
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
PURCHASER PRIMARY NOTES SECONDARY NOTES
- --------------------------------------------------------------------------------
TeleBanc Capital
Markets, Inc. $1,000,000 $2,000,000
Attn: Arlen Gelbard, Esq.
1111 N. Highland St.
Arlington, VA 22201
32
REGISTRATION RIGHTS AGREEMENT
TIES REGISTRATION RIGHTS AGREEMENT is made as of this 15th day of March,
1996, by and between First Mortgage Network, Inc., a Florida corporation (the
"Company"), and Mason-McDuffie Real Estate, Inc., a California corporation
("Shareholder").
RECITALS
WHEREAS, the Company is a party to an Agreement and Plan of Merger of
even date herewith between the Company, the Shareholder and Western America
Mortgage ("WAM"), by which WAM will merge with and into the Company (the "Merger
Agreement") pursuant to the Florida Business Corporation Act, with the Company
surviving;
WHEREAS, pursuant to the Merger Agreement, the Company will issue 1,000
shares of its Special Preferred Stock (Northern California Division) (the
"Preferred Stock") to the Shareholder; and
WHEREAS, as an inducement to the Shareholder and the Company to enter
into the Merger Agreement, the Shareholder and the Company hereby agree that
this Registration Rights Agreement ("this Agreement") shall govern the rights of
the Shareholder to register shares of Common Stock issuable to the Shareholder
upon conversion of the Preferred Stock;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions.
(a) The term "Abbreviated Registration Statement" means a registration
statement on Form S-3 or any similar or successor form in which financial
statements and other detailed information about the issuer are incorporated by
reference from the issuer's periodic reports filed under Securities Exchange Act
of 1934.
(b) The term "Act" means the Securities Act of 1933, as amended, or any
successor legislation thereto.
(c) The terms "register, registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(d) The term "Registrable Securities" means (1) the Common Stock issuable
or issued upon conversion of the Company's Preferred Stock, and (2) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Preferred Stock, excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which his rights under this Section 1 are
not assigned and any such securities as to which restrictive legends restricting
transfer under the Act
<PAGE>
are lifted pursuant to Rule 144(k) under the Act (or any successor rule) or any
other exemption from registration under the Act in which the subsequent
disposition of such shares by the Shareholder does not require registration
under the Act.
2. Piggyback Registration.
2.1 Right to Include Registrable Stock. If the Company proposes to
register any of its shares of Common Stock under the Act for its own account for
sale for cash (other than a registration on Form S-4 or Form S8, or any
successor or similar forms) (the "Offering"), it will each such time promptly
give written notice to the Shareholder. Upon the written request of the
Shareholder made within 20 days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such Shareholder and the intended method of distribution thereof), the Company
will use its reasonable best efforts to effect the registration under the Act of
all Registrable Securities which the Company has been requested to register by
the Shareholder in accordance with the intended methods of distribution
specified in such request; provided that (i) if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company determines for any reason not to register such
securities, the Company may, at its election, give written notice of such
determination to the Shareholder and, thereupon, will be relieved of its
obligation to register any Registrable Securities in connection with such
registration, and (ii) in case of a determination by the Company to delay
registration of its securities, the Company will be permitted to delay the
registration of Registrable Securities for the same period as the delay in
registering such other securities.
2.2 Priority in Piggyback Registrations. If the managing underwriter for
a piggyback registration involving an underwritten offering advises the Company
in writing that, in its opinion, the number of securities of the Company
(including Registrable Securities) requested to be included in such registration
by the holders thereof exceeds the number of securities of the Company (the
"Sale Number") which can be sold in an orderly manner in such offering within a
price range acceptable to the Company, the Company will include (i) first, all
securities of the Company that the Company proposes to register for its own
account and (ii) second, to the extent that the number of securities of the
Company to be included by the Company is less than the Sale Number, all
Registrable Securities requested to be included by the Shareholder and all other
securities of the Company requested to be included by the holders thereof, pro
rata based on the relative numbers of securities requested to be included by
each.
3. Obligations of the Company. Whenever required under this Agreement to effect
the registration of any Registrable Securities, the Company will, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such of the Registrable Securities as are set forth in the request, use its
reasonable best efforts to cause such registration statement to become effective
and use its reasonable best efforts to keep
2
<PAGE>
such registration statement effective for up to one year (nine months in the
case of a registration statement that is not an Abbreviated Registration
Statement) but not after such securities cease being Registrable Securities.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Shareholder such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as it may reasonably request in order to
facilitate the disposition of Registrable Securities owned by such Shareholder.
(d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Shareholder, provided
that the Company shall not be required to qualify to do business, subject itself
to taxation or to file a general consent to service of process in any such
states or jurisdictions.
(e) In the event the registration statement is used in an underwritten
public offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering, provided that the Shareholder also has entered into and performed its
obligations under such an agreement.
(f) Notify the Shareholder, at any time when a prospectus relating
thereto is required to be delivered under the Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
4. Furnish Information. The Company's obligation to cause any registration
statement to become effective in connection with distribution of any Registrable
Securities pursuant to this Agreement is contingent upon the Shareholder, with
reasonable promptness, furnishing to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities, as is required to effect the registration of the
Registrable Securities.
5. Indemnification. In the event of any registration under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless the Shareholder, any underwriter (as defined in the Act) for such
shareholder and each person, if any, who controls such shareholder or
underwriter within the meaning of the Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), against any losses, claims,
3
<PAGE>
damages, or liabilities (joint or several) to which they may become subject
under the Act, or the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law, and the Company will pay to the Shareholder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection (a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor will the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon (1) a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Shareholder, underwriter or controlling person or
(2) a Violation which results from the fact that there was not sent or given to
a person who bought Registrable Securities, at or prior to the written
confirmation of the sale, a copy of the final prospectus, as then amended or
supplemented, if the Company had previously furnished copies of such prospectus
hereunder and such prospectus corrected the misstatement or omission forming the
basis of the Violation.
(b) To the extent permitted by law, the Shareholder will indemnify and
hold harmless, to the extent of the proceeds received by such Shareholder, the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Act, any underwriter and any controlling person of any such
underwriter or other shareholder, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may become
subject, under the Act, or the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or action in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by the Shareholder expressly for
use in connection with such registration; and such Shareholder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection (b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection (b)
does not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Shareholder, which consent shall not be unreasonably withheld; provided, that,
in no event will any indemnity under this subsection (b) exceed the gross
proceeds from the Offering (excluding underwriting discounts and commissions)
received by the Shareholder.
4
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section 5
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 5, deliver to the indemnifying party a
written notice of the commencement of such action and the indemnifying party
will have the right to participate in, and, to the extent the indemnifying party
so desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party (together with all other
indemnified parties which may be represented without conflict by one counsel)
will have the right to retain one separate counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of the indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between the indemnified party and any
other party represented by such counsel in the same proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, relieves such indemnifying party of any liability to the
indemnified party under this Section 5, but the omission so to deliver written
notice to the indemnifying party does not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 5. No
indemnifying party under this Agreement will enter into any settlement or
consent to any entry of judgment which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the indemnified party of a
release from all liability in respect of such claim or litigation.
(d) If the indemnification provided for in this Section 5 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, will contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party will be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) The obligations of the Company and the Shareholder under this Section
5 will survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement, and otherwise.
6. Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Agreement, including,
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel
5
<PAGE>
for the Company and expenses of any special audits incidental to or required by
such registration, qualification or compliance will be borne by the Company,
except that the Company will not be required to pay underwriters' discounts,
commissions, or stock transfer taxes relating to the Registrable Securities or
the fees and disbursements of counsel to the Shareholder.
7. Eligibility to Use Rule 144. With a view to making available to the
Shareholder the benefits of certain rules and regulations of the Securities and
Exchange Commission which may permit the sale of the Registrable Securities to
the public without registration, after such time as a public market exists for
the Common Stock of the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Act, at all times after the date
that the Company becomes subject to the reporting requirements of the Securities
Exchange Act of 1934 (the "Exchange Act");
(b) Use its best efforts to file with the Securities and Exchange
Commission in a timely manner all reports and other documents required of the
Company under the Act and the Exchange Act (at any time after it has become
subject to such reporting requirements); and
(c) So long as a Shareholder owns any Registrable Securities, furnish to
the Shareholder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144, and of the Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company filed with the Securities and Exchange Commission, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as a Shareholder may reasonably request
in availing itself of any rule or regulation of the Securities and Exchange
Commission allowing a Shareholder to sell any such securities without
registration.
8. Holdback Agreement. If requested by the Company, the Shareholder agrees not
to effect any public sale or distribution, including any sale pursuant to Rule
144 under the Act, of any Registrable Securities (in each case, other than as
part of the offering to which such registration statement relates) within 7 days
before or 90 days after the effective date of a registration statement filed
pursuant to this Agreement for an underwritten offering.
9. Miscellaneous.
9.1 Successors and Assigns. The terms and conditions of this Agreement
inure to the benefit of and are binding upon the respective successors and
assigns of the parties; provided that the Shareholder may assign its rights
under this Agreement only as permitted under the Merger Agreement. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto any rights, remedies, obligations, or liabilities under
or by reason of this Agreement.
6
<PAGE>
9.2 Governing Law. This Agreement will be governed by and construed under
the laws of the State of Florida.
9.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
9.4 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
9.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement will be given in writing and will be deemed effectively
given (i) upon personal delivery to the party to be notified, (ii) on the
seventh business day after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, (iii) on the next business day
after dispatch via nationally recognized overnight courier or (iv) upon
confirmation of transmission by facsimile, all addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties. Notices should be provided in accordance
with this Section at the following addresses:
If to the Shareholder to:
Mr. A. David Cobo
Mason-McDuffie Real Estate, Inc.
1901 Olympic Boulevard, Third Floor
Walnut Creek, CA 94596
Facsimile: (510) 279-0575
with a copy to:
Michael J. Dalton, Esquire
Donahue, Gallagher, Woods and Wood
300 Lakeside Drive, Suite 1900
Oakland, CA 94612
Facsimile: (510) 832-1486
If to the Company, to:
Mr. Seth Werner
First Mortgage Network, Inc.
150 South Pine Island Road, Suite 500
Plantation, FL 33324
Facsimile: (305) 472-0800
with a copy to:
Luther F. Sadler, Jr., Esquire
Foley & Lardner
7
<PAGE>
200 North Laura Street
Post Office Box 240
Jacksonville, FL 32202
Facsimile: (904) 359-8700
9.6 Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party will be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
9.7 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph will be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
9.8 Severability If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision will be excluded from
this Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
9.9 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FIRST MORTGAGE NETWORK, INC. MASON-McDUFFIE REAL ESTATE
By: /s/ Seth S. Werner, President By: /s/ A. David Cobo, President
------------------------------- -----------------------------------
Seth S. Werner, President A. David Cobo, President
8
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of this
1st day of May, 1996, by and between First Mortgage Network, Inc., a Florida
corporation (the "Company"), and Raymond James & Associates, Inc.
("Shareholder").
RECITALS
WHEREAS, the Shareholder is a holder of warrants to purchase Common Stock
of the Company (the "Warrants");
WHEREAS, in consideration of services provided by the Shareholder pursuant
to the Letter Agreement dated October 6, 1995 and Addendum dated October 10,
1995, between the Shareholder and the Company, the Shareholder and the Company
hereby agree that this Agreement shall govern the rights of the Shareholder to
cause the Company to register shares of Common Stock issuable to the
Shareholder;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions.
(a) The term "Abbreviated Registration Statement" means a registration
statement on Form S-3 or any similar or successor form in which financial
statements and other detailed information about the issuer are incorporated by
reference from the issuer's periodic reports filed under Securities Exchange Act
of 1934.
(b) The term "Act" means the Securities Act of 1933, as amended, or any
successor legislation thereto.
(c) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(d) The term "Registrable Securities" means the Common Stock issuable upon
exercise of the Warrants, excluding in all cases, however, any subsequent
disposition of such shares by the Shareholder which does not require
registration under the Act.
<PAGE>
2. Piggyback Registration.
2.1 Right to Include Registrable Stock. If the Company proposes to register
any of its shares of Common Stock under the Act for its own account or sale for
cash (other than a registration on Form S-4 or Form S-8, or any successor or
similar forms) (the "Offering"), it will each such time promptly give written
notice to the Shareholder. Upon the written request of the Shareholder made
within 15 days after the receipt of any such notice (which request shall specify
the Registrable Securities intended to be disposed of by such Shareholder and
the intended method of distribution thereof), the Company will use its
reasonable best efforts to effect the registration under the Act of all
Registrable Securities which the Company has been requested to register by the
Shareholder in accordance with the intended methods of distribution specified in
such request: provided that (i) if, at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
determines for any reason not to register such securities, the Company may, at
its election, give written notice of such determination to the Shareholder and,
thereupon, will be relieved of its obligation to register any Registrable
Securities in connection with such registration, and (ii) in case of a
determination by the Company to delay registration of its securities, the
Company will be permitted to delay the registration of Registrable Securities
for the same period as the delay in registering such other securities.
2.2 Priority in Piggyback Registrations. If the managing underwriter for a
piggyback registration involving an underwritten offering advises the Company in
writing that, in its opinion, the number of securities of the Company (including
Registrable Securities) requested to be included in such registration by the
holders thereof exceeds the number of securities of the Company (the "Sale
Number") which can be sold in an orderly manner in such offering within a price
range acceptable to the Company, the Company will include (i) first, all
securities of the Company that the Company proposes to register for its own
account, (ii) second, to the extent that the number of securities of the Company
to be included by the Company is less than the Sale Number, all shares of Common
Stock issued upon conversion of Special Preferred Stock (Northern California
Division) of the Company and all shares of Common Stock issued upon conversion
of Series B Convertible Preferred Stock of the Company requested to be included
by the holders thereof, pro rata based on the relative numbers of securities
requested to be included by each and (iii) third, to the extent that the number
of securities to be included under clauses (i) and (ii) of this Section 2.2 is
less than the Sale Number, all Registrable Securities requested to be included
by the Shareholder and all other securities of the Company requested to be
included by the holders thereof having registration rights, pro rata based on
the relative numbers of securities requested to be included by each.
3. Obligations of the Company. Whenever required under this Agreement to effect
the registration of any Registrable Securities, the Company will, as
expeditiously as reasonably possible:
2
<PAGE>
(a) Prepare and file with the SEC a registration statement with respect to
such of the Registrable Securities as are set forth in the request, use its
reasonable best efforts to cause such registration statement to become effective
and use its reasonable best efforts to keep such registration statement
effective for up to one year (nine months in the case of a registration
statement that is not an Abbreviated Registration Statement) but not after such
securities cease being Registrable Securities.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Shareholder such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as it may reasonably request in order to
facilitate the disposition of Registrable Securities owned by such Shareholder.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Shareholder, provided that
the Company shall not be required to qualify to do business, subject itself to
taxation or to file a general consent to service of process in any such states
or jurisdictions.
(e) In the event the registration statement is used in an underwritten
public offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering, provided that the Shareholder also has entered into and performed its
obligations under such an agreement.
(f) Notify the Shareholder, at any time when a prospectus relating thereto
is required to be delivered under the Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
4. Furnish Information. The Company's obligation to cause any registration
statement to become effective in connection with distribution of any Registrable
Securities pursuant to this Agreement is contingent upon the Shareholder, with
reasonable promptness, furnishing to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities, as is required to effect the registration of the
Registrable Securities.
3
<PAGE>
5. Indemnification. In the event of any registration under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless the Shareholder, any underwriter (as defined in the Act) for such
shareholder and each person, if any, who controls such shareholder or
underwriter within the meaning of the Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
or the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act. the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law, and the Company will pay to the Shareholder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection (a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor will the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon (1) a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Shareholder, underwriter or controlling person or
(2) a Violation which results from the fact that there was not sent or given to
a person who bought Registrable Securities, at or prior to the written
confirmation of the sale, a copy of the final prospectus, as then amended or
supplemented, if the Company had previously furnished copies of such prospectus
hereunder and such prospectus corrected the misstatement or omission forming the
basis of the Violation.
(b) To the extent permitted by law, the Shareholder will indemnify and hold
harmless, to the extent of the proceeds received by such Shareholder, the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Act, any underwriter and any controlling person of any such
underwriter or other shareholder, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may become
subject, under the Act, or the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or action in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by the Shareholder expressly for
use in connection with such registration; and such Shareholder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection (b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided,
4
<PAGE>
however, that the indemnity agreement contained in this subsection (b) does not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Shareholder,
which consent shall not be unreasonably withheld; provided, that, in no event
will any indemnity under this subsection (b) exceed the gross proceeds from the
Offering (excluding underwriting discounts and commissions) received by the
Shareholder.
(c) Promptly after receipt by an indemnified party under this Section 5 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 5, deliver to the indemnifying party a
written notice of the commencement of such action and the indemnifying party
will have the right to participate in, and, to the extent the indemnifying party
so desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party (together with all other
indemnified parties which may be represented without conflict by one counsel)
will have the right to retain one separate counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of the indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between the indemnified party and any
other party represented by such counsel in the same proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, relieves such indemnifying party of any liability to the
indemnified party under this Section 5, but the omission so to deliver written
notice to the indemnifying party does not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 5. No
indemnifying party under this Agreement will enter into any settlement or
consent to any entry of judgment which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the indemnified party of a
release from all liability in respect of such claim or litigation.
(d) If the indemnification provided for in this Section 5 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, will contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party will be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
5
<PAGE>
(e) The obligations of the Company and the Shareholder under this Section 5
will survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement, and otherwise.
6. Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Agreement, including,
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company and expenses of any
special audits incidental to or required by such registration, qualification or
compliance will be borne by the Company, except that the Company will not be
required to pay underwriters' discounts, commissions, or stock transfer taxes
relating to the Registrable Securities or the fees and disbursements of counsel
to the Shareholder.
7. Eligibility to Use Rule 144. The Company agrees to file all material required
to be filed under Sections 13 and 14 of the Securities Exchange Act of 1934 (the
"34 Act") so as to enable the Shareholder to sell Registrable Securities under
Rule 144 during the period beginning on the second anniversary date of issuance
of the Registrable Securities and prior to the earlier of (i) the third
anniversary date of this Agreement or (ii) the date on which there ceases to be
any Registrable Securities; except that, this Section shall not require the
Company to register its Common Stock under the '34 Act unless otherwise required
to do so.
8. Holdback Agreement. If requested by the Company, the Shareholder agrees not
to effect any public sale or distribution, including any sale pursuant to Rule
144 under the Act, of any Registrable Securities (in each case, other than as
part of the offering to which such registration statement relates) within 7 days
before or 90 days after the effective date of a registration statement filed
pursuant to this Agreement for an underwritten offering.
9. Miscellaneous.
9.1 Successors and Assigns. The terms and conditions of this Agreement
inure to the benefit of and are binding upon the respective successors and
assigns of the parties; provided that the Shareholder may not assign his rights
under this Agreement without the consent of the Company. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto any rights, remedies, obligations, or liabilities under or by
reason of this Agreement.
9.2 Governing Law. This Agreement will be governed by and construed under
the laws of the State of Florida.
9.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
9.4 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6
<PAGE>
9.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement will be given in writing and will be deemed effectively
given (i) upon personal delivery to the party to be notified, (ii) on the
seventh business day after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, (iii) on the next business day
after dispatch via nationally recognized overnight courier or (iv) upon
confirmation of transmission by facsimile, all addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties. Notices should be provided in accordance
with this Section at the following addresses:
If to the Shareholder, to:
Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Facsimile: (813) 573-3800
If to the Company, to:
Mr. Seth Werner
First Mortgage Network, Inc.
150 South Pine Island Road, Suite 500
Plantation, FL 33324
Facsimile: (305) 472-0800
with a copy to:
Luther F. Sadler, Jr., Esquire
Foley & Lardner
200 North Laura Street
Post Office Box 240
Jacksonville, FL 32202
Facsimile: (904) 359-8700
9.6 Expenses. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
9.7 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph will be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
7
<PAGE>
9.8 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
8
<PAGE>
9.9 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
FIRST MORTGAGE NETWORK, INC. RAYMOND JAMES & ASSOCIATES, INC.
By: /s/ Seth W. Werner By: /s/
------------------------------- --------------------------------
Seth S. Werner, President Its: Executive Vice President
9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of this first day of January
1999, by and between First Mortgage Network, Inc., a Florida corporation (the
"Company"), and Credit.Com, LLC, a California limited liability company
("Shareholder").
RECITALS
WHEREAS, the Company and the Shareholder are parties to an agreement of
even date herewith, by which the Shareholder has agreed to assign, and the
Company has agreed to purchase, certain rights to the domain name "Mortgage.
com" (the "Domain Name Assignment Agreement");
WHEREAS, pursuant to the Domain Name Assignment Agreement: (i) the Company
has issued 20,000 shares of its Common Stock to the Shareholder (the "Initially
Issued Shares") and (ii) the Company may in the future issue shares of its
Common Stock to the Shareholder (the "Subsequently Issued Shares" and, together
with the Initially Issued Shares, the "Shares"); and
WHEREAS, as an inducement to the Shareholder and the Company to enter into
the Domain Name Assignment Agreement, the Shareholder and the Company hereby
agree that this Registration Rights Agreement ("this Agreement") shall govern
the rights of the Shareholder to register the Shares;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions.
a. "Act" means the Securities Act of 1933, as amended, or any successor
legislation thereto.
b. "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement or document;
c. "Registrable Securities" means (1) the Shares and (2) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Shares, excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which its rights under this Section 1 are not
assigned and any such securities as to which restrictive legends restricting
transfer under the Act are lifted pursuant to Rule 144(k) under the Act (or any
successor rule) or any other exemption from registration under the Act in which
the subsequent disposition of such shares by the Shareholder does not require
registration under the Act.
<PAGE>
2. Piggyback Registration Upon Company's Option to Register Common Stock.
a. Right to Include Registrable Stock. If the Company proposes to
register any of its shares of Common Stock under the Act for its own account for
sale for cash (other than a registration on Form S-4 or Form S-8, or any
successor or similar forms) (an "Offering"), it will each such time promptly
give written notice to the Shareholder. Upon the written request of the
Shareholder made within 15 days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such Shareholder), the Company will use its reasonable best efforts to effect
the registration under the Act of all Registrable Securities which the Company
has been requested to register by the Shareholder in accordance with the
intended methods of distribution specified in such request; provided that (i)
if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company determines for any reason not
to register such securities, the Company may, at its election, give written
notice of such determination to the Shareholder and, thereupon, will be relieved
of its obligation to register any Registrable Securities in connection with such
registration, and (ii) in case of a determination by the Company to delay
registration of its securities, the Company will be permitted to delay the
registration of Registrable Securities for the same period as the delay in
registering such other securities.
b. Priority in Piggyback Registrations Upon Company's Option to Register
Common Stock. If the managing underwriter for a piggyback registration involving
an underwritten offering advises the Company in writing that, in its opinion,
the number of securities of the Company (including Registrable Securities)
requested to be included in such registration by the holders thereof exceeds the
number of securities of the Company (the "Sale Number") which can be sold in an
orderly manner in such offering within a price range acceptable to the Company,
the Company will include (i) first, all securities of the Company that the
Company proposes to register for its own account and (ii) second, to the extent
that the number of securities of the Company to be included by the Company is
less than the Sale Number, all Registrable Securities requested to be included
by the Shareholder and all other securities of the Company requested to be
included by the holders thereof holding registration rights that are pari passu
with the Registrable Securities, pro rata based on the relative numbers of
securities requested to be included by each.
c. Put Rights. In the event the Shareholder's Initially Issued Shares
are not included in the registration statement for the first Offering described
in subsection a above, then the Shareholder shall have the right to put the
Initially Issued Shares (or any remaining portion thereof) to the Company during
the period commencing on the first business day following the closing date of
such Offering and ending on the date which is 30 days after the closing date of
such Offering (the "Put Period"), at the same price as the Company's shares were
offered to the public in such Offering. For purposes of this subsection c., if
any Shares were included in the registration statement for the first Offering
described in subsection a. above, the Initially Issued Shares shall be deemed to
be the first Shares included in such registration statement. The Shareholder
shall exercise its put rights by delivering to the
2
<PAGE>
Company at the address set forth in Section 9.f, during the Put Period, a
written notice that the Shareholder is putting the Initially Issued Shares (or
any remaining portion thereof) (the "Put Shares") to the Company pursuant to
this Agreement and stating the date during the Put Period on which payment for
the Put Shares shall be made (which date shall be not less than 5 business days
after the date of receipt by the Company of such written notice) (the "Put
Date"). On the Put Date, the Company shall deliver to the Shareholder in cash,
an amount equal to the number of Put Shares multiplied by the price the
Company's shares were offered to the public in the Offering, and the Shareholder
shall surrender to the Company at the address set forth in Section 9.f, the
certificates representing the Put Shares, endorsed if the Company so requires,
or accompanied by appropriate instruments of transfer reasonably satisfactory to
the Company.
3. Piggyback Registration Upon Demand Registration Rights Exercised by
Holders after an Initial Public Offering.
a. Right to Include Registrable Stock. Following an initial public
offering of the Company's Common Stock, if the Company proposes to register any
of its shares of Common Stock under the Act as a result of the exercise of
demand registration rights held by holders of the Company's Common Stock (a
"Demand Offering"), it will each such time promptly give written notice to the
Shareholder. Upon the written request of the Shareholder made within 15 days
after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such Shareholder), the
Company will use its reasonable best efforts to effect the registration under
the Act of all Registrable Securities which the Company has been requested to
register by the Shareholder in accordance with the intended methods of
distribution specified in such request; provided that if pursuant to the terms
of the demand registration rights giving rise to such registration, the Company
is permitted to withdraw its registration of such securities, or is permitted to
delay registration of such securities, the Company may give written notice of
the withdrawal or delay to the Shareholder and, thereupon, in the case of a
withdrawal, will be relieved of its obligation to register any Registrable
Securities in connection with such registration, and in the case of delay, will
be permitted to delay the registration of Registrable Securities for the same
period as the delay in registering such other securities.
b. Priority in Piggyback Registrations Upon Demand Registration Rights
Exercised by Holders after an Initial Public Offering. If a managing underwriter
for a registration involving an underwritten offering described in Section 3.a
advises the Shareholder and holders of demand registration rights in writing
that, in its opinion, the number of securities of the Company (including
Registrable Securities) requested to be included in such registration by the
holders thereof exceeds the number of securities of the Company (the "Sale
Number") which can be sold in an orderly manner in such offering within a price
range acceptable to the Shareholder and the holders of demand registration
rights, the Company will include (i) first, all securities of the Company
requested to be included by the holders of the demand registration rights giving
rise to such offering and all securities of the Shareholder that the Shareholder
proposes to register for its own account, pro rata based on the relative numbers
of securities requested to be included by each and (ii) second, to the extent
that the
3
<PAGE>
number of securities of the Company to be included by holders of demand
registration rights giving rise to such offering plus the number of securities
of the Shareholder that the Shareholder proposes to register for its own account
is less than the Sale Number, all other securities of the Company requested to
be included by the Company for its own account or by other holders of the
Company's securities that hold registration rights.
4. Obligations of the Company. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company will, as
expeditiously as reasonably possible:
a. Prepare and file with the SEC a registration statement with respect
to such of the Registrable Securities as are set forth in the request, use its
reasonable best efforts to cause such registration statement to become effective
and use its reasonable best efforts to keep such registration statement
effective for up to one year but not after such securities cease being
Registrable Securities.
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
c. Furnish to the Shareholder such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as it may reasonably request in order to
facilitate the disposition of Registrable Securities owned by such Shareholder.
d. Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Shareholder, provided
that the Company shall not be required to qualify to do business, subject itself
to taxation or to file a general consent to service of process in any such
states or jurisdictions.
e. In the event the registration statement is used in an underwritten
public offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering, provided that the Shareholder also has entered into and performed its
obligations under such an agreement.
f. Notify the Shareholder, at any time when a prospectus relating
thereto is required to be delivered under the Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
5. Furnish Information. The Company's obligation to cause any registration
statement to become effective in connection with distribution of any Registrable
Securities
4
<PAGE>
pursuant to this Agreement is contingent upon the Shareholder, with reasonable
promptness, furnishing to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities, as is required to effect the registration of the Registrable
Securities.
6. Indemnification. In the event of any registration under this Agreement:
a. To the extent permitted by law, the Company will indemnify and hold
harmless the Shareholder, any underwriter (as defined in the Act) for such
shareholder and each person, if any, who controls such shareholder or
underwriter within the meaning of the Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
or the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law, and the Company will pay to the Shareholder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection a shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor will the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon (1) a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Shareholder, underwriter or controlling person or
(2) a Violation which results from the fact that there was not sent or given to
a person who bought Registrable Stock, at or prior to the written confirmation
of the sale, a copy of the final prospectus, as then amended or supplemented, if
the Company had previously furnished copies of such prospectus hereunder and
such prospectus corrected the misstatement or omission forming the basis of the
Violation.
b. To the extent permitted by law, the Shareholder will indemnify and
hold harmless, to the extent of the net proceeds received by such Shareholder
from the Registrable Securities sold in any Offering, the Company, each of its
directors, each of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the Act, any
underwriter and any controlling person of any such underwriter or other
shareholder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, or the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or action in respect
5
<PAGE>
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by the Shareholder expressly
for use in connection with such registration; and such Shareholder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection b, in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection b
does not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Shareholder, which consent shall not be unreasonably withheld; provided, that,
in no event will any indemnity under this subsection b exceed the net proceeds
from the Offering (excluding underwriting discounts and commissions) received by
the Shareholder.
c. Promptly after receipt by an indemnified party under this Section 6
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement of such action and the indemnifying party
will have the right to participate in, and, to the extent the indemnifying party
so desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party (together with all other
indemnified parties which may be represented without conflict by one counsel)
will have the right to retain one separate counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of the indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between the indemnified party and any
other party represented by such counsel in the same proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, relieves such indemnifying party of any liability to the
indemnified party under this Section 6, but the omission so to deliver written
notice to the indemnifying party does not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 6. No
indemnifying party under this Agreement will enter into any settlement or
consent to any entry of judgment which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the indemnified party of a
release from all liability in respect of such claim or litigation.
d. If the indemnification provided for in this Section 6 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, will contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified
6
<PAGE>
party will be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
e. The obligations of the Company and the Shareholder under this Section
6 will survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement, and otherwise.
7. Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Agreement, including,
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company and expenses of any
special audits incidental to or required by such registration, qualification or
compliance will be borne by the Company, except that the Company will not be
required to pay underwriters' discounts, commissions, or stock transfer taxes
relating to the Registrable Securities or the fees and disbursements of counsel
to the Shareholder.
8. Holdback Agreement. If the managing underwriter in the initial public
Offering requests the agreement of the Shareholder and the officers, directors
and beneficial owners of 10% or more of the capital stock of the Company that
such persons or entities not effect any public sale or distribution, including
any sale pursuant to Rule 144 under the Act, of any Registrable Securities for a
period before and after the effective date of a registration statement, then the
Shareholder agrees to agree to such holdback on the same terms and conditions as
are applicable to the officers, directors and beneficial owners of 10% or more
of the capital stock of the Company. The Company will make reasonable efforts to
prevent the managing underwriter from requiring such a holdback from the
Shareholder.
9. Miscellaneous.
a. Effectiveness of Agreement. This Agreement shall take effect upon the
closing of the Domain Name Assignment Agreement.
b. Successors and Assigns. The terms and conditions of this Agreement
inure to the benefit of and are binding upon the respective successors and
assigns of the parties; provided that the Shareholder may not assign its rights
under this Agreement without the prior written consent of the Company. Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto any rights, remedies, obligations, or liabilities
under or by reason of this Agreement.
c. Governing Law. This Agreement will be governed by and construed under
the laws of the State of Florida.
7
<PAGE>
d. Counterparts This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
e. Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
f. Notices. Unless otherwise provided, any notice required or permitted
under this Agreement will be given in writing and will be deemed effectively
given (i) upon personal delivery to the party to be notified, (ii) on the
seventh business day after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, (iii) on the next business day
after dispatch via nationally recognized overnight courier or (iv) upon
confirmation of transmission by facsimile, all addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties. Notices should be provided in accordance
with this Section at the following addresses:
If to the Shareholders to:
Mr. Adam Levin
Credit.Com, LLC
87 Stillman Street
San Francisco, CA 94107
Facsimile: (415) 646-0001
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esquire
Facsimile: (212) 889-7577
If to the Company, to:
Mr. Seth Werner
First Mortgage Network, Inc.
5751 Broward Blvd., Fifth Floor
Plantation, FL 33324
Facsimile: (305) 472-0800
8
<PAGE>
with a copy to:
Luther F. Sadler, Jr., Esquire
Foley & Lardner
200 North Laura Street
Post Office Box 240
Jacksonville, FL 32202
g. Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party will be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
h. Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph will be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
i. Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
j. Entire Agreement; Amendment; Waiver. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
FIRST M0RTGAGE NETWORK, INC.
By: /s/ John J. Hogan
---------------------------------------
John J. Hogan, Executive Vice President
9
Ex-4.7
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
dated as of March 29, 1996
among
FIRST MORTGAGE NETWORK, INC.
and
THE PURCHASERS LISTED ON SCHEDULE 1.01
<PAGE>
TABLE OF CONTENTS
1. PURCHASE, SALE AND TERMS OF SHARES ...................................... 1
1.01. The Preferred Shares.............................................. 1
1.02. The Conversion Shares............................................. 1
1.03. Purchase Price and Funding........................................ 1
1.04. Use of Proceeds................................................... 2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ 2
2.01. Organization, Standing and Power.................................. 2
2.02. Authority; Enforceability; No Conflict............................ 2
2.03. Capitalization.................................................... 3
2.04. Subsidiaries...................................................... 5
2.05. Status of Shares.................................................. 6
2.06. Financial Statements.............................................. 6
2.07. Liabilities....................................................... 6
2.08. Indebtedness...................................................... 7
2.09. Title to Assets................................................... 7
2.10. Actions Pending................................................... 7
2.11. Compliance with Law............................................... 7
2.12. Taxes............................................................. 7
2.13. ERISA............................................................. 8
2.14. No Material Adverse Change........................................ 8
2.15. Certain Fees...................................................... 8
2.16. Disclosure........................................................ 8
2.17. Proprietary Rights................................................ 9
2.18. Environmental and Safety Matters.................................. 9
2.19. Books and Records................................................. 10
2.20. Material Agreements............................................... 10
2.21. Transactions with Affiliates...................................... 10
2.22. Securities Act of 1933............................................ 10
2.23. Governmental Approvals............................................ 11
2.24. Insurance......................................................... 11
2.25. Employees......................................................... 11
2.26. Absence of Certain Developments................................... 11
2.27. United States Real Property Holding Corporation................... 13
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......................... 13
3.01. Organization and Standing of the Purchasers....................... 13
3.02. Authority; Enforceability; No Conflict........................... 13
3.03. Acquisition for Investment........................................ 14
3 04. Financing......................................................... 14
i
<PAGE>
4. CONDITIONS TO PURCHASERS' OBLIGATIONS FOR FUNDING........................ 14
4.01. Representations and Warranties.................................... 14
4.02. Secretary's Certificate........................................... 14
4.03. Officer's Certificate............................................. 15
4.04. Consents, Licenses, Approvals, etc. .............................. 15
4.05. Good Standing Certificates........................................ 15
4.06. No Proceedings or Litigation...................................... 15
4.07. Articles of Amendment............................................. 16
4.08. Bylaws............................................................ 16
4.09. Legal Opinion..................................................... 16
4.10. Shareholders Agreement............................................ 16
4.11. Voting Agreement.................................................. 16
4.12. Noncompetition Agreement.......................................... 16
4.13. Expenses.......................................................... 16
4.14. Other Purchasers.................................................. 16
4.15. Board of Directors................................................ 16
4.16. Subordinated Debenture Repayment.................................. 17
4.17. Merger Documents.................................................. 17
4.18. Compliance with this Agreement and Related Agreements............. 17
4.19. Proceedings Satisfactory.......................................... 17
5. AFFIRMATIVE COVENANTS OF THE COMPANY..................................... 17
5.01. Inspection Rights................................................. 17
5.02. Budgets Approval.................................................. 17
5.03. Financings........................................................ 18
5.04. Meetings of Directors............................................. 18
5.05. Bylaws; Meetings and Indemnification.............................. 18
5.06. Corporate Existence............................................... 18
5.07. Properties, Business, Insurance................................... 18
5.08. Expenses of Directors............................................. 18
5.09. Compliance with Laws.............................................. 18
5.10. Noncompetition Agreements......................................... 18
5.11. Keeping of Records and Books of Account........................... 19
5.12. Size of Board and Committees...................................... 19
5.13. Rule 144A Information............................................. 19
5.14. Reporting Requirements............................................ 19
5.15. Amended and Restated Articles of Incorporation ................... 21
6. NEGATIVE COVENANTS OF THE COMPANY........................................ 21
6.01. Dealings with Affiliates.......................................... 21
6.02. Compensation to Officers.......................................... 21
6.03. Sale of Assets.................................................... 21
6.04. Mergers, Etc. .................................................... 21
6.05. Maintenance of Ownership of Subsidiaries.......................... 22
6.06. Conduct of Business............................................... 22
6.07. Investments in Other Corporations or Entities..................... 22
ii
<PAGE>
6.08. Transfers of Proprietary Rights................................... 23
6.09. Amendments........................................................ 23
6.10. Other Agreements.................................................. 23
6.11. Registration Rights Agreements.................................... 23
6.12. Existing Subordinated Indebtedness................................ 23
6.13. Existing Preferred Stock.......................................... 24
7. REGISTRATION RIGHTS...................................................... 24
7.01. Demand Registrations.............................................. 24
7.02. Incidental Registration........................................... 27
7.03. Registrations on Form S-3......................................... 28
7.04. Holdback Agreements............................................... 29
7.05. Registration Procedures........................................... 29
7.06. Indemnification................................................... 32
7.07. Rule 144.......................................................... 36
8. RIGHT OF FIRST OFFER..................................................... 37
8.01. Right of First Offer ............................................. 37
8.02. Notice of Acceptance ............................................. 37
8.03. Conditions to Acceptances and Purchase ........................... 38
8.04. Further Sale ..................................................... 39
8.05. Offer Participation Requirement .................................. 39
8.06. Termination and Waiver of Right of First Offer ................... 39
8.07. Exception ........................................................ 39
9. DEFINITIONS AND ACCOUNTING TERMS......................................... 40
9.01. Certain Defined Terms............................................. 40
9.02. Accounting Terms.................................................. 49
10. INDEMNIFICATION.......................................................... 49
10.01. General Indemnity................................................. 49
10.02. Indemnification Procedure......................................... 49
11. MISCELLANEOUS............................................................ 50
11.01. No Waiver; Cumulative Remedies.................................... 50
11.02. Amendments. Waivers and Consents.................................. 50
11.03. Addresses for Notices............................................. 51
11.04. Costs. Expenses and Taxes......................................... 51
11.05. Binding Effect; Assignment........................................ 52
11.06. Survival of Representations and Warranties........................ 52
11.07. Prior Agreements.................................................. 52
11.08. Severability...................................................... 52
11.09. Confidentiality................................................... 52
11.10. Governing Law..................................................... 53
11.11. Headings.......................................................... 53
11.12. Counterparts...................................................... 53
iii
<PAGE>
11.13. Further Assurances................................................ 53
11.14. Waiver............................................................ 53
11.15. Specific Enforcement.............................................. 54
iv
<PAGE>
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Dated as of March 29, 1996
Each of the Purchasers
Listed on Schedule 1.01
Ladies and Gentlemen:
FIRST MORTGAGE NETWORK, INC., a Florida corporation (the "Company"),
hereby agrees with each of you as follows:
1. PURCHASE, SALE AND TERMS OF SHARES
1.01. The Preferred Shares. The Company has authorized the issuance and
sale of 1,171,191 shares (the "Preferred Shares") of its authorized but unissued
shares of Preferred Stock, $.01 par value (the "Preferred Stock") designated
Series B Preferred Stock (the "Series B Preferred Stock"), at a purchase price
of $5.50 per share to the persons (individually a "Purchaser" and collectively
the "Purchasers") and in the respective amounts set forth in Schedule 1.01
hereto. The designation, rights, preferences and other terms and provisions of
the Series B Preferred Stock are set forth in the Articles of Amendment attached
as Exhibit A hereto.
1.02. The Conversion Shares. The Company has authorized and has reserved
and covenants to continue to reserve, free of preemptive rights and other
similar contractual rights of stockholders, a sufficient number of authorized
but unissued shares of Common Stock to satisfy the rights of conversion of the
Holders of the Preferred Shares. Any shares of Common Stock issuable upon
conversion of the Preferred Shares (and such shares when issued) are herein
referred to as the "Conversion Shares." The Preferred Shares and the Conversion
Shares are sometimes collectively referred to as the "Shares."
1.03. Purchase Price and Funding. The Company agrees to issue and sell to
the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that number of the
Preferred Shares set forth opposite their respective names in Schedule 1.01. The
aggregate purchase price of the Preferred Shares being acquired by each
Purchaser is set forth opposite such Purchaser's name in Schedule 1.01. The
funding of the purchase and sale of the Preferred Shares to be acquired by the
Purchasers from the Company under this Agreement (the "Funding") shall take
place at the offices of Messrs.
<PAGE>
LaBoeuf, Lamb, Greene & MacRae, L.L.P., Goodwin Square, 225 Asylum Street,
Hartford, Connecticut 06103 at 10:00 a.m. on April 30, 1996 (the "Funding
Date"). At the Funding, the Company will deliver to each Purchaser certificates
for the number and series of Preferred Shares set forth opposite its name under
the headings "Number of Preferred Shares" in Schedule 1.01 registered in such
Purchaser's name (or its nominee), against delivery of a check or checks payable
to the order of the Company, presentment of certificates representing securities
of a different series for conversion into shares of Series B Preferred Stock, or
a transfer of funds to the account of the Company by wire transfer, representing
the net cash consideration set forth opposite each such Purchaser's name on
Schedule 1.01.
1.04. Use of Proceeds. The Company shall use the cash proceeds from the
issuance and sale of the Preferred Shares for general working capital purposes.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers as follows:
2.01. Organization, Standing and Power. Each of the Company and the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of the
Company and the Subsidiaries has all requisite power and authority to own, lease
and operate its properties and assets and to conduct its business as now being
conducted and is duly qualified to do business in good standing in those foreign
jurisdictions in which such qualification is required.
2.02. Authority; Enforceability: No Conflict. The Company has all
requisite corporate power and authority to enter into this Agreement and each
Related Agreement to which it is a party, to issue and sell the Shares, and to
carry out its obligations hereunder and under each Related Agreement to which it
is a party. The execution, delivery and performance of this Agreement and each
Related Agreement to which it is a party by the Company and the issuance and
sale of the Shares by the Company have been duly and validly authorized by all
requisite corporate proceedings on the part of the Company. This Agreement and
each Related Agreement to which it is a party when executed and delivered by the
Company is a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except that (i) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium,
rehabilitation, liquidation, conservatorship, receivership or other similar laws
now or hereafter in effect relating to creditors' rights generally and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. Except as set forth on
Schedule 2.02, the execution and delivery of this Agreement and each Related
Agreement to which it is a party by the Company does not, and the consummation
by the Company of the transactions contemplated hereby and thereby will not
result in or constitute: (a) a default, breach or violation of or under the
Articles of Incorporation or the
2
<PAGE>
Bylaws, (b) a default, breach or violation of or under any mortgage, deed of
trust, indenture, note, bond, license, lease agreement or other instrument
or obligation to which the Company or any Subsidiary is a party or by which
any of their respective properties or assets are bound, (c) a violation of any
statute, rule, regulation, order, judgment or decree of any court, public body
or authority by which the Company, any Subsidiary or any of their respective
properties or assets are bound, (d) an event which (with notice or lapse of
time or both) would permit any Person to terminate, accelerate the performance
required by, or accelerate the maturity of any indebtedness or obligation of the
Company or any Subsidiary under any agreement or commitment to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound, (e) the
creation or imposition of any lien, charge or encumbrance on any property of the
Company or any Subsidiary under any agreement or commitment to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound, or (f) an
event which would require any consent under any agreement to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound.
2.03. Capitalization. The authorized capital stock of the Company
consists of (a) 15,000,000 shares of Common Stock, of which 1,031,942 shares are
outstanding, 1,171,191 are reserved for issuance upon conversion of the Series B
Preferred Stock, 100,000 are reserved for issuance upon conversion of the
Special Preferred Stock (Northern California Division), 350,000 are reserved for
issuance under the Stock Option Plan, 252,500 are reserved for issuance upon the
exercise of the warrants held by the former 14% Subordinated Debenture Holders,
500,000 are reserved for issuance upon the exercise of the warrants held or
which may be obtained by Superior Bank FSB, 33,333 are reserved for issuance
upon the conversion of the 12% Subordinated Debentures, 25,000 are reserved for
issuance upon the exercise of the options held by John Buscema and Glen Letzia
(the "Buscema Options"), 109,728 are reserved for issuance upon the exercise of
the warrants held by George A. Naddaff (other than as a former 14% Subordinated
Debenture Holder), 25,000 are reserved for issuance upon the exercise of the
options held by Bruce Schindler (the "Schindler Options"), and 28,242 are
reserved for issuance upon the exercise of the warrants held by Raymond James &
Associates (the "Raymond James Warrants") and (b) 15,000,000 shares of preferred
Stock, of which 225,225 have been designated Series A Preferred Stock (all of
which are outstanding), 1000 have been designated Special Preferred Stock
(Northern California Division) (all of which are outstanding), 320,455 have been
designated Interim Series B Preferred Stock (234,827 of which are outstanding)
and 1,171,191 have been designated Series B Preferred Stock (all of which are to
be issued hereunder). All of the outstanding shares of Common Stock, Series A
Preferred Stock, Special Preferred Stock (Northern California Division) and
Interim Series B Preferred Stock have been duly authorized and validly issued,
and are fully paid and non-assessable. Except for the options and warrants
referred to in clause (a) above, or as required by the terms of the Special
3
<PAGE>
Preferred Stock (Northern California Division), the Interim Series B Preferred
Stock or the Letter Agreement, dated November 16, 1995 between George A. Naddaff
and the Company which provides for the issuance of 22,727 shares of Common Stock
to George A. Naddaff as compensation for services, or as provided herein or in
any of the Related Agreements, there are no outstanding preemptive, conversion
or other rights, options, warrants or agreements granted or issued by or binding
upon the Company for the purchase or acquisition of any shares of capital stock
of the Company or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of such capital stock. All
outstanding shares of capital stock convertible securities, rights, options and
warrants of the Company are owned by the stockholders and in the numbers
specified on Schedule 2.03. Except as required by the terms of the Buscema
Options and the Special Preferred Stock (Northern California Division), the
contingent repurchase rights of Superior Bank FSB under the Superior Bank
Purchase and Sale Agreement, the oral agreement of the Company to redeem
Preferred Shares held by former 14% Debenture Holders with any proceeds from the
sale of Preferred Shares hereunder in excess of $3,000,000, and as required in
the Articles of Amendment, the Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any convertible securities, rights or options of
the type described in the preceding sentence. Except as required by the terms of
the Schindler Options and the Raymond James Warrants, as provided in the
Mason-McDuffie Registration Rights Agreement and as provided herein, the Company
is not a party to any agreement granting registration rights to any person with
respect to any of its equity or debt securities. Except as set forth in the
Shareholders Agreement, the Voting Agreement and the Merger Agreement (which
restricts the transfer of the Special Preferred Stock (Northern California
Division)), the Company is not a party to, and it has no knowledge of,
any agreement restricting the voting or transfer of any shares of the capital
stock of the Company. The offer and sale of all capital stock, convertible
securities, rights or options of the Company issued prior to the Funding Date
complied with or was exempt from all applicable federal and state securities
laws and no stockholder has a right of rescission or damages with respect
thereto.
2.04. Subsidiaries. Schedule 2.04 sets forth each Subsidiary and each
Independent Division, showing the jurisdiction of the incorporation or
organization of each Subsidiary and showing the percentage of each Person's
ownership of the outstanding stock or other interests of each such Subsidiary or
Independent Division. All of the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, and are fully paid and
non-assessable. Except as set forth on Schedule 2.04 (i) there are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary or the Company
with respect to any Subsidiary or Independent Division for the purchase or
acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock or any other similar ownership
interests of any Independent Division and (ii) neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any
4
<PAGE>
shares of capital stock or any convertible securities, rights, options or
warrants of any Subsidiary or similar ownership interests of any Independent
Division. Except as set forth herein, neither the Company nor any Subsidiary is
a party to, nor has any knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of any Subsidiary or similar
ownership interests of any Independent Division.
2.05. Status of Shares. The Preferred Shares to be issued at the Funding
have been duly authorized by all necessary corporate action on the part of the
Company. When issued and paid for as provided in this Agreement, the Preferred
Shares will be validly issued and outstanding, fully paid and nonassessable, and
the issuance of such Preferred Shares is not and will not be subject to
preemptive or other similar contractual rights of any other stockholder of the
Company. The Conversion Shares have been duly authorized by all necessary
corporate action on the part of the Company and have been duly reserved for
issuance. When the Conversion Shares are issued such shares will be validly
issued and outstanding, fully paid and nonassessable and the issuance of such
shares will not be subject to preemptive or other similar contractual rights of
any other stockholder of the Company.
2.06. Financial Statements.
(a) As set forth on Schedule 2.06(a) hereto, the audited consolidated
balance sheets of the Company and the Subsidiaries as at April 15, 1994 and
March 31, 1995, and the related consolidated income statements and statements of
cash flows and changes in stockholders' equity of the Company and the
Subsidiaries for the fiscal years then ended, together with the opinion thereon
of Price Waterhouse, independent certified public accountants, and the interim
consolidated balance sheet of the Company and the Subsidiaries as at February
29, 1996, and the related consolidated income statement and statement of cash
flows and changes in stockholders' equity of the Company and the Subsidiaries
for the eleven month period then ended, are complete and correct in all material
respects and fairly present the financial condition of the Company and the
Subsidiaries at such dates and the results of the operations of the Company and
the Subsidiaries for the periods covered by such statements, all in accordance
with GAAP consistently applied.
(b) The projections (including, without limitation, the financial
projections attached as Schedule 2.06(b)) and pro forma financial information
furnished to the Purchasers are based on good faith estimates and assumptions by
the management of the Company, it being recognized by the Purchasers, however,
that projections as to future events are not to be viewed as fact and that
actual results during the period or periods covered by any such projections may
differ from the projected results and that the differences may be material.
2.07. Liabilities. Since February 29, 1996, neither the Company nor any
Subsidiary has incurred any material liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or
5
<PAGE>
otherwise) that would be required to be disclosed on a consolidated balance
sheet of the Company and the Subsidiaries (including the notes thereto) in
conformity with GAAP, other than in the ordinary course of business.
2.08. Indebtedness. Schedule 2.08 sets forth all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
2.09. Title to Assets. Each of the Company and the Subsidiaries has good
and marketable title to all of its real and personal property reflected in the
financial statements referred to in Section 2.06, free of any mortgages,
pledges, charges, liens, security interests or other encumbrances, except those
indicated on Schedule 2.09. Each of the Company and the Subsidiaries enjoys
peaceful and undisturbed possession under all leases under which it is
operating, and all said leases are valid and subsisting and in full force and
effect.
2.10. Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary which questions the validity of this Agreement or any
of the Related Agreements or any action taken or to be taken pursuant hereto or
thereto. Except as set forth on Schedule 2.10, there is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary.
2.11. Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted so as to comply with all
applicable federal, state, and local governmental laws, rules, regulations and
ordinances (including, without limitation, all rules and regulations pertaining
to the producing, processing, underwriting, selling and servicing of residential
mortgage loans, loan brokerage operations and the sale of "business
opportunities"). Each of the Company and the Subsidiaries has all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it.
2.12. Taxes. Each of the Company and the Subsidiaries has accurately
prepared and timely filed all federal, state and other tax returns required by
law to be filed by it, has paid or made provisions for the payment of all taxes
shown to be due and all additional assessments, and adequate provisions have
been and are reflected in the financial statements of the Company and the
Subsidiaries for all current taxes and other charges to which the Company or any
Subsidiary is subject and which are not currently due and payable. The Company
knows of no additional assessments, adjustments or contingent tax liability
(whether federal or state) pending or threatened
6
<PAGE>
against the Company or any Subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.
2.13. ERISA. Schedule 2.13 lists each "employee benefit plan", as defined
in Section 3(3) of ERISA, and any other bonus, severance or termination pay,
stock option or stock purchase, incentive pay or other plan, program or
arrangement covering present or former employees of the Company or any
Subsidiary which is maintained or contributed to by the Company or any
Subsidiary (the "Plans"). None of the Plans is subject to the provisions of
Title IV of ERISA, and none of the Plans is a Multiemployer Plan as defined in
Section 3(37) of ERISA (a "Multiemployer Plan"). Neither the Company nor any
Subsidiary has incurred any liability to the Pension Benefit Guaranty
Corporation or has incurred any liability with respect to a Multiemployer Plan.
None of the Plans is subject to the minimum funding standards set forth in
Section 302 of ERISA or Section 412 of the Code. None of the Company, any
Subsidiary or any of their respective officers or employees has engaged in a
"prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of
the Code with respect to any Plan which would subject any of such parties to a
civil penalty under Section 502(i) of ERISA or an excise tax under Section 4975
of the Code. Each of the Plans has been operated in all material respects in
accordance with applicable law, including ERISA and the Code. None of the Plans
is an employee welfare plan, as defined in Section 3(1) of ERISA, which provides
health or life insurance benefits to employees of the Company or any Subsidiary
following their retirement. Each Plan that is intended to be qualified under
Section 401(a) of the Code has received a determination letter from the Internal
Revenue Service indicating that such Plan was so qualified as at the time of its
review, and the Company knows of no reason that would cause such letter to be
revoked.
2.14. No Material Adverse Change. Since February 29, 1996, (a) there has
been no material adverse change in the business, assets, operations, affairs,
prospects or financial condition of the Company or any Subsidiary; and (b)
neither the business, financial condition, operation, prospects or affairs of
the Company, any Subsidiary nor any of their respective properties or assets
have been adversely affected in any material respect as the result of any
legislative or regulatory change, any revocation or change in any franchise,
permit, license or right to do business, or any other event or occurrence,
whether or not insured against.
2.15. Certain Fees. Except as set forth on Schedule 2.15, no broker's,
finder's or financial advisory fees or commissions will be payable by the
Company or any Subsidiary with respect to the transactions contemplated by this
Agreement and the Related Agreements.
2.16. Disclosure. Neither this Agreement or the Schedules hereto, any of
the Related Agreements, the Business Plan nor any other document, certificate or
instrument furnished to the Purchasers by or on behalf of the Company in
connection with the transactions contemplated by this Agreement or any of the
Related Agreements, contains any untrue statement of a material fact or omits to
state a
7
<PAGE>
material fact necessary in order to make the statements contained herein or
therein not misleading. The parties further agree that any agreement, event,
condition or other item which is disclosed on a particular Schedule hereto shall
be deemed to be disclosed for the purposes of all other Schedules to which it is
relevant, provided that all of the terms or effects of any such item which are
relevant to any Schedule hereto are adequately disclosed.
2.17. Proprietary Rights. Schedule 2.17 contains a complete and accurate
list of (a) all patented and registered Proprietary Rights owned by the Company
or any Subsidiary, (b) all pending trademark applications and applications for
registrations of other Proprietary Rights filed by the Company or any
Subsidiary, (c) all unregistered trade names and corporate names owned or used
by the Company or any Subsidiary and (d) all unregistered trademarks, service
marks and copyrights and computer software owned or used by the Company or any
Subsidiary. Schedule 2.17 also contains a complete and accurate list of all
licenses and other rights granted by the Company or any Subsidiary to any third
party with respect to computer software owned by the Company and any other
Proprietary Rights and all licenses and other rights granted by any third party
to the Company or any Subsidiary with respect to computer software or other
Proprietary Rights, together with a short description of such licenses. Each of
the Company and the Subsidiaries owns or has the right to use pursuant to a
valid and enforceable license all Proprietary Rights necessary for the operation
of its business. No loss or expiration of any Proprietary right owned or used by
the Company or any Subsidiary is pending or, to the best of the Company's
knowledge, threatened. Each of the Company and the Subsidiaries has taken all
necessary actions to maintain and protect the Proprietary Rights which it owns
or uses. The Company has no knowledge that the owners of any Proprietary Rights
licensed to the Company or any Subsidiary have not taken all necessary actions
to maintain and protect the Proprietary Rights which are subject to such
licenses. Except as set forth on Schedule 2.17, (i) there are no material claims
against the Company or any Subsidiary asserting the invalidity, misuse,
unenforceability or ownership of any Proprietary Rights owned or used by the
Company or any Subsidiary, and to the best of the Company's knowledge, no such
claims are threatened and there are no grounds for the same, (ii) neither the
Company nor any Subsidiary has received a notice of nor is aware of any facts
which in the Company's reasonable judgment indicate a reasonable likelihood of
any conflict with the asserted Proprietary Rights of others within the last five
years and (iii) the conduct of the Company's and each Subsidiary's business has
not infringed or misappropriated and does not infringe or misappropriate any
Proprietary Rights of other Persons, nor would any future conduct as presently
proposed infringe any Proprietary Rights of other Persons and, to the best of
the Company's knowledge, the Proprietary Rights owned by the Company or any
Subsidiary are not currently being infringed or misappropriated by other
Persons.
2.18. Environmental and Safety Matters. Except as set forth on Schedule
2.18, each of the Company and the Subsidiaries is in material compliance with
the provisions of all federal, state and local laws relating to pollution,
protection of the
8
<PAGE>
environment or occupational safety and health applicable to it or to real
property owned or leased by it or to the use, operation or occupancy thereof.
Except as set forth on Schedule 2.18, neither the Company nor any Subsidiary has
engaged in any activity in violation of any provision of any federal, state or
local law relating to pollution, protection of the environment or occupational
safety and health. Neither the Company nor any Subsidiary has any liability,
absolute or contingent, under any federal, state or local law relating to
pollution, protection of the environment or occupational safety and health.
2. 19. Books and Records. The records and documents of the Company and
the Subsidiaries accurately and completely reflect in all material respects
information relating to the business of the Company and the Subsidiaries, the
location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company and the
Subsidiaries.
2.20. Material Agreements. Except as set forth on Schedule 2.20, neither
the Company nor any Subsidiary is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
which would be required to be filed with the Commission as an exhibit to a
registration statement on Form S-1 or Form S-18 if the Company or any Subsidiary
were registering securities under the Securities Act, or any other agreement
which could have a Material Adverse Effect. The Company, each Subsidiary and, to
the best of the Company's knowledge, each other party thereto have in all
material respects performed all the obligations required to be performed by them
to date, have received no notice of default and are not in default under any
lease, agreement or contract now in effect to which the Company or any
Subsidiary is a party or by which they or their property may be bound. Except as
set forth on Schedule 2.20, each of the contracts or agreements listed on
Schedule 2.20 is in full force and effect and there exists no default,
anticipated or threatened default or failure of performance or observance of any
obligations or conditions contained therein, and none of the foregoing parties
nor the Company or any Subsidiary has provided any notice of default or of its
intention to terminate these agreements.
2.21. Transactions with Affiliates. Except as set forth on Schedule 2.21,
there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(a) the Company, any Subsidiary or any of their respective customers or
suppliers, and (b) any officer, employee, consultant or director of the Company
or any Subsidiary or any Person owning any capital stock of the Company or any
Subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
9
<PAGE>
2.22. Securities Act of 1933. The Company has complied and will comply with
all applicable federal and state securities laws in connection with the offer,
issuance and sale of the Preferred Shares hereunder. Neither the Company nor
anyone acting on its behalf has or will sell, offer to sell or solicit offers to
buy the Preferred Shares or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Preferred Shares under the registration provisions of the Securities
Act and applicable state securities laws.
2.23. Governmental Approvals. Except as set forth on Schedule 2.23 and
except for the filing of any notice prior or subsequent to the Funding that may
be required under applicable state and/or federal securities laws (which, if
required, shall be filed on a timely basis), no authorization, consent,
approval, license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution and delivery by the Company of this Agreement, for the offer, issue,
sale, execution or delivery of the Preferred Shares, or for the performance by
the Company of its obligations under this Agreement and each Related Agreement
to which it is a party.
2.24. Insurance. Each of the Company and the Subsidiaries carries insurance
as set forth on Schedule 2.24 covering its properties and business which is
adequate and customary for the type and scope of the properties, assets and
business, and which is similar to that of companies of comparable size and
condition similarly situated in the same industry in which the Company or such
Subsidiary operates, but in any event in amounts sufficient to prevent the
Company or such Subsidiary from becoming a co-insurer or self-insurer, with
provision for reasonable deductibles.
2.25. Employees. Neither the Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its employees. Except as
set forth on Schedule 2.25, neither the Company nor any Subsidiary has any
employment contract, proprietary information agreement, noncompetition
agreement, nonsolicitation agreement, confidentiality agreement, or any other
similar contract or agreement or any restrictive covenant, relating to the right
of any officer, employee, or consultant to be employed or engaged by the Company
or such Subsidiary because of the nature of the business conducted or to be
conducted by the Company or such Subsidiary or relating to the use of trade
secrets or proprietary information of others, and the continued employment or
engagement of the Company's or such Subsidiary's officers, employees or
consultants does not subject the Company, any Subsidiary or any Purchaser to any
liability with respect to any of the foregoing matters. Except as set forth on
Schedule 2.25, no officer, consultant or Key Employee of the Company or any
Subsidiary whose termination, either individually or in the aggregate, could
have an adverse effect on the Company or any Subsidiary, has terminated or to
the best knowledge of the Company, has any present
10
<PAGE>
intention of terminating, his employment or engagement with the Company or any
Subsidiary.
2.26. Absence of Certain Developments. Except as provided in Schedule 2.26,
since February 29, 1996, neither the Company nor any Subsidiary has:
(a) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(b) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such Subsidiary's business;
(c) discharged or satisfied any lien or encumbrance or paid any
obligation or liability "absolute or contingent), other than current liabilities
paid in the ordinary course of business;
(d) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock;
(e) mortgaged or pledged any of its assets, tangible or intangible, or
subjected them to any liens, charge or other encumbrance, except liens for
current property taxes not yet due and payable and except for security interests
in mortgage loans granted in connection with the Warehouse Lines of Credit;
(f) sold, assigned or transferred any other tangible assets, or
cancelled any debts or claims, except in the ordinary course of business;
(g) sold, assigned or transferred any Proprietary Rights or disclosed
any proprietary confidential information to any person;
(h) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
(i) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
(j) made capital expenditures or commitments therefor that aggregate
in excess of $25,000;
11
<PAGE>
(k) entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction, whether or
not in the ordinary course of business;
(l) made charitable contributions or pledges;
(m) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(n) experienced any problems with labor or management in connection
with the terms and conditions of their employment; or
(o) effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or any Subsidiary.
2.27. United States Real Property Holding Corporation. Neither the Company
nor any Subsidiary is now nor has ever been a "United States Real Property
Holding Corporation" as defined in Section 897(c)(2) of the Code and Section
1.897-2(b) of the Regulations promulgated by the Internal Revenue Service.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers severally but not jointly hereby represents and
warrants to the Company as follows:
3.01. Organization and Standing of the Purchasers. Each of the Purchasers
(excluding those Purchasers that are individuals) is a corporation, partnership,
limited liability company or trust duly incorporated or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization.
3.02. Authority: Enforceability; No Conflict. Each of the Purchasers
(excluding those Purchasers that are individuals) has all requisite corporate,
partnership, limited liability company or trust power and authority to enter
into this Agreement and each Related Agreement to which it is a party and to
carry out its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and each Related Agreement to which it is a party
by each of the Purchasers have been duly and validly authorized by all requisite
corporate, partnership, limited liability company or trust proceedings on the
part of each of the Purchasers (excluding those Purchasers that are
individuals). This Agreement and each Related Agreement to which it is a party
when executed and delivered by each of the Purchasers is a valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, rehabilitation, liquidation,
conservatorship, receivership or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses
12
<PAGE>
and to the discretion of the court before which any proceeding therefor may be
brought. The execution and delivery of this Agreement and each Related Agreement
to which it is a party by each of the Purchasers does not, and consummation by
such Purchaser of the transactions contemplated hereby will not, result in or
constitute (a) a default, breach or violation of or under the organizational
documents of such Purchaser if such Purchaser is a corporation or partnership,
(b) a default, breach or violation of or under any mortgage, deed of trust,
indenture, note, bond, license, lease agreement or other instrument or
obligation to which such Purchaser is a party or by which any of its properties
or assets are bound, except for any defaults, breaches or violations which would
not, individually or in the aggregate, have a material adverse effect on such
Purchaser or prevent or materially delay the consummation by such Purchaser of
the transactions contemplated hereby, or (c) a violation of any statute, rule,
regulation, order, judgment or decree of any court, public body or authority,
except for any violations which would not, individually or in the aggregate,
have a material adverse effect on such Purchaser or prevent or materially delay
the consummation by such Purchaser of the transactions contemplated hereby.
3.03. Acquisition for Investment. Each of the Purchasers is an "accredited
investor" as defined in Regulation D under the Securities Act, and is acquiring
the Preferred Shares solely for its own account for the purpose of investment
and not with a view to or for sale in connection with any distribution thereof,
and it has no present intention or plan to effect any distribution of the
Preferred Shares. Each of the Purchasers acknowledges that it is able to bear
the financial risks associated with an investment in the Preferred Shares and
that it has been given full access to such records of the Company and to the
officers of the Company as it has deemed necessary and appropriate to conducting
its due diligence investigation. The Shares may bear a legend to the following
effect:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the laws of any state and
may not be sold or transferred except in compliance with that Act and such
laws."
3.04. Financing. Each of the Purchasers has sufficient funds and will have
sufficient funds at all times through the Funding Date to consummate the
transactions contemplated hereby. None of the Purchasers will be rendered
insolvent by reason of its investments in the Company nor will it be left with
unreasonably small capital for purposes of operating its businesses.
13
<PAGE>
4. CONDITIONS TO PURCHASERS' OBLIGATIONS FOR FUNDING
The obligation of each of the Purchasers to purchase and pay for the
Preferred Shares to be purchased by it at the Funding is subject to the
following conditions:
4.01. Representations and Warranties. Each of the representations and
warranties set forth in Section 2 hereof shall be true, accurate and correct at
the Funding Date with the same effect as though made at and as of such time.
4.02. Secretary's Certificate. The Purchasers shall have received a
certificate of the Secretary or an Assistant Secretary of the Company, dated the
Funding Date, (a) attesting to all action taken by the shareholders of the
Company, including the approval of an amendment to the Articles of Incorporation
to increase the number of authorized shares of Preferred Stock to allow for the
issuance of 780,283 shares of Series B Preferred Stock, (b) attesting to all
corporate action taken by the Company including the resolutions of the Board of
Directors authorizing (i) the approval of the Articles of Amendment and the
amendments to the Bylaws, (ii) the execution, delivery and performance by the
Company of this Agreement and each Related Agreement to which it is a party,
(iii) the issuance of the Preferred Shares, and (iv) the execution, delivery and
performance by the Company of all other agreements or matters contemplated
hereby or executed in connection herewith, (c) certifying the names and true
signatures of the officers of the Company authorized to sign this Agreement and
the Related Agreements to which it is a party, the certificates for the
Preferred Shares and the other documents, instruments or certificates to be
delivered pursuant hereto and thereto, together with the true signatures of such
officers and (d) verifying that the Articles of Incorporation and the Bylaws (as
attached thereto) are true, correct and complete as of the Funding Date.
4.03. Officer's Certificate. The Purchasers shall have received a
certificate of the President and Treasurer of the Company, dated the Funding
Date, which shall certify that the representations and warranties contained in
Section 2 hereof are true and correct as of the Funding Date and that all
conditions required to be performed prior to or at the Funding have been
performed as of the Funding Date.
4.04. Consents, Licenses, Approvals, etc. The Purchasers shall have
received certified true copies of all consents, licenses and approvals required
or advisable in connection with the execution, delivery, performance, validity
and enforceability of this Agreement, and each Related Agreement, and such
consents, licenses and approvals shall be in full force and effect and be
reasonably satisfactory in form and substance to the Purchasers.
4.05. Good Standing Certificates. The Purchasers shall have received a
certificate of the appropriate public official in the jurisdiction of
incorporation of the Company and each Subsidiary as to the due incorporation and
good standing of the Company and each Subsidiary together with certified copies
of all charter documents of the Company and each Subsidiary and shall have
received certificates of
14
<PAGE>
appropriate public officials of each other jurisdiction in which the Company and
each Subsidiary is required to qualify to do business as a foreign corporation
as to the due qualification and good standing of the Company and each
Subsidiary.
4.06. No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced and no
investigation by any governmental authority shall have been threatened against
the Company or any Subsidiary, or any of the officers or directors of the
Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, and each Related Agreement, or
seeking damages in connection with such transactions.
4.07. Articles of Amendment. The Articles of Amendment creating the Series
B Preferred Stock of the Company, setting forth, without limitation, the
designations, preferences, powers, qualifications, special or relative rights
and privileges of the Series B Preferred Stock (the "Articles of Amendment"), in
the form of Exhibit A, shall have been filed with the Secretary of State of
Florida.
4.08. Bylaws. The amendments to the Bylaws of the Company (as amended, the
"Bylaws") set forth in Exhibit B, shall have been adopted by the Board of
Directors.
4.09. Legal Opinion. The Purchasers shall have received a legal opinion
from Foley & Lardner, outside counsel to the Company and the Subsidiaries, dated
the Funding Date and substantially in the form of Exhibit C and as to such other
matters as the Purchasers may reasonably request.
4.10. Shareholders Agreement. Each of the Purchasers, the Founders and the
Company shall have entered into a Shareholders Agreement (as amended from time
to time, the "Shareholders Agreement"), substantially in the form of Exhibit D.
4.11. Voting Agreement. Each of the Purchasers, the Founders, the Series A
Holders and the Company shall have entered into a Voting Agreement (as amended
from time to time, the "Voting Agreement"), substantially in the form of
Exhibit E.
4.12. Noncompetition Agreement. Each of the Key Employees (other than John
Tomko and John Buscema) shall have entered into a Noncompetition, Nondisclosure
and Proprietary Information Agreement substantially in the form of Exhibit F (as
amended from time to time, the "Noncompetition Agreements").
4.13. Expanses. All fees and disbursements required to be paid pursuant to
Section 11.04 hereof shall have been paid in full.
4.14. Other Purchasers. No Purchaser shall have failed to execute and
deliver this Agreement or to accept delivery of or make payment for the Shares
to be purchased by it on the Funding Date.
15
<PAGE>
4.15. Board of Directors. The members of the Board of Directors immediately
following the Funding shall consist of not more than ten members, who initially
shall be David Cobo, Stephen Green, Seth S. Werner, George A. Naddaff, Peter
Palmisano, David Shapiro, Richard Swartz, Samuel Perlman, Michael Rubin and a
nominee of Dominion. The Board of Directors shall establish an Executive
Committee, an Executive Compensation Committee and an Audit Committee. The
Executive Committee shall consist of not more than three (3) members, two (2) of
whom shall be Series B Directors. The Executive Compensation Committee shall
consist of not more than four (4) members, two (2) of whom shall be Series B
Directors; provided, however, that on or prior to April 30, 1997, the number of
members of the Executive Compensation Committee shall be reduced to three (3),
two (2) of whom shall be Series B Directors. The Audit Committee shall consist
of no more than three (3) members.
4.16. Subordinated Debenture Repayment. The Purchasers shall have received
satisfactory evidence of (i) the delivery to the Company of the 14% Subordinated
Debentures by the holders thereof for cancellation in exchange for the issuance
of 234,828 shares of Interim Series B Preferred Stock to such holders, and (ii)
the delivery to the Company of all shares of Interim Series B Preferred Stock
for conversion into shares of Series B Preferred Stock to be issued hereunder.
4.17. Merger Documents. The Merger shall have been consummated and the
Purchasers shall have received certified, complete and correct copies of the
Merger Documents satisfactory in form and substance to the Purchasers.
4.18. Compliance with this Agreement and Related Agreements. The Company
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement or any Related
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Funding.
4.19. Proceedings Satisfactory. All proceedings taken in connection with
the issuance and sale of the Shares and all documents and papers relating
thereto shall be satisfactory in form and substance to the Purchasers. Each
Purchaser shall have received copies of such documents and papers as such
Purchaser may reasonably request in connection with this Agreement and the
Related Agreements.
5. AFFIRMATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees that on and after the Funding Date and
until the consummation of a Qualified Public Offering it will:
5.01. Inspection Rights. Permit during normal business hours, upon
reasonable request and reasonable notice, each Purchaser or any employees,
agents or representatives thereof, to examine and make copies of and extracts
from the records and books of account of, and visit and inspect the properties,
assets,
16
<PAGE>
operations and business of the Company and any Subsidiary, and to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, consultants, directors, Key Employees, attorneys or independent
accountants.
5.02. Budgets Approval. At least thirty (30) days prior to the commencement
of each fiscal year, prepare and submit to, and obtain in respect thereof the
approval of the majority of the members of the Board of Directors, a business
plan and monthly operating budget in detail for each fiscal year, monthly
operating expenses and profit and loss projections and cash flow projections and
a capital expenditure budget for the fiscal year.
5.03. Financings. Promptly, fully and in detail, inform all of the members
of the Board of Directors of any discussions, offers or contracts relating to
possible financings of any material nature for the Company or any Subsidiary,
whether initiated by the Company, any Subsidiary or any other Person.
5.04. Meetings of Directors. Hold meetings of the Board of Directors not
less than on a quarterly basis.
5.05. Bylaws; Meetings and Indemnification. Use its best efforts to at all
times cause its Bylaws to provide that (a) any Series B Director shall have the
right to call a meeting of the Board of Directors, (b) any holder or holders of
at least 10% of the outstanding shares of Series B Preferred Stock shall have
the right to call a meeting of stockholders, and (c) a quorum for any special
meeting of the Board of Directors or any committee thereof of which a Series B
Director is a member shall require the attendance of at least one Series B
Director unless the Series B Directors have received at least 5 days prior
written notice of such special meeting. The Company shall at all times maintain
provisions in the Bylaws or the Articles of Incorporation indemnifying all
officers and directors against liability to the maximum extent permitted under
the laws of the state of its incorporation.
5.06. Corporate Existence. Maintain, and cause each of its Subsidiaries, to
maintain their respective corporate existence, Proprietary Rights, other rights
and franchises in full force and effect to the extent appropriate in accordance
with good business practice.
5.07. Properties, Business Insurance. Maintain, and cause each of its
Subsidiaries, to maintain as to their respective properties and business, with
financially sound and reputable insurers, insurance against such casualties and
contingencies and of such types and in such amounts as is customary for
companies of a similar size and financial condition similarly situated within
the same industry.
5.08. Expenses of Directors. Promptly reimburse in full each director of
the Company who is not an officer or employee of the Company for all of his
reasonable
17
<PAGE>
out-of-pocket expenses incurred in attending each meeting of the Board of
Directors or any committee thereof.
5.09. Compliance with Laws. Comply, and cause each Subsidiary to comply,
with all applicable laws, rules, regulations and orders, noncompliance with
which could have a material adverse effect on its business, assets, operations
or condition, financial or otherwise.
5.10. Noncompetition Agreements. Enter into, and cause each Subsidiary to
enter into, noncompetition, nondisclosure and proprietary information agreements
with each executive officer, Key Employee and any other employee of the Company
or any Subsidiary as may be requested by any of the Purchasers, subsequent to
the Funding Date, the format and content of which shall be approved by the Board
of Directors.
5.11. Keeping of Records and Books of Account. Keep, and cause each
Subsidiary to keep, adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied, reflecting
all financial transactions of the Company and such Subsidiary, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
5.12. Size of Board and Committees. Fix and maintain the number of
directors on the Board of Directors at no more than ten members, which members
shall in any event include one director nominated by any Person or
affiliated group of Persons who own 363,000 or more Shares; fix and maintain the
number of members of the Executive Committee and the Audit Committee of the
Board of Directors at no more than three; and fix and maintain the number of
members of the Executive Compensation Committee at no more than four at any time
prior to April 30, 1997 and at no more than three at any time on or after April
30, 1997. The members of the Executive Committee and the Executive Compensation
Committee shall include two Series B Directors. The Executive Compensation
Committee shall have, among its responsibilities, the review and recommendation
to the Board of Directors of stock option grants and executive compensation and
bonuses. The Audit Committee shall have, among its responsibilities, the
engagement, appointment and removal of the independent public accountants or
auditors of the Company.
5.13. Rule 144A Information. At all times during which the Company is
neither subject to the reporting requirements of Section 13 or 1 5(d) of the
Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, promptly as practicable (in any event not later than twenty (20)
days after initial request) in written form, upon the written request of any
Purchaser or a prospective buyer of Shares from any Purchaser, furnish all
information required by Rule 144A(d)(4)(i) of the General Regulations
promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company further covenants, upon written request, as promptly
as practicable (in any event not later than twenty (20)
18
<PAGE>
days after initial request) to cooperate with and assist any Purchaser or any
member of the NASD system for Private Offerings Resales and Trading through
Automated Linkage ("PORTAL") in applying to designate and thereafter maintain
the eligibility of the Shares for trading through PORTAL. The Company's
obligations under this Section 5.13 shall at all times be contingent upon the
relevant Purchaser's obtaining from a prospective purchaser an agreement to take
all reasonable precautions to safeguard the Rule 144A Information from
disclosure to anyone other than a person who will assist such purchaser in
evaluating the purchase of the Shares.
5.14. Reporting Requirements. Furnish the following to each Purchaser:
(a) Monthly Reports: as soon as available and in any event within 30
days after the end of each fiscal month of the Company, consolidated and
consolidating balance sheets of the Company and the Subsidiaries as of the end
of such period and consolidated and consolidating statements of income and
statements of cash flows and changes in stockholders' equity of the Company and
the Subsidiaries for such period and for the period commencing at the end of the
previous fiscal year and ending with the end of such period, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year, including comparisons to the budget or
business plan and an analysis of the variances from the budget or business plan,
prepared in accordance with GAAP consistently applied, and also including
information (broken down by geographical region) as to the number of mortgage
loans funded and new mortgage loan applications received during such fiscal
period;
(b) Annual Reports: as soon as available and in any event within 90
days after the end of each fiscal year of the Company, a copy of the annual
audit report for such year for the Company and the Subsidiaries, including
therein consolidated and consolidating balance sheets of the Company and the
Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income and statements of cash flows and changes in
stockholders' equity of the Company and the Subsidiaries for such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, all such consolidated statements to be duly certified by
the chief financial officer of the Company and an independent public accountant
of recognized national standing approved by the Board of Directors;
(c) Reports and Other Information: within 10 days after receipt,
publication, commencement or occurrence, copies of all consulting reports,
management reports, notices of all material actions, filings made with the
Commission, such information as the Company or any Subsidiary shall make
available to any of its stockholders, and such other information as any
Purchaser shall reasonably request;
(d) Officer's Certificate: as soon as possible and in any event within
30 days after the end of a fiscal quarter, a certificate executed by a duly
authorized
19
<PAGE>
officer of the Company representing as to the compliance of the Company with the
provisions of Section 5 and Section 6;
(e) Accountants' Letters: within 10 days after receipt, copies of all
accountants' letters, reviews and reports to management;
(f) Budgets and Operating Plan: as soon as available and in any event
at least 30 days before the beginning of each fiscal year of the Company, a
business plan and monthly operating budgets for the forthcoming fiscal year;
(g) Notice of Adverse Changes: promptly after the occurrence thereof
and in any event within 10 days after each occurrence, notice of any default
under any material agreement; or any material litigation, proceedings, suits or
investigations affecting the Company or any Subsidiary; or any material adverse
change in the business, assets, operations or condition of the Company or any
Subsidiary;
(h) SEC Filings: within 10 days of occurrence, copies of all filings
made with the Commission; and
(i) Business Information: informational reports and other data useful
in the understanding and management of the Company's or any Subsidiary's
business supplied to the Chief Executive Officer of the Company or such
Subsidiary in the ordinary course of business.
5.15. Amended and Restated Articles of Incorporation. Amend and restate
the Articles of Incorporation to remove the designation of the Interim Series B
Preferred Stock, as soon as practicable following the Funding Date.
6. NEGATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees that on and after the Funding Date and
until the consummation of a Qualified Public Offering it will not:
6.01. Dealings with Affiliates. Enter into, or permit any Subsidiary to
enter into, any material transaction, including, without limitation, any loan or
extension of credit, release of guarantee, management contract or royalty
agreement, deferred or contingent compensation agreement, consulting or other
agreement with any Affiliate.
6.02. Compensation to Officers. Amend, modify or waive, or permit any
Subsidiary to amend, modify or waive, in any material respect any employment,
benefit or compensation arrangement with any Key Employee, or pay to any Key
Employee, senior manager or officer compensation (including salary and bonus) in
excess of that approved by the Executive Compensation Committee of the Board of
Directors.
20
<PAGE>
6.03. Sale of Assets. Sell, lease, assign, transfer or otherwise dispose
of, or permit any of its Subsidiaries to sell, lease, assign, transfer or
otherwise dispose of, any material portion of its now owned or hereafter
acquired property (including, without limitation, shares of stock and
indebtedness, receivables and leasehold interests), except (a) for the sale or
other disposition of property no longer used or useful in the conduct of its
business and (b) that the Company or any Subsidiary may sell, lease, assign, or
otherwise transfer its property to the Company or any wholly-owned Subsidiary.
6.04. Mergers, Etc. Merge or consolidate with, or sell, assign, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or hereafter acquired)
to, any Person, or acquire all or substantially all of the assets or the
business of any Person (or enter into any agreement to do any of the foregoing),
or permit any of its Subsidiaries to do so, except that the Company or any
Subsidiary may merge into or consolidate with or transfer assets to the Company
or any wholly-owned Subsidiary.
6.05. Maintenance of Ownership of Subsidiaries. Sell or otherwise dispose
of any shares of capital stock of any Subsidiary, except to a wholly-owned
Subsidiary, or permit any Subsidiary to issue, sell or otherwise dispose of any
shares or rights to acquire any of its capital stock or the capital stock of any
Subsidiary, except to the Company or a wholly-owned Subsidiary; provided,
however, that the Company may liquidate, merge or consolidate any Subsidiary
into or with itself, provided that the Company is the surviving entity, or into
or with a wholly-owned Subsidiary, or the Company may sell all or a portion of
any Subsidiary to a wholly-owned Subsidiary.
6.06. Conduct of Business. Engage, or permit any Subsidiary to engage, in
any business other than the business engaged in or proposed to be engaged in by
the Company or any Subsidiary on the date hereof and any businesses or
activities substantially similar or related thereto.
6.07. Investments in Other Corporations or Entities. Make or permit any
Subsidiary to make, any loan or advance to any Person, or purchase, otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire, the capital
stock, assets comprising the business of, obligations of, or any interest in,
any other corporation or entity which will not be operated as a wholly-owned
Subsidiary, except:
(a) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America or any
state or public subdivision thereof;
(b) investments by the Company or a Subsidiary in certificates of
deposit, notes, acceptances and repurchase agreements having a maturity of not
more than one year from the date of acquisition issued by a fiscally sound and
reputable
21
<PAGE>
bank organized in the United States having capital, surplus and undivided
profits of at least $500,000,000;
(c) investments by the Company or a Subsidiary in the highest-rated
commercial paper;
(d) investments by the Company or a Subsidiary in "Money Market" fund
shares, or in money market accounts fully insured by the Federal Deposit
Insurance Corporation and sponsored by banks and other financial institutions,
provided that the investments consist principally of the types of investments
described in clauses (a), (b) or (c) of this Section 6.07;
(e) loans or advances from a Subsidiary to the Company or from the
Company to a wholly-owned Subsidiary;
(f) mortgage loans originated by the Company or a Subsidiary in the
ordinary cause of business;
(g) advances or investments in the ordinary course of business to or
in Controlled Business Arrangements or members thereof which do not exceed
$50,000; or
(h) investments by the Company or any Subsidiary in such financial
instruments and with such financial advisors, as may be approved from time to
time by the Board of Directors.
6.08. Transfers of Proprietary Rights. Transfer, sell, dispose of, assign,
lease, license or donate, or permit any Subsidiary to transfer, sell, dispose
of, assign, lease or donate, any ownership or other interest in, or material
rights relating to, any its Proprietary Rights any person or entity other than
the Company or a wholly-owned Subsidiary except for the licensing of software to
customers in the ordinary course of business.
6.09. Amendments. Amend or waive any provision of the Articles of
Incorporation, the Bylaws, any of the Merger Documents or any other agreement
providing preemptive, conversion, redemption, registration or other rights
relating to, or options, warrants or other rights to purchase, any shares of the
Company's capital stock in any way that would adversely affect the liquidation
preferences, dividend rights, voting rights or redemption rights of the Holders
of the Series B Preferred Stock.
6.10. Other Agreements. Enter into any agreement in which the terms of such
agreement would restrict or impair the right to perform of the Company or any
Subsidiary under this Agreement, the Articles of Amendment or any other Related
Agreement.
22
<PAGE>
6.11. Registration Rights Agreements. (a) Register and sell any securities
for its own account in a Registration effected pursuant to Section 7.01 unless
the Company shall have obtained written agreements from Mason-McDuffie and any
other holders of securities of the Company which have been granted rights to
require the Company to effect a Registration or to include any securities held
by them in any other Registration effected by the Company ("Registration
Rights") to waive any priority they may otherwise have over the Purchasers to
include any securities held by them in such Registration or (b) enter into an
agreement with any Person which grants Registration Rights to such Person unless
such Agreement expressly subordinates the right of such Person to include
securities held by them in any such Registration to the priority of the
Purchaser to include the securities held by them in such Registration as set
forth in Section 7.01(e) and Section 7.02(b).
6.12. Existing Subordinated Indebtedness. (a) Defease or make any payments
the effect of which is to defease, or make any voluntary or optional payment or
prepayment on, or redemption of, the Existing Subordinated Indebtedness in whole
or in part, or (b) amend, supplement or otherwise change (or agree to any
amendment or other change of) the terms of the Existing Subordinated
Indebtedness, if the effect of such amendment, supplement or change is to
increase the interest rate on the Existing Subordinated Indebtedness, advance
the dates upon which payment of principal or interest are due on the Existing
Subordinated Indebtedness (including any change that adds or modifies mandatory
prepayments), change, in a manner adverse to the Company or which confers
additional rights on the holders thereof, any event of default or covenant (or
any definition relating thereto) with respect to the Existing Subordinated
Indebtedness, change the redemption or repurchase provisions with respect to the
Existing Subordinated Indebtedness in a manner materially adverse to the Company
or which confers additional rights on the holders thereof or otherwise increase
the obligations of the Company or confer additional rights on the holders of the
Existing Subordinated Indebtedness without, in each case, obtaining the prior
written consent of the Holders of at least a majority of the then outstanding
shares of Series B Preferred Stock to such amendment or change.
6.13. Existing Preferred Stock. (a) Amend, supplement or otherwise change
(or agree to any amendment or other change to) the terms of the Series A
Preferred Stock, the Special Preferred Stock (Northern California Division) or
the Interim Series B Preferred Stock, if the effect of any such amendment,
supplement or change is adverse to the Holders of Series B Preferred Stock or
which confers any additional rights on the Series A Holders, the Special
Preferred Holders or the Interim Series B Holders, including, without
limitation, changes in the conversion rate, default, covenant, redemption, or
repurchase provisions with respect to the Series A Preferred Stock, the Special
Preferred Stock (Northern California Division) or the Interim Series B Preferred
Stock, without, in each case, obtaining the prior written consent of the Holders
of at least a majority of the then outstanding shares of the Series B Preferred
Stock or (b) issue any shares of Interim Series B Preferred Stock.
23
<PAGE>
7. REGISTRATION RIGHTS
The Purchasers shall have the right to register their Registrable
Securities in accordance with the following provisions:
7.01. Demand Registrations.
(a) At any time and from time to time commencing on the earlier of (i) the
fifth anniversary of the Funding Date, and (ii) the date which is six months
after the Initial Public Offering, upon the written request of the Holders of at
least 50% of the Registrable Securities (the "Initiating Holders") that the
Company effect the Registration under the Securities Act (such a written request
being hereinafter referred to as a "Demand Registration") of any of the
Registrable Securities, the Company will promptly give written notice to all
other Holders of Registrable Securities that a Demand Registration has been
received. For a period of 20 days following delivery of such notice, the other
Holders of Registrable Securities may request that the Company also register
their Registrable Securities and after the expiration of such 20 day period, the
Company shall notify all Holders of Registrable Securities of the number of
Registrable Securities to be registered. Thereupon, the Company will use its
reasonable best efforts to cause the prompt Registration under the Securities
Act, subject to the provisions of this Section 7, of all Registrable Securities
which the Holders thereof have requested the Company to register, and in
connection therewith, prepare and file on such appropriate form as the Company,
in its reasonable discretion, shall determine, a Registration Statement under
the Securities Act to effect such Registration.
With respect to any Registration Statement filed, or to be filed, pursuant
to this Section 7.01(a) or Section 7.03 below, if the Company shall furnish to
the Holders of Registrable Securities a certified resolution of the Board of
Directors stating that in the Board of Directors' good faith judgment it would
(because of the existence of, or in anticipation of, any acquisition or
financing, merger, sale of assets, recapitalization or other similar corporate
activity, or the unavailability for reasons beyond the Company's control of any
required audited financial statements, or any other event or condition of
similar significance to the Company) be materially disadvantageous (a
"Disadvantageous Condition") to the Company or its stockholders for such a
Registration Statement to be maintained Effective, or to be filed and become
Effective, and setting forth the general reasons for such judgment, the Company
shall be entitled to cause such Registration Statement to be withdrawn and the
effectiveness of such Registration Statement terminated, or, in the event no
Registration Statement has yet been filed, shall be entitled not to file any
such Registration Statement, until such Disadvantageous Condition no longer
exists (notice of which the Company shall promptly deliver to all Holders of
Registrable Securities); provided that the Company shall be entitled to withdraw
or delay the filing of a Registration Statement in connection with a
Disadvantageous Condition only once during any twelve month period. Upon receipt
of any such notice of a Disadvantageous Condition, such Holders of Registrable
Securities will forthwith
24
<PAGE>
discontinue use of the disclosure document contained in such Registration
Statement and, if so directed by the Company, each such Holder will deliver to
the Company all copies, other than permanent file copies then in such Holder's
possession, of the disclosure document then covering such Registrable Securities
current at the time of receipt of such notice, and, in the event no Registration
Statement has yet been filed, all drafts of the disclosure document covering
such Registrable Securities. In the event that the Company shall give any notice
of a Disadvantageous Condition, the Company shall at such time as it in good
faith deems appropriate file a new Registration Statement covering the
Registrable Securities that were covered by such withdrawn Registration
Statement, and shall use its reasonable best efforts to file such new
Registration Statement within 90 days of receipt of the resolution by the
Holders of Registrable Securities, and such Registration Statement shall be
maintained Effective for such time as may be necessary so that the period of
effectiveness of such new Registration Statement, when aggregated with the
period during which such initial Registration Statement was Effective, shall be
such time as may be otherwise required by Section 7.01(c).
The Holders of a majority of the Registrable Securities requested to be
registered may, at any time prior to the Effective Date of the Registration
Statement relating to such Registration, revoke such request, without liability
to any of the other Holders of Registrable Securities, by providing a written
notice to the Company revoking such request.
(b) Number of Registrations: Expenses. The Company shall not be obligated
to effect more than two Registrations of Registrable Securities pursuant to
requests from the Holders of Registrable Securities under this Section 7.01
during the term of this Agreement. The Company shall pay all Registration
Expenses in connection with the two Registrations which the Holders of
Registrable Securities are entitled to request pursuant to this Section 7.01.
However, each Holder of Registrable Securities shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to this Section
7.01. Notwithstanding any other provisions contained in this Section 7.01, the
Company shall not be required to register any Registrable Securities pursuant to
an Effective Registration Statement in connection with a request for such
Registration made in accordance with this Section 7.01 if any previous
Registration Statement became Effective less than 180 days prior to such
request.
(c) Effective Registration Statement. A Registration requested pursuant to
this Section 7.01 shall not be deemed to have been effected unless the
Registration Statement relating thereto (i) has become Effective under the
Securities Act and all of the Registrable Securities of the Holders thereof
included in such Registration have actually been sold thereunder, and (ii) has
remained Effective for a period of at least 180 days (or such shorter period in
which all Registrable Securities included in such Registration have actually
been sold thereunder); provided, however, that if any Effective Registration
Statement requested pursuant to this Section 7.01
25
<PAGE>
is discontinued in connection with a Disadvantageous Condition, such
Registration Statement shall not be included as one of the Registrations which
may be requested pursuant to this Section 7.01; provided further, that if after
any Registration Statement requested pursuant to this Section 7.01 becomes
Effective (x) such Registration Statement is subject to any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court solely due to the actions or omissions to act of the Company or
(y) less than 100% of all of the Registrable Securities included in such
Registration have been sold thereunder, such Registration Statement shall not be
included as one of the Registrations which such Holders of Registrable
Securities are entitled to request pursuant to Section 7.01(b).
(d) Selection of Underwriters. If any requested Registration pursuant to
this Section 7.01 is in the form of an underwritten offering, the Company shall
have the right to select the investment banker and manager or co-managers that
will administer the offering, subject to the approval of the Holders holding a
majority of the Registrable Securities in respect of which Registration has been
requested.
(e) Priority in Requested Registrations. If a requested Registration
pursuant to this Section 7.01 involves an underwritten offering and the managing
underwriter shall advise the Company that, in its view, the number of equity
securities requested to be included in such Registration exceeds the largest
number of securities which can be sold without having an adverse effect on such
offering, including the price at which such securities can be sold, the Company
will include in such Registration (i) first, Registrable Securities proposed to
be registered by Holders thereof, pro rata based on the number of securities
proposed to be registered by each such Holder and (ii) second, securities that
the Company proposes to issue and sell for its own account and all other
securities proposed to be registered by the Holders thereof, pro rata based on
the number of securities proposed to be registered by each such Person;
provided, however, that if in any such underwritten offering the Company
includes in such Registration Statement less than 100% of the Registrable
Securities requested to be included therein by any Holder thereof, then such
Registration Statement shall not be included as one of the Registrations which
the Holders of Registrable Securities are entitled to request pursuant to
Section 7.01(b).
7.02. Incidental Registration.
(a) If the Company at any time proposes to register any of its equity
securities under the Securities Act (other than a Registration (i) relating to
shares of Common Stock issuable upon exercise of employee stock options or in
connection with any employee benefit or similar plan of the Company, (ii) in
connection with an acquisition by the Company of another company, or (iii)
pursuant to Section 7.01) in a manner which would permit Registration of
Registrable Securities for sale to the public under the Securities Act, it shall
each such time, subject to the provisions of Section 7.02(b), give prompt
written notice to all Holders of record of Registrable Securities of its
intention to do so and of such Holders' rights under this Section 7.02, at least
20 days prior to the anticipated filing date of the Registration Statement
26
<PAGE>
relating to such Registration. Such notice shall offer all such Holders the
opportunity to include in such Registration Statement such number of Registrable
Securities as each such Holder may request. Upon the written request of any such
Holder made within 10 days after the receipt of the Company's notice (which
request shall specify the number of Registrable Securities intended to be
disposed of by such Holder and the intended method of disposition thereof), the
Company will use its reasonable best efforts to effect the Registration under
the Securities Act of all Registrable Securities which the Company has been so
requested to register by the Holders thereof; provided, that (x) if such
Registration involves an underwritten offering, all Holders of Registrable
Securities requesting to be included in the Company's Registration must sell
their Registrable Securities to the underwriters selected by the Company on the
same terms and conditions as apply to the Company; and (y) if, at any time after
giving written notice of its intention to register any securities pursuant to
this Section 7.02(a) and prior to the Effective Date of the Registration
Statement filed in connection with such Registration, the Company shall
determine for any reason not to register such securities, the Company shall give
written notice to all Holders of Registrable Securities and shall thereupon be
relieved of its obligation to register any Registrable Securities in connection
with such Registration (without prejudice, however, to rights of the Holders of
Registrable Securities under Section 7.01). If a Registration pursuant to this
Section 7.02(a) involves an underwritten public offering, any Holder of
Registrable Securities requesting to be included in such Registration may elect,
in writing prior to the Effective Date of the Registration Statement filed in
connection with such Registration, not to register such Registrable Securities
in connection with such Registration. No Registration effected under this
Section 7.02 shall relieve the Company of its obligations to effect
Registrations upon request under Section 7.01 or Section 7.03. The Company shall
pay all Registration Expenses in connection with each Registration of
Registrable Securities requested pursuant to this Section 7.02. However, each
Holder of Registrable Securities shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Registrable Securities pursuant to a Registration Statement
effected pursuant to this Section 7.02.
(b) Priority in Incidental Registrations. If a Registration pursuant to
this Section 7.02 involves an underwritten offering and the managing underwriter
advises the Company that, in its good faith view, the number of equity
securities (including all Registrable Securities) which the Company, the Holders
of Registrable Securities and any other persons intend to include in such
Registration exceeds the largest number of securities which can be sold without
having an adverse effect on such offering, including the price at which such
Registrable Securities can be sold, the Company will include in such
Registration (i) first, securities that the Company proposes to issue and sell
for its own account, (ii) second, Registrable Securities proposed to be
registered by the Holders thereof and the Special Preferred Holders, pro rata
based on the number of securities proposed to be registered by each such Person
and (iii) third, all other securities proposed to be registered by the Holders
thereof, pro rata based on the number of securities proposed to be registered by
each such Person.
27
<PAGE>
7.03. Registrations on Form S-3. In addition to the rights provided the
Holders of Registrable Securities in Section 7.01 and Section 7.02, if the
registration of Registrable Securities under the Securities Act can be effected
on Form S-3 (or any similar form promulgated by the Commission), then upon the
written request of the Initiating Holders, the Company will so notify each
Holder of Registrable Securities, including each Holder who has a right to
acquire Registrable Securities, and then will, as expeditiously as possible, use
its reasonable best efforts to effect qualification and registration under the
Securities Act on Form S-3 of all or such portion of the Registrable Securities
as the Holder or Holders shall specify; provided, however, the Company shall not
be required to effect a registration pursuant to this Section 7.03 unless the
market value of the Registrable Securities to be sold in any such Registration
shall be estimated to be at least $5,000,000 at the time of filing such
Registration Statement; and further provided that the Company shall not be
required to effect more than one Registration under this Section 7.03 during any
twelve (12) month period. The Company shall pay all Registration Expenses in
connection with each Registration of Registrable Securities requested pursuant
to this Section 7.03. However, each Holder of Registrable Securities shall pay
all underwriting discounts and commissions and transfer taxes, if any, relating
to the sale or disposition of such Holder's Registrable Securities pursuant to a
Registration Statement effected pursuant to this Section 7.03.
7.04. Holdback Agreements.
(a) If any Registration of Registrable Securities shall be in connection
with an underwritten public offering, each Holder of Registrable Securities
agrees not to effect any sale or distribution, including any private placement
or any sale pursuant to Rule 144 or any successor provision, under the
Securities Act, of any Registrable Securities, and not to effect any such sale
or distribution of any other equity security of the Company or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (in each case, other than as part of such underwritten public offering)
during the seven days prior to, and during the 90 day period which begins on the
Effective Date of such Registration Statement (except as part of such
Registration) provided that each Holder of Registrable Securities has received
written notice of such Registration at least two Business Days prior to the
anticipated beginning of the seven day period referred to above.
(b) If any Registration of Registrable Securities shall be in connection
with an underwritten public offering, the Company agrees (i) not to effect any
sale or distribution of any of its equity securities or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (other than any such sale or distribution of such securities in
connection with any merger or consolidation by the Company or any Affiliate or
the acquisition by the Company or an Affiliate of the Company of the capital
stock or substantially all the assets of any other Person or in connection with
an employee stock ownership or other benefit plan) during the seven days prior
to, and during the 90 day period which begins on, the Effective Date of such
Registration Statement (except as part of such Registration)
28
<PAGE>
and (ii) that any agreement entered into after the date hereof pursuant to which
the Company issues or agrees to issue any privately placed equity securities
shall contain a provision under which the Holders of such securities agree not
to effect any sale or distribution of any such securities during the period
referred to in the foregoing clause (i), including any sale pursuant to Rule
144, or any successor provision, under the Securities Act (except as part of
such Registration, if permitted).
7.05. Registration Procedures. In connection with any offering of
Registrable Securities registered pursuant to this Section 7, the Company shall:
(a) Prepare and file with the Commission within 90 days after receipt of a
request for Registration, a Registration Statement on any form for which the
Company then qualifies and which counsel for the Company shall deem appropriate,
and which form shall be available for the sale of the Registrable Securities in
accordance with the intended methods of distribution thereof, and use its
reasonable best efforts to cause such Registration Statement to become and
remain Effective as provided herein, provided that before filing with the
Commission a Registration Statement or disclosure document constituting part of
a Registration Statement or any amendments or supplements thereto, the Company
will (x) furnish to one counsel selected by the Holders of a majority of the
Registrable Securities covered by such Registration Statement copies of all such
documents proposed to be filed for said counsel's review and comment and (y)
notify each Holder of Registrable Securities covered by such Registration
Statement of any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered.
(b) Prepare and file with the Commission such amendments and supplements to
such Registration Statement and any disclosure document constituting part of
such Registration Statement used in connection therewith as may be necessary to
keep Effective such Registration Statement for a period of not less than nine
months (or one year in the case of a Registration pursuant to Section 7.03) or
such shorter period which will terminate when all Registrable Securities covered
by such Registration Statement have been sold (but not before the expiration of
the 90 day period, if applicable, referred to in Section 4(3) of the Securities
Act and Rule 174 under the Securities Act, or any successor thereto, if
applicable), and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration Statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement.
(c) Furnish to each Holder and each underwriter, if any, of Registrable
Securities covered by such Registration Statement such number of copies of such
Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), and the disclosure document included in such
Registration Statement (including each preliminary disclosure document), in
conformity with the requirements of the Securities Act, and such other documents
as any Holder
29
<PAGE>
of Registrable Securities may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder.
(d) Use its best efforts to register or qualify such Registrable Securities
under such other state securities or "blue sky" laws of such jurisdictions as
any Holder, and underwriter, if any, of Registrable Securities covered by such
Registration Statement reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable such Holder and
each underwriter, if any, to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such Holder; provided that the Company will
not be required to (x) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section
7.05(d), (y) subject itself to taxation in any such jurisdiction or (z) consent
to general service of process in any such jurisdiction.
(e) Use its best efforts to cause the Registrable Securities covered by
such Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the Holder or Holders thereof
to consummate the disposition of such Registrable Securities.
(f) Immediately notify each Holder of such Registrable Securities at any
time when a disclosure document relating thereto is required to be delivered
under the Securities Act of the happening of any event which comes to the
Company's attention if as a result of such event the disclosure document
included in such Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and promptly prepare
and furnish to such Holder a supplement or amendment to such disclosure document
so that, as thereafter delivered to the offerees of such Registrable Securities,
such disclosure document will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(g) Use its reasonable best efforts to cause all such Registrable
Securities to be listed on a national securities exchange (including NASDAQ) and
on each securities exchange on which similar securities issued by the Company
may then be listed, and enter into such customary agreements including a listing
application and indemnification agreement in customary form, and to provide a
transfer agent and registrar for such Registrable Securities covered by such
Registration Statement no later than the Effective Date of such Registration
Statement.
(h) Enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the Holders of a
majority of the Registrable Securities being covered by such Registration
Statement or the underwriters retained by such Holders, if any, reasonably
request in order to
30
<PAGE>
expedite or facilitate the disposition of such Registrable Securities, including
customary representations, warranties, indemnities and agreements.
(i) Make available for inspection by any Holder of Registrable Securities
covered by such Registration Statement, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by any such Holder or underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively, "Records"), if
any, as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's and its Affiliates' officers,
directors and employees to supply all information and respond to all inquiries
reasonably requested by any such Inspector in connection with such Registration
Statement.
(j) Use its reasonable best efforts to obtain a "cold comfort" letter from
the Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as the Holders
of a majority in interest of the Registrable Securities being sold reasonably
request.
(k) Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to the Holders of Registrable
Securities, as soon as reasonably practicable, an earnings statement covering a
period of at least twelve months, beginning with the first month after the
Effective Date of the Registration Statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
It shall be a condition precedent to the obligation of the Company to take
any action with respect to securities of a Holder of Registrable Securities that
such Holder shall furnish to the Company such information regarding the
securities held by such Holder and the intended method of disposition thereof as
the Company shall reasonably request and as shall be required in connection with
the action taken by the Company.
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 7.05(f), such Holder will forthwith discontinue disposition of
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended disclosure document contemplated by Section 7.05(f) and,
if so directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies (including, without limitation, any and all
drafts), other than permanent file copies, then in such Holder's possession, of
the disclosure document covering such Registrable Securities current at the time
of receipt of such notice. In the event the Company shall give any such notice,
the period mentioned in Section 7.05(b) shall be extended by the greater of (x)
three months or (y) the number of days during the period from and including the
date of the giving of such notice pursuant to Section 7.05(f) to and including
the date when each Holder of Registrable Securities covered
31
<PAGE>
by such Registration Statement shall have received the copies of the
supplemented or amended disclosure document contemplated by Section 7.05(f).
7.06. Indemnification.
(a) Indemnification by the Company. In the event of any Registration of any
securities of the Company under the Securities Act pursuant to this Agreement,
the Company will indemnify and hold harmless, to the full extent permitted by
law, each of the Holders of any Registrable Securities covered by such
Registration Statement, their respective directors and officers, general
partners, limited partners and managing directors, each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls, is controlled by or is under common
control with any such Holder or any such underwriter within the meaning of the
Securities Act (and directors, officers, controlling persons, partners and
managing directors of any of the foregoing), against any and all losses, claims,
damages or liabilities, joint or several, and expenses (including any amounts
paid in any settlement effected with the Company's consent, which consent will
not be unreasonably withheld) to which such Holder, any such director, officer,
general or limited partner, managing director, any such underwriter or
controlling person may become subject under the Securities Act, state securities
or "blue sky" laws, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained, on the Effective Date thereof,
in any Registration Statement under which such securities were registered under
the Securities Act, any preliminary, final or summary disclosure document
contained therein, or any amendment or supplement thereto, (ii) any omission or
alleged omission to state in such Registration Statement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of any
federal, state or common law rule or regulation applicable to the Company and
relating to action required of or inaction by the Company in connection with any
such Registration. The Company shall reimburse each such Holder and each such
director, officer, general partner, limited partner, managing director or
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending such
loss, claim, liability, action or proceeding, provided, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement or amendment or supplement
thereto or in any such preliminary, final or summary disclosure document in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such Holder in its capacity as a
Holder of Registrable Securities in the Company or any such director, officer,
general or limited partner, managing director or underwriter specifically
stating that it is for use in the preparation thereof; and,
32
<PAGE>
provided further, that the Company shall not be liable to any Holder of
Registrable Securities, any person who participates as an underwriter in the
offering or sale of Registrable Securities, if any, or any other person, if any,
who controls such underwriter within the meaning of the Securities Act, pursuant
to this Section with respect to any preliminary disclosure document or the final
disclosure document or the final disclosure document as amended or supplemented
as the case may be, to the extent that any such loss, claim, damage or liability
of such underwriter or controlling person results from the fact that such
underwriter sold Registrable Securities to a person to whom there was not sent
or given, at or prior to the written confirmation of such sale, a copy of the
final disclosure document or of the final disclosure document as then amended or
supplemented, whichever is most recent, if the Company has previously furnished
copies thereof to such underwriter and such final disclosure document, as then
amended or supplemented, had corrected any such misstatement or omission. The
indemnity provided for herein shall remain in full force and effect regardless
of any investigation made by or on behalf of such Holder or any such director,
officer, general partner, limited partner, managing director, underwriter or
controlling person and shall survive the transfer of such securities by such
Holder.
(b) Indemnification by the Holders of Registrable Securities and
Underwriters. The Company may require, as a condition to including any
Registrable Securities in any Registration Statement filed in accordance with
the provisions hereof, that the Company shall have received an undertaking
reasonably satisfactory to it from the Holders of such Registrable Securities or
any underwriter, to indemnify and hold harmless (in the same manner and to the
same extent as set forth in paragraph (a) above) the Company and its directors,
officers, controlling persons and all other prospective sellers and their
respective directors, officers, general and limited partners, managing
directors, and their respective controlling persons with respect to any untrue
statement or alleged untrue statement in or omission or alleged omission from
such Registration Statement, any preliminary, final or summary disclosure
document contained therein, or any amendment or supplement, if such untrue
statement or untrue alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company or its representatives through an instrument duly executed by or on
behalf of such Holder or underwriter specifically stating that it is for use in
the preparation of such Registration Statement, preliminary, final or summary
disclosure document or amendment or supplement, or a document incorporated by
reference into any of the foregoing. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any of the Holders of Registrable Securities, underwriters or any of their
respective directors, officers, general or limited partners, managing directors
or controlling persons and shall survive the transfer of such securities by such
Holder, provided, however, that no such Holder shall be liable in the aggregate
for any amounts exceeding the product of the sale price per Registrable Security
and the number of Registrable Securities being sold pursuant to such
Registration Statement or disclosure document by such Holder.
33
<PAGE>
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to this
Section 7.06, such indemnified party will, if a claim in respect thereof is to
be made against an indemnifying party, promptly give written notice to the
indemnifying party of the commencement of such action, provided that the failure
of any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subsections of this
Section, except to the extent that the indemnifying party is actually prejudiced
by such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties exists in
respect of such claim, the indemnifying party will be entitled to participate in
and, jointly with any other indemnifying party similarly notified, to assume the
defense thereof, to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party for any
legal or other expenses subsequently incurred by the latter in connection with
the defense thereof, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties arises in
respect of such claim after the assumption of the defense thereof, and the
indemnifying party will not be subject to any liability for any settlement made
without its consent (which consent shall not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel in any single
jurisdiction for all parties indemnified by such indemnifying party with respect
to such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels as may be reasonably necessary. Notwithstanding
anything to the contrary set forth herein, and without limiting any of the
rights set forth above, in any event any party will have the right to retain, at
its own expense, counsel with respect to the defense of a claim.
(d) Other Indemnification. Indemnification similar to that specified in the
preceding subsections of this Section 7.06 (with appropriate modifications)
shall be given by the Company and each Holder of Registrable Securities with
respect to any required Registration or other qualification of securities under
any federal or state law or regulation or governmental authority other than the
Securities Act.
(e) Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in this Section
is for any reason held to be unenforceable although applicable in accordance
with its terms,
34
<PAGE>
the Company, the Holders of Registrable Securities and the underwriters shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by such indemnity agreement incurred by the Company, the
Holders of Registrable Securities and the underwriters, in such proportions that
the underwriters are responsible for that portion represented by the percentage
that the underwriting discount appearing in the disclosure document bears to the
initial public offering price appearing therein and the Company and the Holders
of Registrable Securities are responsible for the balance; provided, however,
that no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. As between the
Company and the Holders of Registrable Securities, such parties shall contribute
to the aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect (x) the relative benefits received by the Company, on the
one hand, and the Holders of the Registrable Securities included in the offering
on the other hand, from the offering of the Registrable Securities and any other
securities included in such offering, and (y) the relative fault of the Company,
on the one hand, and the Holders of the Registrable Securities included in the
offering, on the other, with respect to the statements or omissions which
resulted in such loss, liability, claim, damage or expense, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and the Holders of the
Registrable Securities on the other, with respect to such offering shall be
deemed to be in the same proportion as the sum of the total purchase price paid
to the Company in respect of the Registrable Securities plus the total net
proceeds from the offering of any other securities included in such offering
(before deducting expenses) received by the Company bears to the amount by which
the total net proceeds from the offering of Registrable Securities (before
deducting expenses) received by the Holders of the Registrable Securities with
respect to such offering exceeds the purchase price paid to the Company in
respect of the Registrable Securities, and in each case the net proceeds
received from such offering shall be determined as set forth in the disclosure
document. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Holders of the Registrable Securities, the intent
of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Holders of the Registrable Securities agree that it would not be just and
equitable if contribution pursuant to this Section were to be determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to herein. Notwithstanding
anything to the contrary contained herein, the Company and the Holders of
Registrable Securities agree that any contribution required to be made by any
Holder pursuant to this Section 7.06(e) shall not exceed the net proceeds from
the offering of Registrable Securities (before deducting expenses) received by
such Holder with respect to such offering. For purposes of this Section, each
Person, if any, who controls a Holder of Registrable Securities or an
underwriter within the
35
<PAGE>
meaning of Section 15 of the Securities Act shall have the same rights to
contribution as such Holder or underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as the Company.
7.07. Rule 144. At all times after a public offering of any of the
Company's securities, the Company agrees that it will file in a timely manner
all reports required to be filed by it pursuant to the Exchange Act, and, if at
any time the Company is not required to file such reports, it will make
available to the public, to the extent required to permit the sale of Shares by
any Holder of Registrable Securities pursuant to Rule 144 under the Securities
Act, current information about itself and its activities as contemplated by Rule
144 under the Securities Act, as such Rule may be amended from time to time.
Notwithstanding the foregoing, the Company may deregister any class of its
equity securities under Section 12 of the Exchange Act or suspend its duty to
file reports with respect to any class of its securities pursuant to Section
15(d) of the Exchange Act if it is then permitted to do so pursuant to the
Exchange Act and the rules and regulations thereunder.
8. RIGHT OF FIRST OFFER
8.01. Right of First Offer. Before the Company shall issue, sell or
exchange, agree or obligate itself to issue, sell or exchange, or reserve or set
aside for issuance, sale or exchange, any (a) shares of Common Stock, (b) any
other equity security of the Company, including without limitation, shares of
Preferred Stock, (c) any convertible debt security of the Company including
without limitation, any debt security which by its terms is convertible into or
exchangeable for any equity security of the Company, (d) any security of the
Company that is a combination of debt and equity, or (e) any option, warrant or
other right to subscribe for, purchase or otherwise acquire any such equity
security or any such debt security of the Company, the Company shall, in each
case, first offer to sell such securities (the "Offered Securities") to those
Purchasers then holding capital stock of the Company (the "Offerees") as
follows: the Company shall offer to sell to each Offeree (x) an amount of the
Offered Securities (the "Basic Amount") sufficient to allow each Offeree to
maintain a proportional interest in the Company equal to a fraction, (i) the
numerator of which is the number of shares of Common Stock (including for the
purposes of such calculation the number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock or upon conversion or exercise of
other securities or options of the Company) then held by such Offeree and (ii)
the denominator of which is the total number of shares of Common Stock issued
and outstanding and the number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock or upon the conversion or exercise of
other securities or options of the Company, determined immediately prior to the
issue, sale or exchange of the Offered Securities, and (y) such additional
portion of the Offered Securities as such Offeree shall indicate it will
purchase should the other Offerees subscribe for less than their Basic Amounts
(the "Undersubscription Amount"), at a price and on such other terms
36
<PAGE>
as applicable to such issuance, sale or exchange of Offered Securities. Such
terms and price, and the Offerees' respective Basic Amounts, shall be specified
by the Company in writing delivered to the Offerees (the "Offer"), which Offer
by its terms shall remain open and irrevocable for a period of 30 days from
receipt of the Offer
8.02. Notice of Acceptance. Notice of each Offeree's intention to accept,
in whole or in part, any Offer made pursuant to Section 8.01 shall be evidenced
by a writing signed by such Offeree and delivered to the Company prior to the
end of the 30-day period of such offer, setting forth such of the Offeree's
Basic Amount as such Offeree elects to purchase and, if such Offeree shall elect
to purchase all of its Basic Amount, such Undersubscription Amount as such
Offeree shall elect to purchase (the "Notice of Acceptance"). If the Basic
Amounts subscribed for by all Offerees are less than the total Offered
Securities, then each Offeree who has set forth Undersubscription Amounts in its
Notice of Acceptance shall be entitled to purchase, in addition to the Basic
Amounts subscribed for, all Undersubscription Amounts it has subscribed for;
provided, however, that should the Undersubscription Amounts subscribed for
exceed the difference between the Offered Securities and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each Offeree who has
subscribed for any Undersubscription Amount shall purchase only that portion of
the Available Undersubscription Amount as the Undersubscription Amount
subscribed for by such Offeree bears to the total Undersubscription Amounts
subscribed for by all Offerees, subject to rounding by the Board of Directors to
the extent it reasonably deems necessary.
8.03. Conditions to Acceptances and Purchase.
(a) Permitted Sales of Refused Securities. In the event that Notices of
Acceptance are not given by the Offerees in respect of all the Offered
Securities, the Company shall have 90 days from the expiration of the 30-day
period set forth in Section 8.01 to sell all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by the Offerees
(the "Refused Securities") to any Person or Persons, but only for cash and
otherwise in all respects upon terms and conditions, including, without
limitation, unit price and interest rates, which are no more favorable, in the
aggregate, to such other Person or Persons or less favorable to the Company than
those set forth in the Offer.
(b) Reduction in Amount of Offered Securities. In the event the Company
shall propose to sell less than all the Offered Securities (any such sale to be
in the manner and on the terms specified in Section 8.03(a) above), then each
Offeree shall have the right, but not the obligation, to reduce the number of
shares or other units of the Offered Securities specified in its respective
Notice of Acceptance to an amount which shall be not less than the amount of the
Offered Securities which such Offeree elected to purchase pursuant to Section
8.02 multiplied by a fraction, (i) the numerator of which shall be the amount of
Offered Securities which the Company actually proposes to sell, and (ii) the
denominator of which shall be the amount of all Offered Securities. In the event
that any Offeree so elects to reduce the number or
37
<PAGE>
amount of Offered Securities specified in its respective Notice of Acceptance,
the Company may not sell or otherwise dispose of more than the reduced amount of
the Offered Securities until such securities have again been offered to the
Offerees in accordance with Section 8.01.
(c) Closing. Upon the closing, which shall include full payment to the
Company, of the sale to such other Person or Persons of all or less than all the
Refused Securities, the Offerees shall purchase from the Company, and the
Company shall sell to the Offerees, the number of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 8.03(b) if the
Offerees have so elected, upon the terms and conditions specified in the Offer.
The purchase by the Offerees of any Offered Securities is subject in all cases
to the preparation, execution and delivery by the Company and the Offerees of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Offerees and their respective counsel.
8.04. Further Sale. In each case, any Offered Securities not purchased by
the Offerees or other Person or Persons in accordance with Section 8.03 may not
be sold or otherwise issued until they are again offered to the Offerees under
the procedures specified in Sections 8.01, 8.02 and 8.03.
8.05. Offer Participation Requirement. The rights of each Offeree under
this Section 8 shall not be afforded to such Offeree with respect to any Offer
occurring subsequent to any Offer in which such Offeree has failed to purchase
its Basic Amount so long as such Offeree shall have been afforded the right to
participate in such prior Offer to the extent of its Basic Amount and shall have
not waived its right to participate at the request of the Company.
8.06. Termination and Waiver of Right of First Offer. The rights of the
Offerees under this Section 8 shall terminate immediately prior to the
effectiveness of the Registration Statement with respect to a Qualified Public
Offering, but expressly conditioned on the consummation of a Qualified Public
Offering.
8.07. Exception. The rights of the Offerees under this Section 8 shall not
apply to the following: (a) Common Stock issued as a stock dividend to holders
of Common Stock or upon any subdivision or combination of shares of Common
Stock; (b) Series A Preferred Stock issued upon any subdivision or combination
of shares of Series A Preferred Stock; (c) Special Preferred Stock (Northern
California Division) issued upon any subdivision or combination of shares of
Special Preferred Stock (Northern California Division); (d) Series B Preferred
Stock issued as a dividend to Holders of Series B Preferred Stock or upon any
subdivision or combination of Series B Preferred Stock; (e) the Conversion
Shares or shares of Common Stock issuable upon conversion of the Special
Preferred Stock (Northern California Division); (f) 350,000 shares of Common
Stock, or options exercisable therefor, issued or to be issued under the Stock
Option Plan and any additional shares required to be issued thereunder to adjust
for any stock split, stock dividend or combination of Common Stock; (g)
38
<PAGE>
252,500 shares of Common Stock issuable upon the exercise of the warrants held
by the former 14% Subordinated Debenture Holders and any additional shares
required to be issued thereunder to adjust for any stock split, stock dividend
or combination of Common Stock; (h) 500,000 shares of Common Stock issuable upon
the exercise of the warrants held or which may be obtained by Superior Bank FSB
and any additional shares required to be issued thereunder to adjust for any
stock split, stock dividend or combination of Common Stock; (i) 33,333 shares of
Common Stock issuable upon the conversion of the 12% Subordinated Debentures and
any additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock; (j) 25,000 shares of
Common Stock issuable upon the exercise of the Buscema Options and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock; (k) 109,728 shares of
Common Stock issuable upon exercise of the warrants held by George A. Naddaff
(other than as a former 14% Subordinated Debenture Holder) and any additional
shares required to be issued thereunder to adjust for any stock split, stock
dividend or combination of Common Stock; (l) 25,000 shares of Common Stock
issuable upon the exercise of the Schindler Options any additional shares
required to be issued thereunder to adjust for any stock split, stock dividend
or combination of Common Stock; (m) 28,242 shares of Common Stock issuable upon
the exercise of the Raymond James Warrants and any additional shares required to
be issued thereunder to adjust for any stock split, stock dividend or
combination of Common Stock; and (n) 22,727 shares of Common Stock issuable to
George A. Naddaff as compensation for services performed pursuant to the Letter
Agreement, dated November 16, 1995 between George A. Naddaff and the Company.
9. DEFINITIONS AND ACCOUNTING TERMS
9.01. Certain Defined Terms. As used in this Agreement, the following
terms Shall have the following meanings:
"12% Subordinated Debenture Holders" shall mean any holder of the 12%
Subordinated Debentures.
"12% Subordinated Debentures" shall mean the 12% Convertible
Subordinated Debentures issued by the Company, maturing on May 1, 1999.
"14% Subordinated Debenture Holders" shall mean any holder of the 14%
Subordinated Debentures.
"14% Subordinated Debentures" shall mean the 14% Subordinated
Debentures, issued by the Company maturing on September 30, 1997.
"Affiliate" shall mean any employee, consultant, officer or director of
the Company or any Subsidiary or Holder of five percent (5%) or more of any
class of capital stock of the Company or any Subsidiary, or any member of their
respective immediate families or any corporation or other entity directly or
indirectly controlled
39
<PAGE>
by one or more of such employees, consultants, officers, directors or 5%
stockholders or members of their immediate families.
"Agreement" shall mean this Series B Preferred Stock Purchase Agreement,
including all amendments, modifications or supplements thereto.
"Applicable Conversion Value" shall have the meaning assigned to such term
in the Articles of Amendment.
"Articles of Amendment" shall have the meaning assigned to such term in
Section 4.07.
"Articles of Incorporation" shall mean the Articles of Incorporation of the
Company, including all amendments, modifications or supplements thereto.
"Available Undersubscription Amount" shall have the meaning assigned to
such term in Section 8.02.
"Basic Amount" shall have the meaning assigned to such term in Section
8.01.
"Board of Directors" shall mean the board of directors of the Company as
constituted from time to time.
"Buscema Options" shall have the meaning assigned to such term in Section
2.03.
"Business Day" shall mean any day except a Saturday, Sunday or other day on
which commercial banks in the States of New York and Florida are authorized by
law or executive order to close.
"Business Plan" shall mean, collectively, the Investment Memorandum dated
February, 1996 and the Three Year Forecast for FY1996, 1997 and 1998 dated
February 16, 1996.
"Bylaws" shall have the meaning assigned to such term in Section 4.08.
"Canaan Funds" shall mean each of Canaan Capital Limited Partnership, a
Delaware limited partnership, and Canaan Capital Offshore Limited Partnership,
C.V., a Netherlands Antilles limited partnership, or their successors and
assigns.
"CFR" shall mean the United States Code of Federal Regulations.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act or Exchange Act.
40
<PAGE>
"Common Stock" shall mean (a) the Company's Common Stock, $.01 par value,
as authorized on the date of this Agreement, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or after the
date hereof, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies or in the absence of any provision to the contrary in
the Articles of Incorporation, be entitled to vote for the election of a
majority of directors of the Company (even though the right so to vote has been
suspended by the happening of such a contingency or provision), and (c) any
other securities into which or for which any of the securities described in (a)
or (b) may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Company" shall have the meaning assigned to such term in the introductory
sentence hereof.
"Controlled Business Arrangement" shall mean any joint venture or similar
agreement or arrangement between the Company and any other Person pursuant to
which the Company provides technical support, financing or other assistance to
such arrangement.
"Conversion Shares" shall have the meaning assigned to such term in Section
1.02.
"Demand Registration" shall have the meaning assigned to such term in
Section 7.01(a).
"Disadvantageous Condition" shall have the meaning assigned to such term in
Section 7.01(a).
"Dominion" shall mean Dominion Fund III, a California limited partnership,
or their successors and assigns.
"Effective" shall mean that all requirements under the Securities Act with
respect to a Registration Statement have been satisfied and that the Commission
has officially approved the public distribution or circulation of the
Registration Statement in connection with a public offering of Registrable
Securities.
"Effective Date" shall mean the date on which a Registration Statement is
declared to be Effective.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
41
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated pursuant thereto.
"Existing Subordinated Indebtedness" shall mean the Indebtedness of the
Company identified as such on Schedule 2.08 and as in effect on the Funding
Date.
"Form S-3" shall mean such form under the Securities Act as in effect on
the date hereof or any registration form under the Securities Act subsequently
adopted by the Commission that similarly permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the Commission.
"Founders" shall mean Werner Capital Corporation, Paula Ann Levine,
Jennifer Lyn Levine, Sheri Beth Levine, Alfons Van Wijk, Stephen I. Bloom, Chris
Anderson, Harvey Birdman, Harris C. Friedman, Marjorie Friedman, Kenneth A.
Friedman and Nona R. Friedman.
"Funding" shall have the meaning assigned to such term in Section 1.03.
"Funding Date" shall have the meaning assigned to such term in Section
1.03.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time, applied on a basis consistent
with those used in the preparation of the financial statements referred to in
Section 2.06 (except for changes concurred in by the independent public
accountants to the Company and the Subsidiaries).
"Holder" shall mean any Purchaser owning Registrable Securities to whom
rights of a Holder under Section 7 of this Agreement have been transferred in
accordance with Section 11.05.
"Indebtedness" shall mean (a) any liability for borrowed money or evidenced
by a note or similar obligation given in connection with the acquisition of any
property or other assets (other than trade accounts payable incurred in the
ordinary course of business); (b) all guaranties, endorsements and other
contingent obligations, in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business, and
(c) the present value of any lease payments due under leases required to be
capitalized in accordance with GAAP.
"Indemnified party" shall have the meaning given such term in Section
10.02.
"Independent Division" shall mean any division of the Company or any
Subsidiary which is organized or operated pursuant to an agreement with any
other
42
<PAGE>
Person or Persons which grants such Person or Persons an ownership interest in
or other claim to the assets, revenue or value of such Division.
"Initial Public Offering" shall mean the first offering for sale of Common
Stock for the account of the Company or for the account of any holder of
securities that has Registration Rights pursuant to an Effective Registration
Statement.
"Initiating Holders" shall have the meaning given such term in Section
7.01(a).
"Inspectors" shall have the meaning given such term in Section 7.05(i).
"Interim Series B Holder" shall mean any holder of then outstanding shares
of Interim Series B Preferred Stock.
"Interim Series B Preferred Stock" shall mean the Shares of Preferred Stock
designated Interim Series B Preferred Stock.
"Key Employee" shall mean and includes the Chairman, President, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, any
executive officer of the Company or any Subsidiary with policy-making functions
including, without limitation, the head of each Subsidiary, or any other
individual so designated by the Board of Directors, and in any event shall be
deemed to include Seth S. Werner, Harris C. Friedman, John Buscema and John E.
Tomko.
"Margin Stock" means "margin stock" within the meaning of any regulation,
interpretation or ruling of the Board of Governors of the Federal Reserve
System, all as from time to time in effect.
"Mason-McDuffie" shall mean Mason-McDuffie Real Estate, Inc., a California
corporation.
"Mason-McDuffie Registration Rights Agreement" shall mean the Registration
Rights Agreement dated as of March 15, 1996 between the Company and
Mason-McDuffie.
"Material Adverse Effect" shall mean any material adverse effect on (a) the
business, profits, properties or condition of the Company and the Subsidiaries,
taken as a whole, (b) the ability of the Company to perform its obligations
under the Agreement or any Related Agreement and (c) the binding nature,
validity or enforceability of this Agreement or any Related Agreement, which, in
each case, arises from, or reasonably could be expected to arise from, any
action or omission of action on the part of the Company or any Subsidiary or the
occurrence of any event or the existence of any fact or condition in respect of
the Company or any Subsidiary or any of their respective properties.
43
<PAGE>
"Merger" shall mean the merger of WAM with and into the Company
pursuant to the terms of the Merger Agreement.
"Merger Agreement" shall mean the Agreement and Plan of Merger dated as
of March 15, 1996 among the Company, WAM and Mason-McDuffie, including all
schedules, exhibits, annexes and amendments thereto, all waivers relating
thereto and all other side letter agreements affecting the terms thereof.
"Merger Documents" shall mean, collectively, (a) the Merger Agreement,
(b) the Articles of Amendment creating the Special Preferred Stock (Northern
California Division), (c) the Unsecured Indemnity Agreement dated as of March
15, 1996 between the Company and Mason-McDuffie, (d) the Trademark License
Agreement dated as of March 15, 1996 between the Company and Mason-McDuffie, (e)
the Rental and Services Agreement dated as of March 15, 1996 between the Company
and Mason-McDuffie, (f) the Mason-McDuffie Registration Rights Agreement, (g)
the Articles of Merger of the Company and (h) each of the other agreements and
instruments to be executed pursuant to the terms of each such Merger Document.
"Multiemployer Plan" shall have the meaning given such term is Section
2.13.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations System.
"Noncompetition Agreement" shall have the meaning assigned to such term
in Section 4.12.
"Notice of Acceptance" shall have the meaning assigned to that term in
Section 8.02.
"Offer" shall have the meaning assigned to such term in Section 8.01.
"Offered Securities" shall have the meaning assigned to such term in
Section 8.01.
"Offerees" shall have the meaning assigned to such term in Section
8.01.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, university, or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Plans" shall have the meaning assigned to such term in Section 2.13.
"PORTAL" shall have the meaning assigned to such term in Section 5.13.
44
<PAGE>
"Preferred Shares" shall have the meaning assigned to such term in Section
1.01.
"Preferred Stock" shall have the meaning assigned to such term in Section
1.01.
"Proprietary Rights" means all of the following along with all income,
royalties, damages and payments thereon (including damages and payments for past
or future infringements or misappropriations thereof), the rights to sue and
recover for past infringements and misappropriations thereof and any and all
corresponding rights that, now or hereafter, may be secured throughout the
world: (i) patents, patent applications, patent disclosures and inventions
(whether or not patentable and whether or not reduced to practice) and any
reissues, continuations, continuations-in-part, revisions, extensions or
reexaminations thereof; (ii) trademarks, service marks, trade dress, trade names
and corporate names and registrations, renewals and applications for
registration thereof, together with the goodwill associated therewith; (iii)
copyrights and copyrightable works and registrations, renewals and applications
for registration thereof; (iv) mask works and registrations and applications for
registration thereof; (v) computer software (including all databases, data and
documentation); (vi) trade secrets and other confidential information (including
ideas, formulas, compositions, inventions, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial and marketing plans and customer and supplier
lists and information), (vii) other intellectual property rights; and (viii)
copies and tangible embodiments thereof (in whatever form or medium).
"Purchaser" shall have the meaning assigned to such term in Section 1.01
and shall include the original Purchaser and any Holder of the Shares.
"Qualified Public Offering" shall mean a fully underwritten, firm
commitment public offering pursuant to an Effective Registration Statement filed
under the Securities Act of 1933, as amended, covering the offer and sale by the
Company of shares of its Common Stock in which the aggregate price paid by the
public for such shares shall equal or exceed $20,000,000 and in which the price
per share of Common Stock to the public equals or exceeds 300% of the then
Applicable Conversion Value applicable to the Series B Preferred Stock.
"Raymond James Warrants" shall have the meaning assigned to that term in
Section 2.03.
"Records" shall have the meaning assigned to that term in Section 7.05(i).
"Refused Securities" shall have the meaning assigned to that term in
Section 8.03(a).
45
<PAGE>
"Stock Option Plan" shall mean any qualified or non-qualified incentive
stock option plan of the Company which is adopted by the Board of Directors,
including all amendments, supplements or modifications thereto.
"Subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries.
"Superior Bank Purchase and Sale Agreement" shall mean that certain
Purchase and Sale Agreement dated as of April 28, 1995 between the Company and
Superior Bank FSB, including all schedules, exhibits, annexes and amendments
thereto, all waivers relating thereto and all other side letter agreements
affecting the terms thereof.
"Undersubscription Amount" shall have the meaning assigned to such term in
Section 8.01.
"Voting Agreement" shall have the meaning assigned to such term in Section
4.11.
"WAM" shall mean Western America Mortgage, a California corporation.
"Warehouse Lines of Credit" shall mean collectively the lines of credit of
the Company with (i) Residential Funding Corporation pursuant to that certain
Warehousing Credit and Security Agreement dated as of April 8, 1994, as amended
by that certain First Amendment to Warehousing Credit and Security Agreement and
as further amended by that certain Second Amendment to Warehousing Credit and
Security Agreement dated as of October 26, 1995, and (ii) Superior Bank FSB
pursuant to that certain Master Purchase Agreement dated as of August 14, 1995.
9.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistently applied, and all
financial data submitted pursuant to this Agreement, unless otherwise specified,
shall be prepared in accordance with GAAP.
10. INDEMNIFICATION
10.01. General Indemnity. The Company agrees to indemnify and save harmless
the Purchasers and their respective directors, officers, affiliates, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable
attorneys' fees, charges and disbursements) incurred by the Purchasers as a
result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein or in any of the Related Agreements. Each
Purchaser severally but not jointly
48
<PAGE>
agrees to indemnify and save harmless the Company and its directors, officers,
affiliates, successors and assigns from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
any such Person as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Purchasers herein.
10.02. Indemnification Procedure. Any party entitled to indemnification
under this Section 10 (an "indemnified party") will give written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
promptly after the discovery by such party of any matters giving rise to a claim
for indemnification; provided that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 10 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In any action, proceeding or claim which is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party exists in respect of such action, proceeding or
claim, to assume the defense thereof, with counsel reasonable satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim(or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action, proceeding or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the indemnified party which relates to such action,
proceeding or claim. The indemnifying party shall keep the indemnified party
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action, proceeding or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. Anything in the Section 10 to the contrary
notwithstanding, the indemnifying party shall not, without the indemnified
party's prior written consent, settle or compromise any claim or consent to
entry of any judgement in respect thereof which imposes any future obligation on
the indemnified party or which does not include, as an
49
<PAGE>
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party, a release from all liability in respect of such claim. The
indemnification required by this Section 10 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred. The
indemnity agreements contained herein shall be in addition to (a) any cause of
action or similar right of the indemnified party against the indemnifying party
or others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.
11. MISCELLANEOUS
11.01. No Waiver: Cumulative Remedies. No failure or delay on the part of
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
11.02. Amendments. Waivers and Consents. Any provision in the Agreement to
the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement or any Related
Agreement may be made, and compliance with any covenant or provision set forth
herein may be omitted or waived, if the Company (a) shall obtain consent thereto
in writing from the Holders of at least a majority of the then outstanding
Shares determined on an "as if converted" basis), and (b) shall deliver copies
of such consent in writing to any Holders who did not execute such consent;
provided, that no consents shall be effective to reduce the percentage in
interest of the Shares the consent of the Holders of which is required under
this Section 11.02. Any waiver or consent may be given subject to satisfaction
of conditions stated therein and any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
11.03. Addresses for Notices. Any notice, demand, request, waiver or other
communication under this Agreement or any Related Agreement shall be in writing
and shall be deemed to have been duly given on the date of service if personally
served or on the third day after mailing if mailed to the party to whom notice
is to be given, by first class mail, registered, return receipt requested,
postage prepaid and addressed as follows:
To the Company: First Mortgage Network, Inc.
150 S. Pine Island Road, Suite 500
Plantation, Florida 33324
Attention: Seth S. Werner
50
<PAGE>
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, FL 32202
Attention: Luther F. Sadler, Esq.
To any Purchaser: At its address specified on Schedule
1.01 hereto
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, Connecticut 06103
Attn: Edward A. Reilly, Jr., Esq.
A party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change will
be deemed to have been given until it is actually received by the party sought
to be charged with its contents.
11.04. Costs, Expenses, and Taxes. As a condition precedent to the
Funding, the Company agrees to pay at the Funding in connection with the
preparation, execution and delivery of the Agreement and the Related Agreements
and the issuance of the Preferred Shares at the Closing, the reasonable fees and
other out-of-pocket expenses of Messrs. LeBoeuf, Lamb, Greene & MacRae, L.L.P.,
which shall not exceed $40,000.00 and the reasonable fees and out-of-pocket
expenses of Messrs. Wilson, Sonsini, Goodrich & Rosati, which shall not exceed
$10,000. In addition, the Company shall pay the reasonable fees and
out-of-pocket expenses of legal counsel, independent public accountants,
consultants and other outside experts retained by the Purchasers in connection
with any amendment or waiver to this Agreement or any Related Agreement or the
successful enforcement of this Agreement or any Related Agreement by the
Purchasers. In addition, the Company shall pay any and all stamp, or other
similar taxes payable or determined to be payable in connection with the
execution and delivery of the Agreement, the issuance of the Shares and the
other instruments and documents to be delivered hereunder or thereunder, and
agrees to save the Purchasers harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes.
11.05. Binding Effect; Assignment. This Agreement and each Related
Agreement to which it is a party shall be binding upon and inure to the benefit
of each of the Company and the Purchasers and their respective heirs, successors
and assigns, except that the Company shall not have the right to delegate its
obligations hereunder or to assign its rights hereunder or any interest herein
without the prior written consent of the Holders of at least a majority of the
then outstanding Shares (determined on an "as if converted" basis.)
51
<PAGE>
11.06. Survival of Representations and Warranties. All representations and
warranties made in this Agreement, each Related Agreement, the Shares, or any
other instrument or document delivered in connection herewith or therewith,
shall survive the execution and delivery hereof or thereof.
1 1.07. Prior Agreements. This Agreement, each Related Agreement, the terms
of the Series B Preferred Stock, and the other agreements executed and delivered
herewith constitute the entire agreement between the parties and supersede any
prior understandings or agreements concerning the subject matter hereof.
11.08. Severability. The provisions of this Agreement, each Related
Agreement and the terms of the Series B Preferred Stock are severable and, in
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of a provision contained in this Agreement,
any Related Agreement or the terms of the Series B Preferred Stock shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement, any Related Agreement or the terms of
the Series B Preferred Stock; but this Agreement, each Related Agreement and the
terms of the Series B Preferred Stock shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of a provision, had never
been contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
11.09. Confidentiality. Each Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Purchaser may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
such Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder, unless such information is known, or until
such information becomes known, to the public; provided, however, that a
Purchaser may disclose such information (a) on a confidential basis to its
attorneys, accountants, consultants and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (b) to any prospective purchaser of any Preferred Shares or Conversion
Shares from such Purchaser as long as such prospective purchaser agrees in
writing to be bound by the provisions of this Section 11.09, (c) to any entity
controlling, controlled by or under common control with such Purchaser, or to
any partner or stockholder of a Purchaser which is a partnership or corporation,
or (d) as required by applicable law.
11.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND WITHOUT GIVING
EFFECT TO CHOICE OF LAW PROVISIONS.
52
<PAGE>
11.11. Headings. Article, section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
11.12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.13. Further Assurances. From and after the date of this Agreement, upon
the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, each Related
Agreement and the Shares.
11.14. Waiver. At any time prior to the Funding Date, any party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of any other party hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the party
granting such waiver but such waiver or failure to insist upon strict compliance
with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or future failure.
11.15. Specific Enforcement. Each of the Purchasers and the Company
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement and each Related Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement, each
Related Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which they may be entitled at law or
equity.
53
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
FIRST MORTGAGE NETWORK, INC.
By: /s/ Seth Werner
------------------------
Name: Seth Werner
Title: Chairman & CEO
[SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
PURCHASERS:
CANAAN CAPITAL LIMITED PARTNERSHIP
By: Canaan Capital Management L.P.
By: Canaan Capital Partners L.P.
By: /s/
-------------------------------
General Partner
CANAAN CAPITAL OFFSHORE LIMITED
PARTNERSHIP C.V.
By: Canaan Capital Management L.P.
By: Canaan Capital Partners L.P.
By: /s/
-------------------------------
General Partner
DOMINION VENTURES, INC.
By: /s/ Michael K. Lee
-------------------------------
Name: Michael K. Lee
Title: Managing General Partner
[SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
PURSUANT TO THE PROVISIONS OF SUBSECTION 517.061(11)(A)(5) OF THE FLORIDA
SECURITIES AND INVESTOR PROTECTION ACT, WHEN PURCHASES ARE MADE BY FIVE OR MORE
PERSONS IN THE STATE OF FLORIDA, THE PURCHASE OF A SECURITY BY A FLORIDA
RESIDENT IS VOIDABLE AT THE PURCHASER'S OPTION FOR A PERIOD OF THREE DAYS AFTER
THE FIRST TENDER (PAYMENT) OR CONSIDERATION IS MADE BY THE PURCHASER TO THE
ISSUER AND THE PURCHASER MAY EXERCISE THIS RIGHT TO REVOKE AND RESCIND HIS OR
HER PURCHASE OF SHARES BY GIVING WRITTEN NOTICE OF REVOCATION TO THE COMPANY
DURING SUCH PERIOD.
-----------------------------------
Harvey Birdman
-----------------------------------
Diane Birdman
/s/ Abby Kaplan
-----------------------------------
Abby Kaplan
/s/ Alyne Kaplan
-----------------------------------
Alyne Kaplan
CITYSCAPE FINANCIAL CORP.
By:
-------------------------------
Name:
Title:
DAVID SHAPIRO PROFIT SHARING TRUST
DATED DECEMBER 9, 1983
By: /s/ David Shapiro
-------------------------------
Name: David Shapiro
Title:
/s/ Steven V. Gurland
-----------------------------------
Steven V. Gurland
[SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
PURSUANT TO THE PROVISIONS OF SUBSECTION 517.061(11)(A)(5) OF THE FLORIDA
SECURITIES AND INVESTOR PROTECTION ACT, WHEN PURCHASES ARE MADE BY FIVE OR MORE
PERSONS IN THE STATE OF FLORIDA, THE PURCHASE OF A SECURITY BY A FLORIDA
RESIDENT IS VOIDABLE AT THE PURCHASER'S OPTION FOR A PERIOD OF THREE DAYS AFTER
THE FIRST TENDER (PAYMENT) OR CONSIDERATION IS MADE BY THE PURCHASER TO THE
ISSUER AND THE PURCHASER MAY EXERCISE THIS RIGHT TO REVOKE AND RESCIND HIS OR
HER PURCHASE OF SHARES BY GIVING WRITTEN NOTICE OF REVOCATION TO THE COMPANY
DURING SUCH PERIOD.
/s/ Thomas James c
-----------------------------------
Thomas James Thomas Trustee
UA DTD 12/30/76
MB for Thomas A. James
/s/ Alan H. Potamkin
-----------------------------------
Alan H. Potamkin
SEGAL FAMILY PARTNERS, LTD.
By:
-------------------------------
Name:
Title:
/s/ George A. Naddaff
-----------------------------------
George A. Naddaff
/s/ Lawrence O. Turner
-----------------------------------
Lawrence O. Turner
/s/ Roberta B. Turner
-----------------------------------
Roberta B. Turner
/s/ Barry Goodman
-----------------------------------
Barry Goodman
/s/ Wendy Goodman
-----------------------------------
Wendy Goodman
/s/ Preston H. Haskell
-----------------------------------
Preston H. Haskell
[SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
MEGO FINANCIAL CORP.
By:
-------------------------------
Name:
Title:
THE HAMILTON COMPANIES, LLC
By: /s/
-------------------------------
Name:
Title: Manager
PURSUANT TO THE PROVISIONS OF SUBSECTION 517.061(11)(A)(5) OF THE FLORIDA
SECURITIES AND INVESTOR PROTECTION ACT, WHEN PURCHASES ARE MADE BY FIVE OR MORE
PERSONS IN THE STATE OF FLORIDA, THE PURCHASE OF A SECURITY BY A FLORIDA
RESIDENT IS VOIDABLE AT THE PURCHASER'S OPTION FOR A PERIOD OF THREE DAYS AFTER
THE FIRST TENDER (PAYMENT) OR CONSIDERATION IS MADE BY THE PURCHASER TO THE
ISSUER AND THE PURCHASER MAY EXERCISE THIS RIGHT TO REVOKE AND RESCIND HIS OR
HER PURCHASE OF SHARES BY GIVING WRITTEN NOTICE OF REVOCATION TO THE COMPANY
DURING SUCH PERIOD.
[SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
Ex-4.7(a)
FIRST AMENDMENT TO SERIES B PURCHASE AGREEMENT (this "Amendment"), dated
as of August 31, 1997, by and among First Mortgage Network, Inc., a Florida
corporation (the "Company"); each of the persons listed as "Original Purchasers"
on the signature pages to this Agreement (individually an "Original Purchaser"
and collectively the "Original Purchasers"); and Canaan Ventures II Limited
Partnership, Canaan Ventures II Offshore C.V. and Canaan Equity L.P. (the "New
Purchasers")
WHEREAS, the Company, and each of the Original Purchasers are parties to
that certain Series B Preferred Stock Purchase Agreement, dated as of March 29,
1996 (the "Series B Purchase Agreement"); and
WHEREAS, pursuant to the Series B Purchase Agreement, the Original
Purchasers (as parties thereto) are granted certain rights, including, without
limitation, (a) the right to require the Company to register certain securities
of the Company held by them under the Securities Act, and (b) certain preemptive
rights to purchase a sufficient number of shares in certain equity issuances by
the Company to maintain their proportionate share in the Company; and
WHEREAS, (a) the New Purchasers have acquired shares of Series C
Preferred Stock, $.01 par value of the Company (the "Series C Preferred Stock"),
pursuant to those certain Agreements for Purchase and Sale effective as of
December 24, 1996, December 31, 1996 and June 30, 1997, respectively, and (b)
pursuant to that certain $1,500,000 Note Purchase Agreement, dated as of August
31, 1997, by and among the Company and the purchasers named therein, certain of
the New Purchasers will be acquiring (i) 12% Senior Subordinated Convertible
Notes of the Company which are convertible into shares of Series C Preferred
Stock and (ii) Warrants to purchase shares of Common Stock, of the Company; and
WHEREAS, the New Purchasers are affiliates of certain of the Original
Purchasers; and
WHEREAS, the parties desire to amend the Series B Purchase Agreement in
order to grant the New Purchasers the same rights under the Series B Purchase
Agreement with respect to the securities of the Company owned or acquired by
them as they would have had if they were original parties to such Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree with each other as
follows:
1. Amendment. The Series B Purchase Agreement is hereby amended as follows:
<PAGE>
(a) Canaan Equity L.P., Canaan Ventures II Limited Partnership and Canaan
Venture II Offshore C.V. are hereby added as parties to the Agreement.
(b) The definition of the term "Purchaser" under the Series B Purchase
Agreement is hereby amended to also include any affiliate of a Purchaser which
acquires any shares of capital stock of the Company, including shares of Common
Stock issuable upon the conversion of other securities or the exercise of
options or warrants acquired by such Person.
2. Defined Terms. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Series B Purchase
Agreement.
3. Severability. If any provisions of this Amendment shall be determined to
be illegal or unenforceable by any court of law, the remaining provisions shall
be severable and this Amendment shall be reformed and construed to the maximum
extent possible in accordance with the essential purposes and intent of this
Amendment.
4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND WITHOUT GIVING
EFFECT TO CHOICE OF LAW PROVISIONS.
5. Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
6. Continuance of Terms of Series B Purchase Agreement. Except as provided
herein, the Series B Purchase Agreement, and each and every term thereof, shall
continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date and year first above written.
FIRST MORTGAGE NETWORK, INC.
By: /s/ Seth Werner
---------------------------------------
Name: Seth Werner
Title: Chairman and CEO
ORIGINAL PURCHASERS:
CANAAN CAPITAL LIMITED PARTNERSHIP
By: Canaan Capital Management L.P.
By: Canaan Capital Partners L.P.
By: /s/
---------------------------------------
General Partner
CANAAN CAPITAL OFFSHORE LIMITED PARTNERSHIP C.V.
By: Canaan Capital Management L.P.
By: Canaan Capital Partners L.P.
By: /s/
---------------------------------------
General Partner
[SIGNATURE PAGE TO FIRST AMENDMENT
TO SERIES B PURCHASE AGREEMENT]
<PAGE>
DOMINION FUND III
By: Dominion Partners III, Its General Partner
By: /s/
---------------------------------------
General Partner
-------------------------------------------
Thomas A. James Trustee UA DTD 12/30/76
MB for Thomas A. James
-------------------------------------------
Alan H. Potamkin
SEGAL FAMILY PARTNERS, LTD.
By:
---------------------------------------
Name:
Title:
-------------------------------------------
George A. Naddaff
-------------------------------------------
Lawrence O. Turner
-------------------------------------------
Roberta B. Turner
-------------------------------------------
Barry Goodman
[SIGNATURE PAGE TO FIRST AMENDMENT
TO SERIES B PURCHASE AGREEMENT]
<PAGE>
--------------------------------------------------
Harvey Birdman
--------------------------------------------------
Diane Birdman
--------------------------------------------------
Steven V. Gurland
NEW PURCHASERS:
CANAAN EQUITY L.P.
By: Canaan Equity Partners L.L.C.
By: /s/
----------------------------------------------
Manager/Member
CANAAN VENTURES II LIMITED PARTNERSHIP
By: Canaan Venture Partners II L.P.
By: /s/
----------------------------------------------
General Partner
[SIGNATURE PAGE TO FIRST AMENDMENT
TO SERIES B PURCHASE AGREEMENT]
<PAGE>
CANAAN VENTURES II OFFSHORE C.V.
By: Canaan Venture Partners II L.P.
By: /s/
---------------------------------------------
General Partner
[SIGNATURE PAGE TO FIRST AMENDMENT
TO SERIES B PURCHASE AGREEMENT]
<PAGE>
Ex-4.7(b)
SECOND AMENDMENT TO SERIES B PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO SERIES B STOCK PURCHASE AGREEMENT (this
"Amendment") is dated as of January 28, 1998, by and among First Mortgage
Network, Inc., a Florida corporation (the "Corporation"), and each of the
persons listed as "Purchasers" on the signature pages to this Amendment
(individually a "Purchaser" and collectively the "Purchasers ").
WHEREAS, the Corporation and certain of the Purchasers are parties to that
Series B Preferred Stock Purchase Agreement, dated as of March 29, 1996, as
amended by the First Amendment to Series B Purchase Agreement dated as of August
31, 1997 (the "Series B Agreement"); and
WHEREAS, the corporation is negotiating the terms of a proposed merger (the
"Merger") with RM Holdings, Inc. ("RMH"), pursuant to which Kyle E. Meyer, John
T. Rodgers and Andrew Heller, as shareholders of RMH, will receive shares of the
Corporation's common stock; and
WHEREAS, the parties hereto desire to amend the Series B Agreement,
effective upon consummation of the Merger, to add as additional parties to the
Series B Agreement, solely for purposes of providing Kyle E. Meyer, John T.
Rodgers and Andrew Heller registration rights with respect to shares of the
Company held by them;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree with each other as
follows:
1. Amendment. Upon consummation of the Merger, the Series B Agreement is
hereby amended as follows:
a. Kyle E. Meyer, John T. Rodgers and Andrew Heller are added as
parries to the Series B Agreement as "Purchasers" and "Holders," but solely
for purposes of Article 7 of the Series B Agreement, including, but not
limited to, terms defined elsewhere that are used in Article 7;
b. Section 11.03 of the Series B Agreement is amended by adding the
following names to the end thereof:
To: Kyle E. Meyer
7421 Dunquin Court
Clifton, VA 20124
Telephone: 703-631-6096
Facsimile: 703-968-3540
1
<PAGE>
To: John T. Rodgers
6323 Colchester Road
Fairfax Station, VA 22039
Telephone: 703-449-9221
Facsimile: 703-352-0199
To: Andrew Heller
8500 Leesburg Pike
Vienna, VA 22182-2409
Telephone: 703-761-9400
Facsimile: 703-761-9474
With a copy to: Brett Dixon, Esq.
Finn Dixon & Herling LLP
One Landmark Square
Stamford, CT 06901
Telephone: 203-325-5000
Facsimile: 203-325-5777
2. Defined Terms. Capitalized terms used herein not otherwise defined
herein shall have the meanings assigned to such terms in the Series B Agreement.
3. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Florida, without giving effect
to choice of law provisions.
4. Continuance of Terms of Series B Agreement. Except as provided herein,
the Series B Agreement, and each and every term thereof, shall continue in full
force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
FIRST MORTGAGE NETWORK, INC.
By: /s/ Seth S. Werner
-------------------------------------------
Seth S. Werner, Chief Executive Officer
PURCHASERS:
CANAAN CAPITAL LIMITED PARTNERSHIP
By: Canaan Capital Management L.P.
By: Canaan Capital Partners L.P.
By: /s/
---------------------------------------
General Partner
CANAAN CAPITAL OFFSHORE LIMITED PARTNERSHIP C.V.
By: Canaan Capital Management L.P.
By: Canaan Capital Partners L.P.
By: /s/
---------------------------------------
General Partner
CANAAN EQUITY, L.P.
By: Canaan Equity Partners L.L.C.
By: /s/
---------------------------------------
Name: Stephen L. Green
-------------------------------------
Title: Member/Manager
------------------------------------
3
<PAGE>
DOMINION FUND III
By: Dominion Partners III, Its General Partner
By: /s/ Michael Lee
---------------------------------------
Name: Michael K. Lee
-------------------------------------
Title: Managing General Partner
------------------------------------
-------------------------------------------
HARVEY BIRDMAN
-------------------------------------------
DIANE BIRDMAN
-------------------------------------------
STEVEN V. GURLAND
-------------------------------------------
ALAN H. POTAMPKIN
SEGAL FAMILY PARTNERS, LTD.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-------------------------------------------
LAWRENCE O. TURNER
-------------------------------------------
ROBERTA B. TURNER
4
<PAGE>
THOMAS A. JAMES TRUSTEE UA
DTD 12/30/76 MB FOR THOMAS A. JAMES
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
/s/ Kyle E. Meyer
------------------------------------------------
Kyle E. Meyer (for purposes of Article 7, the
definitions of terms referred to therein, and
Section 11.03 only)
/s/ John T. Rodgers
------------------------------------------------
John T. Rodgers (for purposes of Article 7, the
definitions of terms referred to therein, and
Section 11.03 only)
/s/ Andrew Heller
------------------------------------------------
Andrew Heller (for purposes of Article 7, the
definitions of terms referred to therein, and
Section 11.03 only)
5
<PAGE>
Ex- 4.7(c)
THIRD AMENDMENT TO SERIES B PURCHASE AGREEMENT
THIS THIRD AMENDMENT TO SERIES B STOCK PURCHASE AGREEMENT (this
"Amendment") is dated as of May 29, 1998, by and among First Mortgage Network,
Inc., a Florida corporation (the "Corporation"), and each of the persons listed
as "Purchasers" on the signature pages to this Amendment (individually a
"Purchaser" and collectively the "Purchasers").
WHEREAS, the Corporation and certain of the Purchasers are parties to that
Series B Preferred Stock Purchase Agreement, dated as of March 29, 1996, as
amended by the First Amendment to Series B Purchase Agreement dated as of August
31, 1997 and the Second Amendment to Series B Purchase Agreement dated as of
January 28, 1998 (the "Series B Agreement"); and
WHEREAS, the Corporation is negotiating the terms of a proposed Series D
Preferred Stock Purchase Agreement ("Series D Agreement"), pursuant to which
certain Purchasers will purchase shares of the Corporation's newly established
Series D Preferred Stock ("Series D Preferred Stock"), whether for cash or in
conversion of or in exchange for the Corporation's 12% Senior Subordinated
Convertible Notes due January 31, 2003 and the Corporation's 12% Convertible
Subordinated Debentures due May 1, 1999; and
WHEREAS, the parties hereto desire to amend the Series B Agreement upon
issuance of Series D Preferred Stock ("Closing") to add the Purchasers acquiring
Series D Preferred Stock as additional parties to the Series B Agreement solely
for purposes of providing them with registration rights with respect to shares
of the Company held by them and rights of first offer on subsequent issuances of
securities by the Corporation;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree with each other as
follows:
1. Amendment. Effective upon the Closing, the Series B Agreement is hereby
amended as follows:
(a) Purchasers acquiring Series D Preferred Stock are added as parties
to the Series B Agreement as "Purchasers" and as "Holders," but solely for
purposes of Article 7, Article 8 and Section 11.05 of the Series B
Agreement, including, but not limited to, terms defined elsewhere that are
used in Article 7, Article 8 and Section 11.05; and
(b) Section 11.03 of the Series B Agreement is amended by adding the
following names to the end thereof:
To: Intuit Inc.
Attention: Mr. Nand Gangwani
2550 Garcia Avenue
Mountain View, California 94039
Telephone: 650/944-2736
Facsimile: 650/944-3500
<PAGE>
With a copy to:
Robert V.W. Zipp, Esquire
Venture Law Group
2800 Sand Hill Road
Menlo Park, California 94025
Telephone: 650/854-4488
Facsimile: 650/233-8386
To:
Stephen L. Green
Canaan Partners
105 Rowayton Avenue
Rowayton, Connecticut 06853
Telephone: 203/855-0400
Facsimile: 203/854-9117
Deepak Kamra
Canaan Partners
2884 Sand Hill Road, Suite 115
Menlo Park, California 94025
Telephone: 650/854-8092
Facsimile: 650/854-8127
Gregory Kopchinsky
Canaan Partners
105 Rowayton Avenue
Rowayton, Connecticut 06853
Telephone: 203/855-0400
Facsimile: 203/854-9117
Michael Lee
Dominion Ventures, Inc.
44 Montgomery Street, Suite 4200
San Francisco, California 94104
Telephone: 415/362-4890
Facsimile: 415/394-5710
Geoffrey Woolley
Dominion Ventures, Inc.
44 Montgomery Street, Suite 4200
San Francisco, California 94104
Telephone: 415/362~4890
Facsimile: 415/394-5710
-2-
<PAGE>
Kendall Cooper
Dominion Ventures, Inc.
44 Montgomery Street, Suite 4200
San Francisco, California 94104
Telephone: 415/362-4890
Facsimile: 415/394-5710
Randy Werner
Dominion Ventures, Inc.
44 Montgomery Street, Suite 4200
San Francisco, California 94104
Telephone: 415/362-4890
Facsimile: 415/394-5710
2. Defined Terms. Capitalized terms used herein not otherwise defined
herein shall have the meanings assigned to such terms in the Series B Agreement.
3. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Florida, without giving effect
to choice of law provisions.
4. Continuance of Terms of Series B Agreement. Except as provided herein,
the Series B Agreement, and each and every term thereof, shall continue in full
force and effect.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
FIRST MORTGAGE NETWORK, INC.
By: /s/ Seth S. Werner
---------------------------------------
Seth S. Werner, Chairman and
Chief Executive Officer
SERIES B AND C PURCHASERS:
CANAAN CAPITAL LIMITED PARTNERSHIP
By: Canaan Capital Management, L.P.
By: Canaan Capital Partners L.P.
By: /s/ Stephen L. Green
---------------------------------------
General Partner
CANAAN CAPITAL OFFSHORE LIMITED PARTNERSHIP C.V.
By: Canaan Capital Management, L.P.
By: Canaan Capital Partners L.P.
By: /s/ Stephen L. Green
---------------------------------------
General Partner
CANAAN EQUITY, L.P.
By: Canaan Equity Partners L.L.C.
By: /s/ Stephen L. Green
--------------------------------------
Name: Stephen L. Green
-------------------------------------
Title: Member/Manager
------------------------------------
[SIGNATURE PAGES TO:
THIRD AMENDMENT TO SERIES
B PURCHASE AGREEMENT]
-4-
<PAGE>
CANAAN VENTURES II LIMITED PARTNERSHIP
By: Canaan Venture Partners II, L.P.
By: /s/ Stephen L. Green
---------------------------------------
Name: Stephen L. Green
-------------------------------------
Title: General Partner
------------------------------------
CANAAN VENTURES II OFFSHORE C.V.
By: Canaan Venture Partners, II L.P.
By: /s/ Stephen L. Green
---------------------------------------
Name: Stephen L. Green
-------------------------------------
Title: General Partner
------------------------------------
DOMINION FUND III
By: Dominion Partners III, Its General Partner
By: /s/ Michael K. Lee
---------------------------------------
Name: Michael K. Lee
-------------------------------------
Title: Managing General Partner
------------------------------------
-------------------------------------------
HARVEY BIRDMAN
-------------------------------------------
DIANE BIRDMAN
-------------------------------------------
STEVEN V. GURLAND
-------------------------------------------
ALAN H. POTAMKIN
[SIGNATURE PAGES TO:
THIRD AMENDMENT TO SERIES
B PURCHASE AGREEMENT]
-5-
<PAGE>
SEGAL FAMILY PARTNERS, LTD.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-------------------------------------------
LAWRENCE O. TURNER
-------------------------------------------
ROBERTA B. TURNER
THOMAS A. JAMES TRUSTEE UA
DTD 12/30/76 MB FOR THOMAS A. JAMES
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
SERIES D PURCHASERS (for purposes
of Article 7, Article 8, and Section 11.05
and the definitions of terms referred to
therein, and Section 11.03 of the Series B
Agreement only):
INTUIT INC.
By /s/
--------------------------------------------
Its SVP
-------------------
CANAAN EQUITY, L.P.
By: Canaan Equity Partners L.L.C., its
General Partner
By: /s/ Stephen L. Green
--------------------------------------------
Name: Stephen L. Green
------------------------------------------
Title: Member/Manager
-----------------------------------------
[SIGNATURE PAGES TO:
THIRD AMENDMENT TO SERIES
B PURCHASE AGREEMENT]
-6-
<PAGE>
DOMINION FUND III
By: Dominion Partners III, its
General Partner,
By: /s/ Michael K. Lee
-------------------------------
Name: Michael K. Lee
----------------------------
Title: Managing General Partner
----------------------------
/s/ Stephen L. Green
-----------------------------------
STEPHEN L. GREEN
/s/ Deepak Kamra
-----------------------------------
DEEPAK KAMRA
/s/ Gregory Kopchinsky
-----------------------------------
GREGORY KOPCHINSKY
-----------------------------------
MICHAEL LEE
/s/ Geoffrey Woolley
-----------------------------------
GEOFFREY WOOLLEY
/s/ Kendall Cooper
-----------------------------------
KENDALL COOPER
/s/ Randy Werner
-----------------------------------
RANDY WERNER
SUBORDINATED DEBENTURE HOLDERS:
MERRILL LYNCH PIERCE FENNER &
SMITH, AS CUSTODIAN FOR STEVEN
A. WERBER ROLLOVER IRA
By /s/
-----------------------------------
Its Fiancial Consultant
----------------------------
Vice President
/s/ BRIAN GENSON
-----------------------------------
BRIAN GENSON
[SIGNATURE PAGES TO:
THIRD AMENDMENT TO SERIES]
<PAGE>
/s/ John R. Squitero
-----------------------------------
JOHN R. SQUITERO
/s/ MICHAEL KLEIN
-----------------------------------
MICHAEL KLEIN
/s/ JOHN TOMLINSON
-----------------------------------
JOHN TOMLINSON
/s/ MICHAEL JOSEPHS
-----------------------------------
MICHAEL JOSEPHS
[SIGNATURE PAGES TO:
THIRD AMENDMENT TO SERIES]
<PAGE>
Ex-4.7(d)
FOURTH AMENDMENT TO SERIES B PURCHASE AGREEMENT
THIS FOURTH AMENDMENT TO SERIES B STOCK PURCHASE AGREEMENT (this
"Amendment") is dated as of August 31, 1998, by and among FIRST MORTGAGE
NETWORK, INC., a Florida corporation (the "Corporation"), and each of the
persons listed as "Purchasers" on the signature pages to this Amendment
(individually a "Purchaser" and collectively the "Purchasers).
WHEREAS, the Corporation and certain of the Purchasers are parties to that
Series B Preferred Stock Purchase Agreement, dated as of March 29, 1996, as
amended by the First Amendment to Series B Purchase Agreement dated as of August
31, 1997, the Second Amendment to Series B Purchase Agreement dated as of
January 28, 1998 and the Third Amendment to Series B Purchase Agreement dated as
of May 29, 1998 (the "Series B Agreement); and
WHEREAS, the Corporation desires to sell and certain Purchasers (the
"Additional Series D Purchasers") desire to purchase, for cash, shares of the
Corporation's Series D Preferred Stock ("Series D Preferred Stock); and
WHEREAS, the parties hereto desire to amend the Series B Agreement upon
issuance of additional Series D Preferred Stock ("Closing") to add the
Purchasers acquiring Series D Preferred Stock as additional parties to the
Series B Agreement for purposes of providing them with registration rights with
respect to shares of the Company held by them and rights of first offer on
subsequent issuances of securities by the Corporation;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree with each other as
follows:
1. Amendment. Effective upon the Closing, the Series B Agreement is hereby
amended as follows:
(a) Purchasers acquiring Series D Preferred Stock at the Closing (to the
extent they are not already "Purchasers" and "Holders") are added as parties to
the Series B Agreement as "Purchasers" and as "Holders," but solely for purposes
of Article 7, Article 8 and Section 11.05 of the Series B Agreement, including,
but not limited to, terms defined elsewhere that are used in Article 7, Article
8 and Section 11.05;
(b) Subsection (a) of Section 7.04 of the Series B Agreement is hereby
amended to delete the period at the end thereof, and to append the following:
"provided further that this Section 7.04(a) shall not apply to any
security purchased in such offering, or after such offering, on any
national securities exchange, through NASDAQ, or on or through any
comparable quotation system; and provided further that the hold back
obligations in this Section 7.04(a) shall apply only to the first such
Registration."
<PAGE>
(c) Section 11.03 of the Series B Agreement is amended by adding the
following names to the end thereof
To: TCV II,, V.O.F.
Technology Crossover Ventures II, L.P.
TCV II (Q), L.P.
TCV II Strategic Partners, L.P.
Technology Crossover Ventures II, C.V
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: C. Toms Newby
and
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
To: Eric Roach
MSDW Business Center
2 World Trade Center, 66th Floor
New York, NY 10048
2. Defined Terms. Capitalized terms used herein not otherwise defined
herein shall have the meanings assigned to such terms in the Series B Agreement.
3. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Florida, without giving effect
to choice of law provisions.
4. Continuance of Terms of Series B Agreement. Except as provided herein,
the Series B Agreement, and each and every term thereof, shall continue in full
force and effect.
5. Amendments. Neither this Agreement, nor the rights provided to the
Additional Series D Purchasers hereunder, shall be amended as to such Additional
Series D Purchasers without the consent of the holders of a majority of the
shares of Series D Preferred Stock held by such Additional Series D Purchasers.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
FIRST MORTGAGE NETWORK, INC.
By: /s/ Seth S. Werner
---------------------------------------------
Seth S. Werner, Chairman and
Chief Executive Officer
SERIES B, C AND D PURCHASERS:
CANAAN CAPITAL LIMITED PARTNERSHIP
By: Canaan Capital Management, L.P.
By: Canaan Capital Partners L.P.
By: /s/ Stephen L. Green
---------------------------------------------
General Partner
CANAAN CAPITAL OFFSHORE LIMITED PARTNERSHIP C.V.
By: Canaan Capital Management, L.P.
By: Canaan Capital Partners L.P.
By: /s/ Stephen L. Green
---------------------------------------------
General Partner
CANAAN EQUITY, L.P.
By: Canaan Equity Partners L.L.C.
By: /s/ Stephen L. Green
---------------------------------------------
Name: Stephen L. Green
-------------------------------------------
Title: Member/Manager
------------------------------------------
[Fourth Amendment to Series
B Purchase Agreement]
3
<PAGE>
CANAAN VENTURES II LIMITED PARTNERSHIP
By: Canaan Venture Partners II, L.P.
By: /s/ Stephen L. Green
----------------------------------------------
Name: Stephen L. Green
-------------------------------------------
Title: General Partner
------------------------------------------
CANAAN VENTURES II OFFSHORE C.V.
By: Canaan Venture Partners II, L.P.
By: /s/ Stephen L. Green
----------------------------------------------
Name: Stephen L. Green
-------------------------------------------
Title: General Partner
------------------------------------------
DOMINION FUND III
By: Dominion Partners III, its General Partner
By:/s/ Michael K. Lee
----------------------------------------------
Name: Michael K. Lee
-------------------------------------------
Title: Mg GP
------------------------------------------
-------------------------------------------------
HARVEY BIRDMAN
-------------------------------------------------
DIANE BIRDMAN
-------------------------------------------------
STEVEN V. GURLAND
[Fourth Amendment to Series
B Purchase Agreement]
4
<PAGE>
-------------------------------------------------
ALAN H. POTAMKIN
SEGAL FAMILY PARTNERS, LTD.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
-------------------------------------------------
LAWRENCE O. TURNER
-------------------------------------------------
ROBERTA B. TURNER
THOMAS A. JAMES TRUSTEE UA
DTD 12/30/76 MB FOR THOMAS A. JAMES
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
INTUIT INC.
By: /s/ Kristen S. Brown
---------------------------------------------
Name: Kristen S. Brown
-------------------------------------------
Title: VP of Business Development
------------------------------------------
[Fourth Amendment to Series
B Purchase Agreement]
5
<PAGE>
CANAAN EQUITY, L.P.
By: Canaan Equity Partners L.L.C., its
General Partner
By: /s/ Stephen L. Green
---------------------------------------------
Name: Stephen L. Green
-------------------------------------------
Title: Member/Manager
------------------------------------------
DOMINION FUND III
By: Dominion Partners III, its General Partner,
By: /s/ Michael K. Lee
---------------------------------------------
Name: Michael K. Lee
-------------------------------------------
Title: GP
------------------------------------------
/s/ Stephen L. Green
-------------------------------------------------
STEPHEN L. GREEN
-------------------------------------------------
DEEPAK KAMRA
-------------------------------------------------
GREGORY KOPCHINSKY
/s/ Michael K. Lee
-------------------------------------------------
MICHAEL LEE
-------------------------------------------------
GEOFFREY WOOLLEY
-------------------------------------------------
KENDALL COOPER
-------------------------------------------------
RANDY WERNER
[Fourth Amendment to Series
B Purchase Agreement]
6
<PAGE>
-------------------------------------------------
JOHN R. SQUITERO
-------------------------------------------------
JOHN TOMLINSON
-------------------------------------------------
MICHAEL JOSEPHS
-------------------------------------------------
MICHAEL KLEIN
-------------------------------------------------
BRIAN GENSON
[Fourth Amendment to Series
B Purchase Agreement]
7
<PAGE>
-------------------------------------------------
STEVEN A. WERBER
ADDITIONAL SERIES D PURCHASERS (for
purposes of Article 7, Article 8, and Section
11.05 and the definitions of terms referred to therein,
and Section 11.03 of the Series B Agreement only):
TCV II, V.O.F., a Netherlands
Antilles general partnership
By: Technology Crossover Management II, L.L.C.,
its Investment General Partner
By: RBS
---------------------------------
Robert C. Bensky, Chief
Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, L.P.,
a Delaware limited partnership
By: Technology Crossover Management II, L.L.C.,
its General Partner
By: RBS
---------------------------------
Robert C. Bensky, Chief
Financial Officer
[Fourth Amendment to Series
B Purchase Agreement]
8
<PAGE>
TCV II (Q), L.P., a Delaware limited partnership
By: Technology Crossover Management II, L.L.C.,
its General Partner
By: RBS
---------------------------------
Robert C. Bensky, Chief
Financial Officer
TCV II STRATEGIC PARTNERS, L.P.,
a Delaware limited partnership
By: Technology Crossover Management II, L.L.C.,
its General Partner
By: RBS
---------------------------------
Robert C. Bensky, Chief
Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, C.V.,
a Netherlands Antilles limited partnership
By: Technology Crossover Management II, L.L.C.,
its Investment General Partner
By: RBS
---------------------------------
Robert C. Bensky, Chief
Financial Officer
-------------------------------------------------
ERIC ROACH
[Fourth Amendment to Series
B Purchase Agreement]
9
<PAGE>
Ex-4.7(e)
FIFTH AMENDMENT TO SERIES B PURCHASE AGREEMENT
THIS FIFTH AMENDMENT TO SERIES B STOCK PURCHASE AGREEMENT (this
"Amendment") dated as of February 9, 1999, is by and among Mortgage. Com, Inc.
(formerly known as First Mortgage Network, Inc.), a Florida corporation (the
"Corporation"), and each of the persons listed as "Purchasers* on the signature
pages to this Amendment (individually a "Purchaser" and collectively, the
"Purchasers").
WHEREAS, the Corporation and the Purchasers are parties to a Series B
Preferred Stock Purchase Agreement, dated as of March 29, 1996, as amended by
the First Amendment to Series B Purchase Agreement dated as of August 31, 1997,
the Second Amendment to Series B Purchase Agreement dated as of January 28,
1998, the Third Amendment to Series B Purchase Agreement dated as of May
29, 1998, the Fourth Amendment to Series B Purchase Agreement dated as of August
31, 1998 (the "Series B Agreement"); and
WHEREAS, the parties hereto desire to amend the Series B Agreement to add
Dominion Fund IV, L.P. ("Dominion Fund IV") as an additional party to the Series
B Agreement, for purposes of providing Dominion Fund IV registration rights with
respect to shares of the Company issuable to Dominion Fund IV pursuant to
warrants dated February 9, 1999;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree with each other as
follows:
1. Amendment. The Series B Agreement is hereby amended as follows:
a. Dominion Fund IV, L.P. is added as a party to the Series B
Agreement as a "Purchaser" and as a "Holder,* solely for purposes of
Article 7 of the Series B Agreement, including, but not limited to, terms
defined elsewhere that are used in Article 7;
b. Section 11.03 of the Series B Agreement is amended by adding the
following name to the end thereof.
To: Dominion Fund IV
44 Montgomery Street, Suite 4200
San Francisco, CA 94104
2. Defined Terms. Capitalized terms used herein not otherwise defined
herein shall have the meanings assigned to such terms in the Series B Agreement.
3. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Florida, without giving effect
to choice of law provisions.
<PAGE>
4. Continuance of Terms of Series B Agreement Except as provided herein,
the Series B Agreement, and each and every term thereof, shall continue in
full force and effect
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
MORTGAGE.COM, INC.
By: /s/ John Buscema
--------------------------------
Name: John Buscema
Title: President - Technology Svcs. Grp.
DOMINION FUND IV, L.P.
By: Dominion Management IV, L.L.C., its
general partner
By:
-------------------------------
Managing Member
"Purchasers":
CANAAN CAPITAL LIMITED
PARTNERSHIP
By: Canaan Capital Management L.P.
By: Canaan Capital L.P.
By:
-------------------------------
General Partner
2
<PAGE>
CANAAN CAPITAL OFFSHORE LIMITED
PARTNERSHIP, C.V.
By: Canaan Capital Management L.P.
By: Canaan Capital Partners L.P.
By:
-------------------------------
General Partner
CANAAN EQUITY L.P.
By: Canaan Equity Partners L.L.C.
By: /s/ Stephen L. Green
-------------------------------
Name: Stephen L. Green
Title: Member/Manager
CANAAN VENTURES II LIMITED
PARTNERSHIP
By: Canaan Venture Partners II, L.P.
By:
-------------------------------
General Partner
CANAAN VENTURES II OFFSHORE C.V.
By: Canaan Venture Partners II, L.P.
By:
-------------------------------
General Partner
3
<PAGE>
DOMINION FUND III
By: Dominion Partners III, its General Partner
By:
------------------------------------------
Name:
Title:
INTUIT INC.
By: /s/ Kristen Brown
------------------------------------------
Name: Kristen Brown
Title: Vice President
Business Development Intuit Inc.
TCV II V.O.F., a Netherlands Antilles
general partnership
By: Technology Crossover Management II, L.L.C.,
its Investment General Partner
By: /s/ Robert C. Bensky
------------------------------------------
Robert C. Bensky, Chief Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, L.P.,
a Delaware limited partnership
By: Technology Crossover Management II, L.L.C.,
its General Partner
By: /s/ Robert C. Bensky
------------------------------------------
Robert C. Bensky, Chief Financial Officer
4
<PAGE>
TCV II (Q), L.P., a Delaware limited partnership
By: Technology Crossover Management II, L.L.C.,
its General Partner
By: /s/ Robert C. Bensky
------------------------------------------
Robert C. Bensky, Chief Financial Officer
TCV II STRATEGIC PARTNERS, L.P., a Delaware
limited partnership
By: Technology Crossover Management II, L.L.C.,
its General Partner
By: /s/ Robert C. Bensky
------------------------------------------
Robert C. Bensky, Chief Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, C.V.,
a Netherlands Antilles limited partnership
By: Technology Crossover Management II, L.L.C.,
its Investment General Partner
By: /s/ Robert C. Bensky
------------------------------------------
Robert C. Bensky, Chief Financial Officer
5
<PAGE>
Ex-4.7(f)
SIXTH AMENDMENT TO SERIES B PURCHASE AGREEMENT
THIS SIXTH AMENDMENT TO SERIES B STOCK PURCHASE AGREEMENT (this
"Amendment"), dated as of April 5, 1999, is by and among Mortgage. Com, Inc.
(formerly known as First Mortgage Network, Inc.), a Florida corporation (the
"Corporation"), and each of the persons listed as "Purchasers" on the signature
pages to this Amendment (individually a "Purchaser" and collectively, the
"Purchasers").
WHEREAS, the Corporation and the Purchasers are parties to a Series B
Preferred Stock Purchase Agreement, dated as of March 29, 1996, as amended by
the First Amendment to Series B Purchase Agreement dated as of August 31, 1997,
the Second Amendment to Series B Purchase Agreement dated as of January 28,
1998, the Third Amendment to Series B Purchase Agreement dated as of May 29,
1998, the Fourth Amendment to Series B Purchase Agreement dated as of August 31,
1998 and the Fifth Amendment to Series B Purchase Agreement dated as of
February 9, 1999 (the "Series B Agreement"); and
WHEREAS, the parties hereto desire to amend the Series B Agreement to add
Telebanc Capital Markets, Inc. ("Telebanc") as an additional party to the Series
B Agreement, for purposes of providing Telebanc registration rights with respect
to shares of the Company issuable to Telebanc pursuant to warrants dated on or
about April 5, 1999;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree with each other as
follows:
1. Amendment. The Series B Agreement is hereby amended as follows:
a. Telebanc Capital Markets, Inc. is added as a party to the Series B
Agreement as a "Purchaser" and as a " Holder," solely for purposes of
Article 7 of the Series B Agreement, including, but not limited to, terms
defined elsewhere that are used in Article 7;
b. Section 11.03 of the Series B Agreement is amended by adding the
following name to the end thereof
To: Telebanc Capital Markets, Inc.
1111 N. Highland Street
Arlington, VA 22201
Attn: Arlen Gelbard, Esq.
2. Defined Terms. Capitalized terms used herein not otherwise defined
herein shall have the meanings assigned to such terms in the Series B Agreement.
3. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Florida, without giving effect
to choice of law provisions.
<PAGE>
4. Continuance of Terms of Series B Agreement. Except as provided herein,
the Series B Agreement, and each and every term thereof, shall continue in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
MORTGAGE.COM, INC.
By: /s/ Seth S. Werner
--------------------------------
Seth S. Werner, President and
Chief Executive Officer
TELEBANC CAPITAL MARKETS, INC.
By: /s/ Stephen Dervenis
-------------------------------
Name: Stephen Dervenis
-----------------------------
Title: CEO-TCM
----------------------------
"Purchasers":
DOMINION FUND IV, L.P.
By: Dominion Management IV, L.L.C., its
general partner
By: /s/
-------------------------------
Managing Member
CANAAN CAPITAL LIMITED
PARTNERSHIP
By: Canaan Capital Management L.P.
By: Canaan Capital L.P.
By: /s/
-------------------------------
General Partner
2
<PAGE>
CANAAN CAPITAL OFFSHORE LIMITED
PARTNERSHIP, C.V.
By: Canaan Capital Management L.P.
By: Canaan Capital Partners L.P.
By: /s/ Stephen L. Green
-------------------------------
General Partner
CANAAN EQUITY L.P.
By: /s/ Stephen L. Green
-------------------------------
Name: Stephen L. Green
Title: Member/Manager
CANAAN VENTURES II LIMITED
PARTNERSHIP
By: Canaan Venture Partners II, L.P.
By: /s/ Stephen L. Green
-------------------------------
General Partner
CANAAN VENTURES II OFFSHORE C.V.
By: Canaan Venture Partners II, L.P.
By: /s/ Stephen L. Green
-------------------------------
General Partner
3
<PAGE>
DOMINION FUND III
By: Dominion Partners III, its General Partner
By:
------------------------------------------
Name:
Title:
INTUIT INC.
By: /s/ Kristen Brown
------------------------------------------
Name: Kristen Brown
Title: V.P., Business Development Intuit, Inc.
TCV II V.O.F., a Netherlands Antilles
general partnership
By: Technology Crossover Management II, L.L.C.,
its Investment General Partner
By: /s/ Robert C. Bensky
------------------------------------------
Robert C. Bensky, Chief Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, L.P.,
a Delaware limited partnership
By: Technology Crossover Management II, L.L.C.,
its General Partner
By: /s/ Robert C. Bensky
------------------------------------------
Robert C. Bensky, Chief Financial Officer
4
<PAGE>
TCV II (Q), L.P., a Delaware limited
partnership
By: Technology Crossover Management II, L.L.C.,
its General Partner
By: /s/ Robert C. Bensky
------------------------------------------
Robert C. Bensky, Chief Financial Officer
TCV II STRATEGIC PARTNERS, L.P., a Delaware
limited partnership
By: Technology Crossover Management II, L.L.C.,
its General Partner
By: /s/ Robert C. Bensky
------------------------------------------
Robert C. Bensky, Chief Financial Officer
TECHNOLOGY CROSSOVER VENTURES II C.V.,
a Netherlands Antilles limited partnership
By: Technology Crossover Management II, L.L.C.,
its Investment General Partner
By: /s/ Robert C. Bensky
------------------------------------------
Robert C. Bensky, Chief Financial Officer
5
Ex-10.6
PURCHASE AND SALE
AGREEMENT
The parties to this Agreement are as follows:
First Mortgage Network, Inc.("FMN"), a Florida Corporation having its
principal office in Plantation, Florida.
Morbank Financial Systems, Inc. ("MFS"), a New Jersey Corporation
having its principal office in Hackensack, NJ which is the owner of the
ParEx software used. in the mortgage banking business.
Globe Mortgage Company ("GM"), a New Jersey Corporation having its
principal office in Hackensack, NJ, which currently has an employment
contract with John Buscema.
John Buscema ("JB"), an individual residing in the state of New Jersey.
Financial Resources Group ("FRG"), a New Jersey Corporation which is
the sole shareholder of GM and MFS. In this Agreement, FRG is used to
indicate the agreement or acknowledgment of both GM and MFS.
Whereas, FMN desires to control the development of the ParEx system, and to
acquire the ownership rights to the software;
Whereas FRG desires to leave of the business of developing and maintaining a
software system, but desires to have continuous use of that system
Whereas JB desires to terminate his contractual relationship with FRG and enter
into a different employment arrangement with FMN
The parties to this Agreement have on this 7th day of April, 1995 have agreed as
follows:
1 FMN agrees, effective upon execution of this Agreement, to acquire all
ownership rights to the ParEx software (subject to the rights of FRG
specified in this Agreement) for the payment of $300,000 payable as a
prepaid credit, as described below and subject to the additional terms and
conditions described below. A listing in directory form of files that
make-up the ParEx system is attached as Exhibit D (contain all forms,
documentation, source files, screens and other files).
<PAGE>
2. FRG acknowledges that FMN is entering into an employment agreement with
JB and acknowledges that is aware of the terms, outlined in point 12, and
has no financial interest in any aspect of the compensation involved, nor
does it have any obligation to pay any part of it.
3. FMN agrees to maintain ParEx and continue with its development as CLOser,
both for processing through closing (back of the house operations) and as
a point of sale system (POS system). FMN will also assume MFS's
obligations under the license agreements as shown in Exhibit A. FRG shall
indemnify Fi\4N for any claim arising out of services performed on or
prior to this Agreement, and FMN shall indemnify FRG for any claim
arising out of services performed after the date of this Agreement.
Should there be any claim that affects both FMN and FRG, both parties
agree to share equally in the defense of the claim. FMN makes no
representations with regard to renewing, these contracts when they expire.
FRG warrants and represents that it knows of no claims from any of the
Licensees listed in Exhibit A.
FRG and FMN agree that amounts billed to the licensees for services
rendered prior to April 1, 1995 or for license fees due prior to that date
are the property of FRG, including payments under leases of software
covering periods prior to April 1, 1995. FRG represents that it has not
collected any amounts pertaining to maintenance or license fees covering
periods after April 1, 1995. FRG agrees to pay FMN any amounts collected
after this date relating to maintenance or license fees covering periods
after April 1, 1995. FRG will provide a schedule to FMN detailing the
amounts due for each client and the amount that FRG will be remit to FMN
upon collection. See Exhibit E.
4. FMN agrees to make the ParEx/CLOser system (both back of the house and
POS), including its future developments and enhancements available to
Globe for its internal use, under the terms and conditions below.
5. FMN will within 10 days of this Agreement, enter into a into a perpetual
license with GM in form patterned after the MFS and FMN license agreement
dated on January 19, 1994, which form is attached hereto as Exhibit C. The
License Agreement which is not assignable by Globe except to affiliated
companies will provide that FMN will make available and support the ParEx
system as follows:
-provide the most current version of the system, at all times to GM
including all POS capabilities, there shall be no additional charge for
new releases and enhancements other than as outlined below
-provide general technical advice on the operation of the system
-fix any bugs
-undertake custom software changes on a fee for service basis, if
requested by GM
2
<PAGE>
-develop forms or program descriptions on a fee for service basis, if
requested by GM
-carry out technical or user training on a fee for service basis, if
requested by GM
The fees for services shall be at the rates shown in Exhibit C (which are the
rates in effect between FMN and MFS under their License Agreement dated January,
1994), or if not indicated therein, then at rates that would be reasonable
and customary for software vendors in the mortgage banking business.
6. The $300,000 prepaid credit may be used by GM to pay FMN for services
described in items 5, 7, 8 & 9. Once the credit has been used, then all
services provided to GM by FMN shall be payable in cash by GM within 30
days of billing by FMN. All credits remaining on the third anniversary of
this agreement shall be canceled.
7. Initial charges for implementation and use of the system beyond the
current installation of ParEx at GM or any additional branch set ups (for
which there is no charge), shall include a one time payment of $650 for
each POS user.
8. GM agrees to pay FMN a base annual fee for the use of the software, which
fee includes payment for all enhancements and improvements to the system,
of $100,000, plus $150 per POS user. Such annual fee shall be assessed for
each year beginning with the first year which shall begin on the closing,
of the purchase transaction. The annual fees shall be due and payable on
the first day of each year, beginning with the first year, which begins on
the date of this Agreement. The annual fee shall include any loan programs
and forms developed for FMN prior to its request by GM, and up to $5,000
of services such as technical training, forms and programs requested by
GM. This annual fee shall be adjusted through negotiations between the
parties after the initial three year term.
9. GM may cancel the agreement with FMN for the use of the system, at any
time upon a minimum of 6 months written notice, in which case any unused
portion of the prepaid credit shall be canceled.
10. FMN may cancel the agreement with GM for the use of the system, upon 6
months written notice, which notice may not be given prior to 30 months
after the closing of the purchased transaction.
11. Within 30 days from this Agreement, FMN will procure the agreement of
Alliance Mortgage (AM) or another party reasonably acceptable to GM which
will agree that if the minimum 36 month terms of the agreement for the
maintenance of the ParEx/CLOser system is not completed by FMN then it
will assume the responsibility to maintain the system, in the state of
development that had been reached when FMN ceased to be able for any
reason to maintain it and support GM, will be maintained by competent
technical staff. Should this occur then for any such
3
<PAGE>
years GM will be required to pay to AM the annual fees in cash and any
outstanding unused portion of the prepaid credit with FMN will be canceled. JB
agrees to make a reasonable number of Mondays available, at current market
consulting rates, to assist in the maintenance if requested to do so.
12. JB will be the President of a division of FMN. JB's compensation will
consist of.
-an annual base salary of $1OO,000 plus MBO based bonus program for a
total of $125,000
-options at $5/share on 25,000 shares of FMN common stock
-full participation in FMN benefit programs on a comparable level with
other executives of FMN
13. JB will enter into an annually renewable employment contract with FMN,
incorporating the terms itemized in point 12 above. Either FMN or JB may
choose not to renew the contract on its anniversary. In the event that
either party decides not to renew, for the first or second annual
renewals, or FMN decides not to renew for any year thereafter, then FMN
shall be required to offer to re-acquire the stock option for either (1)
$250,000 in cash-, or (2) to give JB the non-exclusive rights to the
then existing version of the system.
14. FMN agrees to offer employment at the annual salaries indicated below to
the following individuals so they will start working with FMN on
April 10, 1995:
Name Annual Compensation
BUSCEMA, ROSALIE J. 24,670
CANDELARIA, MADELINE 28,880
PICINI, MARYBETH 35,000
SASSO, LISA M 35,420
SCOLARO, CHRIS 30,000
STEIMLE, JENNIFER A 41,700
LETIZIA, GLEN M 58,000
Employment offers must be for positions located within a 75 mile radius of
Hackensack, NJ.
15. John Buscema and FRG and GM agree to terminate their Employment Agreement
and all other agreements as of April 7, 1995 on the following terms and
conditions:
a. FRG will pay JB his weekly earnings through April 7, 1995.
b. Buscema will waive any notice or other severance under any and all
agreements with GM or FRG.
c. Buscema and FRG will execute mutual release of claims.
4
<PAGE>
16. The FMN ownership rights to the ParEx software are subject to the
following rights which FRG reserves:
a. For the six months following the date of this Agreement, FRG retain a
non-exclusive ownership interest in the ParEx software code as it exists
on the date of this Agreement, which shall be identified as the PEC. This
right which expires six months from the date of this Agreement allows FRG,
in its sole discretion, to sell or license the PEC to any 3rd party
software company. Proceeds from a sale of the software under this clause
shall be the exclusive property of FRG. In the event of such sale, FN4N
agrees to make reasonable accommodations to make its staff available for
consultation by any purchaser of the software at rates that are comparable
to those charged by software vendors for personnel of equivalent training
and experience. Notwithstanding a sale of PEC, FMN retains its ownership
interest in PEC and has the unimpeded right to develop and use it in any
way it sees fit.
b. After the initial six month period from the date of this Agreement, but
prior to the first anniversary of this Agreement, FMN has the exclusive
ownership of the ParEx software, however, FRG and FMN may seek to sell or
license the ParEx system as further developed by FMN to third party
software companies, during, this six month period only. Both FRG and FMN
must agree to any such agreement. If such agreement is entered into, then
FRG will be entitled to one-half of the profits derived from such an
agreement for a period of three years from the time such agreement was
entered into.
c. During the period after the first anniversary of this Agreement, but
prior to the third anniversary, only FN4N has the right to sell or
license, in its sole discretion, the ParEx software to a third party
software company. However, if such agreement is entered into, then FRG
will be entitled to one-quarter of the profits derived from such an
agreement, for a period of three years from the date of said agreement.
d. Any revenues received from the agreements referenced above for the
services of FMN staff shall be excluded from calculations from
calculations to determine FRG's profit participation.
e. The specific residual rights that FRG retains, and which are described
above, are the only rights retained by FRG and any and all other rights of
ownership to ParEx are vested with FMN.
17. JB hereby irrevocably grants FRG and FMN the rights to market the
ParEx software as described in 16 above, and gives up any rights that JB
may have to the software or under any agreements entered into heretofore.
GM and JB agrees to share equally any FRG royalties or net profits from
any sale of the software under 16(a) above. JB shall not receive any
proceeds received by FRG under 16(b) and 16(c).
5
<PAGE>
18. FMN agrees to pay the following bills for services and license fees
rendered through this date:
Invoice dated 4/l/95 $28,605.21
Such payments will be made within 3 days from the date hereof
19. Morbank Financial Systems, Inc.("Morbank") hereby terminates its
License Agreement with FMN, and FMN hereby releases as of this date
Morbank and any of its parents, directors, officers, employees, agents,
contractors from any liability under any cause of action. FMN shall only
be liable for the billings shown in point 18 above and the I obligations
it undertakes in connection with this agreement.
20. FMN will, within 3 days from the date hereof, enter into a
non-cancelable lease with FRG to acquire the use of the software and
hardware shown in exhibit B. The terms of the lease will provide for 36
monthly payments of $771.49 with the first and the last payments due at
the beginning of the lease.
21. FMN agrees to reimburse JB and the employees hired under 11 above an
amount per month equivalent to the cost of health insurance under COBRA,
less the amounts which the employees would have contributed had the
remained as employees of GM. The current monthly cost of such coverage is
as follows:
Total Employees Net to FMN
Cost Cost
Single coverage 190.24 91.00 $ 99.24
Family Coverage 519.47 307.67 $211.80
22. GM will allow JB and the employees in 14 above to occupy office space
on the third floor of Two University Plaza, at no charge until May 31,
1995. FMN will reimburse GM for the actual costs of telephone and
utilities. After May 31, 1995, FRG will permit continued occupancy of the
space at a rental of $1,570-00 per month until the expiration of the FRG
lease for the space.
23. GM and FMN agree that they will not hire, nor conspire with third
parties, to hire employees of the other for a period of twenty-four months
from the date hereof. This prohibition shall not apply for employees that
are dismissed by either party.
24. This Agreement may be executed in counterparts, each of which shall be
considered an original.
6
<PAGE>
25. This Agreement shall be Governed by the laws of the state of New
Jersey.
26. Time is of the essence with respect to the payments called for in this
Agreement.
27. MFS, GM, JB, and FRG agree to execute and deliver to FMN at and
following the closing of the transactions contemplated hereby all such
bills of sale, instruments of transfer, and other documents which FMN may
reasonably request in order to evidence or perfect FMN's rights, title and
interest in and to the interests and assets, tangible and intangible,
being transferred to FMN pursuant to this Agreement. In addition, MFS,
GM, JB and FRG represent and warrant that each has all right, power and
authority to enter into this Agreement and to perform its obligations
hereunder, that performance of this Agreement will not violate or
infringe the fights of or require the consent of any third party, and that
each such party is the owner of the respective assets and interests which
each is conveying to FMN pursuant to the terms of this Agreement.
IN WITNESS WHEREOF this Agreement has been executed by the parties as of
the date first written above.
First Mortgage Network, Inc. Morbank Financial Systems Inc.
By: /s/ A Van Wijk By: /s/ Angelo C. Prieto
--------------------------- --------------------------
Name: A Van Wijk Name: Angelo C. Prieto
--------------------------- --------------------------
Title: V.P. Title: President
--------------------------- --------------------------
Financial Resources Group Globe Mortgage Company
By: /s/ Angelo C. Prieto By: /s/ Angelo C. Prieto
--------------------------- --------------------------
Name: Angelo C. Prieto Name: Angelo C. Prieto
--------------------------- --------------------------
Title: President Title: President
John Buscema
/s/ John Buscema
------------------------------
7
<PAGE>
EXHIBIT B
Workstations
7 Dell 466DMT w/8MB and 3 1/2 Floppy
270 IDE Hard Drive (VESA)
1 MB Video Memory (VESA)
Samsung 15" Color Monitor
Microsoft Mouse
Mouse Pad
Developer
Station
2 Dell XPSP90 with 16MB and 3 1/2 Floppy
340 IDE Hard Drive (PCI)
2 MB Video Memory (PCI)
Samsung 15" Color Monitor
Microsoft Mouse
CDROM Drive (IDE)
Servers
Support File Server
Development File Server
Print Server
1 WYSE 286 w/l MB and 5 1/4 Floppy
42 MB MFM Hard Drive
WYSE Monocrome Monitor
Printers
1 HP Laserjet IIISi with 5MB
Mic. Hardware
1 Telebit Tl600 Modem
1 Hayes Optima 14.4 Fax/Modem
1 APC Smart UPS 1250
1 CD Technology CD-ROM
1 Adaptec 1510 SCSI Controller
12 Power Strips / Surge Protectors
2 Printer Cables
4 Modem Cables
8
<PAGE>
Misc. Software
1 Novell Netware V3.11 20 User
1 Novell Netware API
1 Faircom CTREE, RTREE
1 Greenleaf
1 Jyacc - Jampi
1 Microsoft C++
1 Slate
1 Jetform
I RTPatch
1 RTLink
1 PKware API
9
Ex-10.7
AMENDED AND RESTATED
MORTGAGE.COM, INC.
STOCK OPTION PLAN
<PAGE>
<TABLE>
<CAPTION>
AMENDED AND RESTATED
MORTGAGE.COM, INC.
STOCK OPTION PLAN
Table of Contents
-----------------
Page
----
<S> <C>
Article 1 Purpose.................................................................................................1
Article 2 Definitions.............................................................................................1
2.1 Affiliate............................................................................................1
2.2 Award................................................................................................1
2.3 Award Agreement......................................................................................1
2.4 Board................................................................................................1
2.5 Code.................................................................................................1
2.6 Committee............................................................................................1
2.7 Director.............................................................................................2
2.8 Employee.............................................................................................2
2.9 Exchange Act.........................................................................................2
2.10 Fair Market Value...................................................................................2
2.11 Incentive Stock Option..............................................................................2
2.12 IPO.................................................................................................2
2.13 Non-Employee Director...............................................................................2
2.14 Non-Employee Advisor................................................................................2
2.15 Non-Qualified Stock Option..........................................................................3
2.16 Option..............................................................................................3
2.17 Participant.........................................................................................3
2.18 Performance Target..................................................................................3
i
<PAGE>
2.19 Plan................................................................................................3
2.20 Shares..............................................................................................3
2.21 Ten Percent Shareholder.............................................................................3
Article 3 Administration..........................................................................................4
3.1 Board of Directors...................................................................................4
3.2 Committee............................................................................................4
3.3 Administration Following the IPO.....................................................................4
3.4 Indemnification......................................................................................5
Article 4 Shares..................................................................................................5
4.1 Number of Shares Available...........................................................................5
4.2 Shares Subject to Terminated Awards..................................................................5
4.3 Adjustments..........................................................................................5
Article 5 Stock Options...........................................................................................6
5.1 Grant of Option......................................................................................6
5.2 Exercise Price.......................................................................................6
5.3 Exercisability.......................................................................................6
5.4 Method of Exercise...................................................................................7
5.5 Incentive Stock Options..............................................................................7
5.6 Incentive Stock Option Limitations...................................................................7
5.7 Delivery of Financial Statements.....................................................................8
Article 6 Other Share-Based Awards................................................................................8
6.1 Grant of Other Awards................................................................................8
Article 7 Terms Applicable to All Awards Granted Under the Plan...................................................8
7.1 Award Agreement......................................................................................8
ii
<PAGE>
7.2 Awards May Be Granted Separately or Together; No Limitations on Other Awards.........................8
7.3 Acceleration.........................................................................................9
7.4 Limitations on Transfer of Awards....................................................................9
7.5 Taxes................................................................................................9
7.6 Rights and Status of Recipients......................................................................9
7.7 Awards Not Includable for Benefit Purposes..........................................................10
7.8 Share Certificates; Representation by Participants; Registration Requirements.......................10
Article 8 Amendment and Termination; Shareholder Approval........................................................10
8.1 Amendment...........................................................................................10
8.2 Termination.........................................................................................11
8.3 Shareholder Approval................................................................................11
Article 9 General Provisions.....................................................................................11
9.1 Effective Date of the Plan..........................................................................11
9.2 Unfunded Status of Plan.............................................................................11
9.3 Miscellaneous.......................................................................................11
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED
MORTGAGE.COM, INC.
STOCK OPTION PLAN
Article 1 Purpose
The purpose of the Amended and Restated Mortgage.com, Inc. Stock Option
Plan ("Plan") is to assist Mortgage.com, Inc. (the "Company"), together with any
successor thereto, and its Affiliates in attracting and retaining highly
competent individuals to serve as Employees, Directors and Non-Employee Advisors
who will contribute to the Company's success, and in motivating such persons to
achieve long-term objectives which will inure to the benefit of all shareholders
of the Company.
Article 2 Definitions
2.1 Affiliate means (a) any corporation that is defined as a subsidiary
corporation in Section 424(f) of the Code (or any successor provision), or (b)
any corporation that is defined as a parent corporation in Section 424(e) of the
Code (or any successor provision).
2.2 Award means any award made under the Plan.
2.3 Award Agreement means a written agreement or other document
specifically setting forth the terms and conditions of an Award.
2.4 Board means the Board of Directors of the Company.
2.5 Code means the Internal Revenue Code of 1986, as amended from time
to time. Any reference to a particular section of the Code shall include any
subsequently enacted successor provision thereto.
2.6 Committee means a committee composed of not less than two Directors
appointed by the Board. On and after the IPO, the Committee means the
Compensation Committee of the Board, each member of which shall qualify as a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange Act
and as an "outside director" under Section 162(m) of the Code.
2.7 Director means a member of the Board.
2.8 Employee means any officer or other employee of the Company or of
any Affiliate.
2.9 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.10 Fair Market Value means, with respect to any property (including,
without limitation, any Shares or other securities), the fair market value of
such property determined by such methods as shall be established from time to
time by the Board; provided, however, that after the IPO, the Fair Market Value
of a Share on the date in question shall mean the average of the high and low
prices of a Share on such date on the principal exchange on which the Shares are
then traded or, if no such sale shall have been made on that date, then on the
last preceding day on which there was such a sale.
1
<PAGE>
2.11 Incentive Stock Option means an Option designated as an incentive
stock option as defined in Code Section 422.
2.12 IPO means the date on which the Shares of the Company's voting
common stock are first sold to the public pursuant to an effective registration
statement filed by the Company under the Securities Act of 1933, as amended.
2.13 Non-Employee Director means a Director who is not an Employee but
is in a position to make a significant contribution to the management, growth,
or profitability of the business of the Company or any Affiliate, as determined
by the Board.
2.14 Non-Employee Advisor means any consultant or independent
contractor or principal of a consultant or independent contractor who is not an
Employee but is in a position to make a significant contribution to the
management, growth, or profitability of the business of the Company or any
Affiliate, as determined by the Board.
2.15 Non-Qualified Stock Option means an Option that is not an
Incentive Stock Option.
2.16 Option means any option to purchase Shares granted pursuant to the
Plan.
2.17 Participant means any Employee, any Non-Employee Director, or any
Non-Employee Advisor designated by the Board as receiving an Award.
2.18 Performance Target means a target established by the Committee
with respect to an Award granted on and after the IPO, which target may relate
to revenues, earnings per share, return on shareholder equity, return on average
total capital employed, return on net assets employed before interest and taxes,
economic value added and/or, in the case of Participants who are not subject to
Section 16 of the Exchange Act, such other targets as may be established by the
Committee in its discretion.
2.19 Plan means the Mortgage.com, Inc. Stock Option Plan as set forth
herein, and as the same may be amended from time to time.
2.20 Shares mean the shares of common stock of the Company, and such
other securities or property as may become subject to Awards pursuant to an
adjustment made under Section 4.3 of the Plan.
2.21 Ten Percent Shareholder means a person owning (or deemed to own)
common stock of the Company or an Affiliate possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or an Affiliate as defined in Section 422 of the Code.
2
<PAGE>
Article 3 Administration
3.1 Board of Directors. Subject to Section 3.3, the Plan shall be
administered by the Board. Subject to the terms of the Plan and applicable law,
the Board shall have full power and sole authority to: (i) designate persons to
be Participants; (ii) determine the type, amount, duration, and other terms and
conditions of Awards to be granted to each Participant (including whether, to
what extent, and under what circumstances Awards may be exercised in cash,
Shares, or other property); (iii) interpret and administer the Plan and any
instrument or agreement relating to, or Award made under, the Plan; (iv) waive
any conditions or other restrictions with respect to any Award (including,
without limitation, conditions regarding the vesting or exercise of an Option);
(v) amend, alter, suspend, discontinue, or terminate any Award, prospectively or
retroactively, provided that no such action shall impair the rights of any
Participant without his or her consent except as provided in Section 4.3, and
correct any defect, supply any omission, or reconcile any inconsistency in any
Award or Award Agreement in the manner and to the extent it shall deem desirable
to carry the Plan into effect; (vi) establish, amend, suspend, or waive such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (vii) make any other determination
and take any other action that the Board deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan, all
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Board, may be
made at any time, and shall be final, conclusive, and binding upon all persons.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered to
disqualify any outstanding Incentive Stock Options under Section 422 of the Code
without the consent of the Participant(s) affected.
3.2 Committee. Subject to Section 3.3, the Committee shall review and
make recommendations to the Board as to all matters in respect of the
administration of the Plan, including those matters set forth in Section 3.1
above.
3.3 Administration Following the IPO. Following the IPO, the Plan shall
be administered by the Committee which shall have all the responsibilities and
powers granted to the Board pursuant to Section 3.1, and any reference herein to
the Board shall include the Committee. If at any time the Committee shall not be
in existence after the IPO, the Board shall administer the Plan. Except to the
extent prohibited by applicable law or the applicable rules of a stock exchange,
the Committee may allocate all or any portion of its responsibilities and powers
to any one or more of its members and may delegate all or any part of its
responsibilities and powers to any person or persons selected by it, other than
with respect to Participants who are subject to Section 16 of the Exchange Act.
To the extent the Committee has delegated any of its authority and
responsibility, references to the Committee herein shall include such other
person or persons as appropriate.
3.4 Indemnification. No member or former member of the Board or the
Committee shall be liable for any action or inaction or determination made in
good faith with respect to the Plan or any Award. To the maximum extent
permitted by applicable law and by the Company's Articles of Incorporation and
Bylaws, each such person shall be indemnified and held harmless by the Company
against any cost or expense and liability (including any sum paid in settlement
of a claim with the approval of the Company), arising out of any act or omission
to act in connection with the Plan. Costs and expenses to be indemnified
hereunder shall include reasonable attorney's fees and expenses as incurred,
provided that the person being indemnified agrees to repay in full amounts
advanced hereunder in the event of a final determination by a court that such
person is not entitled to indemnification hereunder.
3
<PAGE>
Article 4 Shares
4.1 Number of Shares Available. Subject to Section 4.3, the maximum
number of Shares as to which Awards may be granted is 3,000,000 Shares;
provided, however, that in no event may Incentive Stock Options be granted for
the purchase of more than 2,940,000 Shares; and provided further that no
Employee may be granted Awards following the IPO for more than 300,000 Shares
during any three year period. At no time prior to the IPO shall the total number
of Shares issuable upon exercise of all outstanding Options and the total number
of shares provided for under any stock bonus or similar plan of the Company, if
any, exceed 30% of the then outstanding Shares of the Company (including
convertible preferred stock on an as if converted basis), unless a higher
percentage is approved by at least two thirds of the outstanding shares entitled
to vote. The Shares to be delivered under the Plan may consist, in whole or in
part, of authorized but unissued common stock or treasury stock.
4.2 Shares Subject to Terminated Awards. The Shares covered by any
unexercised portions of expired Options may again be subject to new Awards. In
the event the exercise price of an Option is paid in whole or in part through
the delivery of Shares, the gross number of Shares issuable in connection with
the exercise of the Option shall not again be available for the grant of Awards
under the Plan.
4.3 Adjustments. In the event that the Board shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), stock split, reverse stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, reclassification, repurchase, or exchange of securities
of the Company, or other similar corporate transaction or event affects the
Shares such that an adjustment is, in the judgment of the Board, appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Board shall, in such
manner as it may deem equitable, adjust any or all of (i) the number and type of
shares subject to the Plan and which thereafter may be made the subject of
Awards, (ii) the number and type of shares subject to outstanding Awards, and
(iii) the grant, purchase, or exercise price with respect to any Award, or, if
deemed appropriate, make provisions for a cash payment to the holder of an
outstanding Award; provided, however, in each case, that with respect to Awards
of Incentive Stock Options no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422(b)(1) of the
Code. In addition, in the event the Company or any Affiliate shall assume
outstanding awards or the right or obligation to make future awards in
connection with the acquisition of another business or another corporation or
business entity, the Board may make such adjustments, not inconsistent with the
terms of the Plan, in the terms of Awards granted to Participants as it shall
deem appropriate in order to achieve reasonable comparability or other equitable
relationship between the assumed awards and the Awards granted to Participants.
The Board also may make such other adjustments as it deems necessary to take
into consideration any other event (including accounting changes) if the Board
determines that such adjustment is appropriate to avoid distortion in the
operation of the Plan.
4
<PAGE>
Article 5 Stock Options
5.1 Grant of Option. The Board is hereby authorized to grant (i)
Incentive Stock Options and Non-Qualified Stock Options to Employees, (ii)
Non-Qualified Stock Options to Non-Employee Directors, and (iii) Non-Qualified
Stock Options to Non-Employee Advisors, in each case with such terms and
conditions not inconsistent with the provisions of the Plan, as the Board shall
determine.
5.2 Exercise Price. The exercise price per Share purchasable under an
Option shall be determined by the Board at the time of grant; provided that the
exercise price of an Incentive Stock Option shall be not less than 100% of the
Fair Market Value of the Share on the date of grant; and provided further that
the exercise price of an Incentive Stock Option granted to a Ten Percent
Shareholder, shall be not less than 110% of the Fair Market Value of a Share on
the date of grant. On and after the IPO, the exercise price of any Option that
is intended to qualify as performance-based compensation pursuant to Code
Section 162(m), as determined by the Committee, shall be not less than 100% of
the Fair Market Value of a Share on the date of grant, unless the exercise of
such Option is subject to a Performance Target. To the extent permitted by
applicable law, grants of nonqualified stock options made by the Board in
connection with the initial public offering of Shares may have an exercise price
equal to the initial price to the public per Share on the IPO, without regard to
whether that price differs from the Fair Market Value on the date of grant.
5.3 Exercisability.
(a) Except as provided in subsection (b) hereof, an Option Award may
contain such Performance Targets and waiting periods, and shall become
exercisable in such manner and within such period or periods and in such
installments or otherwise, as shall be determined by the Board of Directors.
(b) With respect to Options granted prior to the IPO to Participants
who are residents of California:
(1) Options shall become exercisable at a
rate of at least 20% per year over five
years from the date the Option is granted,
subject to reasonable conditions such as
continued employment with the Company.
(2) Unless employment is terminated for cause as
defined by applicable law or the Option
Award or a contract of employment, the right
to exercise in the event of termination of
employment, to the extent that the
Participant is otherwise entitled to
exercise on the date employment terminates,
shall be (i) at least six months from the
date of termination if termination was
5
<PAGE>
caused by death or disability, and (ii) at
least thirty days from the date of
termination if termination was caused by
some reason other than death or disability;
(3) An exercise period of not more than 120
months from the date the Option is granted
shall be provided.
This provision is intended to comply with Rule 260.140.41(f)
promulgated under the California Corporate Securities Law of 1968, and that if
such Rule be repealed, this provision shall be of no more effect. Options
granted on or after the IPO shall not be subject to the provisions of this
subsection (b).
5.4 Method of Exercise. The Board shall determine the method by which,
and the form (including, without limitation, cash, Shares, or other property, or
any combination thereof, having a Fair Market Value on the exercise date equal
to the relevant exercise price), in which payment of the Option exercise price
may be made including, on and after the IPO, payment in accordance with a
cashless exercise program under which the Participant may deliver to the Company
or its designated broker an executed irrevocable option exercise form together
with instructions to a broker-dealer to sell or margin a sufficient portion of
the Shares and deliver the sale or margin proceeds directly to the Company to
pay the exercise price.
5.5 Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of Code
Section 422 and any regulations promulgated thereunder.
5.6 Incentive Stock Option Limitations. To the extent that the
aggregate Fair Market Value (determined as of the time of grant) of the Shares
with respect to which Incentive Stock Options are exercisable for the first time
by the Participant during any calendar year under the Plan and/or any other
stock option plan of the Company or any Affiliate exceeds $100,000, such Options
shall be treated as Non-Qualified Stock Options. Should any of the foregoing
provisions not be necessary in order for the Options to quality as Incentive
Stock Options, or should any additional provisions be required, the Board may
amend the Plan accordingly, without the necessity of obtaining the approval of
the shareholders of the Company, except as otherwise required by law.
5.7 Delivery of Financial Statements. Prior to the IPO, the Company
shall deliver annually to each Participant such financial statements of the
Company as may be required under applicable federal and state securities laws.
Article 6 Other Share-Based Awards
6.1 Grant of Other Awards. Other Awards, in the form of, valued in
whole or in part by reference to, or otherwise based on, Shares, including but
not limited to stock appreciation rights and restricted stock, may be granted
either alone or in addition to or in conjunction with other Awards in such
amounts and having such terms and conditions as the Board may determine.
Notwithstanding the foregoing, if the Committee determines that any Award
granted on and after the IPO shall qualify as performance-based compensation
under Section 162(m) of the Code, the vesting, exercise or lapse of restrictions
of such Award shall be contingent upon the Participant's achievement of a
Performance Target or Targets, and the grant of such Award and the establishment
of the Performance Targets by the Committee shall be made during the period
required under Section 162(m) of the Code.
6
<PAGE>
Article 7 Terms Applicable to All Awards Granted Under the Plan
7.1 Award Agreement. No person shall have any rights under any Award
granted under the Plan unless and until the Company and the Participant to whom
such Award shall have been granted shall have executed and delivered an Award
Agreement or received any other Award acknowledgment authorized by the Board
expressly granting the Award to such person and containing provisions setting
forth the terms of the Award. If there is any conflict between the provisions of
an Award Agreement and the terms of the Plan, the terms of the Plan shall
control.
7.2 Awards May Be Granted Separately or Together; No Limitations on
Other Awards. Awards may be granted either alone or in addition to, in tandem
with, or in substitution for any other Award or any award granted under any
other plan of the Company or any Affiliate, and the terms and conditions of an
Award need not be the same with respect to each Participant.
7.3 Acceleration. The Board is authorized to accelerate the
exercisability of any Option or the vesting of any Award in its discretion,
including, without limitation, upon a change of control of the Company (as
determined by the Board), the sale by the Company of all or substantially all
its assets to an unrelated party, or the liquidation and dissolution of the
Company.
7.4 Limitations on Transfer of Awards. Except as determined otherwise
by the Board, the rights and interest of a Participant under the Plan may not be
assigned, alienated, sold, or transferred other than by will or the laws of
descent and distribution; provided, however, that a Participant may, at the
discretion of the Board, subject to compliance with applicable securities laws,
and only to the extent permitted by state or federal securities laws, be
entitled (i) to designate a beneficiary or beneficiaries to exercise his or her
rights, and to receive any property distributable, with respect to any Award
upon the death of the Participant, and (ii) to transfer without consideration an
Award other than an Incentive Stock Option to such Participant's children,
grandchildren and/or spouse (or to one or more trusts for the principal benefit
of any such family members or to one or more partnerships in which any such
family members are the only partners). Except as determined otherwise by the
Board or except to the extent that a transfer of an Award has been permitted by
the Board hereunder, during the lifetime of a Participant, only the Participant
personally, or if permissible under applicable law, such individual's guardian
or legal representative, may exercise rights under the Plan. No Award, and no
right under any such Award, may be pledged, alienated, attached, or otherwise
encumbered, and any purported pledge, alienation, attachment, or encumbrance
thereof shall be void and unenforceable against the Company or any Affiliate.
7.5 Taxes. The Company shall be entitled, if the Board deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by the Company in connection with such Participant's
Award, and the Company may defer issuance of the Shares upon the exercise of an
Award unless indemnified to its satisfaction against any liability for any such
tax. The Board may prescribe in each Award Agreement one or more methods by
which the Participant will be permitted or required to satisfy his or her tax
withholding obligation, which methods may include, without limitation, the
payment of cash by the Participant to the Company and the withholding from the
Award, at the appropriate time, of a number of Shares sufficient, based upon the
Fair Market Value of such Shares, to satisfy such tax withholding requirements.
7
<PAGE>
7.6 Rights and Status of Recipients. No person shall have any right to
be granted an Award. Neither the Plan nor any action taken hereunder shall be
construed as giving any Employee any right to be retained in the employ of the
Company or any Affiliate, the grant of an Award to a Director shall not confer
any right on such Director to continue as a director of the Company, and the
grant of an Award to a Non-Employee Advisor shall not confer any right on such
Non-Employee Advisor or a business entity of which such Non-Employee Advisor is
a principal to continue as a Non-Employee Advisor.
7.7 Awards Not Includable for Benefit Purposes. Income recognized by a
Participant pursuant to the Plan shall not be included in the determination of
benefits under any employee pension benefit plan (as such term is defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended)
or group insurance or other benefit plans applicable to the Participant which
are maintained by the Company or any Affiliate, except as may be provided under
the terms of such plans or determined by resolution of the Board.
7.8 Share Certificates; Representation by Participants; Registration
Requirements. All certificates for Shares delivered pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Board may deem advisable under the Plan or the rules,
regulations, and other requirements of the Securities and Exchange Commission
and any applicable federal or state securities laws, and legends may be put on
any such certificates to make appropriate reference to such restrictions. The
Board may require each Participant to represent to the Company in writing that
such Participant is acquiring Shares without a view to the distribution thereof.
Each Award shall be subject to the requirement that, if at any time (i) the
registration or qualification of Shares relating to such Award on any securities
exchange or under any state or federal securities laws, or (ii) the approval of
any securities exchange or regulatory body is necessary or desirable as a
precondition thereto, the Award or the issuance of Shares in connection
therewith may not be consummated unless such listing, registration,
qualification or approval shall have been effected.
Article 8 Amendment and Termination; Shareholder Approval
8.1 Amendment. The Board may amend, alter, suspend, discontinue, or
terminate the Plan at any time; provided, however, that no amendment,
alteration, suspension, discontinuation or termination of the Plan shall in any
manner (except as otherwise provided in this Article VIII) adversely affect any
Award, without the consent of the Participant; and further provided, however,
that shareholder approval of any amendment shall be obtained if determined by
the Board and if otherwise required (i) by the Code and any rules promulgated
thereunder in order to allow Incentive Stock Options to be granted under the
Plan; (ii) to enable the Company to comply with the provisions of Code Section
162(m) on and after the IPO; or (iii) by the listing requirement of the
principal securities exchange or market on which the Shares are then traded, if
applicable.
8
<PAGE>
8.2 Termination. The Plan shall terminate at the close of business on
the tenth anniversary of the earlier of the date on which the Plan is adopted or
the date on which the Plan is approved by the shareholders; provided, however,
the Board shall have the right and the power to terminate the Plan at any time
prior thereto. No Award shall be granted under the Plan after such termination,
but such termination shall not have any other effect, and any Award outstanding
at the time of such termination may be exercised after termination at any time
prior to the expiration date of such Award to the same extent such Award would
have been exercisable had the Plan not terminated.
8.3 Shareholder Approval. If determined to be appropriate by the
Committee in order for the Plan to comply with the provisions of Section 162(m)
of the Code, the Plan shall be submitted for shareholder approval no later than
the first shareholders meeting at which Directors are to be elected that occurs
in the year containing the fourth anniversary of the IPO.
Article 9 General Provisions
9.1 Effective Date of the Plan. The Plan shall be effective as of the
date of its adoption by the Board.
9.2 Unfunded Status of Plan. The Plan shall be unfunded and shall not
create (or be construed to create) a trust or a separate fund or funds. The Plan
shall not establish any fiduciary relationship between the Company and any
Participant or other person. To the extent any person holds any right by virtue
of a grant under the Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company.
9.3 Miscellaneous. The Plan and all determinations made and actions
taken pursuant to the Plan shall be governed by the laws of the state of Florida
and applicable federal laws. Section headings are used in the Plan for
convenience only, do not constitute a part of the Plan, and shall not be deemed
in any way to be relevant to the interpretation of the Plan or any provision
thereof. Whenever possible, each provision in the Plan and every Award shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of the Plan or any Award shall be held to be prohibited by
or invalid under applicable law, then (i) such provision shall be deemed amended
to accomplish the objectives of the provision as originally written to the
fullest extent permitted by law and (ii) all other provisions of the Plan and
every other Award shall remain in full force and effect.
9
Ex-10.8(a)
[For Key Employees and Consultants-20% vesting per year]
FIRST MORTGAGE NETWORK, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is between First Mortgage Network, Inc., a Florida
corporation (the "Company"), and the person whose signature is set forth on the
signature page hereof ("Participant").
RECITALS
WHEREAS, the Company has adopted the First Mortgage Network, Inc. Stock
Option Plan (the "Plan") which provides for the grant of options to certain Key
Employees, Non-Employee Directors, and Non-Employee Advisors;
WHEREAS, Participant is a Key Employee or Non-Employee Advisor and in
such capacity is in a position to contribute materially to the continued growth
and development and the future financial success of the Company;
WHEREAS, the Company wishes to grant to Participant an option to
purchase common stock of the Company on the terms and conditions specified
herein to provide a means for the Participant to participate in the future
growth of the Company and to increase the Participant's incentive and personal
interest in the continued success and growth of the Company; and
NOW, THEREFORE, the parties agree as follows (any capitalized terms
used herein but not defined herein shall have the respective meanings given in
the Plan):
1. Option.
a. Grant. Subject to the terms and conditions of this Agreement and
the Plan, the Company hereby grants to Participant a Non-Qualified Stock Option
to purchase all or any part of the Shares set forth on the signature page
hereof, at the exercise price set forth on the signature page hereof.
b. Term. The term of the Option shall expire at 11:59 p.m. on the
date immediately preceding the tenth anniversary of the date of grant of the
Option.
c. Vesting. The Option shall be exercisable only beginning after the
first anniversary of the grant date as determined by the Board of Directors and
prior to the expiration date, as set forth in the following table:
<PAGE>
Cumulative Number of Shares
Years from Grant Date as to which Option is Exercisable
- --------------------- ---------------------------------
After one year 20%
After two years 40%
After three years 60%
After four years 80%
After five years 100%
2. Exercise. Participant may, subject to the limitations of this
Agreement and the Plan, exercise all or any portion of the Option by providing
written notice of exercise to the Company specifying the number of Shares with
respect to which the Option is being exercised and accompanied by payment of the
exercise price for such Shares. The exercise price shall be paid in cash, by the
surrender of a whole number of Shares (free of all adverse claims and duly
endorsed in blank by Participant or accompanied by stock powers duly endorsed in
blank) having a Fair Market Value on the date of exercise equal to the exercise
price, or by the surrender of the unexercised, vested portion of the Option as
to which the Spread (as hereinafter defined) is equal to the exercise price, or
any combination of the foregoing. "Spread" means the Fair Market Value on the
date of exercise of the underlying Shares less the exercise price.
3. Termination of Employment.
a. If the employment of Participant terminates by reason of
disability, Participant (or his or her legal representative) may exercise any
portion of the Option which has vested pursuant to Section 1 hereof for a period
of one year after the date of such termination of employment and not thereafter;
provided, however, that no Option or portion thereof shall be exercisable after
it has expired pursuant to Section 1 hereof. For purposes of this Agreement, the
term "disability" shall mean a total and permanent disability as determined by
the Board of Directors in its sole discretion.
b. If the employment of Participant terminates by reason of death,
any unvested portion of the Option shall vest in full upon Participant's death,
and Participant's Beneficiary (as hereinafter defined) may exercise the Option
for a period of one year after the date of death and not thereafter; provided,
however, that no Option or portion thereof shall be exercisable after it has
expired pursuant to Section 1 hereof.
c. If the employment of Participant is terminated by the Company
without Cause (as hereinafter defined) or is terminated by Participant for any
reason other than death or disability, Participant (or his or her legal
representative) may exercise any portion of the Option which has vested pursuant
to Section 1 hereof for a period of three months after the date of such
termination of employment and not thereafter; provided, however, that no Option
or portion thereof shall be exercisable after it has expired pursuant to Section
1 hereof.
2
<PAGE>
d. If the employment of the Participant terminates for Cause, the
entire Option (whether vested or non-vested) shall immediately be forfeited and
become null and void. For purposes hereof, "Cause" shall mean material
nonfeasance, material malfeasance or material misfeasance on the part of the
Participant which, if susceptible of cure, shall continue after notice of the
default and a reasonable opportunity to cure.
e. For purposes of this Section 3, termination of employment of
Participant shall include termination of the engagement as a consultant to the
Company of Participant or of a business entity of which Participant is a
principal.
4. Change of Control. In the event of a Change of Control, any unvested
portion of the Option shall vest in full. Change of Control means: (i) the
adoption of a plan of reorganization, merger, share exchange or consolidation of
the Company with one or more other corporations or other entities as a result of
which the holders of the Shares as a group would receive less than fifty percent
(50%) of the voting power of the capital stock or other interests of the
surviving or resulting corporation or entity (unless such plan is subsequently
abandoned); (ii) the adoption by the Company's shareholders of a plan of
liquidation or the approval of the dissolution of the Company (unless such
liquidation or dissolution is subsequently abandoned); (iii) the approval by the
Company's shareholders of an agreement providing for the sale of all or
substantially the assets of the Company unless such sale is subsequently
abandoned); or (iv) the acquisition of more than thirty percent (30%) of the
outstanding Shares by any person within the meaning of Rule 13(d)(3) under the
Securities Exchange Act of 1934 if such acquisition is not preceded by a prior
expression of approval by the Board; or (v) one-third or more of the Company's
Board of Directors are not Continuing Directors (a "Continuing Director" means
any member of the Board of Directors who was a member on June 30, 1996, and any
Director who was recommended for election, or is elected to fill a vacancy, as a
director by a majority of the Continuing Directors then on such Board).
5. Withholding. The Company may deduct and withhold from any cash
payable to Participant such amount as may be required for the purpose of
satisfying the Company's obligation to withhold federal, state or local taxes in
connection with any exercise of this Option. The Participant may elect to
satisfy such withholding obligation, in whole or in part, (a) by causing the
Company to withhold Shares otherwise issuable pursuant to the exercise of the
Option or (b) by delivering to the Company Shares already owned by the
Participant. The Shares so delivered or withheld shall be a whole number, have a
Fair Market Value equal to such withholding obligation as of the date that the
amount of tax to be withheld is to be determined, shall be free of all adverse
claims, and shall be duly endorsed in blank by Participant or accompanied by
stock powers duly endorsed in blank.
6. Nonalienation. Participant shall have no rights to sell, assign,
transfer, pledge, assign or otherwise alienate the Option under this Agreement,
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of ERISA,
or the rules thereunder, and any such attempted sale, assignment, transfer,
pledge or other conveyance shall be null and void. The Option shall be
exercisable during the Participant's lifetime only by the Participant (or his or
her legal representative).
3
<PAGE>
7. Beneficiary. The person whose name appears on the signature page
hereof after the caption "Beneficiary" or any successor designated by
Participant in accordance herewith (the person who is Participant's Beneficiary
at the time of his or her death is referred to as the "Beneficiary") shall be
entitled to exercise the Option, to the extent it is exercisable, after the
death of Participant. Participant may from time to time revoke or change his or
her Beneficiary without the consent of any prior Beneficiary by filing a new
designation with the Board of Directors. The last such designation received by
the Board of Directors shall be controlling; provided, however, that no
designation, or change or revocation thereof, shall be effective unless received
by the Board of Directors prior to Participant's death, and in no event shall
any designation be effective as of a date prior to such receipt. If no
Beneficiary designation is in effect at the time of Participant's death, or if
no designated Beneficiary survives Participant or if such designation conflicts
with law, Participant's estate shall be entitled to exercise the Option, to the
extent it is exercisable after the death of Optionee. If the Board of Directors
is in doubt as to the right of any person to exercise the Option, the Company
may refuse to recognize such exercise, without liability for any interest or
dividends on the underlying Shares, until the Board of Directors determines the
person entitled to exercise the Option, or the Company may apply to any court of
appropriate jurisdiction and such application shall be a complete discharge of
the liability of the Company therefor.
8. Securities Law Restrictions. Participant agrees and acknowledges
with respect to any Shares that have not been registered under the Securities
Act of 1933 as amended (the "Act"), that (i) Participant will not sell or
otherwise dispose of such Shares except pursuant to an effective registration
statement under the Act and any application state securities laws, or in a
transaction which in the opinion of counsel for the Company, is exempt from such
registration, and (ii) a legend will be placed on the certificates for the
Shares to such effect.
9. Limited Interest.
a. The grant of the Option shall not be construed as giving
Participant any interest other than as provided in this Agreement.
b. Participant shall have no rights as a shareholder as a result of
the grant of the Option, until the Option is exercised, the exercise price is
paid, and the Shares issued thereunder.
c. The grant of the Option shall not confer on Participant any right
to continue as a Key Employee or Non-Employee Advisor, nor interfere in any way
with the right of the Company to terminate the Participant at any time.
d. The grant of the Option shall not affect in any way the right or
power of the Company to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company's capital
structure or its business, or any merger, consolidation or business combination
of the Company, or any issuance or modification of any term, condition, or
covenant of any bond, debenture, debt, preferred stock or other instrument ahead
of or affecting the Shares or the rights of the holders thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business or any other Company act or proceeding, whether
of a similar character or otherwise.
4
<PAGE>
10. Incorporation by Reference. The terms of the Plan to the extent not
stated herein are expressly incorporated herein by reference and in the event of
any conflict between this Agreement and the Plan, the Plan shall govern.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
12. Amendment. This Agreement may not be amended, modified, terminated
or otherwise altered except by the written consent of the parties thereto.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
duly authorized officer and its corporate seal hereunto affixed, and the
Optionee has hereunto affixed his or her hand, all on the day and year set forth
below.
FIRST MORTGAGE NETWORK, INC.
By:___________________________
Its:__________________________
("Company")
______________________________
Name:_________________________
("Participant")
No. of Shares: __________ Grant Date: ____________
Exercise Price Per Share: __________ Initial Exercise Date:_______, __
Date of Agreement: _____________, ___ Option Expiration Date:
Beneficiary: __________________________ Address of Beneficiary:
Beneficiary Tax Identification No.: _________________________________
_________________________________
________________________________________
6
Ex-10.8(b)
[For Employees of Members]
FIRST MORTGAGE NETWORK, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is between First Mortgage Network, Inc., a Florida
corporation (the "Company"), and the person whose signature is set forth on the
signature page hereof ("Participant").
RECITALS
WHEREAS, the Company has adopted the First Mortgage Network, Inc. Stock
Option Plan (the "Plan") which provides for the grant of options to certain Key
Employees, Non-Employee Directors, and Non-Employee Advisors;
WHEREAS, Participant was formerly an employee of the Company who, at
the request of the Company became an employee of one of the member organizations
("Member") that market the Company's services;
WHEREAS, as an employee of the Member, Participant is a Non-Employee
Advisor to the Company and in such capacity is in a position to contribute
materially to the continued growth and development and the future financial
success of the Company;
WHEREAS, the Company wishes to grant to Participant an option to
purchase common stock of the Company on the terms and conditions specified
herein to provide a means for the Participant to participate in the future
growth of the Company and to increase the Participant's incentive and personal
interest in the continued success and growth of the Company; and
NOW, THEREFORE, the parties agree as follows (any capitalized terms
used herein but not defined herein shall have the respective meanings given in
the Plan):
1. Option.
------
(a) Grant. Subject to the terms and conditions of this Agreement and
the Plan, the Company hereby grants to Participant a Non-Qualified Stock Option
to purchase all or any part of the Shares set forth on the signature page
hereof, at the exercise price set forth on the signature page hereof.
(b) Term. The term of the Option shall expire at 11:59 p.m. on the
date immediately preceding the tenth anniversary of the date of grant of the
Option.
(c) Vesting. Unless otherwise set forth herein, vesting of the
Option shall occur only during the time in which Participant is employed by the
Member and the Member is a member of Company and the Option shall be exercisable
only beginning after the second anniversary of the date of first service as an
employee or adviser to the Company as determined by the Board of Directors and
prior to the expiration date, as set forth in the following table:
<PAGE>
Years from Date of Cumulative Number of Shares
First Service with Company as to which Option is Exercisable
- -------------------------- ---------------------------------
After two years 40%
After three years 60%
After four years 80%
After five years 100%
2. Exercise. Participant may, subject to the limitations of this
Agreement and the Plan, exercise all or any portion of the Option by providing
written notice of exercise to the Company specifying the number of Shares with
respect to which the Option is being exercised and accompanied by payment of the
exercise price for such Shares. The exercise price shall be paid in cash, by the
surrender of a whole number of Shares (free of all adverse claims and duly
endorsed in blank by Participant or accompanied by stock powers duly endorsed in
blank) having a Fair Market Value on the date of exercise equal to the exercise
price, or by the surrender of the unexercised, vested portion of the Option as
to which the Spread (as hereinafter defined) is equal to the exercise price, or
any combination of the foregoing. "Spread" means the Fair Market Value on the
date of exercise of the underlying Shares less the exercise price.
3. Termination of Employment with Member.
(a) If the employment of Participant with Member terminates by
reason of disability, Participant (or his or her legal representative) may
exercise any portion of the Option which has then vested pursuant to Section 1
hereof for a period of one year after the date of such termination of employment
and not thereafter; provided, however, that no Option or portion thereof shall
be exercisable after it has expired pursuant to Section 1 hereof. For purposes
of this Agreement, the term "disability" shall mean a total and permanent
disability as determined by the Board of Directors in its sole discretion.
(b) If the employment of Participant with Member terminates by
reason of death, any unvested portion of the Option shall vest in full upon
Participant's death, and Participant's Beneficiary (as hereinafter defined) may
exercise the Option for a period of one year after the date of death and not
thereafter; provided, however, that no Option or portion thereof shall be
exercisable after it has expired pursuant to Section 1 hereof.
(c) If the employment of Participant with Member is terminated
without Cause (as hereinafter defined) or is terminated by Participant for any
reason other than death or disability, or if the Member employing Participant
ceases to be one of the Company's member organizations that market the Company's
services, Participant (or his or her legal representative) may exercise any
portion of the Option which has then vested pursuant to Section 1 hereof for a
period of three months after the date of such termination of employment and not
thereafter; provided, however, that no Option or portion thereof shall be
exercisable after it has expired pursuant to Section 1 hereof.
-2-
<PAGE>
(d) If the employment of the Participant with Member terminates for
Cause, the entire Option (whether vested or non-vested) shall immediately be
forfeited and become null and void. For purposes hereof, "Cause" shall mean
material nonfeasance, material malfeasance or material misfeasance on the part
of the Participant which, if susceptible of cure, shall continue after notice of
the default and a reasonable opportunity to cure.
(e) For purposes of this Section 3, termination of employment of
Participant shall include termination of the engagement as a consultant to the
Company of Participant or of a business entity of which Participant is a
principal.
4. Change of Control. In the event of a Change of Control, any unvested
portion of the Option shall vest in full. Change of Control means: (i) the
adoption of a plan of reorganization, merger, share exchange or consolidation of
the Company with one or more other corporations or other entities as a result of
which the holders of the Shares as a group would receive less than fifty percent
(50%) of the voting power of the capital stock or other interests of the
surviving or resulting corporation or entity (unless such plan is subsequently
abandoned); (ii) the adoption by the Company's shareholders of a plan of
liquidation or the approval of the dissolution of the Company (unless such
liquidation or dissolution is subsequently abandoned); (iii) the approval by the
Company's shareholders of an agreement providing for the sale of all or
substantially the assets of the Company unless such sale is subsequently
abandoned); or (iv) the acquisition of more than thirty percent (30%) of the
outstanding Shares by any person within the meaning of Rule 13(d)(3) under the
Securities Exchange Act of 1934 if such acquisition is not preceded by a prior
expression of approval by the Board; or (v) one-third or more of the Company's
Board of Directors are not Continuing Directors (a "Continuing Director" means
any member of the Board of Directors who was a member on June 30, 1996, and any
Director who was recommended for election, or is elected to fill a vacancy, as a
director by a majority of the Continuing Directors then on such Board).
5. Withholding. The Company may deduct and withhold from any cash
payable to Participant such amount as may be required for the purpose of
satisfying the Company's obligation to withhold federal, state or local taxes in
connection with any exercise of this Option. The Participant may elect to
satisfy such withholding obligation, in whole or in part, (a) by causing the
Company to withhold Shares otherwise issuable pursuant to the exercise of the
Option or (b) by delivering to the Company Shares already owned by the
Participant. The Shares so delivered or withheld shall be a whole number, have a
Fair Market Value equal to such withholding obligation as of the date that the
amount of tax to be withheld is to be determined, shall be free of all adverse
claims, and shall be duly endorsed in blank by Participant or accompanied by
stock powers duly endorsed in blank.
6. Nonalienation. Participant shall have no rights to sell, assign,
transfer, pledge, assign or otherwise alienate the Option under this Agreement,
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of ERISA,
or the rules thereunder, and any such attempted sale, assignment, transfer,
pledge or other conveyance shall be null and void. The Option shall be
exercisable during the Participant's lifetime only by the Participant (or his or
her legal representative).
-3-
<PAGE>
7. Beneficiary. The person whose name appears on the signature page
hereof after the caption "Beneficiary" or any successor designated by
Participant in accordance herewith (the person who is Participant's Beneficiary
at the time of his or her death is referred to as the "Beneficiary") shall be
entitled to exercise the Option, to the extent it is exercisable, after the
death of Participant. Participant may from time to time revoke or change his or
her Beneficiary without the consent of any prior Beneficiary by filing a new
designation with the Board of Directors. The last such designation received by
the Board of Directors shall be controlling; provided, however, that no
designation, or change or revocation thereof, shall be effective unless received
by the Board of Directors prior to Participant's death, and in no event shall
any designation be effective as of a date prior to such receipt. If no
Beneficiary designation is in effect at the time of Participant's death, or if
no designated Beneficiary survives Participant or if such designation conflicts
with law, Participant's estate shall be entitled to exercise the Option, to the
extent it is exercisable after the death of Optionee. If the Board of Directors
is in doubt as to the right of any person to exercise the Option, the Company
may refuse to recognize such exercise, without liability for any interest or
dividends on the underlying Shares, until the Board of Directors determines the
person entitled to exercise the Option, or the Company may apply to any court of
appropriate jurisdiction and such application shall be a complete discharge of
the liability of the Company therefor.
8. Securities Law Restrictions. Participant agrees and acknowledges
with respect to any Shares that have not been registered under the Securities
Act of 1933 as amended (the "Act"), that (i) Participant will not sell or
otherwise dispose of such Shares except pursuant to an effective registration
statement under the Act and any application state securities laws, or in a
transaction which in the opinion of counsel for the Company, is exempt from such
registration, and (ii) a legend will be placed on the certificates for the
Shares to such effect.
9. Limited Interest.
(a) The grant of the Option shall not be construed as giving
Participant any interest other than as provided in this Agreement.
(b) Participant shall have no rights as a shareholder as a result of
the grant of the Option, until the Option is exercised, the exercise price is
paid, and the Shares issued thereunder.
(c) The grant of the Option shall not confer on Participant any
right to continue as a Non-Employee Advisor, nor interfere in any way with the
right of the Company to terminate the Company's relationship with the Member at
any time.
(d) The grant of the Option shall not affect in any way the right or
power of the Company to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company's capital
structure or its business, or any merger, consolidation or business combination
of the Company, or any issuance or modification of any term, condition, or
-4-
<PAGE>
covenant of any bond, debenture, debt, preferred stock or other instrument ahead
of or affecting the Shares or the rights of the holders thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business or any other Company act or proceeding, whether
of a similar character or otherwise.
10. Incorporation by Reference. The terms of the Plan to the extent not
stated herein are expressly incorporated herein by reference and in the event of
any conflict between this Agreement and the Plan, the Plan shall govern.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
12. Amendment.
This Agreement may not be amended, modified, terminated or otherwise
altered except by the written consent of the parties thereto.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer and its corporate seal hereunto affixed,
and the Optionee has hereunto affixed his or her hand, all on the day and year
set forth below.
FIRST MORTGAGE NETWORK, INC.
By:________________________________
Its:_______________________________
("Company")
___________________________________
Name:______________________________
("Participant")
No. of Shares: _________ Grant Date: _____________, ____
Exercise Price Per share: Initial Exercise Date: ________, ____
Date of Agreement: ___________, ____ Option Expiration Date:_____________
Beneficiary:________________________ Date of First Service with
Company:_____________________________
Beneficiary Tax Identification No.:
Address of Beneficiary:
____________________________________
___________________________________
___________________________________
-5-
Ex-10.8(c)
[For Key Employees; Rev'd 6/9/98]
FIRST MORTGAGE NETWORK, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is between First Mortgage Network, Inc., a Florida
corporation (the "Company"), and the person whose signature is set forth on the
signature page hereof ("Participant").
RECITALS
WHEREAS, the Company has adopted the First Mortgage Network, Inc. Stock
Option Plan, as amended (the "Plan"), which provides for the grant of incentive
stock options to certain Key Employees;
WHEREAS, Participant is a Key Employee and in such capacity is in a
position to make a significant contribution to the management, growth or
profitability of the Company;
WHEREAS, the Company wishes to grant to Participant an incentive stock
option to purchase common stock of the Company on the terms and conditions
specified herein to provide a means for the Participant to participate in the
future growth of the Company and to increase the Participant's incentive and
personal interest in the continued success and growth of the Company; and
NOW, THEREFORE, the parties agree as follows (any capitalized terms
used herein but not defined herein shall have the respective meanings given in
the Plan):
1. Option.
(a) Grant. Subject to the terms and conditions of this Agreement and
the Plan, the Company hereby grants to Participant an Incentive Stock Option to
purchase all or any part of the Shares set forth on the signature page hereof,
at the exercise price set forth on the signature page hereof. The Option is
intended to be an "incentive stock option" as defined in Section 422 of the
Code.
(b) Term. The term of the Option shall expire at 11:59 p.m. on the
date which is 10 years following the date of grant of the Option.
(c) Vesting. The Option shall vest as set forth in the following
table, subject to acceleration as set forth in Section 3.
<PAGE>
Years from Date of Cumulative Number of Shares
First Service as to which Option is Exercisable
------------- ---------------------------------
After two years 40%
After three years 60%
After four years 80%
After five years 100%
2. Exercise. The Option may not be exercised prior to the date it is
vested or after the expiration date. Participant may, subject to the limitations
of this Agreement and the Plan, exercise all or any portion of the Option by
providing written notice of exercise to the Company specifying the number of
Shares with respect to which the Option is being exercised and accompanied by
payment of the exercise price for such Shares. The exercise price shall be paid
in cash, by certified check or cashier's check payable to the Company, or by the
surrender of a whole number of Shares (free of all adverse claims and duly
endorsed in blank by Participant or accompanied by stock powers duly endorsed in
blank) having a Fair Market Value on the date of exercise equal to the exercise
price. Upon full payment of the exercise price, the Company shall promptly
deliver to the Participant a certificate or certificates for the number of
Shares in respect of which the Option has been exercised, legended as described
herein and as required by applicable law. If any part of this Option is not
permitted to be an Incentive Stock Option under the Code, then with respect to
such non-qualified portions of the Option, the exercise price also may be paid
by the surrender of the unexercised, vested portion of the Option as to which
the Spread (as hereinafter defined) is equal to the exercise price. "Spread"
means the Fair Market Value on the date of exercise of the underlying Shares
less the exercise price.
3. Termination of Employment.
(a) If the employment of Participant terminates by reason of
disability, Participant (or his or her legal representative) may exercise any
portion of the Option which has vested pursuant to Section 1 hereof for a period
of one year after the date of such termination of employment and not thereafter;
provided, however, that no Option or portion thereof shall be exercisable after
it has expired pursuant to Section 1 hereof. For purposes of this Agreement, the
term "disability" shall mean a total and permanent disability as determined by
the Board of Directors in its sole discretion.
(b) If the employment of Participant terminates by reason of death,
any unvested portion of the Option shall vest in full upon Participant's death,
and Participant's Beneficiary (as hereinafter defined) may exercise the Option
for a period of one year after the date of death and not thereafter; provided,
however, that no Option or portion thereof shall be exercisable after it has
expired pursuant to Section 1 hereof.
2
<PAGE>
(c) If the employment of Participant is terminated by the Company
without Cause (as hereinafter defined) or is terminated by Participant for any
reason other than death or disability, Participant (or his or her legal
representative) may exercise any portion of the Option which has vested pursuant
to Section 1 hereof for a period of three months after the date of such
termination of employment and not thereafter; provided, however, that no Option
or portion thereof shall be exercisable after it has expired pursuant to Section
1 hereof.
(d) If the employment of the Participant terminates for Cause, the
entire Option (whether vested or non-vested) shall immediately be forfeited and
become null and void. For purposes hereof, "Cause" shall mean material
nonfeasance, material malfeasance or material misfeasance on the part of the
Participant which, if susceptible of cure, shall continue after notice of the
default and a reasonable opportunity to cure.
(e) For purposes of this Section 3, termination of employment of
Participant shall include termination of the engagement as a consultant to the
Company of Participant or of a business entity of which Participant is a
principal.
4. Change of Control. In the event of a Change of Control, any unvested
portion of the Option shall vest in full. Change of Control means: (i) the
adoption of a plan of reorganization, merger, share exchange or consolidation of
the Company with one or more other corporations or other entities as a result of
which the holders of the Shares as a group would receive less than fifty percent
(50%) of the voting power of the capital stock or other interests of the
surviving or resulting corporation or entity (unless such plan is subsequently
abandoned); (ii) the adoption by the Company's shareholders of a plan of
liquidation or the approval of the dissolution of the Company (unless such
liquidation or dissolution is subsequently abandoned); (iii) the approval by the
Company's shareholders of an agreement providing for the sale of all or
substantially all the assets of the Company unless such sale is subsequently
abandoned); or (iv) the acquisition of more than thirty percent (30%) of the
outstanding Shares by any person within the meaning of Rule 13(d)(3) under the
Securities Exchange Act of 1934 if such acquisition is not preceded by a prior
expression of approval by the Board; or (v) one-third or more of the Company's
Board of Directors are not Continuing Directors (a "Continuing Director" means
any member of the Board of Directors who was a member on June 30, 1996, and any
Director who was recommended for election, or is elected to fill a vacancy, as a
director by a majority of the continuing Directors then on such Board).
5. Withholding. If any part of this Option is not permitted to be an
Incentive Stock Option under the Code, then the Participant agrees to pay to the
Company such amount as is requested by the Company for the purpose of satisfying
the Company's obligation to withhold federal, state or local taxes in connection
with any exercise of any non-qualified portion of this Option. The Participant
may elect to satisfy such withholding obligation, in whole or in part, (a) by
causing the Company to withhold Shares otherwise issuable pursuant to the
exercise of the Option or (b) by delivering to the Company Shares already owned
by the Participant. The Shares so delivered or withheld shall be a whole number,
have a Fair Market Value equal to such withholding obligation as of the date
that the amount of tax to be withheld is to be determined, shall be free of all
adverse claims, and shall be duly endorsed in blank by Participant or
accompanied by stock powers duly endorsed in blank.
3
<PAGE>
6. Nonalienation. Participant shall have no rights to sell, assign,
transfer, pledge, assign or otherwise alienate the Option under this Agreement,
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of ERISA,
or the rules thereunder, and any such attempted sale, assignment, transfer,
pledge or other conveyance shall be null and void. The Option shall be
exercisable during the Participant's lifetime only by the Participant (or his or
her legal representative).
7. Beneficiary. The person whose name appears on the signature page
hereof after the caption "Beneficiary" or any successor designated by
Participant in accordance herewith (the person who is Participant's Beneficiary
at the time of his or her death is referred to as the "Beneficiary") shall be
entitled to exercise the Option, to the extent it is exercisable, after the
death of Participant. Participant may from time to time revoke or change his or
her Beneficiary without the consent of any prior Beneficiary by filing a new
designation with the Board of Directors. The last such designation received by
the Board of Directors shall be controlling; provided, however, that no
designation, or change or revocation thereof, shall be effective unless received
by the Board of Directors prior to Participant's death, and in no event shall
any designation be effective as of a date prior to such receipt. If no
Beneficiary designation is in effect at the time of Participant's death, or if
no designated Beneficiary survives Participant or if such designation conflicts
with law, Participant's estate shall be entitled to exercise the Option, to the
extent it is exercisable after the death of Optionee. If the Board of Directors
is in doubt as to the right of any person to exercise the Option, the Company
may refuse to recognize such exercise, without liability for any interest or
dividends on the underlying Shares, until the Board of Directors determines the
person entitled to exercise the Option, or the Company may file an interpleader
action with any court of appropriate jurisdiction and such application shall be
a complete discharge of the liability of the Company therefor.
8. Securities Law Restrictions. The Participant acknowledges that he is
acquiring the Option and the Shares purchasable pursuant to the Option for
investment purposes only and not with a view to resale or other distribution
thereof to the public in violation of the Securities Act of 1933, as amended
(the "Act"). Participant agrees and acknowledges with respect to any Shares that
have not been registered under the Act, that (i) Participant will not sell or
otherwise dispose of such Shares except pursuant to an effective registration
statement under the Act and any application state securities laws, or in a
transaction which in the opinion of counsel for the Company, is exempt from such
registration, and (ii) a legend will be placed on the certificates for the
Shares to such effect.
9. Limited Interest.
(a) The grant of the Option shall not be construed as giving
Participant any interest other than as provided in this Agreement.
(b) Participant shall have no rights as a shareholder as a result of
the grant of the Option, until the Option is exercised, the exercise price is
paid, and the Shares issued thereunder.
4
<PAGE>
(c) The grant of the Option shall not confer on Participant any
right to continue as an employee, nor interfere in any way with the right of the
Company to terminate the Participant's employment at any time.
(d) The grant of the Option shall not affect in any way the right or
power of the Company to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company's capital
structure or its business, or any merger, consolidation or business combination
of the Company, or any issuance or modification of any term, condition, or
covenant of any bond, debenture, debt, preferred stock or other instrument ahead
of or affecting the Shares or the rights of the holders thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business or any other Company act or proceeding, whether
of a similar character or otherwise.
10. Incorporation by Reference. The terms of the Plan to the extent not
stated herein are expressly incorporated herein by reference and in the event of
any conflict between this Agreement and the Plan, the Plan shall govern.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
12. Amendment. This Agreement may not be amended, modified, terminated
or otherwise altered except by the written consent of the parties hereto.
13. Counterparts. This Incentive Stock Option Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer and its corporate seal hereunto affixed,
and the Optionee has hereunto affixed his or her hand, all on the day and year
set forth below.
FIRST MORTGAGE NETWORK, INC.
By:_____________________________
Its: ___________________________
("Company")
_______________________________
Name:
("Participant")
No. of Shares: ___________ Grant Date: ___________
Exercise Price Per Share: $______ Initial Exercise Date:_______, _____
Date of Agreement: ____________ Option Expiration Date: ___________
Date of First Service: ______________
Beneficiary:__________________________ Address of Beneficiary:
_____________________________________
Beneficiary Tax Identification No.:
___________________________________ _____________________________________
6
Ex-10.8(d)
[For Employees and Consultants - 20% vesting per year]
Revised April 26, 1999
MORTGAGE.COM, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is between Mortgage.com, Inc., "a Florida corporation
(the "Company"), and the person whose signature is set forth on the signature
page hereof ("Participant").
RECITALS
WHEREAS, the Company has adopted the Mortgage.com, Inc. Stock Option
Plan (the "Plan") which provides for the grant of options to certain Employees,
Non-Employee Directors, and Non-Employee Advisors;
WHEREAS, Participant is an Employee or Non-Employee Advisor and is in a
position to contribute materially to the continued growth and development and
the future financial success of the Company;
WHEREAS, the Company wishes to grant to Participant an option to
purchase common stock of the Company on the terms and conditions specified
herein to provide a means for the Participant to participate in the future
growth of the Company and to increase the Participant's incentive and personal
interest in the continued success and growth of the Company; and
NOW, THEREFORE, the parties agree as follows (any capitalized terms
used herein but not defined herein shall have the respective meanings given in
the Plan):
1. Option.
a. Grant. Subject to the terms and conditions of this Agreement and
the Plan, the Company hereby grants to Participant a Non-Qualified Stock Option
to purchase all or any part of the Shares set forth on the signature page
hereof, at the exercise price set forth on the signature page hereof.
b. Term. The term of the Option shall expire at 11:59 p.m. on the
date immediately preceding the tenth anniversary of the date of grant of the
Option.
c. Vesting. The Option shall vest as set forth in the following
table:
<PAGE>
Cumulative Number of Shares
Years from Date of First Service as to which Option is Vested
- -------------------------------- ----------------------------
After one year 20%
After two years 40%
After three years 60%
After four years 80%
After five years 100%
2. Exercise. The Option may not be exercised prior to the date it is
vested or after the expiration date. Participant may, subject to the limitations
of this Agreement and the Plan, exercise all or any portion of the Option that
has vested pursuant to Section 1 hereof by providing written notice of exercise
to the Company specifying the number of Shares with respect to which the Option
is being exercised and accompanied by payment of the exercise price for such
Shares. The exercise price shall be paid in cash, by the surrender of a whole
number of Shares (free of all adverse claims and duly endorsed in blank by
Participant or accompanied by stock powers duly endorsed in blank) having a Fair
Market Value on the date of exercise equal to the exercise price, or by the
surrender of the unexercised, vested portion of the Option as to which the
Spread (as hereinafter defined) is equal to the exercise price, or any
combination of the foregoing. "Spread" means the Fair Market Value on the date
of exercise of the underlying Shares less the exercise price. No portion of the
Option may be exercised after it has expired pursuant to Section 1 hereof.
3. Termination of Employment.
a. If the employment of Participant terminates by reason of
disability, Participant (or his or her legal representative) may exercise any
portion of the Option which has vested pursuant to Section 1 hereof for a period
of one year after the date of such termination of employment and not thereafter;
provided, however, that no Option or portion thereof shall be exercisable after
it has expired pursuant to Section 1 hereof. For purposes of this Agreement, the
term "disability" shall mean a total and permanent disability as determined by
the Board of Directors in its sole discretion.
b. If the employment of Participant terminates by reason of death,
any unvested portion of the Option shall vest in full upon Participant's death,
and Participant's Beneficiary (as hereinafter defined) may exercise the Option
for a period of one year after the date of death and not thereafter; provided,
however, that no Option or portion thereof shall be exercisable after it has
expired pursuant to Section 1 hereof.
c. If the employment of Participant is terminated by the Company
without Cause (as hereinafter defined) or is terminated by Participant for any
reason other than death or disability, Participant (or his or her legal
representative) may exercise any portion of the Option which has vested pursuant
to Section 1 hereof for a period of three months after the date of such
termination of employment and not thereafter; provided, however, that no Option
or portion thereof shall be exercisable after it has expired pursuant to Section
1 hereof.
-2-
<PAGE>
d. If the employment of the Participant terminates for Cause, the
entire Option (whether vested or non-vested) shall immediately be forfeited and
become null and void. For purposes hereof, "Cause" shall mean material
nonfeasance, material malfeasance or material misfeasance on the part of the
Participant which, if susceptible of cure, shall continue after notice of the
default and a reasonable opportunity to cure.
e. For purposes of this Section 3, termination of employment of
Participant shall include termination of the engagement as a consultant to the
Company of Participant or of a business entity of which Participant is a
principal.
4. Withholding. The Company may deduct and withhold from any cash
payable to Participant such amount as may be required for the purpose of
satisfying the Company's obligation to withhold federal, state or local taxes in
connection with any exercise of this Option. The Participant may elect to
satisfy such withholding obligation, in whole or in part, (a) by causing the
Company to withhold Shares otherwise issuable pursuant to the exercise of the
Option or (b) by delivering to the Company Shares already owned by the
Participant. The Shares so delivered or withheld shall be a whole number, have a
Fair Market Value equal to such withholding obligation as of the date that the
amount of tax to be withheld is to be determined, shall be free of all adverse
claims, and shall be duly endorsed in blank by Participant or accompanied by
stock powers duly endorsed in blank.
5. Nonalienation. Participant shall have no rights to sell, assign,
transfer, pledge, assign or otherwise alienate the Option under this Agreement,
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of ERISA,
or the rules thereunder, and any such attempted sale, assignment, transfer,
pledge or other conveyance shall be null and void. The Option shall be
exercisable during the Participant's lifetime only by the Participant (or his or
her legal representative).
6. Beneficiary. The person whose name appears on the signature page
hereof after the caption "Beneficiary" or any successor designated by
Participant in accordance herewith (the person who is Participant's Beneficiary
at the time of his or her death is referred to as the "Beneficiary") shall be
entitled to exercise the Option, to the extent it is exercisable, after the
death of Participant. Participant may from time to time revoke or change his or
her Beneficiary designation without the consent of any prior Beneficiary by
filing a new designation with the Board of Directors. The last such designation
received by the Board of Directors shall be controlling; provided, however, that
no designation, or change or revocation thereof, shall be effective unless
received by the Board of Directors prior to Participant's death, and in no event
shall any designation be effective as of a date prior to such receipt. If no
Beneficiary designation is in effect at the time of Participant's death, or if
no designated Beneficiary survives Participant or if such designation conflicts
with law, Participant's estate shall be entitled to exercise the Option, to the
extent it is exercisable after the death of Optionee. If the Board of Directors
is in doubt as to the right of any person to exercise the Option, the Company
may refuse to recognize such exercise, without liability for any interest or
dividends on the underlying Shares, until the Board of Directors determines the
person entitled to exercise the Option, or the Company may apply to any court of
appropriate jurisdiction and such application shall be a complete discharge of
the liability of the Company therefor.
-3-
<PAGE>
7. Securities Law Restrictions. Participant agrees and acknowledges
with respect to any Shares that have not been registered under the Securities
Act of 1933 as amended (the "Act"), that (i) Participant will not sell or
otherwise dispose of such Shares except pursuant to an effective registration
statement under the Act and any applicable state securities laws, or in a
transaction which in the opinion of counsel for the Company, is exempt from such
registration, and (ii) a legend will be placed on the certificates for the
Shares to such effect.
8. Limited Interest.
a. The grant of the Option shall not be construed as giving
Participant any interest other than as provided in this Agreement.
b. Participant shall have no rights as a shareholder as a result of
the grant of the Option, until the Option is exercised, the exercise price is
paid, and the Shares issued thereunder.
c. The grant of the Option shall not confer on Participant any right
to continue as an Employee or Non-Employee Advisor, nor interfere in any way
with the right of the Company to terminate the Participant at any time.
d. The grant of the Option shall not affect in any way the right or
power of the Company to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company's capital
structure or its business, or any merger, consolidation or business combination
of the Company, or any issuance or modification of any term, condition, or
covenant of any bond, debenture, debt, preferred stock or other instrument ahead
of or affecting the Shares or the rights of the holders thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business or any other Company act or proceeding, whether
of a similar character or otherwise.
9. Incorporation by Reference. The terms of the Plan to the extent not
stated herein are expressly incorporated herein by reference and in the event of
any conflict between this Agreement and the Plan, the Plan shall govern.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
11. Amendment. This Agreement may not be amended, modified, terminated
or otherwise altered except by the written consent of the parties thereto.
-4-
<PAGE>
12. Counterparts. This Non-Qualified Stock Option Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer and its corporate seal hereunto affixed,
and the Optionee has hereunto affixed his or her hand, all on the day and year
set forth below.
MORTGAGE.COM, INC.
By:__________________________________
Its:_________________________________
("Company")
_____________________________________
Name:________________________________
("Participant")
No. of Shares: ___________ Grant Date: ______________
Exercise Price Per Share: __________ Initial Exercise Date: _______, _____
Date of Agreement: ____________, ____ Expiration Date: ______________
Beneficiary: ________________________ Address of Beneficiary:
______________________________________
Beneficiary Tax Identification No.: ______________________________________
___________________________________
-6-
Ex-10.8(e)
[For Employees of Members]
Revised April 26, 1999
MORTGAGE.COM, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is between Mortgage.com, Inc., a Florida corporation
(the "Company"), and the person whose signature is set forth on the signature
page hereof ("Participant").
RECITALS
WHEREAS, the Company has adopted the Mortgage.com, Inc. Stock Option
Plan (the "Plan") which provides for the grant of options to certain Employees,
Non-Employee Directors, and Non-Employee Advisors;
WHEREAS, Participant was formerly an employee of the Company who, at
the request of the Company became an employee of one of the member organizations
("Member") that markets the Company's services;
WHEREAS, as an employee of the Member, Participant is a Non-Employee
Advisor to the Company and in such capacity is in a position to contribute
materially to the continued growth and development and the future financial
success of the Company;
WHEREAS, the Company wishes to grant to Participant an option to
purchase common stock of the Company on the terms and conditions specified
herein to provide a means for the Participant to participate in the future
growth of the Company and to increase the Participant's incentive and personal
interest in the continued success and growth of the Company; and
NOW, THEREFORE, the parties agree as follows (any capitalized terms
used herein but not defined herein shall have the respective meanings given in
the Plan):
1. Option.
(a) Grant. Subject to the terms and conditions of this Agreement and
the Plan, the Company hereby grants to Participant a Non-Qualified Stock Option
to purchase all or any part of the Shares set forth on the signature page
hereof, at the exercise price set forth on the signature page hereof.
(b) Term. The term of the Option shall expire at 11:59 p.m. on the
date immediately preceding the tenth anniversary of the date of grant of the
Option.
(c) Vesting. Unless otherwise set forth herein, vesting of the
Option shall occur only during the time in which Participant is employed by the
Member and the Member is a member of Company and the Option shall vest as set
forth in the following table:
<PAGE>
Years from Date of Cumulative Number of Shares
First Service with Company As to which Option is Exercisable
- -------------------------- ---------------------------------
After one year 20%
After two years 40%
After three years 60%
After four years 80%
After five years 100%
2. Exercise. The Option may not be exercised prior to the date it is
vested or after the expiration date. Participant may, subject to the limitations
of this Agreement and the Plan, exercise all or any portion of the Option that
has vested pursuant to Section 1 hereof by providing written notice of exercise
to the Company specifying the number of Shares with respect to which the Option
is being exercised and accompanied by payment of the exercise price for such
Shares. The exercise price shall be paid in cash, by the surrender of a whole
number of Shares (free of all adverse claims and duly endorsed in blank by
Participant or accompanied by stock powers duly endorsed in blank) having a Fair
Market Value on the date of exercise equal to the exercise price, or by the
surrender of the unexercised, vested portion of the Option as to which the
Spread (as hereinafter defined) is equal to the exercise price, or any
combination of the foregoing. "Spread" means the Fair Market Value on the date
of exercise of the underlying Shares less the exercise price. No portion of the
Option may be exercised after it has expired pursuant to Section 1 hereof.
3. Termination of Employment with Member.
(a) If the employment of Participant with Member terminates by
reason of disability, Participant (or his or her legal representative) may
exercise any portion of the Option which has then vested pursuant to Section 1
hereof for a period of one year after the date of such termination of employment
and not thereafter; provided, however, that no Option or portion thereof shall
be exercisable after it has expired pursuant to Section 1 hereof. For purposes
of this Agreement, the term "disability" shall mean a total and permanent
disability as determined by the Board of Directors in its sole discretion.
(b) If the employment of Participant with Member terminates by
reason of death, any unvested portion of the Option shall vest in full upon
Participant's death, and Participant's Beneficiary (as hereinafter defined) may
exercise the Option for a period of one year after the date of death and not
thereafter; provided, however, that no Option or portion thereof shall be
exercisable after it has expired pursuant to Section 1 hereof.
(c) If the employment of Participant with Member is terminated
without Cause (as hereinafter defined) or is terminated by Participant for any
reason other than death or disability, or if the Member employing Participant
ceases to be one of the Company's member organizations that market the Company's
services, Participant (or his or her legal representative) may exercise any
portion of the Option which has then vested pursuant to Section 1 hereof for a
period of three months after the date of such termination of employment and not
thereafter; provided, however, that no Option or portion thereof shall be
exercisable after it has expired pursuant to Section 1 hereof.
-2-
<PAGE>
(d) If the employment of the Participant with Member terminates for
Cause, the entire Option (whether vested or non-vested) shall immediately be
forfeited and become null and void. For purposes hereof, "Cause" shall mean
material nonfeasance, material malfeasance or material misfeasance on the part
of the Participant which, if susceptible of cure, shall continue after notice of
the default and a reasonable opportunity to cure.
(e) For purposes of this Section 3, termination of employment of
Participant shall include termination of the engagement as a consultant to the
Company of Participant or of a business entity of which Participant is a
principal.
4. Withholding. The Company may deduct and withhold from any cash
payable to Participant such amount as may be required for the purpose of
satisfying the Company's obligation to withhold federal, state or local taxes in
connection with any exercise of this Option. The Participant may elect to
satisfy such withholding obligation, in whole or in part, (a) by causing the
Company to withhold Shares otherwise issuable pursuant to the exercise of the
Option or (b) by delivering to the Company Shares already owned by the
Participant. The Shares so delivered or withheld shall be a whole number, have a
Fair Market Value equal to such withholding obligation as of the date that the
amount of tax to be withheld is to be determined, shall be free of all adverse
claims, and shall be duly endorsed in blank by Participant or accompanied by
stock powers duly endorsed in blank.
5. Nonalienation. Participant shall have no rights to sell, assign,
transfer, pledge, assign or otherwise alienate the Option under this Agreement,
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of ERISA,
or the rules thereunder, and any such attempted sale, assignment, transfer,
pledge or other conveyance shall be null and void. The Option shall be
exercisable during the Participant's lifetime only by the Participant (or his or
her legal representative).
6. Beneficiary. The person whose name appears on the signature page
hereof after the caption "Beneficiary" or any successor designated by
Participant in accordance herewith (the person who is Participant's Beneficiary
at the time of his or her death is referred to as the "Beneficiary") shall be
entitled to exercise the Option, to the extent it is exercisable, after the
death of Participant. Participant may from time to time revoke or change his or
her Beneficiary designation without the consent of any prior Beneficiary by
filing a new designation with the Board of Directors. The last such designation
received by the Board of Directors shall be controlling; provided, however, that
no designation, or change or revocation thereof, shall be effective unless
received by the Board of Directors prior to Participant's death, and in no event
shall any designation be effective as of a date prior to such receipt. If no
Beneficiary designation is in effect at the time of Participant's death, or if
no designated Beneficiary survives Participant or if such designation conflicts
with law, Participant's estate shall be entitled to exercise the Option, to the
extent it is exercisable after the death of Optionee. If the Board of Directors
is in doubt as to the right of any person to exercise the Option, the Company
may refuse to recognize such exercise, without liability for any interest or
dividends on the underlying Shares, until the Board of Directors determines the
person entitled to exercise the Option, or the Company may apply to any court of
appropriate jurisdiction and such application shall be a complete discharge of
the liability of the Company therefor.
-3-
<PAGE>
7. Securities Law Restrictions. Participant agrees and acknowledges
with respect to any Shares that have not been registered under the Securities
Act of 1933 as amended (the "Act"), that (i) Participant will not sell or
otherwise dispose of such Shares except pursuant to an effective registration
statement under the Act and any applicable state securities laws, or in a
transaction which in the opinion of counsel for the Company, is exempt from such
registration, and (ii) a legend will be placed on the certificates for the
Shares to such effect.
8. Limited Interest.
(a) The grant of the Option shall not be construed as giving
Participant any interest other than as provided in this Agreement.
(b) Participant shall have no rights as a shareholder as a result of
the grant of the Option, until the Option is exercised, the exercise price is
paid, and the Shares issued thereunder.
(c) The grant of the Option shall not confer on Participant any
right to continue as a Non-Employee Advisor, nor interfere in any way with the
right of the Company to terminate the Company's relationship with the Member at
any time.
(d) The grant of the Option shall not affect in any way the right or
power of the Company to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company's capital
structure or its business, or any merger, consolidation or business combination
of the Company, or any issuance or modification of any term, condition, or
covenant of any bond, debenture, debt, preferred stock or other instrument ahead
of or affecting the Shares or the rights of the holders thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business or any other Company act or proceeding, whether
of a similar character or otherwise.
9. Incorporation by Reference. The terms of the Plan to the extent not
stated herein are expressly incorporated herein by reference and in the event of
any conflict between this Agreement and the Plan, the Plan shall govern.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
11. Amendment. This Agreement may not be amended, modified, terminated
or otherwise altered except by the written consent of the parties thereto.
-4-
<PAGE>
12. Counterparts. This Non-Qualified Stock Option Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer and its corporate seal hereunto affixed,
and the Optionee has hereunto affixed his or her hand, all on the day and year
set forth below.
MORTGAGE.COM, INC.
By:_______________________________
Its:______________________________
("Company")
__________________________________
Name:_____________________________
("Participant")
No. of Shares: _________ Grant Date: _____________, ____
Exercise Price Per share: Initial Exercise Date:_______, ____
Date of Agreement: ___________, _____ Option Expiration Date:____________
Beneficiary:__________________________ Date of First Service with
Company:____________________________
Beneficiary Tax Identification No.:
Address of Beneficiary:
______________________________________
____________________________________
____________________________________
-6-
Ex-10.8(f)
[For Employees - 20% vesting per year]
Revised April 26, 1999
MORTGAGE.COM, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is between Mortgage.com, Inc., a Florida corporation
(the "Company"), and the person whose signature is set forth on the signature
page hereof ("Participant").
RECITALS
WHEREAS, the Company has adopted the Mortgage.com, Inc. Stock Option
Plan, as amended (the "Plan"), which provides for the grant of incentive stock
options to Employees;
WHEREAS, Participant is an Employee and is in a position to contribute
materially to the continued growth and development and the future financial
success of the Company;
WHEREAS, the Company wishes to grant to Participant an incentive stock
option to purchase common stock of the Company on the terms and conditions
specified herein to provide a means for the Participant to participate in the
future growth of the Company and to increase the Participant's incentive and
personal interest in the continued success and growth of the Company; and
NOW, THEREFORE, the parties agree as follows (any capitalized terms
used herein but not defined herein shall have the respective meanings given in
the Plan):
1. Option.
(a) Grant. Subject to the terms and conditions of this Agreement and
the Plan, the Company hereby grants to Participant an Incentive Stock Option to
purchase all or any part of the Shares set forth on the signature page hereof,
at the exercise price set forth on the signature page hereof. The Option is
intended to be an "incentive stock option" as defined in Section 422 of the
Code.
(b) Term. The term of the Option shall expire at 11:59 p.m. on the
date which is 10 years following the date of grant of the Option.
(c) Vesting. The Option shall vest as set forth in the following
table:
Years from Date of Cumulative Number of Shares
First Service as to which Option is Vested
------------- ----------------------------
After one year 20%
After two years 40%
After three years 60%
After four years 80%
After five years 100%
<PAGE>
2. Exercise. The Option may not be exercised prior to the date it is
vested or after the expiration date. Participant may, subject to the limitations
of this Agreement and the Plan, exercise all or any portion of the Option that
has vested pursuant to Section 1 hereof by providing written notice of exercise
to the Company specifying the number of Shares with respect to which the Option
is being exercised and accompanied by payment of the exercise price for such
Shares. The exercise price shall be paid in cash, by certified check or
cashier's check payable to the Company, or by the surrender of a whole number of
Shares (free of all adverse claims and duly endorsed in blank by Participant or
accompanied by stock powers duly endorsed in blank) having a Fair Market Value
on the date of exercise equal to the exercise price. Upon full payment of the
exercise price, the Company shall promptly deliver to the Participant a
certificate or certificates for the number of Shares in respect of which the
Option has been exercised, legended as described herein and as required by
applicable law. If any part of this Option is not permitted to be an Incentive
Stock Option under the Code, then with respect to such non-qualified portions of
the Option, the exercise price also may be paid by the surrender of the
unexercised, vested portion of the Option as to which the Spread (as hereinafter
defined) is equal to the exercise price. "Spread" means the Fair Market Value on
the date of exercise of the underlying Shares less the exercise price. No
portion of the Option may be exercised after it has expired pursuant to Section
1 hereof.
3. Termination of Employment.
(a) If the employment of Participant terminates by reason of
disability, Participant (or his or her legal representative) may exercise any
portion of the Option which has vested pursuant to Section 1 hereof for a period
of one year after the date of such termination of employment and not thereafter;
provided, however, that no Option or portion thereof shall be exercisable after
it has expired pursuant to Section 1 hereof. For purposes of this Agreement, the
term "disability" shall mean a total and permanent disability as determined by
the Board of Directors in its sole discretion.
(b) If the employment of Participant terminates by reason of death,
any unvested portion of the Option shall vest in full upon Participant's death,
and Participant's Beneficiary (as hereinafter defined) may exercise the Option
for a period of one year after the date of death and not thereafter; provided,
however, that no Option or portion thereof shall be exercisable after it has
expired pursuant to Section 1 hereof.
(c) If the employment of Participant is terminated by the Company
without Cause (as hereinafter defined) or is terminated by Participant for any
reason other than death or disability, Participant (or his or her legal
representative) may exercise any portion of the Option which has vested pursuant
to Section 1 hereof for a period of three months after the date of such
termination of employment and not thereafter; provided, however, that no Option
or portion thereof shall be exercisable after it has expired pursuant to Section
1 hereof.
-2-
<PAGE>
(d) If the employment of the Participant terminates for Cause, the
entire Option (whether vested or non-vested) shall immediately be forfeited and
become null and void. For purposes hereof, "Cause" shall mean material
nonfeasance, material malfeasance or material misfeasance on the part of the
Participant which, if susceptible of cure, shall continue after notice of the
default and a reasonable opportunity to cure.
4. Withholding. If any part of this Option is not permitted to be an
Incentive Stock Option under the Code, then the Participant agrees to pay to the
Company such amount as is requested by the Company for the purpose of satisfying
the Company's obligation to withhold federal, state or local taxes in connection
with any exercise of any non-qualified portion of this Option. The Participant
may elect to satisfy such withholding obligation, in whole or in part, (a) by
causing the Company to withhold Shares otherwise issuable pursuant to the
exercise of the Option or (b) by delivering to the Company Shares already owned
by the Participant. The Shares so delivered or withheld shall be a whole number,
have a Fair Market Value equal to such withholding obligation as of the date
that the amount of tax to be withheld is to be determined, shall be free of all
adverse claims, and shall be duly endorsed in blank by Participant or
accompanied by stock powers duly endorsed in blank.
5. Nonalienation. Participant shall have no rights to sell, assign,
transfer, pledge, assign or otherwise alienate the Option under this Agreement,
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of ERISA,
or the rules thereunder, and any such attempted sale, assignment, transfer,
pledge or other conveyance shall be null and void. The Option shall be
exercisable during the Participant's lifetime only by the Participant (or his or
her legal representative).
6. Beneficiary. The person whose name appears on the signature page
hereof after the caption "Beneficiary" or any successor designated by
Participant in accordance herewith (the person who is Participant's Beneficiary
at the time of his or her death is referred to as the "Beneficiary") shall be
entitled to exercise the Option, to the extent it is exercisable, after the
death of Participant. Participant may from time to time revoke or change his or
her Beneficiary designation without the consent of any prior Beneficiary by
filing a new designation with the Board of Directors. The last such designation
received by the Board of Directors shall be controlling; provided, however, that
no designation, or change or revocation thereof, shall be effective unless
received by the Board of Directors prior to Participant's death, and in no event
shall any designation be effective as of a date prior to such receipt. If no
Beneficiary designation is in effect at the time of Participant's death, or if
no designated Beneficiary survives Participant or if such designation conflicts
with law, Participant's estate shall be entitled to exercise the Option, to the
extent it is exercisable after the death of Optionee. If the Board of Directors
is in doubt as to the right of any person to exercise the Option, the Company
may refuse to recognize such exercise, without liability for any interest or
dividends on the underlying Shares, until the Board of Directors determines the
person entitled to exercise the Option, or the Company may file an interpleader
action with any court of appropriate jurisdiction and such application shall be
a complete discharge of the liability of the Company therefor.
-3-
<PAGE>
7. Securities Law Restrictions. The Participant acknowledges that he is
acquiring the Option and the Shares purchasable pursuant to the Option for
investment purposes only and not with a view to resale or other distribution
thereof to the public in violation of the Securities Act of 1933, as amended
(the "Act"). Participant agrees and acknowledges with respect to any Shares that
have not been registered under the Act, that (i) Participant will not sell or
otherwise dispose of such Shares except pursuant to an effective registration
statement under the Act and any applicable state securities laws, or in a
transaction which in the opinion of counsel for the Company, is exempt from such
registration, and (ii) a legend will be placed on the certificates for the
Shares to such effect.
8. Limited Interest.
-----------------
(a) The grant of the Option shall not be construed as giving
Participant any interest other than as provided in this Agreement.
(b) Participant shall have no rights as a shareholder as a result of
the grant of the Option, until the Option is exercised, the exercise price is
paid, and the Shares issued thereunder.
(c) The grant of the Option shall not confer on Participant any
right to continue as an employee, nor interfere in any way with the right of the
Company to terminate the Participant's employment at any time.
(d) The grant of the Option shall not affect in any way the right or
power of the Company to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company's capital
structure or its business, or any merger, consolidation or business combination
of the Company, or any issuance or modification of any term, condition, or
covenant of any bond, debenture, debt, preferred stock or other instrument ahead
of or affecting the Shares or the rights of the holders thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business or any other Company act or proceeding, whether
of a similar character or otherwise.
9. Incorporation by Reference. The terms of the Plan to the extent not
stated herein are expressly incorporated herein by reference and in the event of
any conflict between this Agreement and the Plan, the Plan shall govern.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
-4-
<PAGE>
11. Amendment. This Agreement may not be amended, modified, terminated
or otherwise altered except by the written consent of the parties hereto.
12. Counterparts. This Incentive Stock Option Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer and its corporate seal hereunto affixed,
and the Optionee has hereunto affixed his or her hand, all on the day and year
set forth below.
MORTGAGE.COM, INC.
By:___________________________________
Its:__________________________________
("Company")
______________________________________
Name:_________________________________
("Participant")
No. of Shares: __________ Grant Date: ___________
Exercise Price Per Share: $________ Initial Exercise Date: _______, _____
Date of Agreement: ____________ Option Expiration Date: ___________
Beneficiary:_______________________ Address of Beneficiary:
________________________________________
Beneficiary Tax Identification No.:
____________________________________ ________________________________________
-6-
SUPERIOR BANK WARRANT REPURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made as of May __, 1999 and is between
SUPERIOR BANK FSB, a federally chartered savings bank, with its principal place
of business at One Lincoln Center, Oakbrook Terrace, Illinois 60181 ("Superior")
and MORTGAGE.COM, INC. (formerly known as First Mortgage Network, Inc.), a
Florida corporation, with its principal place of business at 8751 Broward
Boulevard, Fifth Floor, Plantation, Florida 33324 ("Mortgage.com").
RECITALS
A. Superior is the owner of certain warrants to purchase common stock
of Mortgage.com described on Exhibit A hereto ("Warrants").
B. Mortgage.com and Superior are parties to an agreement dated as of
April 1, 1998 pursuant to which Mortgage.com is obligated, under certain
circumstances, to purchase the Warrants from Superior ("Warrant Put Option").
C. Mortgage.com is contemplating issuing $27,500,000 in aggregate
principal amount of 12% Senior Subordinated Convertible Notes (the "Bridge Note
Financing") and the potential investors desire that Mortgage.com provide for the
repurchase of the Warrants.
D. Because Superior holds a substantial warrant position in
Mortgage.com, it has an interest in facilitating the Bridge Note Financing to
enhance Mortgage.com's value.
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties agree as follows:
Section 1. Definitions. Capitalized terms used in this Agreement and
not otherwise defined herein have the meanings ascribed to them in the Warrant
Put Option, unless the context otherwise requires.
Section 2. Purchase and Sale of Warrants. Subject to Section 3 hereof,
the purchase and sale of the Warrants shall occur as follows:
(a) Stage 1. Upon the closing of the Bridge Note Financing,
Mortgage.com will purchase, and Superior will sell, a Warrant to
purchase 100,000 shares of Mortgage.com common stock having an exercise
price of $5.00 per share (the "First Stage Warrant"). The purchase
price for the First Stage Warrant shall be $6,000,000.
(b) Stage 2. Upon the closing of the Bridge Note Financing,
then on or before June 30, 1999, Mortgage.com will purchase, and
Superior will sell, a Warrant to purchase 100,000 shares of
Mortgage.com common stock having an exercise price of $5.00 per share
(the "Second Stage Warrant"). The purchase price for the Second Stage
Warrant shall be $6,000,000. Mortgage.com shall deliver to Superior a
1
<PAGE>
written notice setting forth the closing date (the "Second Stage
Closing Date") for the purchase of the Second Stage Warrant. The Second
Stage Closing Date shall be not later than June 30, 1999 and the notice
of closing date provided to Superior shall be delivered to Superior not
less than 5 business days prior to the Second Stage Closing Date.
(c) Stage 3. Mortgage.com shall have an option to purchase,
and upon exercise of the option Superior will sell, Warrants to
purchase 200,000 shares of Mortgage.com common stock having an exercise
price of $5.00 per share and a Warrant to purchase 100,000 shares of
Mortgage.com common stock having an exercise price of $7.50 per share
(the "Third Stage Warrants"). The aggregate purchase price for the
Third Stage Warrants shall be $13,000,000. To exercise its option to
purchase the Third Stage Warrants, Mortgage.com shall deliver to
Superior a written notice of exercise which includes the closing date
(the "Third Stage Closing Date") for the purchase of the Third Stage
Warrants. The Third Stage Closing Date shall be not later than
September 30, 1999, and the notice of exercise shall be delivered to
Superior not less than 5 business days prior to the Third Stage Closing
Date.
Section 3. Purchase of Warrants Upon IPO or Business Combination.
Notwithstanding the purchase schedule contained in Section 2, in the event of a
sale by Mortgage.com of common stock in a Qualified Initial Public Offering,
Superior agrees to sell, and Mortgage.com agrees to purchase, the Warrants at
the purchase prices described in Section 2. For purposes of this Agreement, a
Qualified Initial Public Offering shall mean a sale for cash by Mortgage.com of
Mortgage.com common stock in an underwritten public offering registered with the
Securities and Exchange Commission on Form S-1 in which the price of the common
stock is not less than $10 per share (as adjusted for stock splits or stock
consolidations after the date hereof), and which closes on or prior to September
30, 1999.
Notwithstanding the purchase schedule contained in Section 2, in the
event of a Qualified Business Combination, Superior agrees to sell, and
Mortgage.com agrees to purchase, the Warrants at the purchase prices described
in Section 2. For purposes of this Agreement, a Qualified Business Combination
shall mean a merger, reverse merger, consolidation or other business combination
which results in the issuance or acquisition of equity rights, or options,
warrants or other entitlements to equity interests, equal to, individually or
cumulatively, 25% or more of the outstanding equity interests of Mortgage.com or
any successor by merger, consolidation or otherwise (on a fully diluted basis),
at a price which values the then existing equity interests of Mortgage.com or
any successor by merger, consolidation or otherwise (on a fully diluted basis)
at $10.00 or more a share, and which closes or becomes effective on or prior to
September 30, 1999.
Section 4. Payment of Purchase Price for Warrants; Closing Dates. The
purchase price for the Warrants shall be paid by wire transfer of immediately
available funds to a bank account designated for that purpose by Superior and
Superior shall deliver to Mortgage.com the executed original agreements
evidencing the Warrants duly endorsed in blank by Superior. Mortgage.com's
payment of the purchase price, and Superior's delivery of the agreements, shall
occur (A) if the purchase occurs under Section 2: (i) as to the First Stage
2
<PAGE>
Warrants, not later than 5 business days following the closing of the Bridge
Note Financing, (ii) as to the Second Stage Warrants, not later than the Second
Stage Closing Date, and (iii) as to the Third Stage Warrants, not later than the
Third Stage Closing Date; and (B) if a purchase occurs under Section 3: not more
than 5 business days following the closing of the Qualified Initial Public
Offering or the closing or effective date of the Qualified Business Combination.
Section 5. Termination. This Agreement shall terminate and be of no
further force and effect at midnight on September 30, 1999, and neither party
hereto shall thereafter have any rights or obligations hereunder; provided,
however, that such termination shall not relieve any party of liability for
breach of the terms hereof.
Section 6. Effect on Other Agreements.
(a) So long as this Agreement is in effect, this Agreement
supersedes the Warrant Put Option with respect to the put and purchase
of the Warrants. Upon termination of this Agreement, the Warrant Put
Option shall be fully enforceable in accordance with its terms.
(b) Execution of this Agreement shall constitute a termination
of the Warrant Repurchase Agreement dated as of March 26, 1999 (the
"Repurchase Agreement"), and the Repurchase Agreement shall be of no
further force and effect following execution of this Agreement.
(c) This Agreement does not modify, amend or otherwise alter
the rights of the parties under the Sale and Marketing Agreement dated
as of April 28, 1995. Except as provided in Section 7, this Agreement
does not affect the Software Rights held by Superior.
Section 7. Waiver of Material Transaction Event; Purchase of Software
Rights. Superior agrees that the Bridge Note Financing shall not constitute a
"Material Transaction Event" under the Warrant Put Option, provided that
Mortgage.com uses $3.5 million of the proceeds from the Bridge Note Financing to
purchase the Software Rights, together with all enhancements thereof (other than
separable non-generic enhancements produced by or for Superior) and updates
thereto, which purchase shall be subject to the retention by Superior of the
Superior Retained Software Rights. The closing of the purchase of the Software
rights shall take place on the First Stage Closing Date. This waiver of a
Material Transaction Event shall apply solely to the Bridge Note Financing under
the circumstances described above, but shall not constitute a waiver of any
other Material Transaction Event.
For example, if prior to termination of this Agreement there is a
Material Transaction Event (other than the Bridge Note Financing to the extent
it is waived), such Material Transaction Event shall not trigger Superior's put
option under the Warrant Put Option, in accordance with the first sentence of
Section 6(a). However, if following the termination of this Agreement any
portion of the Warrants remain outstanding, Superior shall have all of its
rights under the Warrant put option, in accordance with the second sentence of
Section 6(a), and any Material Transaction Event (other than the Bridge Note
Financing to the extent it is waived) occurring prior to or after the
3
<PAGE>
termination of this Agreement shall trigger Superior's put option under the
Warrant Put Option in accordance with its terms.
Section 8. Notices. All demands, notices and communications concerning
this Agreement shall be in writing and shall be deemed to be duly given if
personally delivered at or mailed by certified mail or registered mail, postage
prepaid or sent by federal express or other comparable overnight courier service
to the intended party at the address set forth at the beginning of this
Agreement for such party or to such other address as may hereinafter be
furnished by either party to the other party in the manner herein provided. Any
such notice shall be deemed effective upon receipt or refusal of the intended
party to accept delivery thereof.
Section 9. Jurisdiction. THIS AGREEMENT IS DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY THE LAW OF THE STATE OF ILLINOIS. ANY LITIGATION BASED ON
THIS AGREEMENT, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR
ANY DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT OR IN
FURTHERANCE HEREOF, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) BETWEEN THE PARTIES SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT ILLINOIS. EACH OF THE PARTIES HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY
SUCH LITIGATION BROUGHT IN SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY
SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORM. EACH OF THE PARTIES
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING OUT OF OR WITH RESPECT
TO THIS AGREEMENT AND THE TRANSACTIONS PROVIDED FOR AND CONTEMPLATED HEREIN. TO
THE EXTENT EITHER PARTY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION FROM ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE
OR NOTICE, ATTACHMENT PRIOR TO, IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT
TO ITSELF OR ITS PROPERTY, THEN TO THE EXTENT PERMITTED BY LAW, IT HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND ANY OTHER DOCUMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT OR
IN FURTHERANCE OF THIS AGREEMENT.
Section 10. Counterparts. This Agreement may be executed by each of the
parties on separate counterparts which together shall constitute a single
binding Agreement with the same force and effect as if the signatures of both
parties appeared on the same counterpart signature page.
4
<PAGE>
Section 11. Remedies. The parties agree that in addition to any other
remedies available under applicable law in the event of a breach of this
Agreement, each party shall have the right to obtain appropriate injunctive
relief against the party in breach.
Section 12. Negotiation of Parties. This Agreement has been fully
negotiated by the parties and their respective counsel and has been jointly
drafted by Mortgage.com and Superior and shall be construed accordingly.
Section 13. Headings. The headings of the sections of this Agreement
are for ease of reference and shall not be deemed to be a part of this
Agreement.
Section 14. Successors. This Agreement shall be binding upon and shall
inure to the benefit of the respective successors and assigns of Mortgage.com
and Superior.
IN WITNESS WHEREOF, Superior and Mortgage.com have executed this
Agreement as of the date stated at the beginning of this Agreement.
MORTGAGE.COM, INC.
By:___________________________________________
Seth Werner, Chairman and CEO
SUPERIOR BANK FSB
By:___________________________________________
William C. Bracken, Senior Vice President
and Chief Financial Officer
5
<PAGE>
EXHIBIT A
Schedule of common stock Warrants Owned By Superior
1. Amended and Restated common stock Warrant dated April 1, 1998
for 100,000 shares of First Mortgage Network, Inc. common
stock with an initial exercise price of $5.00 per share.
2. common stock Warrant dated April 1, 1998 for 300,000 shares of
First Mortgage Network, Inc. common stock with an initial
exercise price of $5.00 per share.
3. common stock Warrant dated April 1, 1998 for 100,000 shares of
First Mortgage Network, Inc. common stock with an initial
exercise price of $7.50 per share.
AGREEMENT
This agreement ("Agreement") is made as of April 1, 1998 and is between
Superior Bank FSB, a federally chartered savings bank with its principal place
of business at One Lincoln Center, Oakbrook Terrace, Illinois 60181 ("Superior")
and First Mortgage Network, Inc., a Florida corporation with an address and
principal place of business at 8751 Broward Boulevard, 5th Floor, Plantation,
Florida 33324 ("FMN").
RECITALS:
WHEREAS, FMN as seller and Superior as purchaser entered into an
agreement dated April 28, 1995, as amended by a letter agreement dated June 7,
1995 and further amended by an amendment to agreement dated as of February 29,
1996 (such agreement, as amended by such amendments is hereinafter referred to
as the "Sale and Marketing Agreement"), pursuant to which, among other things,
Superior purchased the Software Rights (subject to FMN's permitted use of
certain Seller Retained Rights as defined in the Sale and Marketing Agreement,
on the terms provided therein), and acquired the stock warrants issued by FMN
listed and described on Exhibit A hereto (the "Warrants") entitling Superior to
Purchase shares of common stock of FMN on the terms therein provided; and
WHEREAS, FMN desires to acquire a call option from Superior on the
Software Rights, subject to Superior's retention of certain rights in and with
respect to the Software Rights for itself and its Affiliates and their
respective successors and assigns; and
WHEREAS, in consideration of and to induce Superior to grant to FMN a
call option on the Software Rights, FMN covenants and agrees to purchase the
Software Rights from Superior upon the occurrence of one or more Material
Transaction Events, as hereinafter defined, subject to the retention by Superior
and its Affiliates and their respective successors and assigns of certain rights
in and with respect to the Software Rights; and
1
<PAGE>
WHEREAS, FMN and Superior wish to confirm and memorialize the terms of
the foregoing agreements as well as certain other agreements between them with
respect to the Warrants and other matters;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth the parties agree as follows: Section 1. The
following terms, when used in this Agreement, have the meanings indicated below,
unless the context otherwise requires. Capitalized terms used in this Agreement
and not otherwise defined herein have the meaning ascribed to them in the Sale
and Marketing Agreement, unless the context otherwise requires:
Affiliate: means, as to any Person, any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by or is
under common control with such Person.
Agreement: means this Agreement, including all exhibits hereto and any
subsequent amendments hereto or modifications hereof.
Business Day: means a day in which banks are not required or authorized
to close in New York City and Illinois.
Call Option Closing Date: is defined in Section 3.
Call Option Exercise Notice: is defined in Section 3.
$5.00 Warrants: Warrants that provide for a $5.00 per share exercise
price.
FMN: is identified and defined in the beginning of this Agreement.
FMN'S Call Option: is defined in Section 3.
2
<PAGE>
Material Transaction Event: means any of the following events: (i) any
one or more public and/or private placements of new debt or equity, or other
transactions, including by way of example and not of limitation, a merger,
reverse merger, or consolidation, which results in the issuance or acquisition
of equity rights, or options, warrants or other entitlements to equity
interests, equal to, individually or cumulatively, 25% or more of the
outstanding equity interests of FMN or any successor by merger, consolidation or
otherwise (on a fully diluted basis), at a price which values the then existing
equity interests of FMN or any successor by merger, consolidation or otherwise
(on a fully diluted basis) at $10.00 or more a share; or (ii) any one or more
sales and/or exchanges (on an individual or cumulative basis) of substantially
all the assets of FMN, the proceeds of which, if fully distributed to FMN's
equity interest holders (and whether or not so distributed), would result in
proceeds to the equity interest holders of Seller (on a fully diluted basis) of
$ 10.00 or more per share.
Material Transaction Event Closing Date: is defined in Section 4.
Person: means an individual, corporation, partnership, limited
liability company, limited liability partnership, association, joint-stock
company, trust, unincorporated organization, joint venture or government
authority or other regulatory body.
$7.50 Warrants: Warrants that provide for a $7.50 per share exercise
price.
Software Rights: is defined in the Sale and Marketing Agreement,
provided, however, that the Warrants, and rights under and in respect of the
Warrants, are separate from and not part of, the Software Rights.
3
<PAGE>
Subsequent Warrants: The Warrants listed in items 2 and 3 on Exhibit A
to this Agreement.
Software Rights Acquisition Price: means an amount designated by
Superior, in its sole discretion, which amount shall not be less than
$2,200,000.00 nor more than $3,500,000.00.
Superior: is identified and defined in the beginning of this
Agreement.
Superior Retained Software Rights: means, in the event of a sale by
Superior to FMN of the Software Rights pursuant to Section 3 or Section 4
hereof, a perpetual and non-revocable license retained by Superior and
Superior's Affiliates to use the Software Rights in its and their respective
businesses. The Superior Retained Software Rights do not include the right of
Superior or Superior's Affiliates to further license the Software Rights to
third parties. The Superior Retained Software Rights include the obligation of
Superior to pay ongoing maintenance and membership fees to FMN equal to FMN's
lowest charges to members of the FMN Network requiring a support level
equivalent to that needed by Superior. The Superior Retained Software Rights
also entitle Superior and its Affiliates to receive all updates to the Software
Rights for no charge other than installation and training costs, which services
may be requested by Superior, and its Affiliates.
Superior's Unrestricted Rights: means, prior to the acquisition by FMN
of the Software Rights pursuant to Section 3 or Section 4 of this Agreement, the
rights conveyed pursuant to the Sale and Marketing Agreement to Superior and its
Affiliates to (i) modify, augment, exploit and use the Software Rights in any
and every way (except as set forth in the immediately following clause (ii) of
this definition prior to the occurrence of a Trigger Event) and (ii) upon and
after the occurrence of a Trigger Event, the additional rights to sell, convey,
give away, alienate and/or license the Software Rights to others.
4
<PAGE>
Transaction Share Valuation: means, as applicable, the per share value
of $10.00 or more resulting to FMN's equity holders from a transaction described
in the definition of Material Transaction Event.
Warrants: is defined in first Recital.
Warrants Purchase Price: means a price equal to the sum of (1) (a) the
aggregate number of shares of common stock purchasable under the $5.00 Warrants
multiplied by (b) the difference between the Transaction Share Valuation and
$5.00 and (2)(a) the aggregate number of shares of common stock purchasable
under the $7.50 Warrants multiplied by (b) the difference between the
Transaction Share Valuation and $7.50.
Section 2. FMN and Superior confirm and agree that the Warrants have
been fully paid for and validly issued to Superior and are in full force and
effect without defense or offset. FMN represents and warrants to Superior that
since the date of the Sale and Marketing Agreement, April 28, 1995, no event has
occurred which would have resulted in an adjustment to the number of shares of
FMN common stock issuable pursuant to the Subsequent Warrants or the exercise
price thereof as a result of the antidilution adjustment provisions of Section 5
of the Subsequent Warrants if the Subsequent Warrants had been issued on April
28, 1 995.
Section 3. Superior hereby grants to FMN, subject to (i) FMN's purchase
obligation under Section 4 below, and (ii) Superior's Unrestricted Rights, a
nontransferrable option to purchase the Software Rights (which purchase shall be
subject to the retention by Superior of Superior's Retained Software Rights).
Such purchase option, on the terms set forth in this Section 3, is "FMN's Call
Option." FMN's Call Option is
5
<PAGE>
exercisable by FMN providing to Superior a written notice of election to
exercise FMN's Call Option, which written notice must be in the form of exhibit
B hereto (the "Call Option Exercise Notice"), not more than 60 days nor fewer
than 30 days before the scheduled closing date for the purchase, which purchase
date shall be designated in the Call Option Exercise Notice (the "Call Option
Closing Date"). The Call Option Closing Date shall be a Business Day. On the
Call Option Closing Date, FMN shall pay the Software Rights Acquisition Price to
Superior by bank wire of immediately available funds to an account designated
for such purpose by Superior. Superior shall, upon receipt of such payment,
execute and deliver an assignment of the Software Rights to FMN which assignment
shall be in the form of Exhibit C hereto. Superior and FMN each agree to
promptly execute and deliver such further documentation, consistent with the
provisions of this Agreement, to confirm the sale and transfer of the Software
Rights by Superior to FMN and the retention by Superior of the Superior Retained
Software Rights, as the other each may reasonably request. Notwithstanding the
foregoing, Superior shall, within five (5) Business days following its receipt
of the Call Option Exercise Notice, deliver to FMN a written statement of the
Software Rights Acquisition Price applicable to FMN's purchase and FMN may,
within five (5) Business days following receipt of Superior's statement of the
applicable Software Rights Acquisition Price, withdraw its Call Option Exercise
Notice, whereupon such Call Option Exercise Notice shall be void and of no
effect; provided, however, that such withdrawal by FMN of the Call Option
Exercise Notice shall be without prejudice to FMN's right to deliver Call Option
Exercise Notice(s) in the future.
6
<PAGE>
Section 4. FMN covenants and agrees that, at Superior's option; either
contemporaneously with the occurrence of a Material Transaction Event or at a
later date designated by Superior (as applicable, the "Material Transaction
Event Closing Date"), FMN shall purchase the Software Rights from Superior,
subject to the retention by Superior of Superior's Retained Software Rights. The
purchase price shall be the Software Rights Acquisition Price which shall be
paid to Superior on the Material Transaction Event Closing Date by wire transfer
of immediately available funds to an account designated for such purpose by
Superior. Superior shall, upon receipt of the Software Rights Acquisition Price,
execute and deliver an assignment of the Software Rights to FMN, which
assignment shall be in the form of Exhibit C hereto. Superior and FMN each agree
to promptly execute and deliver such further documentation, consistent with the
provisions of this Agreement, to confirm the sale and transfer of the Software
Rights to FMN and the retention by Superior of the Superior Retained Software
Rights, as the other shall reasonably request. FMN covenants and agrees to
provide to Superior, not fewer than ten (10) Business Days prior notice of a
contemplated Material Transaction Event. Within five (5) Business Days after its
receipt of such notice, Superior will advise FMN whether it elects to require
FMN to purchase the Software Rights as provided in this Section 4 on the date of
the scheduled Material Transaction Event and the Software Rights Acquisition
Price applicable thereto or whether it reserves its right to require FMN to
purchase the Software Rights at a later date to be subsequently designated by
Superior in writing. If Superior reserves its right to require FMN to purchase
the Software Rights at a later date a subsequent notice given by Superior
exercising such right shall provide FMN with not fewer than 30 days notice of
the Material Transaction Event Closing Date and the Software Rights Acquisition
Price applicable thereto and Superior will not be deemed to have exercised its
option hereunder unless and until the delivery to FMN of such subsequent notice.
7
<PAGE>
Section 5. Superior's Unrestricted Rights continue, until such time, if
ever, as FMN consummates the purchase of the Software Rights pursuant to either
Section 3 or Section 4 above.
Section 6. In the event Superior elects to sell, transfer or otherwise
convey some all or of the Warrants to a third party which is not an Affiliate of
Superior, FMN shall have a right of first refusal to purchase such Warrants (the
"Offered Warrants") on the following terms (the "FMN Warrants Right of First
Refusal"). Superior shall provide FMN with written notice of its proposed sale,
transfer or conveyance and of the price and other material terms of such sale,
transfer or conveyance. FMN shall have the right to purchase the Offered
Warrants at the same price and on the same terms as offered to such
non-Affiliate third party. FMN shall have ten (10) Business Days after receipt
of Superior's notice of proposed sale, transfer or conveyance to elect, by
written notice delivered to Superior prior to the expiration of such ten (10)
Business Day period, to notify Superior of its election to exercise the FMN
Warrants Right of First Refusal. If FMN fails to timely notify Superior of its
election to exercise the FMN Warrants Right of First Refusal (or in the event
FMN timely makes such election but fails to timely consummate the purchase) the
FMN Warrants Right of First Refusal shall automatically terminate with respect
to the Offered Warrants and Superior may thereupon proceed with the contemplated
sale, transfer or conveyance of the Offered Warrants to a non-Affiliate, free of
8
<PAGE>
the FMN Warrants Rights of First Refusal. If Superior does not consummate the
sale, transfer or conveyance of the Offered Warrants on substantially the terms
set forth in the notice to FMN of the proposed sale, transfer or conveyance,
within ninety (90) days after, as applicable, (a) the expiration of the ten (10)
Business Day notice period, in the circumstance when FMN fails to timely elect
to exercise the FMN Warrants Right of First Refusal, and (b) the Designated
Closing Date (defined below), in the circumstance where FMN timely elects to
exercise the FMN Right of First Refusal, but fails to close on the Designated
Closing Date (or any adjourned Designated Closing Date agreed to in writing by
Superior), the FMN Warrants Right of First Refusal shall thereupon be reinstated
with respect to the Offered Warrants. In the event FMN timely exercises the FMN
Warrants Right of First Refusal, the parties shall close the sale on the terms
and at the price set forth in Superior's notice of the proposed sale. Closing
shall take place on a Business Day designated in writing by Superior (the
"Designated Closing Date") which Designated Closing Date shall not be fewer than
thirty (30) nor more than ninety (90) days after Superior's receipt of FMN's
notice of its election to exercise the FMN Warrants Right of First Refusal.
Section 7. Upon the occurrence of a Material Transaction Event FMN
shall, at Superior's option, either contemporaneously with the occurrence of a
Material Transaction Event or at a later date designated by Superior, purchase
from Superior and Superior's Affiliates all of the Warrants, if any, then owned
by Superior and Superior's Affiliates for the Warrants Purchase Price. If, as of
the Material Transaction Event Closing Date, Superior and its Affiliate shall
own fewer than all the Warrants, the Warrants Purchase Price shall be prorated
accordingly. The Warrants Purchase Price shall be paid on the Material
Transaction Event Closing Date by wire transfer of immediately available funds
to a bank account designated for that purpose by Superior. Upon receipt of the
Warrants Purchase Price, Superior shall surrender the Warrants so purchased to
FMN. FMN covenants
9
<PAGE>
and agrees to provide to Superior, not fewer than ten (10) Business Days prior
notice of a contemplated Material Transaction Event. Within five (5) Business
Days after its receipt of such notice Superior will advise FMN of whether it
elects to require FMN to purchase the Warrants as provided in this Section 7 on
the date of the scheduled Material Transaction Event or whether it reserves its
right to require FMN to purchase the Warrants at a later date to be subsequently
designated by Superior in writing. If Superior reserves its right to require FMN
to purchase the Warrants at a later date a subsequent notice given by Superior
exercising such right shall provide FMN not fewer than 30 days notice of the
Material Transaction Event Closing Date and Superior will not be deemed to have
exercised its option hereunder unless and until the delivery to FMN of such
subsequent notice.
Section 8. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or on unenforceability without invalidating
the remaining provisions of this Agreement and any such prohibition or
enforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.
Section 9. This Agreement contains the complete and final understanding
and agreement of FMN and Superior with respect to the subject matter hereof and
may not be amended or otherwise changed except in a writing signed by the party
to be charged with any such amendment or change. This Agreement supersedes the
provisions of the Sale and Marketing Agreement to the extent they are
inconsistent with the provisions hereof. Without limiting the generality of the
foregoing, it is agreed that the Warrants described on Exhibit A hereto are all
of the Warrants to which Superior is entitled pursuant to the provisions of the
Sale and Marketing Agreement.
10
<PAGE>
Section 10. All demands, notices and communications concerning this
Agreement shall be in writing and shall be deemed to be duly given if personally
delivered at or mailed by certified mail or registered mail, postage prepaid or
sent by Federal Express or by other comparable overnight courier service, to the
intended party at the address set forth at the beginning of this Agreement for
such party or to such other address as may hereinafter be furnished by either
party to the other party in the manner herein provided. Any such notice shall be
deemed effective upon receipt or refusal of the intended party to accept
delivery thereof.
Section 11. THIS AGREEMENT IS DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE LAW OF THE STATE OF ILLINOIS. ANY LITIGATION BASED ON THIS
AGREEMENT, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT OR IN
FURTHERANCE HEREOF, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) BETWEEN THE PARTIES SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT ILLINOIS. EACH OF THE PARTIES HEREBY
11
<PAGE>
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OR VENUE OF ANY
SUCH LITIGATION BROUGHT IN SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY
SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORM. EACH OF THE PARTIES
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING OUT OF OR WITH RESPECT
TO THIS AGREEMENT AND THE TRANSACTIONS PROVIDED FOR AND CONTEMPLATED HEREIN. TO
THE EXTENT EITHER PARTY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION FROM ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE
OR NOTICE, ATTACHMENT PRIOR TO, IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT
TO ITSELF OR ITS PROPERTY, THEN TO THE EXTENT PERMITTED BY LAW, IT HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND ANY OTHER DOCUMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT OR
IN FURTHERANCE OF THIS AGREEMENT.
Section 12. This Agreement may be executed by each of the parties on
separate counterparts which together shall constitute a single binding Agreement
with the same force and effect as if the signatures of both parties appeared on
the same counterpart signature page.
Section 13. FMN agrees that in addition to any other remedies available
to Superior under applicable law in the event of a breach by FMN of this
Agreement, Superior shall have the right to obtain appropriate injunctive relief
against FMN.
12
<PAGE>
Section 14. This Agreement has been fully negotiated by the parties and
their respective counsel and has been jointly drafted by FMN and Superior and
shall be construed accordingly.
Section 15. This Agreement does not create, nor shall any provision
hereof be construed to create a joint venture or partnership between Superior
and FMN.
Section 16. FMN shall not, without Superior's prior written consent,
sell, assign, transfer, convey, encumber or give away or permit to be
transferred, encumbered or conveyed by operation of law or otherwise, FMN's Call
Option and/or the FMN Warrants Right of First Refusal and such call option and
right of first refusal shall become null and void and of no force and effect, in
the event of any voluntary or involuntary purported sale, assignment, transfer,
conveyance, encumbrance, giving away or other transfer thereof or of any
interest therein, made or attempted or suffered to occur by operation of law or
otherwise, without Superior's express prior written consent. Except to the
extent limited by the preceding sentence, this Agreement shall be binding upon
and shall insure to the benefit of the respective successors and assigns of FMN
and Superior.
IN WITNESS WHEREOF, Superior and FMN have executed this Agreement as of
the dates stated at the beginning of this Agreement.
First Mortgage Network, Inc.
By:______________________________________
Seth Werner, Chairman
Superior Bank FSB
By:______________________________________
William C. Bracken,
S.V.P. & Chief Financial Officer
13
<PAGE>
EXHIBIT A
1. Amended and Restated Common stock Warrant dated April 1, 1 998 for
100,000 shares of FMN Common Stock with an initial exercise price of
$5.00 per share.
2. Common Stock Warrant dated April 1, 1 998 for 300,000 shares of FMN
Common Stock with an initial exercise price of $5.00 per share.
3. Common Stock Warrant dated April 1, 1998 for 100,000 shares of FMN
Common Stock with an initial exercise price of $7.50 per share.
<PAGE>
EXHIBIT B
Form of Call Option Exercise Notice
Superior Bank FSB
One Lincoln Center
Oak Brook Terrace, Illinois 60181
Attn: Chief Financial Officer
[Date]
Re: Agreement dated as of April 1, 1 998 between Superior Bank FSB
("Superior") and First Mortgage Network. Inc. ("FM N") (the
"Agreement")
Gentlemen:
Pursuant to Section 3 of the Agreement, FMN hereby gives you notice of
FM N's election to exercise FMN's Call Option. FMN hereby designates
____________________ as the Call Option Closing Date.
Capitalized terms used in this letter and not otherwise defined herein,
have the meanings ascribed to them in the Agreement.
Very truly yours,
First Mortgage Network, Inc.
By:________________________
Name:______________________
Title:_____________________
<PAGE>
EXHIBIT C
Form of Assignment of Software Rights
ASSIGNMENT
Assignment ("Assignment") made as of this __ day of _____________,
between Superior Bank FSB as ("Assignor") and First Mortgage Network, Inc. (as
"Assignee").
Reference is made to the Agreement dated as of April 1, 1998 between
Assignor and Assignee (the "Agreement"). Pursuant to Section 3 of the Agreement,
Assignor has exercised FMN's Call Option and paid to Assignor the Software
Rights Acquisition Price. In consideration therefor, Assignor does hereby assign
the Software Rights to Assignee, subject to Assignor's retention of Superior's
Retained Software Rights. Assignee hereby ratifies and confirms Assignor's
retention of Superior's Retained Software Rights.
Capitalized terms used herein and not otherwise defined herein, have
the meanings ascribed to them in the Agreement.
THIS WARRANT HAS BEEN ISSUED TO THE HOLDER THEREOF IN RELIANCE UPON ITS
INVESTMENT REPRESENTATIONS TO THE COMPANY AND MAY NOT BE TRANSFERRED TO ANOTHER
PERSON EXCEPT IN ACCORDANCE WITH THE TRANSFER RESTRICTIONS SET FORTH IN SECTION
2.
THE TRANSFER OF THIS WARRANT IS SUBJECT TO A RIGHT OF FIRST REFUSAL IN FAVOR OF
THE COMPANY SET FORTH IN AN AGREEMENT DATED APRIL 1, 1998 BETWEEN THE COMPANY
AND SUPERIOR BANK, FSB.
April 1, 1998
COMMON STOCK WARRANT
To Purchase 300,000 Shares of Common Stock of
FIRST MORTGAGE NETWORK, INC.
THIS CERTIFIES THAT, in consideration for payment of good and valuable
consideration to First Mortgage Network, Inc., a Florida corporation (the
"Company"), Superior Bank, FSB, a federally chartered savings bank or registered
assigns is entitled to subscribe for and purchase from the Company, subject to
the following terms and conditions, at any time in perpetuity, THREE HUNDRED
THOUSAND (300,000) fully-paid and nonassessable shares (the "Shares") of the
Company's Common Stock, $0.01 par value, at the price of FIVE DOLLARS AND NO/100
($5.00) per share, subject to adjustments described herein.
1. Exercise. The rights represented by this Warrant may be exercised by
the registered holder hereof, in whole or in part (but not as to a fractional
share of Common Stock), by the surrender of this Warrant at the principal office
of the Company, on the intended date of the exercise, together with a duly
completed form of exercise and a check for the purchase price for the number of
Shares being purchased.
As a condition to the issuance by the Company of the Shares pursuant to
this Warrant, the holder, if requested by the Company, shall provide a letter in
which the holder (a) represents that the Shares are being acquired for
investment and not resale and makes such other representations as may be
necessary or appropriate to qualify the issuance of the Shares as exempt from
the Securities Act of 1933 and any other applicable securities laws, and (b)
represents that the holder shall not dispose of the Shares in violation of the
Securities Act of 1933 or any other applicable securities laws. The Company
reserves the right to place a legend on all stock certificates issued pursuant
to the exercise of this Warrant to assure compliance with the foregoing.
[Subsequent Warrant]
<PAGE>
The holder is aware that the Company is relying, and presently intends to
continue relying, upon exemptions from the securities registration requirements
of federal and state securities laws in the issuance of this Warrant and in the
issuance of the Shares. If, when this Warrant is exercised, appropriate
exemptions from registration are not available under federal and state
securities laws, the exercise shall not be consummated on the intended date of
exercise specified in the holder's written notice of exercise and no Shares
shall be issued to the holder unless and until such exemptions are available.
The holder agrees to execute such documents and make such representations,
warranties and agreements as may be required in order to comply with the
exemption(s) relied upon by the Company for the issuance of Shares.
2. Transferability. This Warrant may be transferred or divided into two
or more Warrants of smaller denomination, subject to (a) a right of first
refusal in favor of the Company set forth in an Agreement dated April 1, 1998
between the Company and Superior Bank, FSB, and (b) the following conditions.
The holder of this Warrant, by acceptance hereof, agrees to give written notice
to the Company before transferring this Warrant, or transferring any Shares, of
such holder's intention to do so, describing briefly the manner of the proposed
transfer. Promptly upon receiving such written notice, the Company shall present
copies thereof to the Company's counsel. If in the opinion of the Company's
counsel the proposed transfer may be effected without constituting a violation
of applicable federal and state securities laws, then the Company, as promptly
as practicable, shall notify such holder of such opinion, whereupon such holder
shall be entitled to transfer this Warrant or to dispose of any of the Shares
received upon the previous exercise of the Warrant, provided that an appropriate
legend may be endorsed on this Warrant or the certificates for any of the Shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of the Company's counsel to prevent further transfers which would be in
violation of the securities laws or adversely affect the exemptions relied upon
by the Company. To such effect, the Company may request that the intended
transferee execute an investment letter reasonably satisfactory to the Company
and its counsel.
A register of the issuance and transfer of this Warrant shall be kept at
the offices of the Company, and this Warrant may be transferred only on the
books of the Company maintained at its office. Each transfer shall be in writing
signed by the then-registered holder hereof or the holder's legal
representatives or successors, and no transfer hereof shall be binding upon the
Company unless in writing and duly registered on the register maintained at the
Company's offices. Upon transfer of this Warrant, the transferee, by accepting
the Warrant, agrees to be bound by the terms and conditions of this Warrant and
the investment letter, if any, required by the Company.
If in the opinion of the Company's counsel the proposed transfer or
disposition of the Warrant or the Shares described in the holder's written
notice given pursuant to this Section 2 may not be effected without registration
or without adversely affecting the exemptions relied upon by the Company, the
Company shall promptly give written notice to the holder and the holder will
limit its activities and restrict its transfer accordingly.
2 [Subsequent Warrant]
<PAGE>
3. Issuance of Shares. The Company agrees that the Shares purchased upon
exercise of this Warrant shall be deemed to be issued to the record holder
hereof as of the close of business on the date on which this Warrant shall have
been surrendered and the payment made for such Shares as aforesaid. Subject to
the provisions of Section 4, certificates for the Shares so purchased shall be
delivered to the holder hereof within a reasonable time after the exercise of
this Warrant has been so consummated, and a new Warrant representing the number
of Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be delivered to the holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for Shares upon exercise of this Warrant, except in
accordance with the provisions, and subject to the limitations, of Section 1
hereof.
4. Covenants of Company. The Company covenants and agrees that all Shares
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized and issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and without limiting the generality of the foregoing, the Company covenants and
agrees that it will from time to time take all such action as may be required to
assure that the par value per share of the Common Stock is at all times equal to
or less than the then-effective purchase price per share of the Common Stock
issuable upon exercise of this Warrant. The Company further covenants and agrees
that the Company will at all times have authorized, and reserved for issuance
upon exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
5. Anti-Dilution Adjustments. The above provisions are, however, subject
to the following:
(a) In case the Company shall (i) pay a stock dividend or make a
distribution to holders of its Common Stock in shares of Common Stock or in
securities or debt convertible into Common Stock, (ii) subdivide
outstanding shares of Common Stock into a larger number of shares or (iii)
combine outstanding shares of Common Stock into a smaller number of shares,
the number of Shares purchasable upon exercise of this Warrant immediately
prior thereto shall be adjusted retroactively so that when thereafter
exercised this Warrant shall entitle the holder to receive the number of
Shares which the holder would have owned immediately following such event
had such Warrant been exercised immediately prior to the happening of such
event (or prior to the record date with respect thereto). An adjustment
made pursuant to this subsection (a) shall become effective retroactively
immediately after the record date in the case of a dividend or distribution
and shall become effective immediately after the effective date in the case
of a subdivision or combination.
(b) Whenever the number of Shares purchasable upon the exercise of any
Warrant is adjusted, as provided in subsection (a) above, the exercise
price of this Warrant shall be adjusted by multiplying the exercise price
in effect immediately prior to such adjustment by
3 (Subsequent Warrant]
<PAGE>
a fraction, the numerator of which shall be the number of Shares
purchasable upon the exercise of this Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Shares so
purchasable immediately thereafter.
(c) In case of any recapitalization of the Company or any
reclassification of the capital stock of the Company (other than a
subdivision or combination of outstanding shares or a change in par value
or from par value to no par value), or in case of the consolidation of the
Company with or the merger of the Company with or into any other
corporation or entity, this Warrant shall, after such recapitalization,
reclassification, consolidation or merger be exercisable, upon the terms
and conditions specified in this Warrant and upon payment of the exercise
price in effect immediately prior to such action, for the kind and amount
of shares of stock or other securities or property to which the Shares
issuable (at the time of such recapitalization, reclassification,
consolidation or merger) upon exercise of this Warrant would have been
entitled upon such recapitalization, reclassification, consolidation or
merger if such exercise had taken place immediately prior to such action;
and in any case, if necessary, the provisions set forth in this Section 5
with respect to the rights and interests thereafter of the holders of this
Warrant shall be appropriately adjusted so as to be applicable, as nearly
as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant.
In case of any consolidation of the Company with, or merger of the
Company with or into any other corporation or entity (excluding a
consolidation or merger which does not result in any substantive
reclassification or change of the outstanding shares of Common Stock of the
Company), such successor shall, as a condition to such transaction, execute
with the holder a supplemental warrant agreement (i) providing that the
holder of this Warrant shall thereafter have the right to purchase the kind
and amount of shares of stock or other securities or property provided in
this subsection (c), (ii) setting forth the exercise price for the
securities, and property if any, so issuable, which shall be an amount
equal to the exercise price immediately prior to such event and (iii)
providing that such successor or purchasing entity assumes the due and
punctual performance and observance of each and every covenant and
condition of this Agreement to be performed or observed by the Company.
(d) Upon any adjustment provided for in this Section 5, the Company
shall give written notice thereof, by first class mail, postage prepaid,
addressed to the registered holder of this Warrant at the address of such
holder as shown on the books of the Company, which notice shall state the
Warrant exercise price resulting from such adjustment and the increase or
decrease, if any, in the number of Shares purchasable at such price upon
the exercise of this Warrant, and shall set forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
6. No Voting or Other Rights. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company.
4 [Subsequent Warrant]
<PAGE>
IN WITNESS WHEREOF, First Mortgage Network, Inc. has caused this Warrant
to be signed by its duly authorized officer and this Warrant to be dated the
date first above written.
FIRST MORTGAGE NETWORK, INC.
By: /s/ Seth S. Werner, Chairman
---------------------------------
Seth S. Werner, Chairman
and Chief Executive Officer
ATTEST:
By: /s/ Chris Anderson
-----------------------------
Secretary
5 [Subsequent Warrant]
<PAGE>
SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF WARRANT.
The undersigned registered holder hereby irrevocably elects to exercise
the right of purchase represented by the within Warrant for, and to purchase
thereunder, full Shares of Common Stock provided for therein, and,
if said number of Shares shall not be all the Shares purchasable thereunder,
that a new Warrant for the unexercised portion of the within Warrant be
delivered to the undersigned.
DATED: , 199 .
-------------- -
----------------------------
Signature
6 [Subsequent Warrant]
THIS WARRANT HAS BEEN ISSUED TO THE HOLDER THEREOF IN RELIANCE UPON ITS
INVESTMENT REPRESENTATIONS TO THE COMPANY AND MAY NOT BE TRANSFERRED TO ANOTHER
PERSON EXCEPT IN ACCORDANCE WITH THE TRANSFER RESTRICTIONS SET FORTH IN
SECTION 2.
THE TRANSFER OF THIS WARRANT IS SUBJECT TO A RIGHT OF FIRST REFUSAL IN FAVOR OF
THE COMPANY SET FORTH IN AN AGREEMENT DATED APRIL 1, 1998 BETWEEN THE COMPANY
AND SUPERIOR BANK, FSB.
April 1, 1998
COMMON STOCK WARRANT
To Purchase 100,000 Shares of Common Stock of
FIRST MORTGAGE NETWORK, INC.
THIS CERTIFIES THAT, in consideration for payment of good and valuable
consideration to First Mortgage Network, Inc., a Florida corporation (the
"Company"), Superior Bank, FSB, a federally chartered savings bank or registered
assigns is entitled to subscribe for and purchase from the Company, subject to
the following terms and conditions, at any time in perpetuity, ONE HUNDRED
THOUSAND (100,000) fully-paid and nonassessable shares (the "Shares") of the
Company's Common Stock, $0.01 par value, at the price of SEVEN DOLLARS AND
50/100 ($7.50) per share, subject to adjustments described herein.
1. Exercise. The rights represented by this Warrant may be exercised by the
registered holder hereof, in whole or in part (but not as to a fractional share
of Common Stock), by the surrender of this Warrant at the principal office of
the Company, on the intended date of the exercise, together with a duly
completed form of exercise and a check for the purchase price for the number of
Shares being purchased.
As a condition to the issuance by the Company of the Shares pursuant to
this Warrant, the holder, if requested by the Company, shall provide a letter in
which the holder (a) represents that the Shares are being acquired for
investment and not resale and makes such other representations as may be
necessary or appropriate to qualify the issuance of the Shares as exempt from
the Securities Act of 1933 and any other applicable securities laws, and (b)
represents that the holder shall not dispose of the Shares in violation of the
Securities Act of 1933 or any other applicable securities laws. The Company
reserves the right to place a legend on all stock certificates issued pursuant
to the exercise of this Warrant to assure compliance with the foregoing.
[Subsequent Warrant]
<PAGE>
The holder is aware that the Company is relying, and presently intends to
continue relying, upon exemptions from the securities registration requirements
of federal and state securities laws in the issuance of this Warrant and in the
issuance of the Shares. If, when this Warrant is exercised, appropriate
exemptions from registration are not available under federal and state
securities laws, the exercise shall not be consummated on the intended date of
exercise specified in the holder's written notice of exercise and no Shares
shall be issued to the holder unless and until such exemptions are available.
The holder agrees to execute such documents and make such representations,
warranties and agreements as may be required in order to comply with the
exemption(s) relied upon by the Company for the issuance of Shares.
2. Transferability. This Warrant may be transferred or divided into two or
more Warrants of smaller denomination, subject to (a) a right of first refusal
in favor of the Company set forth in an Agreement dated April 1, 1998 between
the Company and Superior Bank, FSB, and (b) the following conditions. The holder
of this Warrant, by acceptance hereof, agrees to give written notice to the
Company before transferring this Warrant, or transferring any Shares, of such
holder's intention to do so, describing briefly the manner of the proposed
transfer. Promptly upon receiving such written notice, the Company shall present
copies thereof to the Company's counsel. If in the opinion of the Company's
counsel the proposed transfer may be effected without constituting a violation
of applicable federal and state securities laws, then the Company, as promptly
as practicable, shall notify such holder of such opinion, whereupon such holder
shall be entitled to transfer this Warrant or to dispose of any of the Shares
received upon the previous exercise of the Warrant, provided that an appropriate
legend may be endorsed on this Warrant or the certificates for any of the Shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of the Company's counsel to prevent further transfers which would be in
violation of the securities laws or adversely affect the exemptions relied upon
by the Company. To such effect, the Company may request that the intended
transferee execute an investment letter reasonably satisfactory to the Company
and its counsel.
A register of the issuance and transfer of this Warrant shall be kept at
the offices of the Company, and this Warrant may be transferred only on the
books of the Company maintained at its office. Each transfer shall be in writing
signed by the then-registered holder hereof or the holder's legal
representatives or successors, and no transfer hereof shall be binding upon the
Company unless in writing and duly registered on the register maintained at the
Company's offices. Upon transfer of this Warrant, the transferee, by accepting
the Warrant, agrees to be bound by the terms and conditions of this Warrant and
the investment letter, if any, required by the Company.
If in the opinion of the Company's counsel the proposed transfer or
disposition of the Warrant or the Shares described in the holder's written
notice given pursuant to this Section 2 may not be effected without registration
or without adversely affecting the exemptions relied upon by the Company, the
Company shall promptly give written notice to the holder and the holder will
limit its activities and restrict its transfer accordingly.
2 [Subsequent Warrant]
<PAGE>
3. Issuance of Shares. The Company agrees that the Shares purchased upon
exercise of this Warrant shall be deemed to be issued to the record holder
hereof as of the close of business on the date on which this Warrant shall have
been surrendered and the payment made for such Shares as aforesaid. Subject to
the provisions of Section 4, certificates for the Shares so purchased shall be
delivered to the holder hereof within a reasonable time after the exercise of
this Warrant has been so consummated, and a new Warrant representing the number
of Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be delivered to the holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for Shares upon exercise of this Warrant, except in
accordance with the provisions, and subject to the limitations, of Section 1
hereof.
4. Covenants of Company. The Company covenants and agrees that all Shares
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized and issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and without limiting the generality of the foregoing, the Company covenants and
agrees that it will from time to time take all such action as may be required to
assure that the par value per share of the Common Stock is at all times equal to
or less than the then-effective purchase price per share of the Common Stock
issuable upon exercise of this Warrant. The Company further covenants and agrees
that the Company will at all times have authorized, and reserved for issuance
upon exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
5. Anti-Dilution Adjustments. The above provisions are, however, subject to
the following:
(a) In case the Company shall (i) pay a stock dividend or make a
distribution to holders of its Common Stock in shares of Common Stock or in
securities or debt convertible into Common Stock, (ii) subdivide outstanding
shares of Common Stock into a larger number of shares or (iii) combine
outstanding shares of Common Stock into a smaller number of shares, the number
of Shares purchasable upon exercise of this Warrant immediately prior thereto
shall be adjusted retroactively so that when thereafter exercised this Warrant
shall entitle the holder to receive the number of Shares which the holder would
have owned immediately following such event had such Warrant been exercised
immediately prior to the happening of such event (or prior to the record date
with respect thereto). An adjustment made pursuant to this subsection (a) shall
become effective retroactively immediately after the record date in the case of
a dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(b) Whenever the number of Shares purchasable upon the exercise of any
Warrant is adjusted, as provided in subsection (a) above, the exercise price of
this Warrant shall be adjusted by multiplying the exercise price in effect
immediately prior to such adjustment by
3 [Subsequent Warrant]
<PAGE>
a fraction, the numerator of which shall be the number of Shares purchasable
upon the exercise of this Warrant immediately prior to such adjustment, and the
denominator of which shall be the number of Shares so purchasable immediately
thereafter.
(c) In case of any recapitalization of the Company or any reclassification
of the capital stock of the Company (other than a subdivision or combination of
outstanding shares or a change in par value or from par value to no par value),
or in case of the consolidation of the Company with or the merger of the Company
with or into any other corporation or entity, this Warrant shall, after such
recapitalization, reclassification, consolidation or merger be exercisable, upon
the terms and conditions specified in this Warrant and upon payment of the
exercise price in effect immediately prior to such action, for the kind and
amount of shares of stock or other securities or property to which the Shares
issuable (at the time of such recapitalization, reclassification, consolidation
or merger) upon exercise of this Warrant would have been entitled upon such
recapitalization, reclassification, consolidation or merger if such exercise had
taken place immediately prior to such action; and in any case, if necessary, the
provisions set forth in this Section 5 with respect to the rights and interests
thereafter of the holders of this Warrant shall be appropriately adjusted so as
to be applicable, as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter deliverable on the exercise of this
Warrant.
In case of any consolidation of the Company with, or merger of the Company
with or into any other corporation or entity (excluding a consolidation or
merger which does not result in any substantive reclassification or change of
the outstanding shares of Common Stock of the Company), such successor shall, as
a condition to such transaction, execute with the holder a supplemental warrant
agreement (i) providing that the holder of this Warrant shall thereafter have
the right to purchase the kind and amount of shares of stock or other securities
or property provided in this subsection (c), (ii) setting forth the exercise
price for the securities, and property if any, so issuable, which shall be an
amount equal to the exercise price immediately prior to such event and (iii)
providing that such successor or purchasing entity assumes the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed or observed by the Company.
(d) Upon any adjustment provided for in this Section 5, the Company shall
give written notice thereof, by first class mail, postage prepaid, addressed to
the registered holder of this Warrant at the address of such holder as shown on
the books of the Company, which notice shall state the Warrant exercise price
resulting from such adjustment and the increase or decrease, if any, in the
number of Shares purchasable at such price upon the exercise of this Warrant,
and shall set forth in reasonable detail the method of calculation and the facts
upon which such calculation is based.
6. No Voting or Other Rights. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company.
4 [Subsequent Warrant]
<PAGE>
IN WITNESS WHEREOF, First Mortgage Network, Inc. has caused this Warrant to
be signed by its duly authorized officer and this Warrant to be dated the date
first above written.
FIRST MORTGAGE NETWORK, INC.
By: /s/ Seth S. Werner
-------------------------------
Seth S. Werner, Chairman
and Chief Executive Officer
ATTEST:
By: /s/ Chris Anderson
- ------------------------
Secretary
5 [Subsequent Warrant]
<PAGE>
SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF WARRANT
The undersigned registered holder hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant for, and to purchase
thereunder, _____ full Shares of Common Stock provided for therein, and, if said
number of Shares shall not be all the Shares purchasable thereunder, that a new
Warrant for the unexercised portion of the within Warrant be delivered to the
undersigned.
DATED: ____________________________, 199_.
------------------------------------
Signature
6 [Subsequent Warrant]
MORNETPlus Desktop Underwriter
Order Form/Software License Subscription Agreement
Subscriber Information: Please attach a User Registration form for each
individual MORNETPlus user.
Please Check:
New MORNETPlus Subscriber Change MORNETPlus Subscriber
Delete MORNETPlus Subscriber
If new MORNETPlus Subscriber, please indicate the number of computers on which
you will install the application:__
If an existing MORNETPlus Subscriber, please provide:
MORNETPlus Subscriber ID:. a0129sns
Please provide the following information:
Licensee Company Name: First Mortgage Network
Licensee Address: 8751 Broward Blvd
City, State, Zip Code: Plantation, FL 33324
Licensee Contact Person/Title: (will receive software) Alfons Van Wiik
Phone Number: (954)452-0000 Fax Number:
Please enter the 9-digit Seller/Servicer Number(s) of the organization(s) for
whom you will be underwriting.
Seller/Servicer Number(s)*: 1.22961-000-7 2. - - 3. - -
Billing ContactAddress:
(If different than mailing address)
Method of Distribution (Please check ONLY one): Operating System:
__3.5 Diskettes X CD ROM ___Windows 3.1 X Windows95 or
Window NT ___Both
Institution Type (Please check one):
X Mortgage Company ___State Bank ___Federal Savings and Loan
___Finance Company ___Investment Bank ___State Savings and Loan
___Trade Association ___National Bank ___State Credit Union
___Insurance Company ___Mutual Savings Bank ___Federal Credit Union
Institution Type (Please check one):
___Mortgage Insurer
___Builder Conduit
___Other_____________
(please specify)
Fannie Mae Region (Please check one):
X Atlanta (SERO) ___Chicago (MWRO) ___Dallas (SWRO) ___Pasadena (WRO)
___Philadelphia (NERO)
<PAGE>
THE DESKTOP UNDERWRITER SOFTWARE IS LICENSED BY FANNIEMAE UNDER THE ACCOMPANYING
TERMS AND CONDITIONS (THE "AGREEMENT"). BY EXECUTING THIS ORDER FORM BELOW,
LICENSEE ACKNOWLEDGES READING THE AGREEMENT CONSISTING OF THIS PAGE AND THE
FOLLOWING PAGES AND AGREES TO BE BOUND BY ALL OF ITS TERMS.
* All Seller/Servicer numbers assigned to Lender under which Lender proposes to
underwrite.
ACCEPTED BY:
FANNIE MAE Licensee Name: First Mortgage Network
Authorized Signature: Authorized Signature:
Name: David M. Brashear Name: David W. Larson
Title: Vice President Title: President
Date: 10/15/98 Date: 10/14/98
Please return completed forms to:
Fannie Mae * MORNETPluse Registrar * 3900 Wisconsin Avenue,
NW 6H-3E/01
Washington, DC 20016 *
<PAGE>
FIRST MORTGAGE NETWORK
AMENDED AND RESTATED
DESKTOP UNDERWRITER(R)
SELLER/SERVICER SOFTWARE LICENSE AND SUBSCRIPTION AGREEMENT
-----------------------------------------------------------
1. Introduction.
Fannie Mae owns or is otherwise authorized to distribute the Licensed
Software (as defined below). The Licensed Software is licensed to
Licensee (i) for use on a company-wide basis for its own internal
purposes as an Approved Lender, as described in Section 3.4(b), and
(ii) for use by Licensee on behalf of Licensee's brokers via Licensee's
multi-lender Internet site, as described in Section 3.1. This Agreement
will be effective on the date it is accepted by Fannie Mae at its
offices in Washington, D.C. and will remain in full force and effect
until terminated as provided for herein.
2. Definitions.
2.1 "Approved Lender" shall mean, with respect to any particular
mortgage loan sold to Fannie Mae, any mortgage lender that is
a party to a Fannie Mae Mortgage Selling and Servicing
Contract at the time such mortgage loan is sold to Fannie Mae.
2.2 "Consumer Credit Data" shall mean any information obtained by
Licensee, either directly or indirectly, which bears on a
consumer's creditworthiness, credit standing, credit capacity,
character, general reputation, personal characteristics, or
mode of living (the "Seven Factors") and which is used or
expected to be used or collected in whole or in part for the
purpose of serving as a factor in underwriting a Mortgage Loan
Application or performing a Prequalification Analysis. Such
data may include, but is not limited to, data contained in:
(i) residential mortgage credit reports, "in-file" credit
reports, or "consumer reports," as defined in the FCRA; (ii)
verifications (whether "standard," "TimeSaver" or other form
of alternate documentation as discussed in Fannie Mae's
Selling Guide) of loans, mortgages, employment or assets;
(iii) the Uniform Residential Loan Application, including any
attachments and/or supplements thereto; and (iv) any
correspondence or communication from the consumer or any third
party which includes information relating to one of the Seven
Factors.
2.3 "Credit Fetcher" shall mean that software component of the
Licensed Software which: (i) facilitates the retrieval of a
consumer report from a "consumer reporting agency," as defined
in the FCRA, with which Licensee has a direct independent
contractual relationship; and (ii) acts solely as an interface
between Licensee and such consumer reporting agency in the
process of obtaining a consumer report upon Licensee's
request.
2.4 "DESKTOP UNDERWRITER(R) User Kit" shall mean the Licensed
Software, disk labels, warning envelopes, and any
Documentation relating to the Licensed Software.
1
<PAGE>
2.5 "Documentation" shall mean Fannie Mae's standard DESKTOP
UNDERWRITER(R) end user manual and quick reference materials,
and any other materials relating to the Licensed Software that
Fannie Mae in its sole discretion provides to Licensee.
2.6 "FCRA" shall mean the federal Fair Credit Reporting Act,
codified at 15 U.S.C. Section 1681 et seq., and the Federal
Trade Commission's Official Staff Commentary (the
"Commentary") to the Fair Credit Reporting Act.
2.7 "Incident" shall mean (i) any irregularity, error, problem or
defect resulting from an incorrect functioning of any version
of the Licensed Software if such irregularity, error, problem
or defect renders the Licensed Software incapable of meeting
the specifications thereof or causes incorrect functions to
occur, or (ii) an incorrect or incomplete identification,
statement or diagram in the Documentation that causes the
Documentation to be inaccurate or incomplete in any material
respect.
2.8 "Licensed Software" shall mean the current release of Fannie
Mae's software product known as DESKTOP UNDERWRITER(R),
including any related diagnostic software, consisting of
machine-readable software designed to support and facilitate
the electronic underwriting of Mortgage Loan Applications
and/or the performance of Prequalification Analyses and, in
the case of the Credit Fetcher component of the Licensed
Software, designed to facilitate the communication and the
exchange of data between Licensee and consumer reporting
agencies accessible through Credit Fetcher, as well as the
functionality for the user to remotely access third-party
software, data, services or other materials. The term
"Licensed Software" shall also include any modifications,
updates, enhancements and releases to such software which are
provided to Licensee by Fannie Mae pursuant to this Agreement.
2.9 "Licensee" shall mean the lender identified on the order form
to this Agreement, which lender is a party to a Mortgage
Selling and Servicing Contract with Fannie Mae. Licensee is
also the owner and operator of Licensee's Site, which will
make recommendations and findings by the Licensed Software
available to Participating Brokers through Licensee's Site
under the terms of the Agreement.
2.10 "Licensee's Site" shall mean a multi-lender site accessible by
Participating Brokers and lenders where (i) the Participating
Brokers will be able to input data to, and obtain
recommendations and findings from, the Licensed Software via
Licensee's operation of Licensee's Site; and (ii) the lenders
will be able to consider mortgage loans submitted by the
Participating Brokers through the site.
2.11 "Loan Documents" shall mean those Third-Party Licensor forms
provided with the Licensed Software as a convenience to
Licensee. These forms consist of the uniform residential loan
application and any continuation sheet or supplement thereto.
2.12 "Losses" shall mean any liabilities, claims, actions, suits,
proceedings, judgments, losses, damages, deficiencies, costs
and expenses. However, the term "Losses" shall not include
legal and other expenses incurred in defending an
indemnifiable claim under Section 7.14 or Section 14 for which
the financial responsibilities of the parties are specified in
Section 15.
2
<PAGE>
2.13 "Marks" shall mean a party's trade names, trademarks, logos
and service marks. Without limiting the generality of the
foregoing, Licensee acknowledges that Fannie Mae's Marks
include "Fannie Mae(R)," "MORNET(R)," "MORNETPlus(R)," and
"DESKTOP UNDERWRITER(R)".
2.14 "MORNETPlus(R) Hotline" shall mean the telephone support
hotline Fannie Mae makes available to facilitate the reporting
and resolution of Incidents.
2.15 "MORNETPlus(R) Network" shall mean the value-added computer
network operated by Fannie Mae for the mortgage industry.
2.16 "Mortgage Loan Application" shall refer to the submission by a
mortgage loan applicant of financial information and
identification of the specific property to secure the mortgage
loan for the purpose of obtaining an underwriting decision.
2.17 "Participating Broker" shall mean any person or entity that
originates or underwrites mortgage loans or performs
Prequalification Analyses for lenders using Licensee's Site;
provided, however, that the term "Participating Broker" shall
not include Licensee or any officer or employee of Licensee,
as such.
2.18 "Prequalification Analysis" shall mean the evaluation of
Consumer Credit Data with respect to a prospective mortgage
loan applicant for the purpose of evaluating such prospective
applicant's qualification for mortgage financing, other than
in connection with a Mortgage Loan Application.
2.19 "Proprietary Information" of a party shall mean (i)
information disclosed by such party relating to product
development strategy and activity, corporate assessments and
strategic plans, financial and statistical information,
accounting information, software, systems, processes,
formulae, inventions, discoveries, policies, guidelines,
procedures, practices, disputes or litigation, (ii) other
confidential, proprietary or trade secret information
disclosed by such party that is identified in writing as such
at the time of its disclosure, (iii) all other confidential,
proprietary or trade secret information disclosed by such
party, which a reasonable person employed in the mortgage
industry would recognize as such, and (iv) information
relating to such party's employees, contractors or customers
which, if released, would cause an unlawful invasion of
privacy. For purposes of this Agreement, information shall be
deemed to be disclosed by a party if such information is
disclosed by any of its affiliates, partners, officers,
employees, directors, agents, contractors, representatives,
successors or assigns.
2.20 "Subscription Fees" shall mean all fees associated with
set-up, connection time, dedicated lines, loan submission
charges, training and specialized support and services, and
any other fees as set forth in Exhibit A.
2.21 "Third-Party Licensor" shall mean any third party which
licenses the right to use and/or distribute any component of
the DESKTOP UNDERWRITER(R) User Kit, owned or otherwise
furnished by such third party, to Fannie Mae.
3
<PAGE>
3. Grant of Rights and Imposition of Obligations.
3.1 Software License. Fannie Mae grants Licensee a non-exclusive,
non-transferable license (i) to install and use the Licensed
Software solely in executable form on any computer owned or
operated by Licensee on the MORNETPlus(R) Network, including
Licensee's Internet server that is used to operate Licensee's
Site and that is logically and physically separated from
Licensee's system, and in particular (A) to use the Licensed
Software for the benefit of Participating Brokers, who input
data to the Licensed Software through Licensee's Site, to
transmit to Participating Brokers the output generated by the
Licensed Software based on such input, and to resell the
output generated by the Licensed Software in accordance with
the requirements of Section 3.7(B), and (B) to use the
Licensed Software for Licensee's own purposes as Approved
Lender; and (ii) to use the associated Documentation.
3.2 Right to Copy Software. Licensee may not copy the Licensed
Software except (i) for making one (1) copy for backup and
archival purposes, and (ii) as necessary to exercise its right
to install the Licensed Software pursuant to Section 3.1(i).
Licensee shall reproduce and include Fannie Mae's or any Third
Party Licensor's copyright notices, trademark notices,
restrictive legends and other proprietary notices on all
copies of the Licensed Software, and all copies shall be
subject to all terms, conditions and obligations set forth in
or arising under this Agreement.
3.3 Right to Copy Documentation. Licensee may copy the
Documentation only to the extent necessary to exercise the
foregoing license. Licensee shall reproduce and include Fannie
Mae's copyright notices, trademark notices, restrictive
legends and other proprietary notices on all copies of the
Documentation and all copies shall be subject to all terms,
conditions and obligations set forth in or arising under this
Agreement.
3.4 Restrictions on Use. The foregoing rights to install, use and
copy various components of the DESKTOP UNDERWRITER(R) User Kit
shall be subject to the following restrictions:
(a) Licensee shall not copy or allow copies of the
DESKTOP UNDERWRITER(R) User Kit to be made, except as
specifically authorized under this Agreement;
(b) Licensee shall only use the DESKTOP UNDERWRITER(R)
User Kit for its own internal purposes and in
connection with the operation of Licensee's Site,
except as specifically authorized by this Agreement.
Without derogating the generality of the foregoing,
and, except with respect to Licensee's operation of
Licensee's Site, Licensee shall not use or allow
others to use the DESKTOP UNDERWRITER(R) User Kit in
or in conjunction with a network, multiple computer
or multiple-use arrangement, or as a part of a
service bureau, except as specifically authorized
under this Agreement;
(c) Licensee shall not resell, lease, sublicense,
distribute or otherwise transfer for any purpose any
component of the DESKTOP UNDERWRITER(R) User Kit to
any person, firm or entity, except as specifically
authorized under this Agreement;
(d) Licensee shall not attempt to disassemble, decompile,
reverse engineer or derive the source code form of
the Licensed Software;
4
<PAGE>
(e) Licensee shall not modify or alter the Licensed
Software or Documentation without Fannie Mae's prior
written consent, which Fannie Mae may grant or
withhold in its sole discretion;
(f) Licensee shall only use the DESKTOP UNDERWRITER(R)
User Kit in the United States; and
(g) [REDACTED]
3.5 Marketing. Subject to Licensor's rights under Section 11,
Licensee agrees that it will be solely responsible for
marketing Licensee's Site, including the recruitment of
lenders that will be accessible via Licensee's Site and the
Participating Brokers that will use Licensee's Site. Unless
otherwise agreed to by Fannie Mae, Licensee agrees that the
lenders accessible via Licensee's Site will be DESKTOP
UNDERWRITER(R) licensees. Fannie Mae, however, agrees to make
exceptions for (i) non-Fannie Mae lenders that agree to become
DESKTOP UNDERWRITER(R) licensees within a specified time frame
acceptable to Fannie Mae or (ii) lenders that originate
non-conforming mortgage loans, provided that Licensee does not
give such lenders access to the Licensed Software or any
output from such Licensed Software.
3.6 [REDACTED]
5
<PAGE>
3.7 Unauthorized Representations. Without the express prior
written consent of Fannie Mae, Licensee agrees not to (i) make
any representations, statements or suggestions to a third
party that purport to be or might reasonably be construed to
be made on behalf of Fannie Mae, or (ii) make any
representations regarding the capabilities of the Licensed
Software other than those made by Fannie Mae in the most
recent version of the Documentation. Notwithstanding the
provisions of Section 3.7(i), Licensee may inform another
licensee of the Licensed Software or a Participating Broker
accessing Licensee's Site to which a case file underwritten
via the Licensed Software is transferred of (A) the
recommendation (e.g., "approve," "refer" or "refer with
caution") generated by the Licensed Software, and (B) the
"findings" generated by the Licensed Software; provided,
however, that Licensee shall be permitted to appropriately
tailor all such recommendations and findings so as to render
each understandable and meaningful, in Licensee's judgment, to
a broker or licensee viewing the same. Notwithstanding the
provisions of Section 3.7(i), Licensee may likewise inform a
prospective purchaser of a mortgage loan underwritten with the
assistance of the Licensed Software of the recommendation and
findings set forth in (A) and (B) above, and may also inform
such prospective purchaser of the provisions of Section 5
relating to the limited waiver of warranty and the grant of
variances, provided, however, that Licensee simultaneously
informs such prospective purchaser that any recommendation
rendered by the Licensed Software will not constitute an
approval or denial of a Mortgage Loan Application by Fannie
Mae or a commitment to purchase a loan by Fannie Mae.
4. Ownership of DESKTOP UNDERWRITER(R) User Kit.
4.1 Ownership. Licensee acknowledges that the DESKTOP
UNDERWRITER(R) User Kit and all copies thereof made by
Licensee hereunder, and any and all copyrights, trademarks,
trade names, trade secret or patent rights, if any, therein
are the exclusive property of Fannie Mae or its Third-Party
Licensors. Title to the above shall at all times remain with
Fannie Mae or its Third-Party Licensors, as the case may be.
Licensee further acknowledges that Licensee has no rights in
the DESKTOP UNDERWRITER(R) User Kit, except those expressly
granted by this Agreement.
4.2 Protection. Licensee will take all reasonable measures
requested by Fannie Mae, and/or as otherwise provided in this
Agreement, to protect the DESKTOP UNDERWRITER(R) User Kit from
any use, reproduction, publication, disclosure or
distribution, except as permitted in this Agreement.
5. Limited Waiver of Warranty; Conditions Relating to Variances.
The Licensed Software has been programmed to support and facilitate the
underwriting of Mortgage Loan Applications and/or the performance of
Prequalification Analyses according to a risk analysis based upon
mortgage scoring models and rules derived from Fannie Mae's Selling
Guide. If (i) the Licensed Software recommends to "approve" a
borrower's Mortgage Loan Application for mortgage financing, (ii) the
Licensed Software indicates that the related mortgage loan is eligible
for sale to Fannie Mae, and (iii) Licensee or another Approved Lender
elects to sell that mortgage loan to Fannie Mae, Fannie Mae will not
require Licensee or such Approved Lender to warrant that the mortgage
loan complies with the Selling Guide's requirements contained in the
Licensed Software (as reflected in the data fields included in the
Licensed Software and the reports generated by the Licensed Software),
with regard to the mortgage loan's eligibility for delivery to Fannie
Mae and the application of underwriting judgment used by the Licensed
Software as it pertains to the borrower's creditworthiness; provided,
however, that:
6
<PAGE>
(a) any changes or modifications that Licensee may make to data
that was previously entered or received into the Licensed
Software comply with Fannie Mae's requirements as set forth in
the Selling Guide,
(b) all data pertaining to the mortgage loan are complete and
accurate, and all data on which the underwriting decision
recommended by the Licensed Software was based remain
substantially unchanged as of the closing date for such
mortgage loan,
(c) verification of all such data is provided with the delivered
loan file and such verification complies with Fannie Mae's
requirements as set forth in the Selling Guide,
(d) Licensee or such Approved Lender, as the case may be, utilizes
the appropriate special feature code, as specified in the
delivery reporting requirements of Section 204 of Part IV of
the Selling Guide (relating to the use of special feature
codes) or as otherwise specified by Fannie Mae in its Guide to
Underwriting with DESKTOP UNDERWRITER(R) (regardless of
whether such Approved Lender is a DESKTOP UNDERWRITER(R)
licensee),
(e) Licensee or Approved Lender takes all appropriate action in
response to the verification messages/approval conditions that
appear in the "Findings" report that DESKTOP UNDERWRITER(R)
produces with respect to the related Mortgage Loan Application
prior to the closing of the loan, with proper documentation in
the loan file, and
(f) Licensee and any such Approved Lender comply with all other
instructions and restrictions set forth in the most recent
version of Fannie Mae's Guide to Underwriting with DESKTOP
UNDERWRITER(R) (regardless of whether such Approved Lender is
a DESKTOP UNDERWRITER(R) licensee).
Notwithstanding the foregoing, all other representations and warranties
that are set forth in the Mortgage Selling and Servicing Contract
between Fannie Mae and Licensee (or between Fannie Mae and such
Approved Lender) and in the Selling Guide shall apply. Licensee
acknowledges and agrees that Licensee's use of DESKTOP UNDERWRITER(R)
does not relieve Licensee (or any other Approved Lender) of any
obligation set forth in such Mortgage Selling and Servicing Contract,
in the Selling Guide (including Part V, Section 203, of the Selling
Guide, relating to the sale of seasoned mortgages) or in any other
agreement between Fannie Mae and Licensee (or between Fannie Mae and
any other Approved Lender), except (i) as expressly set forth in this
Section 5 with respect to Fannie Mae's limited waiver of warranty, and
(ii) as expressly set forth in the streamlined documentation,
streamlined appraisal and other variances provided by the Licensed
Software with respect to particular mortgage loans that were "approved"
by DESKTOP UNDERWRITER(R) or "referred" by DESKTOP UNDERWRITER(R) for
further review. Licensee also acknowledges that the grant of any such
variances (i) shall be subject to Licensee's satisfaction of the
requirements set forth in paragraphs (a) through (f) of this Section 5,
and (ii) shall not be granted if the reason for a referral is noted as
"refer/ineligible" or "refer/out of scope."
6. Delivery of DESKTOP UNDERWRITER(R) User Kit.
Upon acceptance of this Agreement with Licensee, Fannie Mae shall
provide to Licensee a DESKTOP UNDERWRITER(R) User Kit, including the
following:
7
<PAGE>
(a) Licensed Software. The number of copies of the Licensed
Software specified in the order form relating to this
Agreement.
(b) Documentation. One (1) copy of the Documentation per user
identification, which will be delivered in conjunction with
the Licensed Software.
7. Responsibilities of Licensee.
7.1 Hardware and Equipment. Licensee shall be exclusively
responsible for providing all hardware and equipment necessary
for installing, operating and using the Licensed Software.
7.2 Use of Licensed Software. Licensee will use the Licensed
Software, including its Credit Fetcher function, only under
the following circumstances:
(a) to request and receive "consumer reports" (as defined
in the FCRA) and/or analyze Consumer Credit Data to
perform Prequalification Analyses of prospective
mortgage loan applicants when (i) Licensee or a
Participating Broker has obtained from the applicant
a written authorization to Licensee or the
Participating Broker substantially in conformance
with the language set forth in Exhibit B or (ii)
Licensee otherwise believes, in its sole opinion,
that it has a "permissible purpose" (as defined in
Section 604 of the FCRA) which Licensee deems
applicable;
(b) to request and receive consumer reports and/or
analyze or evaluate Consumer Credit Data in
underwriting Mortgage Loan Applications before a
decision regarding any such application is made and
communicated to any loan applicant(s);
(c) to request and receive consumer reports through
Credit Fetcher with respect to Mortgage Loan
Applications previously approved but not yet closed
by Licensee, or a Participating Broker's funding
lender when Licensee is requesting such reports in
connection with its own Mortgage Loan Applications
and/or Prequalification Analyses or those of the
Participating Broker and has obtained the loan
applicant(s)' prior written permission to request
such additional consumer reports, or because other
circumstances exist which Licensee or the
Participating Broker believes justify the request for
such additional consumer reports under the FCRA;
(d) to analyze or evaluate Consumer Credit Data,
including consumer reports, with respect to Mortgage
Loan Applications previously approved but not yet
closed by Licensee or a Participating Broker's
funding lender when such entity determines that data
obtained subsequent to its initial approval may
affect its prior underwriting approval decision;
(e) to request and receive consumer reports and/or
analyze or evaluate Consumer Credit Data with respect
to Mortgage Loan Applications previously approved but
not yet closed by Licensee or a Participating
Broker's funding lender when the loan applicant(s)
request different loan terms or a different loan
product than that originally requested by the loan
applicant(s);
8
<PAGE>
(f) to request and receive consumer reports through
Credit Fetcher with respect to Mortgage Loan
Applications previously denied by Licensee, a
Participating Broker or a Participating Broker's
funding lender, which denial decision has been
communicated to the applicant(s), when Licensee is
requesting such reports in connection with its own
Mortgage Loan Applications and/or Prequalification
Analyses or those of the Participating Broker and has
obtained the loan applicant(s)' prior written
permission to request such additional consumer
reports;
(g) to analyze or evaluate Consumer Credit Data,
including consumer reports, with respect to Mortgage
Loan Applications previously denied by Licensee, a
Participating Broker or a Participating Broker's
funding lender, which denial decision has been
communicated to the applicant(s), when (i) Licensee,
the Participating Broker or the Participating
Broker's funding lender determines that data obtained
subsequent to its initial denial decision may affect
its prior underwriting decision, and (ii) Licensee,
the Participating Broker or the Participating
Broker's funding lender intends to make and
communicate an offer of credit to the applicant(s) if
an approval recommendation decision is rendered by
the Licensed Software as a result of consideration of
the additional data obtained; and
(h) to request and receive consumer reports and/or
analyze or evaluate Consumer Credit Data in
conjunction with Licensee's, a Participating Broker's
or a Participating Broker's funding lender's quality
control program with respect to mortgage loans
previously approved and closed by Licensee or the
Participating Broker's funding lender.
Licensee is explicitly prohibited from:
(aa) using the Licensed Software, including its Credit
Fetcher function, to request and receive consumer
reports and/or analyze Consumer Credit Data to
perform Prequalification Analyses of prospective
mortgage loan applicants when (i) Licensee or a
Participating Broker has not obtained from the
applicant a written authorization to Licensee or the
Participating Broker substantially in conformance
with the language set forth in Exhibit B or (ii)
Licensee does not have, in its sole opinion, a
"permissible purpose" (as defined in Section 604 of
the FCRA) which Licensee deems applicable.
(bb) using the Credit Fetcher function to request and
receive consumer reports with respect to Mortgage
Loan Applications previously denied by Licensee, a
Participating Broker or a Participating Broker's
funding lender, which denial decision has been
communicated to the applicant(s), when Licensee or
the Participating Broker has not obtained the loan
applicant(s)' prior written permission to request
such additional consumer reports (except as provided
in Section 7.2(g));
(cc) using the Licensed Software to analyze or evaluate
Consumer Credit Data with respect to any Mortgage
Loan Applications previously denied by Licensee, a
Participating Broker or a Participating Broker's
funding lender, which denial decision has been
communicated to the applicant(s), when (i) Licensee,
the Participating Broker or the Participating
Broker's funding lender has not obtained additional
data subsequent to its initial denial decision which
may affect its prior underwriting decision or (ii)
Licensee, the Participating Broker or the
Participating Broker's funding lender determines that
data obtained subsequent to its initial denial
decision may affect its prior underwriting decision
but such entity does not intend to make and
communicate an offer of credit to the applicant(s)
should the Licensed Software render an approval
recommendation decision as a result of consideration
of the additional data obtained;
(dd) using the Licensed Software to analyze or evaluate
Consumer Credit Data with respect to any Mortgage
Loan Applications previously approved but not yet
closed by Licensee or a Participating Broker's
funding lender when Licensee or the Participating
Broker's funding lender obtains Consumer Credit Data
subsequent to its loan approval but determines, based
upon its manual review of such subsequently obtained
data, that the data would not likely affect its prior
underwriting approval decision; and
9
<PAGE>
7.3 Limited Agency Relationship. Licensee hereby expressly
acknowledges, understands and agrees that, in the processing
and evaluation of Consumer Credit Data by the Licensed
Software for purposes of making an underwriting recommendation
or performing a Prequalification Analysis, Fannie Mae, as
owner of the Licensed Software, shall be the agent of
Licensee, as that term is defined in the FCRA. As Licensee's
agent, Fannie Mae shall, and is hereby expressly authorized by
Licensee to, obtain Consumer Credit Data for the sole purpose
of performing a Prequalification Analysis and/or making an
underwriting recommendation. Licensee also expressly
acknowledges, understands and agrees that Fannie Mae's role as
Licensee's agent shall not extend beyond the limited purposes
set forth in this Section 7.3, and, for all other purposes,
there shall be no such principal and agent relationship.
Moreover, Licensee shall in no way misrepresent to third
parties the limited extent of this principal/ agent
relationship. Licensee further acknowledges, understands and
agrees that any recommendation rendered by the Licensed
Software in the evaluation of Consumer Credit Data will not
constitute an approval or denial of the Mortgage Loan
Application by Fannie Mae or a commitment to purchase the loan
by Fannie Mae.
7.4 Agency Relationship With Participating Broker. When Licensee
is using the Licensed Software, including its Credit Fetcher
function, in connection with Mortgage Loan Applications and/or
Prequalification Analyses originated by a Participating
Broker, Licensee hereby expressly certifies and agrees that
Licensee: (i) shall be the agent of such Participating Broker,
as that term is defined in the FCRA, and (ii) shall enter into
and maintain a written agreement with the Participating Broker
in which the Participating Broker specifically designates
Licensee as its agent for FCRA purposes, by language
substantially in the form contained in Exhibit D.
7.5 Obtaining Consumer Reports; Licensee's Certification. Licensee
shall, coterminous with this Agreement, maintain direct
independent contractual agreement(s) with any "consumer
reporting agency" from which it shall order its "consumer
reports," as those terms are defined by the FCRA. Such
agreement(s) shall govern the use of any and all consumer
reports obtained electronically through the use of the Credit
Fetcher function of the Licensed Software. Licensee hereby
certifies and warrants that any request for and/or use of
consumer reports obtained through the Credit Fetcher function
shall be strictly for "permissible purposes," as defined in
Section 604 of the FCRA, and for no other purpose and shall in
all other respects comply with the requirements of the FCRA.
7.6 Notification to Borrower. Licensee acknowledges and
understands that it, a Participating Broker or a Participating
Broker's funding lender may be required to provide certain
disclosures to mortgage loan applicants and/or prospective
mortgage loan applicants such as when the Licensee, the
Participating Broker or the Participating Broker's funding
lender denies or unfavorably changes the terms requested in
the Mortgage Loan Application or determines that a prospective
mortgage loan applicant would not qualify for a mortgage loan
or for a particular mortgage loan amount as a result of a
Prequalification Analysis. Such disclosure obligations may be
imposed under the FCRA, the Equal Credit Opportunity Act, and
the latter's implementing regulation, Regulation B, and other
federal and/or state statutes and regulations. Licensee
expressly understands and agrees that it, the Participating
Broker and/or the Participating Broker's funding lender bears
sole responsibility for complying with such disclosure
obligations and that such obligations shall in no event be
considered imposed upon or shared by Fannie Mae by virtue of
Licensee's use of the Licensed Software for its electronic
underwriting of Mortgage Loan Applications or Prequalification
Analyses.
10
<PAGE>
7.7 Incident Reporting. Licensee agrees to provide Fannie Mae with
data, documentation or other such evidence of Incident(s) to
assist Fannie Mae in diagnosing and correcting any such
Incident(s). Fannie Mae shall have access to such data,
documentation and evidence and may examine them electronically
for the sole purpose of correcting Incidents. Fannie Mae may
request hard copies of materials pertaining to any of
Licensee's loan files only (i) where necessary to correct
Incidents, and (ii) with Licensee's (and, if applicable, a
Participating Broker's) written authorization and supervision.
However, Fannie Mae shall be entitled to hard copies of
materials pertaining to any of Licensee's loan files if Fannie
Mae has purchased the loan, in which case written
authorization and supervision shall be unnecessary.
7.8 Rights in Improvements. Fannie Mae shall own and shall have
all rights to use, in its sole discretion, (i) any changes,
modifications, upgrades or enhancements to the DESKTOP
UNDERWRITER(R) User Kit and/or any successor system, and (ii)
any of Licensee's proposed or suggested changes,
modifications, upgrades or enhancements, in design,
functionality or otherwise, to the DESKTOP UNDERWRITER(R) User
Kit and/or any successor system, without any recourse or
obligation to Licensee. Licensee acknowledges and agrees that
Fannie Mae shall be under no obligation to consider or
implement any changes, modifications, upgrades or enhancements
to the DESKTOP UNDERWRITER(R) User Kit or any successor system
recommended by Licensee.
7.9 Rights in Data. Fannie Mae expressly reserves the right to
retain (i) all data generated utilizing the Licensed Software
that pertains to the functionality of the Licensed Software
and file underwriting, which will reside on the MORNETPlus(R)
Network, and (ii) all data for auditing and other purposes
that pertains to loans delivered to Fannie Mae. At the time of
loan delivery, all loans that were underwritten using the
Licensed Software shall be identified by utilizing the
appropriate special feature code, as provided in Section 204
of Part IV of the Selling Guide or as otherwise specified by
Fannie Mae in its Guide to Underwriting with DESKTOP
UNDERWRITER(R). Notwithstanding the above, if Licensee uses
the Licensed Software, including the Credit Fetcher function,
with respect to a mortgage loan which is not subsequently
delivered to Fannie Mae, then Fannie Mae may retain all such
data obtained but will use such data solely for the purposes
of (i) assisting Fannie Mae in diagnosing or correcting an
Incident, (ii) preparing billing statements for Licensee's use
of the Licensed Software, and (iii) evaluating the performance
of the Licensed Software. Prior to accessing the loan data for
evaluation of the Licensed Software, Fannie Mae will cause the
following borrower-specific information to be removed from the
data: names of the borrower(s); current and previous addresses
of the borrower(s); addresses of the property for which the
Mortgage Loan Application was made and any other real estate
owned by the borrower(s); social security, alien registration
card or other such identifying numbers; account numbers
related to assets and liabilities of the borrower; and names
and addresses of employers.
7.10 Origination Software Interface. Licensee acknowledges that the
Licensed Software shall be programmed to facilitate Licensee's
interface with third-party origination software or systems
that Licensee may wish to use in conjunction with the Licensed
Software in processing and/or underwriting mortgage loans.
Licensee agrees and hereby certifies that it shall maintain a
direct, independent contractual relationship(s) with any
third-party provider from which it purchases or acquires the
right to use such software and systems. Licensee acknowledges
and agrees that Fannie Mae makes no representations or
warranties regarding (i) the availability of any such
interface with third-party origination software and/or
systems, (ii) the availability of access by any specific
provider of third-party origination software and/or systems,
or (iii) the timing of such interface availability. Further,
Licensee acknowledges and agrees that Fannie Mae will in no
way be responsible for any Losses that may result from
Licensee's use of the software and/or systems obtained from
any third-party service provider, despite the fact that such
software may interface with the Licensed Software.
11
<PAGE>
7.11 Recordkeeping. Licensee acknowledges and agrees that it and/or
a Participating Broker may be required to maintain records of
certain data pursuant to the federal Equal Credit Opportunity
Act and other state and/or federal laws and regulations.
Licensee understands and agrees that: (i) it and/or the
Participating Broker bears sole responsibility for such
obligation with respect to loans originated by Licensee; (ii)
it may need to download Licensed Software data into its own
systems storage facilities or print out hard copies of such
data from the Licensed Software in order to generate or obtain
information necessary to meet such recordkeeping requirements;
and (iii) in no event will Fannie Mae be responsible for
maintaining any such data for Licensee and/or a Participating
Broker or to provide Licensee and/or the Participating Broker
with any such data at any time, either in computerized or
hard-copy format, except as expressly provided in clause (i)
of Section 7.12.
7.12 Licensee Access to Case Files. Licensee acknowledges that (i)
its ability to obtain on-line access to a case file and the
data contained therein shall continue for one hundred twenty
(120) days from (A) the case file creation date for that file,
or (B) the date such case file is first submitted to the
Licensed Software for underwriting, whichever is later, (ii)
Licensee's ability to obtain on-line access to such case file
and the data contained therein shall cease at the end of such
one hundred twenty (120) day access period, and (iii) Fannie
Mae shall not have any other responsibility to maintain data,
including, but not limited to, the data referred to in the
first sentence of Section 7.11 hereof. Notwithstanding the
foregoing sentence, this access period shall be extended to
one hundred eighty (180) days for case files and data relating
to Mortgage Loan Applications that are designated by Licensee
as "construction/permanent" in Desktop Underwriter. In
addition, upon request by Licensee, Fannie Mae may be able to
provide Licensee access to a case file and/or the data
contained therein after the applicable 120- or 180-day access
period for an additional fee; however, Fannie Mae is under no
obligation to provide, and makes no representations regarding
its ability to provide, such additional access to a case file
or its contents.
7.13 Compliance With Law. Licensee acknowledges that its
residential mortgage lending activities, whether or not the
Licensed Software is utilized in connection with such
activities as well as the design and operation of Licensee's
Site, may subject Licensee and/or a Participating Broker to
certain federal and state substantive and disclosure laws and
regulations including, without limitation, the Real Estate
Settlement Procedures Act, the Truth-in-Lending Act, the Fair
Credit Reporting Act, the Equal Credit Opportunity Act and the
Home Mortgage Disclosure Act and their implementing
regulations and commentary, as applicable. Licensee hereby
represents and warrants that it has obtained legal counsel and
developed policies, systems and procedures that ensure its
full compliance with all federal, state and local laws, rules
and regulations applicable to its residential mortgage lending
activities in connection with which the Licensed Software is
used. Licensee expressly understands and agrees that it and/or
the Participating Broker bears sole responsibility for
complying with such laws and regulations and that such
compliance obligations shall in no event be considered imposed
upon or shared by Fannie Mae by virtue of Licensee's use of
the Licensed Software.
12
<PAGE>
7.14 Loan Documents. Licensee acknowledges and agrees that the Loan
Documents are provided with the DESKTOP UNDERWRITER(TM) User
Kit as a convenience only, and that Licensee's misuse or
improper use of such forms may result in liability under
existing laws, rules or regulations, and under agreements to
which Licensee is a party, including, without limitation,
Licensee's Mortgage Selling and Servicing Contract with Fannie
Mae. Licensee understands and agrees that any liability
resulting from Licensee's use of the Loan Documents is solely
Licensee's responsibility, and Fannie Mae shall not be
responsible in any way for any such use or liability.
7.15 Indemnification. Notwithstanding the provisions of Section 13
hereof, Licensee shall indemnify and hold harmless Fannie Mae,
its Third-Party Licensors and their affiliates, partners,
officers, employees, directors, agents, contractors,
representatives, successors and assigns, as such, from and
against any Losses which arise out of or result from any third
party claim relating to (i) Licensee's use of the DESKTOP
UNDERWRITER(R) User Kit in conjunction with any third party
system as referenced in Section 7.9 of this Agreement, (ii)
any act or omission of Licensee in connection with this
Agreement or the Licensed Software (except to the extent that
Fannie Mae is at fault in causing such Losses), (iii) any
breach by Licensee of Sections 3.7, 7.2, 7.3, 7.5, 7.6, 7.11,
7.13 or 7.14 of this Agreement, and/or (iv) Licensee's opinion
referenced in Section 7.2 (a) (ii) and/or each Licensee action
resulting from such opinion.
8. Support.
Fannie Mae will provide Licensee with the support services set forth in
Exhibit C. Such services shall constitute the sole and entire support
services required to be given by Fannie Mae to Licensee under this
Agreement.
9. Fees, Taxes and Billing.
9.1. Licensee Subscription Fees. Licensee agrees to pay Fannie Mae
all applicable Subscription Fees as set forth in Exhibit A.
9.2 Taxes. In addition to the Subscription Fees, Licensee shall
pay all current and future federal, state and local taxes
imposed on the possession or use of the Licensed Software and
the support services provided under this Agreement, excluding,
however, all taxes assessed on Fannie Mae's net income.
9.3 Billing. Except as expressly provided herein, Licensee will be
billed monthly in arrears for Subscription Fees the month
following usage. Payment is due upon receipt of invoice.
Accounts not paid within thirty (30) days of the date of the
invoice shall be deemed delinquent and are subject to late
charges at the rate of 1.5% per month, commencing on the date
of the invoice, plus all costs of collection, including,
without limitation, reasonable attorneys' fees. Fannie Mae
reserves the right to suspend Licensee's access to the
MORNETPlus(R) Network if Licensee's account is delinquent.
13
<PAGE>
10. Confidentiality.
10.1 Protection. All Proprietary Information disclosed by one party
to the other in the course of performing under this Agreement
shall be deemed to be the property of the disclosing party, or
the appropriate Third-Party Licensor (or other third-party
owner), as the case may be. The receiving party agrees to (i)
receive such Proprietary Information in confidence, (ii) use
reasonable efforts to maintain the confidentiality of such
Proprietary Information, which efforts shall accord such
Proprietary Information at least the same level of protection
against unauthorized use and disclosure that the receiving
party customarily accords to its own information of a similar
nature, (iii) use or permit the use of such Proprietary
Information solely in accordance with the terms of this
Agreement, and (iv) promptly notify the disclosing party of
any loss or unauthorized use of the disclosing party's
Proprietary Information of which it becomes aware. The terms
and conditions of this Agreement shall be deemed to be the
Proprietary Information of both parties. If it is a United
States government agency, Licensee agrees that it shall comply
fully with the Trade Secrets Act (18 U.S.C. Section 1905) with
regard to the Proprietary Information. Each party agrees that
it shall abide by and reproduce and include any restrictive
legend or proprietary rights notice that appears in or on any
Proprietary Information of the other party or any Third Party
Licensor (or other third party owner) that it is authorized to
reproduce. Each party also agrees that it shall not remove,
alter, cover or distort any restrictive legend or other
proprietary rights notice appearing in or on any Proprietary
Information of the other party or any Third Party Licensor (or
other third party owner).
10.2 Exclusions. The restrictions on disclosure set forth above
shall not apply when, and to the extent that the Proprietary
Information: (i) is or becomes generally available to the
public through no fault of the receiving party; (ii) was
previously known to the receiving party free of any obligation
to keep it confidential; (iii) is subsequently disclosed to
the receiving party by a third party who may transfer and
disclose such information without restriction and free of any
obligation to keep it confidential; (iv) is independently
developed by the receiving party or a third party without
reference to the disclosing party's Proprietary Information,
or (v) is required to be disclosed by the receiving party as a
matter of law, provided that the receiving party uses all
reasonable efforts to provide the disclosing party with at
least ten (10) days' prior notice of such disclosure.
Notwithstanding the foregoing, neither party shall disclose,
or permit the disclosure of, the terms or conditions of this
Agreement without the prior written consent of the other
party, except (A) as provided in Section 10.2(v) above, or (B)
as necessary to permit the exercise of its rights or the
performance of its obligations under this Agreement.
10.3 Injunctive Relief. Each party acknowledges that the
unauthorized disclosure of the other's Proprietary Information
is likely to cause irreparable injury to the other party for
which the other party will have no adequate remedy at law.
Accordingly, each party consents to the entry of injunctive
relief against it to prevent or remedy any breach of this
Section 10.
11. Publicity; Marks.
11.1 Approval Procedure. Each party will submit to the other party
for its prior approval, which approval may be withheld at such
party's sole discretion, that portion of any press release,
14
<PAGE>
Internet posting, marketing, advertising, promotional or
similar materials referencing the other party and/or its Marks
in connection with this Agreement (the "Materials"). Once
approved, such Materials may be reused until such approval is
withdrawn pursuant to Section 11.2. Notwithstanding the
foregoing, the parties agree that statements of fact made in
routine correspondence with specific customers shall not
constitute "Materials."
11.2 Withdrawal of Approval. The rights granted in Section 11.1 may
be withdrawn at any time by the granting party upon reasonable
prior written notice. In the event of such withdrawal,
existing inventories of Materials may be depleted.
11.3 Exclusion. Notwithstanding the foregoing provisions of this
Section 11, either party may provide disclosures as required
by law or as reasonably advised by legal counsel without the
consent of the other party, and in such event prompt notice
thereof shall be provided to the other party.
11.4 Ownership of Marks. In using each other's Marks pursuant to
this Agreement, each party acknowledges and agrees that (i)
the other party's Marks are and shall remain the sole property
of the other party, (ii) nothing in this Agreement shall
confer in a party any right of ownership in the other party's
Marks, and (iii) neither party shall contest the validity of
the other party's Marks.
11.5 Legend Requirement. Unless otherwise agreed in writing, when
using the other party's Marks pursuant to this Agreement, a
party shall take all reasonable measures required to protect
the other party's rights in such Marks, including, but not
limited to, the inclusion of a prominent legend identifying
such Marks as the property of the other party. In addition,
Licensee shall include a legend to the effect that its use of
Fannie Mae's name or marks is for illustration purposes only
and does not represent an endorsement of Licensee's products
or services by Fannie Mae.
12. Warranty.
12.1 Warranty.
(a) Fannie Mae warrants to Licensee that the media
containing the Licensed Software delivered to
Licensee will be free from defects in materials and
workmanship under normal use for a period of sixty
(60) days from the date of original delivery to
Licensee. If a defect in such media occurs during
this warranty period (the "Warranty Period"), the
defective media may be returned to Fannie Mae, and
Fannie Mae will replace such media without charge.
(b) Fannie Mae warrants that the Licensed Software shall
perform substantially in accordance with its
specifications as set forth in the Documentation
during the Warranty Period, provided the Licensed
Software is used in accordance with its intended
purpose. In the event the Licensed Software does not
so perform during the Warranty Period, Licensee
shall, prior to the expiration of the Warranty
Period, document the instance(s) of nonperformance to
Fannie Mae in writing. Fannie Mae will either repair
or replace the Licensed Software or give Licensee a
refund of any Subscription Fees actually paid by
Licensee for the Licensed Software for the month
prior to the written notification to Fannie Mae. If
requested by Fannie Mae, Licensee will return all
components of the DESKTOP UNDERWRITER(R)User Kit and
all copies thereof in Licensee's possession.
15
<PAGE>
(c) The remedies set forth in subsections (a) and (b) of
this Section 12.1 shall be the sole and exclusive
remedies available to Licensee for any breach of
warranty hereunder.
12.2 THE WARRANTIES SET FORTH IN SECTION 12.1 ARE THE SOLE AND
EXCLUSIVE WARRANTIES GIVEN BY FANNIE MAE IN CONNECTION WITH
THE DESKTOP UNDERWRITER(R) USER KIT, ANY COMPONENT THEREOF OR
OTHERWISE UNDER THIS AGREEMENT. FANNIE MAE HEREBY EXPRESSLY
DISCLAIMS ANY AND ALL OTHER WARRANTIES, WHETHER EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND
WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF
PERFORMANCE.
12.3 Without derogating the generality of the foregoing, Fannie Mae
specifically does not warrant that (i) the Licensed Software
or any components thereof will perform without interruption or
error, or that all irregularities, errors, problems or defects
will be corrected, (ii) the Licensed Software will meet
Licensee's requirements, or (iii) the Licensed Software will
operate in the configuration which Licensee may select for
use. Beta and/or pilot versions of the Licensed Software are
provided "as is." The warranties set forth in Section 12.1
shall not apply to any irregularities, errors, problems or
defects arising from Licensee's unauthorized modification of
the Licensed Software or from accident, abuse, misuse or
misapplication.
13. Limitation of Liability.
13.1 EXCEPT WITH RESPECT TO ANY VIOLATION OF SECTION 3 OR SECTION
10 HEREOF, IN NO EVENT SHALL EITHER PARTY, OR ANY THIRD PARTY
LICENSOR, OR THEIR RESPECTIVE AFFILIATES, PARTNERS, OFFICERS,
EMPLOYEES, DIRECTORS, AGENTS, CONTRACTORS, REPRESENTATIVES,
SUCCESSORS OR ASSIGNS, AS SUCH, BE LIABLE FOR ANY PUNITIVE,
EXEMPLARY, INCIDENTAL, INDIRECT, CONSEQUENTIAL OR SPECIAL
DAMAGES UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE
DESKTOP UNDERWRITER(R) USER KIT, INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOSS OF PROFITS (EXCLUDING FANNIE
MAE'S PROFITS UNDER THIS AGREEMENT), INTEREST, REVENUE, DATA
OR USE, OR INTERRUPTION OF BUSINESS, INCURRED BY THE OTHER
PARTY OR ANY THIRD PARTY, WHETHER BASED UPON CONTRACT, TORT
(INCLUDING, WITHOUT LIMITATION, NEGLIGENCE, DUTY TO WARN AND
STRICT LIABILITY), WARRANTY OR ANY OTHER LEGAL OR EQUITABLE
GROUNDS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
13.2 IN ANY EVENT, THE TOTAL LIABILITY OF FANNIE MAE AND ANY
THIRD-PARTY LICENSOR, AND THEIR RESPECTIVE AFFILIATES,
PARTNERS, OFFICERS, EMPLOYEES, DIRECTORS, AGENTS, CONTRACTORS,
REPRESENTATIVES, SUCCESSORS AND ASSIGNS, AS SUCH, TO LICENSEE
OR ANY THIRD PARTY (INCLUDING A SUBSIDIARY, AFFILIATE OR
APPROVED LENDER) FOR ANY LOSSES, INCLUDING, WITHOUT
LIMITATION, CAUSES OF ACTION AND CLAIMS BASED UPON BREACH OF
CONTRACT, TORT (INCLUDING, BUT NOT LIMITED TO, NEGLIGENCE,
DUTY TO WARN AND STRICT LIABILITY), BREACH OF WARRANTY OR ANY
OTHER LEGAL OR EQUITABLE GROUNDS, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR THE DESKTOP UNDERWRITER(R) USER KIT, SHALL
NOT EXCEED THE TOTAL SUBSCRIPTION FEES RECEIVED BY FANNIE MAE
FROM LICENSEE UNDER THIS AGREEMENT DURING THE CONSECUTIVE
TWELVE-MONTH PERIOD IMMEDIATELY PRECEDING THE OCCURRENCE OF
THE EVENT GIVING RISE TO SUCH LIABILITY.
16
<PAGE>
13.3 FANNIE MAE AND LICENSEE EXPRESSLY ACKNOWLEDGE AND AGREE THAT
THE LIMITATIONS AND EXCLUSIONS CONTAINED HEREIN REPRESENT THE
PARTIES' AGREEMENT AS TO THE ALLOCATION OF RISK BETWEEN THE
PARTIES AND THAT THE AMOUNTS PAYABLE TO FANNIE MAE PURSUANT TO
THIS AGREEMENT REFLECT SUCH ALLOCATION OF RISK.
14. Intellectual Property Indemnity.
14.1 Notwithstanding the provisions of Section 13 hereof, Fannie
Mae shall indemnify and hold harmless Licensee and its
affiliates, partners, officers, employees, directors, agents,
contractors, representatives, successors and assigns, as such,
from and against any Losses which arise out of or result from
any third party claim that Fannie Mae does not have sufficient
right, title or interest in the Licensed Software or the
Documentation to enter into this Agreement or that the
Licensed Software or the Documentation violates an existing
United States patent, copyright, trademark, trade secret or
other intellectual property right of any third party.
14.2 In the event that such patent, copyright, trademark, trade
secret or other intellectual property right claim based on the
Licensed Software or the Documentation is made, or in Fannie
Mae's opinion is likely to be made, Fannie Mae reserves the
right, in its sole discretion, (i) to procure for Licensee the
right to continue to use the Licensed Software and the
Documentation, (ii) to replace the Licensed Software or the
Documentation with noninfringing materials, (iii) to modify
the Licensed Software or the Documentation so that it becomes
noninfringing, or (iv) to terminate this Agreement without
further cost, charge, liability or penalty to either party
relating to such termination.
14.3 Fannie Mae shall have no obligation with respect to any claim
of infringement based upon Licensee's (i) use of the Licensed
Software or the Documentation in violation of this Agreement,
(ii) modification of the Licensed Software or the
Documentation, or any portion thereof, where, in the absence
of such modification, the Licensed Software or Documentation
would not be infringing, (iii) use of the Licensed Software or
the Documentation in combination with other software, hardware
or data, if use without such software, hardware or data would
not be infringing, (iv) use of a superseded version of the
Licensed Software or the Documentation if infringement could
have been avoided by the use of the current version, (v) use
of the Licensed Software or the Documentation in practicing
any infringing process, or (vi) use of the Licensed Software
in a manner for which it was not designed.
14.4 THE FOREGOING REMEDIES SHALL BE THE SOLE AND EXCLUSIVE
REMEDIES AVAILABLE TO LICENSEE FOR ANY CLAIMS BROUGHT AGAINST
LICENSEE BASED UPON INTELLECTUAL PROPERTY INFRINGEMENT.
15. Indemnification Procedures and Subrogation.
17
<PAGE>
15.1 Procedures. Promptly after receipt by any person entitled to
indemnification under this Agreement (the "Indemnified Party")
of notice of a claim, or of the commencement (or threatened
commencement) of any civil, criminal, administrative or
investigative action or proceeding involving a claim, in
respect of which the Indemnified Party will seek
indemnification pursuant to this Agreement, the Indemnified
Party shall notify the party that is obligated to provide such
indemnification (the "Indemnifying Party") of such claim in
writing. No failure to so notify the Indemnifying Party shall
relieve the Indemnifying Party of its obligations under this
Agreement except to the extent that it can demonstrate damages
attributable to such failure. Except as provided in Section
15.2, the Indemnifying Party shall be entitled to have sole
control over the response to and settlement of such claim,
provided that, within fifteen (15) days after receipt of such
written notice, the Indemnifying Party notifies the
Indemnified Party of its election to so assume full control.
In the event the Indemnifying Party does elect to so assume
control: (i) the Indemnified Party shall be entitled to
participate in the response to such claim and to employ
counsel at its own expense to assist in the handling of such
claim, (ii) the Indemnifying Party shall obtain the prior
written approval of the Indemnified Party (which approval
shall not be unreasonably withheld or delayed) before entering
into any settlement of such claim or ceasing to defend against
such claim if such settlement or cessation would cause
injunctive relief to be imposed against the Indemnified Party,
and (iii) the Indemnifying Party shall promptly reimburse the
Indemnified Party for any legal expenses reasonably incurred
by the Indemnified Party in connection with the defense of
such claim prior to the Indemnified Party's receipt of the
Indemnifying Party's notice of its election to assume full
control over the response to such claim. After notice by the
Indemnifying Party to the Indemnified Party of its election to
assume full control, the Indemnifying Party shall not be
liable to the Indemnified Party for any legal expenses
incurred by such Indemnified Party in connection with the
defense of that claim. If the Indemnifying Party does not
assume sole control over the response to such claim as
provided in this Section, the Indemnifying Party may
participate in such response and the Indemnified Party shall
have the right to respond to the claim in such manner as it
may deem appropriate, at the cost and expense of the
Indemnifying Party. The Indemnifying Party shall promptly
reimburse the Indemnified Party for such costs and expenses.
15.2 Exclusion. Notwithstanding anything set forth in Section 15.1
to the contrary, in the event an Indemnified Party reasonably
believes and so notifies the Indemnifying Party in writing
that the applicable claim, even if fully indemnified for, is
reasonably likely to have a material adverse effect on the
Indemnified Party, then the Indemnifying Party shall not have
the right to control the response to and settlement of such
claim, but shall have the right to employ separate counsel at
its own expense to assist in the handling of such claim by the
Indemnified Party. In such an event, (i) the Indemnified Party
and its counsel shall consult, wherever reasonably
practicable, with the Indemnifying Party and its counsel with
respect to the status of the claim and any related litigation
or proceedings, and (ii) the Indemnified Party shall bear the
expense of its counsel.
15.3 Settlement. An Indemnifying Party shall not be required to
indemnify any Indemnified Party for any amount paid or payable
by such Indemnified Party in the settlement of any claim which
was agreed to without the written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or
delayed.
15.4 Subrogation. In the event that an Indemnifying Party shall be
obligated to indemnify an Indemnified Party pursuant to this
Agreement, the Indemnifying Party shall, upon payment of such
indemnity in full, be subrogated to all rights of the
Indemnified Party with respect to the claims and defenses to
which such indemnification relates.
18
<PAGE>
16. Term and Termination.
16.1 Term. Subject to Sections 16.2, 16.3 and 16.4, this Agreement
shall remain in force and effect for five years from the first
date by which both parties have executed this Agreement. At
the end of this initial term, this Agreement shall be renewed
for a period of one year, and thereafter, year to year for one
year renewal periods unless (i) at least thirty days prior to
the expiration of the initial five-year period or any yearly
period thereafter, either party shall notify the other party
in writing of its intention to terminate this Agreement, (ii)
either party exercises its right to terminate this Agreement,
as provided in Section 16.2, or 16.4, or (iii) Fannie Mae
exercises its right to terminate this Agreement, as provided
in Section 16.3.
16.2 Termination for Cause. Either party may terminate this
Agreement upon thirty (30) days' prior written notice due to
the breach of the other party of any material term or
condition of this Agreement, which has not been cured by the
breaching party during such thirty (30) day notice period.
Notwithstanding the foregoing, in the event that Licensee's
Mortgage Selling and Servicing Contract with Fannie Mae is
terminated, this Agreement shall be deemed to be immediately
terminated.
16.3 Termination for Change in Ownership. Fannie Mae may terminate
this Agreement upon ninety days' written notice to Licensee
after receiving a notification from Licensee pursuant to
Section 3.4(g).
16.4 [REDACTED]
16.5 Survival. Neither party shall have any continuing obligations
to the other upon the effective date of termination except
that (i) Licensee shall pay Fannie Mae all Subscription Fees
accrued and owing prior to the date of termination and any
late charges relating thereto; and (ii) any provisions of this
Agreement that contemplate their continuing effectiveness,
including, without limitation, Sections 3.7, 4, 7.6, 7.8, 7.9,
7.10, 7.11, 7.12, 7.13, 7.14, 7.15, 9.2, 9.3, 10, 11, 12, 13,
14, 15, 16.6 and 17, shall survive any termination of this
Agreement.
16.6 Certain Licensee Termination Obligations. Upon termination of
this Agreement, Licensee shall be obligated to immediately
cease using the DESKTOP UNDERWRITER(R) User Kit, to destroy
all copies of the Licensed Software and return all copies of
the Documentation to Fannie Mae. Upon request from Fannie Mae,
Licensee shall provide Fannie Mae with written certification
of its compliance with the foregoing, executed by a duly
authorized officer of Licensee.
19
<PAGE>
17. General Provisions.
17.1 Assignment. This Agreement may not be assigned by Licensee to
any other person(s), firm(s), corporation(s) or other entities
either through the operation of law or otherwise, without the
prior express written approval of Fannie Mae, which may be
withheld in its sole discretion for any reason whatsoever.
17.2 Notices. All notices, requests, demands, and other
communications (other than routine operational communications)
required or permitted hereunder shall be in writing and shall
be deemed to have been received by a party (i) when actually
received in the case of hand delivery, (ii) one (1) day
business after being given to a reputable overnight courier
with a reliable system for tracking delivery, (iii) when sent
by confirmed facsimile with a copy sent by another means
specified in this Section, or (iv) seven (7) days after the
date of mailing, when mailed by United States mail, registered
or certified mail, return receipt requested, postage prepaid,
and addressed to the recipient's contact person/address set
forth on the order form relating to this Agreement. A party
may from time to time change its address or designee for
notification purposes by giving the other party prior written
notice of the new address or contact person and the date upon
which it will become effective.
17.3 Governing Law: Severability. This Agreement shall be governed
by and construed solely and exclusively in accordance with the
laws of the District of Columbia, without reference to its
conflicts of law principles. If any of the provisions of this
Agreement are invalid under any applicable statute or law,
such provisions shall be deemed to be deleted from this
Agreement to the extent of such invalidity, and the remainder
of this Agreement shall remain in full force and effect.
17.4 Force Majeure. Neither party shall be responsible for delays
or failure of performance resulting from acts beyond the
reasonable control of such party. Such acts shall include, but
not be limited to, acts of God, strikes, walkouts, riots, acts
of war, epidemics, failure of suppliers to perform,
governmental regulations, power failures, earthquakes, or
other disasters.
17.5 Headings. The titles and headings of the various sections and
paragraphs in this Agreement are intended solely for
convenience of reference and are not intended to explain,
modify or place any construction or limitation upon any of the
provisions of this Agreement.
17.6 Issued Bulletins; Amendments. Fannie Mae may issue hard-copy
or electronic bulletins, from time to time, amending this
Agreement on a prospective basis, effective on the date
specified by Fannie Mae in the bulletin. Each bulletin shall
be issued at least twenty (20) days before its effective date,
except for bulletins relating to software and other materials
provided by Third-Party Licensors, which may be issued at any
time prior to their effective date. Licensee shall have the
right to reject any bulletin by providing written notice to
Fannie Mae within fifteen (15) days after receipt of such
bulletin. In the event that Licensee rejects any bulletin,
Fannie Mae shall be entitled to terminate this Agreement,
effective either (i) as of the effective date of such
bulletin, or (ii) upon receipt by Licensee of Fannie Mae's
termination notice, whichever is later. Unless Licensee
provides such rejection notice within the aforementioned
fifteen (15) day period, Licensee shall be deemed to have
consented to such amendments and such amendments shall form
part of this Agreement as of the effective date of such
bulletin. Otherwise, the terms of this Agreement may be
amended solely by a writing expressly purporting to create an
amendment or supplement to this Agreement and executed by a
duly authorized representative of each party to be bound
thereby. This Agreement may not be amended by any purchase
order or other written instrument submitted by Licensee,
whether or not formally rejected by Fannie Mae.
20
<PAGE>
17.7 Entire Agreement. No representations or statements of any kind
made by either party that are not expressly stated herein or
in any written amendment hereto shall be binding on such
party. The parties agree that the order form and this
Agreement, including all Exhibits hereto, shall constitute the
complete and exclusive statement of the agreement between
them, and supersede all prior or contemporaneous proposals,
oral or written, and all other communications between them
relating to the subject matter hereof.
17.8 MORNETPlus(R) Products. Any other MORNETPlus(R) product that
Licensee may operate in conjunction with the Licensed Software
shall be governed under the terms and conditions of the
agreement under which any such other product is licensed to
Licensee.
<PAGE>
17.9 Jurisdiction. Any and all disputes between the parties that
cannot be settled by mutual agreement shall be resolved solely
and exclusively in the courts located within the District of
Columbia, and Licensee hereby consents to the jurisdiction of
such courts and irrevocably waives any objections thereto,
including without limitation, on the basis of improper venue
or forum non conveniens.
17.10 No Third-Party Beneficiaries. Nothing in this Agreement is
intended to, or shall, create any third-party beneficiaries,
whether intended or incidental, and neither party shall make
any representations to the contrary.
17.11 Restricted Rights. The Licensed Software is a "commercial
item," as that term is defined at 48 C.F.R. 2.101 (Oct. 1995),
consisting of "commercial computer software" and "commercial
computer documentation," as such terms are used in 48 C.F.R.
12.212 (Sept 1995). Consistent with 48 C.F.R. 12.212 and 48
C.F.R. 227.7202.4 (June 1995), all U.S. Governmental Licensees
are provided the Licensed Software with only those rights set
forth herein.
17.12 No Implied Waiver. No term, provision or clause of this
Agreement shall be deemed waived and no breach excused unless
such waiver or consent shall be in writing and executed by a
duly authorized representative of each party. Any consent by
any party to, or waiver of, a breach by the other, whether
express or implied, shall not constitute a consent to, waiver
of, or excuse for any different or subsequent breach.
17.13 Non-Agency. Except for the limited agency provided for in
Section 7.3 hereof, nothing in this Agreement shall be
construed to make the parties partners, joint venturers,
representatives or agents of each other, nor shall either
party so represent to any third person.
21
<PAGE>
EXHIBIT A
[REDACTED]
____________________
____________________
A-1
<PAGE>
[REDACTED]
A-2
<PAGE>
EXHIBIT B
AUTHORIZATION FOR CREDIT REPORT AND PREQUALIFICATION/PRE-APPROVAL
-----------------------------------------------------------------
I/We, (Borrower(s) ) hereby authorize (Lender) , its agents, successors and/or
assigns, to perform a preliminary evaluation of my qualification for a mortgage
loan, and for this purpose, to obtain a consumer credit report and verify other
credit information.
- ---------------------------------------
Signature
- ---------------------------------------
Name
B-1
<PAGE>
EXHIBIT C
SUPPORT
-------
Fannie Mae will be available to Licensee via the MORNETPlus(R) Hotline, Monday
through Friday from 8 a.m. to 9 p.m. ET and Saturday from 10 a.m. to 6 p.m. ET,
by phone to provide guidance and answer questions regarding the use of the
Licensed Software, and to help Licensee identify, verify and resolve Incidents
occurring on, or with respect to, the DESKTOP UNDERWRITER(R) User Kit.
C-1
<PAGE>
EXHIBIT D
PARTICIPATING BROKER AGENT DESIGNATION PROVISION
------------------------------------------------
In connection with the processing and evaluation of Consumer Credit Data by
Licensee for purposes of making an underwriting recommendation or performing a
Prequalification Analysis, the Participating Broker expressly appoints Licensee
as its agent, as that term is defined in the FCRA.
For purposes of this section:
"Consumer Credit Data" shall mean any information obtained by Licensee, either
directly or indirectly (including from the Participating Broker), which bears on
a consumer's creditworthiness, credit standing, credit capacity, character,
general reputation, personal characteristics, or mode of living and which is
used or expected to be used or collected in whole or in part for the purpose of
serving as a factor in underwriting a Mortgage Loan Application or performing a
Prequalification Analysis.
"FCRA" shall mean the federal Fair Credit Reporting Act, codified at 15 U.S.C.
Section 1681 et seq., and the Federal Trade Commission's Official Staff
Commentary to the Fair Credit Reporting Act.
"Mortgage Loan Application" shall refer to the submission by a mortgage loan
applicant of financial information and identification of the specific property
to secure the mortgage loan for the purpose of obtaining an underwriting
decision.
"Prequalification Analysis" shall mean the evaluation of Consumer Credit Data
with respect to a prospective mortgage loan applicant for the purpose of
evaluating such prospective applicant's qualification for mortgage financing,
other than in connection with a Mortgage Loan Application.
D-1
DISTRIBUTION, MARKETING, FACILITIES, and SERVICES AGREEMENT
-----------------------------------------------------------
This DISTRIBUTION, MARKETING, FACILITIES, SERVICES AGREEMENT (the
"Agreement") is entered into as of May 31, 1998, between INTUIT LENDER SERVICES,
INC., a Delaware corporation with its principal place of business at 2535 Garcia
Avenue, Mountain View, CA 94043 ("ILSI"), and FIRST MORTGAGE NETWORK, INC., a
Florida corporation with its principal place of business at 8751 Broward Blvd,
Plantation, FL, 33324 ("FMN").
WITNESSETH:
-----------
WHEREAS, ILSI owns and operates the QuickenMortgage(R) website located
at (the "Website"), through which consumers can shop for loans, prequalify and
apply for mortgage loans with various lenders online;
WHEREAS, ILSI has agreements with various lenders obligating ILSI to:
display and advertise the loan products of such lenders through the Website;
counsel and prequalify applicants; receive and transmit mortgage loan
applications electronically; and provide other goods and facilities and perform
various other services for lenders;
WHEREAS, FMN is in the business of providing mortgage loan underwriting
and origination support services to mortgage loan brokers and lenders;
WHEREAS, FMN is or will become, prior to performing its duties under
this Agreement, an approved loan correspondent for various mortgage lenders,
with an adequate facility enabling it to fund and close mortgage loans in its
name as creditor;
WHEREAS, ILSI has entered into technology and distribution agreements
with various companies to draw consumer traffic to the Website and facilitate
consumer navigation through mortgage loan financing and related sites;
WHEREAS, ILSI wishes to improve the speed, process, and customer
satisfaction associated with consumers' use of its proprietary mortgage
marketspace, known as QuickenMortgage, by engaging FMN to perform loan
origination and related tasks for some or all of the lenders participating in
QuickenMortgage;
WHEREAS, ILSI and FMN desire to work together to originate, underwrite
and close mortgage loans that have been initiated through Inquiries,
Prequalifications, Short Applications and Enhanced Applications, as defined
herein ("ILSI Loans"), for sale by them, individually or together, in secondary
market transactions to participating lenders (the "Participating Lenders").
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
ILSI SERVICES AND FACILITIES
1
<PAGE>
ILSI shall perform the following services and provide the following
facilities in connection with ILSI Loans:
1.1 Marketing. ILSI shall use commercially reasonable efforts, using
such methods and distribution channels as it deems advisable, to advertise and
market the Website to increase the number of Participating Lenders served by the
Website, the number of borrowers using the Website, and the number and variety
of loan products available on the Website.
1.2 Inquiry. Through a simple question-and-answer format, ILSI shall
collect information consisting of the name, address, income, assets and
liabilities of potential borrowers. Alternatively, potential borrowers may
supply a subset of the above information to ILSI by telephone or through e-mail.
(The information obtained at this stage is called an "Inquiry" or, if more than
one, "Inquiries").
1.3 Prequalifications. Using the information gathered during the
Inquiry stage, as well as additional information that may be gathered on the
Website, and using its proprietary or licensed software, ILSI shall (i) analyze
the prospective borrower's income and debt, (ii) educate the prospective
borrower about the homebuying and financing process, (iii) advise the
prospective borrower about different types of loans available through the
Website, and (iv) prequalify the prospective borrower for the loan or loans
chosen by him or her ("Prequalification" or, if more than one,
"Prequalifications"). Other services shall be provided as part of
Prequalification; these services may be accessed by the prospective borrower at
his or her option, and include linkages to the Participating Lenders' home pages
and websites and linkages to other websites related to mortgage financing.
1.4 Short Application. Following Inquiry and/or Prequalification, ILSI
shall (i) assist the prospective borrower in understanding and clearing any
credit problems; (ii) assist the prospective borrower in completing an
abbreviated loan application form; (iii) provide the initial good faith estimate
of closing costs ("GFE") and other required federal and state disclosures; (iv)
provide a contact point during the loan application process for the prospective
borrower to check the progress of the loan application; (v) identify for
prospective borrowers the necessary financial documentation to be assembled in
support of the application; and (vi) collect credit card information to
facilitate the ordering of property appraisals and consumer credit reports (if
deemed appropriate) (collectively "Short Application"). ILSI shall transmit the
loan application information gathered during the Inquiry through Short
Application stages to FMN for further processing as described in Article II
below.
1.5 Enhanced Application. ILSI shall assist in collecting information
from the borrower to complete the FNMA/FHLMC Form 1003 loan application form
("Form 1003"), provide facilities and software to enable ILSI and FMN to obtain
credit reports online, perform automated underwriting, order appraisal reports
online, conduct home valuation using automated tools, create and send required
verification letters, and perform other ancillary services and provide
additional items as deemed appropriate by the parties ("Enhanced Application").
2
<PAGE>
1.6 Software Support. ILSI shall provide various facilities including
software engineering and operations resources to assist the parties in
performing the services described in this Agreement, including, without
limitation, (i) building a temporary interface between FMN and the Website by
July 15, 1998, or as soon thereafter as practicable; (ii) building an interface
between the FMN CLOser(R) system, which is described in Section 2.5(a) (the "FMN
CLOser(R)"), and the Website database by October 15, 1998; (iii) providing a
means for FMN to access loan products and pricing on the Website or through a
similar web-based application created by ILSI; (iv) building and maintaining
communication tools to enable loan processors to communicate efficiently with
loan applicants; and (v) developing, maintaining and continuing to enhance other
software productivity tools as needed for the optimal operation of the loan
origination, borrower counseling, loan processing and loan underwriting efforts
of ILSI and FMN.
1.7 Customer Support. ILSI shall provide customer support through the
Website and call centers for prospective borrowers who have questions about the
site and other general questions that are not specific to any loan. ILSI will
provide, through the Website and/or other means, in its discretion, customer
disclosures concerning the participation of FMN in ILSI Loan transactions as it
deems necessary and desirable to fully comply with all legal obligations
applicable to the Website and the parties, including affiliated business
arrangement disclosures under RESPA, and disclosures concerning the source of
funding of ILSI Loans.
1.8 Employee and Software Sharing. ILSI and FMN shall share employees
and software tools as appropriate for processing loan applications, including,
without limitation, employees and tools to order and analyze flood
certifications, inspections, engineering reports, property appraisals and credit
reports.
ARTICLE II
FMN'S SERVICES AND FACILITIES
This Agreement contemplates that FMN will initially act as loan
correspondent for Participating Lenders who offer mortgage loans on the Website.
This Agreement does not, however, preclude ILSI or FMN from establishing
wholesale relationships in the future, with either the Participating Lenders or
other lenders. In connection with ILSI Loans that are transmitted to FMN for
processing initially, FMN shall perform the following services and provide the
following facilities:
2.1 Status Updates. ILSI Loans may be transmitted to FMN for further
processing at any stage of the application process. Thus, either or both FMN and
ILSI may conduct specific processing tasks for ILSI Loans prior to closing and
funding; however, the parties agree to work together to ensure that the services
provided are not duplicative. Once an ILSI Loan has been transmitted to FMN, FMN
shall update the processing system and/or the Website database with the status
of the loan processing as agreed between ILSI and FMN but at a minimum wherever
indicated below. Furthermore, as soon as possible, FMN will begin to notify the
borrower of all status changes as they occur and will work with ILSI to create
an automated system that will update the Website with such status changes and
transmit electronic messages to borrowers by October 15, 1998.
3
<PAGE>
2.2 Origination. The parties acknowledge and agree that an essential
element of successful loan origination, particularly online loan origination via
the Website, involves making timely contact with prospective borrowers. To that
end, earlier and faster initial and subsequent communications between the loan
originator and the prospective borrower are more likely to result in completed
applications and eventual closed loans. The parties therefore agree that time is
of the essence in all processing tasks involving communications with prospective
borrowers, and that prompt communications are an essential element of the
origination task for which FMN is engaged. FMN shall maintain its status as an
approved loan correspondent of the Participating Lenders, and shall demonstrate
and confirm that status to ILSI upon request.
FMN shall perform the following origination services with respect to
ILSI Loan applications or Inquiries that are transmitted to FMN by ILSI:
(a) Response to Prospective Borrowers. Respond to submissions by
prospective borrowers and finalize loan applications as appropriate for each
Stage described in (i) to (iv) below:
(i) Inquiry Stage. Respond to Inquiries submitted through the
Website or ILSI call centers. If prequalification was not requested through the
Website, analyze Inquiry data, send out prequalification notices and encourage
borrower to submit an application;
(ii) Prequalification Stage. Send out prequalification notices
to prospective borrowers; provide those prospective borrowers who prequalified
for a particular loan or loans through the Website with personalized on-line
prequalification letters; follow up with prospective borrowers; and encourage
them to submit an application for the selected ILSI Loan. Where the borrower has
selected an ILSI Loan that is not appropriate for the borrower, assist the
borrower in choosing a different ILSI Loan;
(iii) Short Application Stage. Confirm to the prospective
borrowers the receipt of the Short Application and assist him or her in
finalizing the application as needed;
(iv) Enhanced Application Stage. Confirm receipt of the
Enhanced Application and assist the prospective borrower in finalizing the
application as needed;
(b) Re-Qualify, Verify, Amend or Modify Information. At the request of
a prospective borrower, re-qualify the prospective borrower for the same or
another loan, based on change of circumstances, change of preferences, or for
other reasons, and answer questions concerning information submitted on
Prequalification, Short Application or Enhanced Application screens.
(c) Credit Report Ordering/Review. Check credit history of borrower as
appropriate, including review of any credit scoring data.
4
<PAGE>
(d) Commitments. Prepare and send out commitment letters in the name of
the creditor, and/or collect commitment fees, application fees or deposits
toward closing costs, as appropriate.
(e) Loan Application Package Preparation. Prepare completed loan
application packages and send them to borrowers via overnight courier,
electronically, or other means. The loan application package shall include all
data provided by borrowers, itemization of information outstanding, including,
without limitation, Form 1003, GFE, disclosures, Truth-in-Lending statements and
other disclosures required by law to be furnished by creditors, and
instructions.
(f) Borrower Support. Answer any borrower questions concerning the loan
application package and the ILSI Loan.
(g) Transfer to Processing. Ensure that transmission of ILSI Loans from
ILSI to FMN (and within teams at FMN) is a smooth process from the perspective
of the prospective borrower, with the required degree of communication between
all parties.
2.3 Processing and Underwriting. FMN shall process and arrange for
underwriting for all ILSI Loan applications.
(a) Processing. In connection with processing, FMN shall provide the
following services:
(i) Appraisal. FMN shall engage an appraisal firm and ensure
that the property appraisal is performed in a timely manner. FMN's call center
representative shall update the processing system and the Website database with
the status of the appraisal;
(ii) Verifications. FMN shall maintain frequent contact with
the loan applicant to collect verifications of employment (VOE), income (VOI),
assets, and debt, including mortgage debt (VOM). FMN shall update the processing
system, the Website database and the loan application data with the status of
all verifications;
(iii) Underwriting. FMN or its designee shall underwrite the
completed loan package and update the processing system and the Website database
with the underwriting decision. FMN shall call the applicant to inform him/her
of the underwriting decision. FMN shall send the loan applicant an adverse
action letter under the Equal Credit Opportunity Act ("ECOA") if appropriate;
(iv) Flood, Tax, Ancillary Services. FMN shall order flood
certifications, tax service and other ancillary services as needed. FMN shall
update the processing system and the Website database with the status of such
services;
(v) Title. FMN shall assist borrowers to engage a reputable
title firm and follow through to ensure that the title search is completed and
insurance is issued. FMN shall update the processing system and Website database
with the status of title and insurance;
5
<PAGE>
(vi) Escrow. FMN shall engage a reputable escrow firm and
arrange for escrow services pending closing and sale of ILSI Loans as described
below. FMN shall update the processing system and Website database with the
status of the escrow.
(b) Pricing of Ancillary Services. FMN shall obtain pricing for the
ancillary services listed in Section 2.3(a) and any other third party services
required, which pricing is at least as competitive, for a comparably priced
loan, as the aggregate fees charged by the Index Group of lenders as defined in
Appendix A to this Agreement, for similar services. FMN further agrees that it
will pass through to the borrowers third party fees that are customarily
reimbursed by borrowers with no mark-up of any kind, nor will FMN receive
directly or indirectly any monetary or in-kind benefit from the providers of
such ancillary services, except as described in Section 2.3(c) below. ILSI and
FMN will cooperate with each other to negotiate the lowest pricing for such
ancillary services without jeopardizing the quality of service to the borrower
or to the lenders who require such services.
(c) Third Party Servicer Provider Entity. ILSI and FMN may, in the
future and pursuant to a separate agreement, form a separate entity (a limited
liability company, joint venture or other entity), either by themselves or with
one or more service providers, to provide, in connection with ILSI Loans, some
or all of the ancillary services described in Section 2.3(a). If ILSI and FMN
form such an entity, they shall share any resulting profits and expenses in
accordance to their respective ownership interests in the new entity. Each party
will offer the other the right to participate in up to 50% of the ownership of
such new entity. In the event a party offered participation declines to
participate, the other party may proceed with the formation of such an entity
and the provision of ancillary services, so long as the services are priced
competitively with those charged by the Index Group, as described in 2.3(b)
above. A party that declines to participate in the new entity at its formation
may participate thereafter, provided it purchases ownership interests in the
entity at its then-current fair market value, as determined by an independent
public accountant chosen by the parties.
If applicable, any entity formed by the parties pursuant to this
Section 2.3(c) shall comply with the rules governing affiliated business
arrangements, as defined in the Real Estate Settlement Procedures Act (RESPA)
and the regulations adopted thereunder.
(d) Negotiating Loan Pricing. FMN shall use its best efforts to
negotiate the lowest correspondent pricing available from Participating Lenders.
ILSI shall cooperate with FMN in this effort.
2.4 Packaging, Funding and Closing. FMN shall operate initially under
this Agreement as a loan correspondent with warehouse lines of credit available
for loan funding. In that capacity, FMN shall provide the following services
with respect to ILSI Loans:
(a) Packaging. FMN shall package, process, and underwrite ILSI Loans.
6
<PAGE>
(b) Funding. FMN shall use its own funding sources to close and fund
ILSI Loans in FMN's name as original payee/mortgagee. FMN shall immediately sell
closed loans to the Participating Lender for whom it has acted as correspondent
in the transaction, and which has committed to purchase such loan. For all ILSI
Loans which will be funded and closed by FMN, FMN shall disclose to the borrower
prior to the borrower's binding commitment for the loan (or at an earlier time,
as required by law and in the mutual judgment of ILSI and FMN) the name of the
Participating Lender to whom the loan is being sold.
(c) Closing. FMN shall coordinate and perform or arrange for the
closing of ILSI Loans, and where appropriate, the placement of loan funds in
escrow pending closing and/or sale.
(d) Selling. ILSI Loans closed and funded in FMN's name shall be sold
by FMN to the appropriate Participating Lender. FMN will be responsible for
coordinating the sale, collecting the proceeds, and other tasks involved in the
sale. Nothing in this Agreement may be construed to preclude ILSI from
processing, closing and funding mortgage loans in its own name in the future, as
a correspondent lender or as an originator or broker of loans for wholesale
lenders, but such activities will not relieve ILSI of its obligations under this
Agreement. ILSI agrees not to engage in processing, closing and funding mortgage
loans in its own name to the extent that its doing so shall have the effect of
decreasing the number of ILSI Loans then being transmitted to FMN for processing
under this Agreement, in accordance with FMN's then-current capacity for
processing. Furthermore, ILSI agrees to provide to FMN six (6) months' written
notice of its intention to act as a lender, originator or processor of loans for
other lenders, including wholesale lenders. Following its receipt of such
notice, FMN shall be relieved of the restrictions applicable to it in Section
5.1.
2.5 Facilities. FMN shall provide the following facilities to ILSI in
connection with ILSI Loans:
(a) FMN CLOser(R) System. FMN shall install the FMN CLOser(R) in ILSI
offices and on its computer networks and shall train ILSI personnel in ILSI
offices in its use. FMN CLOser(R) is FMN's proprietary loan origination,
pricing, locking, pipeline management and status reporting system. As used in
this Agreement, FMN CLOser(R) includes interfaces with automated underwriting
and credit evaluation functions and integration with FMN's Internet site. During
the term of this Agreement, ILSI will have a royalty-free worldwide license to
use FMN CLOser(R) in connection with the origination and processing of ILSI
Loans under the terms of this Agreement and in connection with any other loans
for which FMN receives compensation as described in Article IV. This licensed
use of FMN CLOser(R) by ILSI shall not apply to any loans processed, closed and
funded by ILSI without the participation and compensation of FMN as described in
Section 2.4(d), or other compensation arrangement agreed upon by the parties.
(b) Engineering and Other Resources. FMN shall coordinate all tasks
related to the integration of the FMN systems, including CLOser(R), with the
Website. FMN will dedicate a minimum of one full-time person to this effort. FMN
shall further provide such additional staff as are needed from time to time to
work with ILSI as quickly and efficiently as reasonably possible to achieve the
development and operational objectives agreed to by the parties. The parties
shall work together to determine the tasks to be performed, the staffing needed
and the timing of completion of the tasks.
7
<PAGE>
(c) Security. FMN shall achieve ICSA E-Commerce security standards on
all data transmissions involving ILSI Loans by July 1, 1998 and shall maintain
such standards on such transmissions at all times.
(d) Commitment to OFX. FMN shall work with ILSI to build its services
within OFX guidelines.
ARTICLE III
OPERATIONS AND STANDARDS
3.1 Timing. The parties shall work together to begin offering ILSI
Loans under the terms of this Agreement by July 15, 1998 or as soon thereafter
as practicable, at which point the technical integration of the parties'
electronic and automated systems shall be partially integrated, and a minimum of
three (3) Participating Lenders shall have agreed to offer ILSI loans on the
Website (the "Preliminary Launch"). By October 15, 1998, the parties shall have
completed, or nearly completed, the technical integration of the electronic and
automated systems, and a minimum of four (4) Participating Lenders shall have
agreed to offer loans on the Website (the "Launch").
3.2 [REDACTED]
(a) [REDACTED]
(b) [REDACTED]
(c) [REDACTED]
(d) [REDACTED]
For each calendar month after the month in which the Preliminary Launch
occurs, the parties shall establish a monthly funding capacity. If the parties
cannot reasonably agree on the funding capacity, FMN shall establish the funding
capacity, which shall be stated in terms of loans to be funded per month. If the
capacity level is inadequate to meet customer demand for mortgage loan services
and ILSI gives FMN fifteen (15) days' written notice of a request for increased
capacity, FMN shall have thirty (30) days to agree to create the additional
capacity, and a reasonable period of time thereafter to put the additional
capacity in place.
If FMN declines to increase capacity following ILSI's written request,
ILSI reserves the right to obtain loan processing services from other sources
without loss of the benefits to ILSI of the exclusivity provisions in Section
5.1.
While the benefits to ILSI of the exclusivity provisions of Section 5.1
remain in place, FMN shall have the exclusive right to provide processing and
related services and facilities as described in this Agreement, for all ILSI
Loans, until such time as FMN is operating at 100% of its production capacity.
8
<PAGE>
FMN's production capacity shall not be deemed to have reached 100% at any time
that FMN is achieving the conversion ratios described in Section 3.4 and the
closed loan schedules as described in Section 3.5(c).
In the event that FMN declines to increase production capacity
following ILSI's written request within the time periods specified above, FMN
may thereafter increase capacity in response to the ILSI request, and shall give
ILSI six (6) months' notice of its intention to do so.
3.3 Initial Participating Lenders. As stated above, ILSI shall enter
into agreements with a minimum of three (3) lenders to become Participating
Lenders by the time of the Preliminary Launch and four (4) Participating Lenders
by the time of the Launch. ILSI shall select such Participating Lenders in
consultation with FMN based upon competitive pricing and attractive
correspondent programs offered by such lenders. The Participating Lenders will
provide correspondent and/or wholesale pricing to ILSI and FMN. In cases where
correspondent relationships are established, FMN agrees to maintain
correspondent approval from all Participating Lenders. ILSI agrees to make all
necessary agreements with the Participating Lenders to effectuate the purposes
of this Agreement.
3.4 Conversion Ratios. The parties agree to the following minimum
performance standards for FMN.
(a) [REDACTED]
(i) [REDACTED]
(ii) [REDACTED]
(iii) [REDACTED]
(iv) [REDACTED]
(b) The above ratios will be reviewed by the parties after six (6)
months following the Launch (or such other time periods determined by the
parties). The parties may adjust such ratios, but the blended average of the
ratios as adjusted shall provide a combined conversion ratio that is
substantially equivalent to the above ratios. In no event shall the conversion
ratios achieved by FMN fall below the highest conversion rate on a blended
average basis, offered by the top two lenders participating on the Website,
including the QuickenMortgage charter lenders as well as Participating Lenders
as defined in this Agreement.
(c) If FMN does not achieve the agreed-upon conversion ratios for three
(3) consecutive months (based upon a blended average of the categories), then,
upon written notice from ILSI, FMN shall have ninety (90) days to cure the
shortfall. Cure shall be effected by FMN's achieving the blended average
conversion ratios during the ninety (90) day cure period. If the shortfall
continues after the end of the cure period, ILSI shall have the right to
terminate this Agreement in accordance with Article VIII below.
9
<PAGE>
Notwithstanding the foregoing, if FMN does not achieve at least 50% of
the agreed-upon conversion ratios for two (2) consecutive months, ILSI will
provide written notice of this fact to FMN, and FMN shall have only sixty (60)
days to cure the shortfall. The cure shall be effected in the manner described
immediately above, except that the cure period shall be reduced to 60 days. If
the shortfall continues after the end of the sixty (60) day cure period, ILSI
shall have the right to terminate this Agreement as provided herein.
3.5 Service Levels. The parties shall cooperate with each other to
perform the following customer services:
(a) Customer Survey. The parties shall design a mutually
acceptable customer survey and establish minimum goals for customer
satisfaction. FMN shall transmit the survey to all borrowers at the time of
closing of ILSI Loans. The parties will develop and implement process
improvements to address instances of failure to meet customer satisfaction
goals.
(b) Quality Control Standards. The parties shall cooperate
with each other to develop mutually acceptable quality control standards for
ILSI Loans, which the parties shall work together to maintain. The parties will
develop and implement process improvements to address instances of failure to
meet minimum quality control standards.
(c) Amount of Time to Close Loans. FMN shall monitor the
processing of ILSI Loans to achieve and maintain an average amount of time
between application (Short Application or Enhanced Application) and loan
closing, not to exceed the average time to closing for loans funded by the three
fastest-closing lenders on the Website which information shall be provided to
FMN by ILSI.
(d) Customer Service Commitment. ILSI and FMN agree that
excellent customer service represents one of the foundations for building a
successful business and is a consideration for this Agreement.
To that end, the parties agree to the following customer service standards:
FMN shall deliver customer service performance at least equal to the
service level standards delivered by the average of the two lenders on the
Website determined to have the highest customer service levels (defined as
lowest ratio of complaints to applications) ("High Service Standard"). The two
lenders whose customer service levels are averaged to determine the High Service
Standard shall be selected from among the four lenders on the Website with the
highest application volume. The High Service Standard will be measured monthly,
and will be determined by the ratio of customer complaints received (and found
in ILSI's reasonable judgement to result from lender actions) regarding a
specific lender to the total applications taken by that lender during the month.
If FMN's customer service fails to meet the High Service Standard for
two (2) consecutive months, then upon written notice from ILSI, FMN shall take
10
<PAGE>
reasonable measures to improve service levels within 15 days and shall cure the
cause(s) of its failure to meet the High Service Standard within an additional
45 days; provided however, that if ILSI identifies a pattern of material
problems resulting from FMN conduct, which problems have resulted in specific
instances of customer complaints, then upon written notice from ILSI, FMN shall
take reasonable measures to improve service levels within 15 days and shall cure
the underlying problems within 45 days.
If the service shortfall is not cured during the cure period, then,
notwithstanding any other term of this Agreement to the contrary, ILSI shall
have the right to terminate this Agreement in accordance with Article VIII of
this agreement.
For purposes of this section a problem shall not be deemed to be
material if the specific events complained of occur in fewer than 2% of loan
applications taken by FMN. The provisions of this Section 3.5(d) shall not apply
during any period where actual loan volume exceeds the capacity levels
established and agreed to by the parties, as described in Section 3.2.
3.6 Management Commitment. Prior to the Preliminary Launch, ILSI and
FMN shall each employ or identify one managerial employee or officer to act as a
liaison between FMN and ILSI to assist with effectuating the goals of this
Agreement.
ARTICLE IV
COMPENSATION
4.1 Federal and State Law. The compensation structure set forth below
reflects the intent of the parties but is subject to change, by mutual agreement
of the parties, to comply with applicable federal and state laws and
regulations.
4.2 [REDACTED]
11
<PAGE>
[REDACTED]
4.3 Competitive Pricing Index. On a monthly basis the parties shall
generate a pricing index ("Index") for the following three (3) base loan
products: (i) thirty (30)-year conforming fixed rate loans, (ii) fifteen
(15)-year conforming fixed rate loans, and (iii) one (1)-year ARM loans. The
initial Index will consist of either the rates of lenders from competitive
websites, as set forth on Appendix A to this Agreement, or will be based on
other mutually agreed-upon standards.
4.4 Retail Pricing. FMN shall recommend retail pricing on a daily basis
by loan product that at least matches or improves upon the Index, and the
parties shall review the pricing on a monthly basis. Final retail pricing posted
on the Website shall be subject to ILSI's approval. For loan products other than
the three (3) base loan products described in Section 4.3, the same spread
between correspondent pricing based on the Index and retail pricing will be
maintained.
4.5 Fee Reduction. If it is determined that total loan origination fees
based on the illustrative example in Section 4.2 do not allow ILSI and FMN to
compete effectively in the market (i.e., to match or improve upon the Index
pricing level), ILSI and FMN will reduce their fees in amounts corresponding to
the proportional share of each in the total fees described in the example in
Section 4.2, to remain competitive.
4.6 [REDACTED]
12
<PAGE>
4.7 [REDACTED]
4.8 Cost Review. On April 15, 1999, the parties shall review the actual
costs incurred by them individually and jointly for operation during the
previous six (6) months, with a view to adjusting the above the formulas to
reflect the actual costs incurred while maintaining the margin objectives of the
parties. ILSI and FMN each commit to working to reduce costs throughout the loan
process and sharing cost-saving data with each other. ILSI shall have access to
FMN's books and records to determine what cost savings, if any, have been
achieved; ILSI may appoint, at its expense, an auditor to review the books and
records of FMN to the extent they relate to ILSI. Initial cost-reduction
projects are set forth on Appendix B attached hereto.
ARTICLE V
EXCLUSIVITY
5.1 [REDACTED]
13
<PAGE>
(a) Processing Services. Provided that FMN is not in breach of
any of its material obligations under this Agreement, ILSI shall use FMN as the
sole outsource provider of loan processing services for ILSI Loans.
(b) [REDACTED]
5.2 Subprime Services. Subprime services are not subject to the
exclusivity provisions of this Agreement. Nothing in this Agreement shall be
construed as preventing FMN from providing services of any kind in support of
the origination of subprime loans on the Internet, provided, however, that FMN
will give ILSI 10 days notice of its intention to offer such services, followed
by a reasonable period, not to exceed 10 days, in which ILSI may notify FMN of
its desire to participate with FMN in the offering of such services on a joint
basis to be determined by the parties. If ILSI notifies FMN of its desire to
jointly offer subprime activities or services, the parties agree to negotiate
with each other in good faith to implement such activities or services within a
period not longer than 30 days, unless extended by mutual consent.
5.3 FMN Lending Services. FMN may offer single lender-branded mortgage
banking services directly to consumers over the Internet, in the name of its AFI
division or in the name of any other lender wholly owned by FMN ("Single Lender
Private Label").
5.4 Single Lender Outsource Services. The parties acknowledge that they
are both presently offering private label solutions for single lenders and that
this Agreement does not prohibit either of them from continuing to do so.
5.5 Joint Multi-Lender Services. FMN and ILSI shall cooperate with each
other to jointly offer multi-lender mortgage banking services to third parties
("Multi-Lender Private Label"), provided that:
(a) ILSI continues to use FMN to provide loan processing
services and related facilities for processing ILSI Loans;
14
<PAGE>
(b) The third party has not explicitly requested to work with
only FMN or ILSI and there is no pre-existing relationship between the third
party and either FMN or ILSI; and
(c) ILSI's relationship with GHR Systems, the lenders on the
Website, or any other person with whom ILSI has a contractual relationship does
not prevent such an arrangement.
The parties shall share any profits of such joint offering of
Multi-Lender Private Label operations in accordance with their interests in the
venture. Costs of the joint venture shall be allocated in accordance with the
parties interests.
5.6 [REDACTED]
5.7 Right to Fund Non-Exclusive. The processing and funding of ILSI
Loans by FMN does not limit ILSI's present or future ability to act as a
mortgage banker, loan correspondent, loan broker to wholesale lenders, or in any
other similar capacity during the term of this Agreement, with respect to loans
in which FMN has no involvement, provided that ILSI meets its obligations under
this Agreement, and provided further that ILSI shall give FMN six (6) months'
advance written notice of its intentions to carry out any of these functions.
FMN shall be relieved of any exclusivity restrictions imposed upon it by Section
5.1 upon receipt of notice from ILSI of its intention to perform the activities
described in this section.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 Representations and Warranties of FMN. FMN represents and warrants
that the following is true and correct and shall remain true and correct during
the Term:
(a) Authority. FMN is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida with full
corporate power and authority to transact any and all business contemplated by
this Agreement and it possesses all requisite authority, power, licenses,
permits and franchises to conduct its business as presently conducted. Its
execution, delivery and compliance with its obligations under the terms of this
Agreement are not prohibited or restricted by any government agency. FMN has
taken all necessary action to authorize its execution, delivery and performance
of this Agreement.
15
<PAGE>
(b) Conflict with Existing Laws or Contracts. The execution
and delivery of this Agreement and the performance of its obligations hereunder
by FMN will not (i) conflict with or violate (A) FMN's Certificate of
Incorporation or By-laws, or (B) any provision of any law or regulation or any
decree, demand or order to which FMN is subject, or (ii) conflict with or result
in a breach of or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under any of the terms, conditions
or provisions of any agreement or instrument to which FMN is a party or by which
it is bound or any order or decree applicable to FMN or result in the creation
or imposition of any lien on any of its assets or property.
(c) Licenses and Consents. FMN has obtained all necessary or
required governmental licenses, permits, approvals, and consents for the
transactions contemplated by this Agreement. No consent, approval, authorization
or order of any court or governmental agency or body is required for the
execution, delivery and performance by FMN of or compliance by FMN with this
Agreement, or if required, such approval has been obtained or will be obtained
prior to the date of this Agreement.
(d) Legal Action Against FMN. There is no claim, action, suit,
proceeding or investigation pending or, to the best of FMN's knowledge,
threatened against FMN or against any of its principal officers, directors or
key employees, which, either in any one instance or in the aggregate, may result
in any adverse change in the business, operations, financial condition,
properties or assets of FMN, or in any impairment of the right or ability of FMN
to carry on its business substantially as now conducted through its existing
management group, or in any material liability on the part of FMN, or which
would draw into question the validity of this Agreement or any of the other
instruments, documents or agreements entered into by FMN in connection with this
Agreement, or of any action taken or to be taken in connection with the
obligations of FMN contemplated therein, or which would be likely to impair the
ability of FMN to perform the terms of this Agreement.
(e) Binding on FMN; Enforceability. This Agreement, assuming
due authorization, execution and delivery hereof, and all the obligations of FMN
hereunder, constitute the valid and binding obligations of FMN, enforceable
against FMN in accordance with the terms hereof, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the enforcement of creditors' rights in general and by
general equity principles (regardless of whether such enforcement is considered
in a proceeding in equity or at law).
(f) Compliance With Laws. FMN has complied and will continue
to comply with all applicable federal and state laws and regulations in its
business operations, in the loan origination activities proposed to be
conducted, and in the performance of this Agreement. In particular, FMN
represents and warrants that its loan origination, processing and underwriting
systems, including, without limitation, the FMN CLOser(R), comply with
applicable state and federal laws and regulations, including, without
limitation, the Fair Housing Act, Truth-in-Lending Act, and ECOA. FMN will not
16
<PAGE>
seek to hold ILSI liable in any action prosecuted against FMN by a borrower,
government agency, or other party which alleges non-compliance with the laws
applicable to originators of mortgage loans, provided that neither the bad faith
or wilful misconduct of ILSI materially contributed to the circumstances giving
rise to the claim against FMN. FMN will maintain errors and omissions insurance,
fidelity bonds and similar financial instruments designed to protect those with
whom it deals in the origination of mortgage loans, in commercially reasonable
amounts, and to provide evidence of such instruments to ILSI upon request. ILSI
will be a named or additional insured in such policies and instruments. The
types and amounts of insurance, bonds and other financial instruments maintained
by FMN will be subject to approval and upward revision by ILSI in its reasonable
discretion, as the volume of FMN activity subject to this Agreement increases.
FMN represents on behalf of its officers, directors, and key employees
that none of these individuals are currently in violation of any federal, state
or other law or regulation applicable to them in their professional capacities
as mortgage bankers, mortgage brokers, or any other regulated field or
occupation, except as disclosed to ILSI in writing in connection with this
Agreement, and that there is no pending legal, administrative or similar action
pending against any of them that would affect their ability to perform their
obligations to FMN or to the Participating Lenders, or to ILSI hereunder.
6.2 Representations and Warranties of ILSI. ILSI represents and
warrants that the following is true and correct and shall remain true and
correct during the Term:
(a) Authority. ILSI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to transact any and all business contemplated by
this Agreement and it possesses all requisite authority, power, and material
licenses, permits and franchises to conduct its business, and to execute,
deliver and comply with its obligations under this Agreement. The execution of
this Agreement and its delivery and the performance by ILSI of its obligations
under this Agreement are not prohibited or restricted by any government agency.
ILSI has taken all necessary action to authorize the execution, delivery and
performance of this Agreement.
(b) Conflict with Existing Laws or Contracts. The execution
and delivery of this Agreement and the performance of its obligations hereunder
by ILSI will not (i) conflict with or violate (A) ILSI's Certificate of
Incorporation or By-laws, or (B) any provision of any law or regulation or any
decree, demand or order to which ILSI is subject, or (ii) conflict with or
result in a breach of or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under any of the terms,
conditions or provisions of any agreement or instrument to which ILSI is a party
or by which it is bound or any order or decree applicable to ILSI or result in
the creation or imposition of any lien on any of its assets or property.
(c) Licenses and Consents. ILSI, in connection with
performance of its duties under this agreement, has obtained or will obtain all
necessary or required governmental licenses and consents requisite for the
transactions contemplated by this Agreement. No consent, approval, authorization
or order of any court or governmental agency or body is required for the
execution, delivery and performance by ILSI of or compliance by ILSI with this
Agreement, or if required, such approval has been obtained prior to the date of
this Agreement.
17
<PAGE>
(d) Legal Action Against ILSI. There is no claim, action,
suit, proceeding or investigation pending or, to the best of ILSI's knowledge,
threatened against ILSI, which, either in any one instance or in the aggregate,
may result in any material adverse change in the business, operations, financial
condition, properties or assets of ILSI, or in any material impairment of the
right or ability of ILSI to carry on its business substantially as now
conducted, or in any material liability on the part of ILSI, or which would draw
into question the validity of this Agreement, or any of the other instruments,
documents or agreements entered into by ILSI in connection with this Agreement,
or of any action taken or to be taken in connection with the obligations of ILSI
contemplated therein, or which would be likely to impair materially the ability
of ILSI to perform under the terms of this Agreement.
(e) Binding on ILSI; Enforceability. This Agreement, assuming
due authorization, execution and delivery hereof, and all the obligations of
ILSI hereunder, constitute the valid and binding obligations of ILSI,
enforceable against ILSI in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting the enforcement of creditors' rights in general
and by general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(f) Compliance With Laws. ILSI has complied and will continue
to comply with all applicable federal and state laws and regulations in its
business operations, in the operation of the Website, and in the performance of
this Agreement.
6.3 Covenants.
(a) Compliance with Laws. FMN and ILSI covenant to each other
that they will comply with all applicable federal and state laws and regulations
in performing their respective obligations under this Agreement. Any successful
challenge of any particular provision of this Agreement, including the
compensation provisions, by any governmental authority, will, at the option of
either party hereto, constitute sufficient cause for termination of this
Agreement if the Agreement and its purposes cannot be reasonably effectuated
without the challenged provision or term.
(b) Continuing Obligations of the Parties. The parties shall
cooperate with each other in the performance of this Agreement until the
termination hereof. Neither party shall take any action or refrain from taking
any action which would jeopardize or compromise the performance of the Website
or FMN's systems or which would hinder the performance by the parties of their
respective services to the Participating Lenders and to their customers. Each
party shall promptly forward to the other all notices, claims, letters,
documents and other information received by such party which are relevant to the
performance of this Agreement. The parties shall provide to each other all
information and documentation regarding their respective products and services
which are necessary or relevant to the performance of the transactions
contemplated by this Agreement.
18
<PAGE>
(c) FMN's Books and Records. FMN shall make all material books
and records pertaining to the services and facilities provided under this
Agreement, including without limitation, records and reports on Inquiries,
Prequalifications, Short Applications and Enhanced Applications that are
initiated through the Website and any other services and facilities provided to
ILSI, available for inspection at FMN's offices or any other mutually convenient
location upon five (5) days prior notice by ILSI.
(d) Further Assurances. At any time, and from time to time
after the execution of this Agreement, upon the reasonable request of a party
hereto, and at the expense of such party, the other party shall do, execute,
acknowledge and deliver, and shall cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably required in order to
enable the parties to perform their respective obligations hereunder and carry
out the terms of this Agreement.
ARTICLE VII
INDEMNIFICATION
7.1. General Indemnification by ILSI. ILSI shall indemnify FMN and any
directors, officers, employees or agents of FMN (collectively, "FMN Indemnified
Parties") and hold each of them harmless from and against any and all claims,
losses, damage, penalties, fines, forfeitures, reasonable legal fees and
expenses (including attorneys' fees) and related costs, expenses of litigation,
judgments, and any other costs, fees and expenses (each, a "Liability" and
collectively "Liabilities") that were caused by or resulted from a breach of any
of ILSI's representations, warranties, covenants and agreements contained in
this Agreement or by ILSI's willful misfeasance, bad faith or gross negligence
in the performance of or failure to perform as provided in this Agreement.
7.2. General Indemnification by FMN. FMN shall indemnify ILSI and any
directors, officers, employees or agents of ILSI (collectively, "ILSI
Indemnified Parties") and hold each of them harmless from and against any and
all Liabilities that were caused by or resulted from a breach of any of FMN's
representations, warranties, covenants and agreements contained in this
Agreement or by FMN's willful misfeasance, bad faith or gross negligence in the
performance of or failure to perform as provided in this Agreement. Further, FMN
shall indemnify the ILSI Indemnified Parties for losses, damages or Liabilities
resulting from FMN's failure to adhere to commercially reasonable standards and
any applicable canons of ethics in the origination, processing or funding of
mortgage loans. The indemnification based on the professional conduct of FMN
shall not be limited to willful acts, bad faith or gross negligence.
7.3 Survival of Indemnifications. FMN's and ILSI's respective
obligations to indemnify any ILSI Indemnified Party or any FMN Indemnified Party
will survive the expiration or termination of this Agreement by either party for
any reason.
7.4 Notice of Claims. Each party shall promptly notify the other in
writing of any and all litigation and claims known to such party made against it
or the other party in connection with this Agreement.
19
<PAGE>
ARTICLE VIII
TERM AND TERMINATION
8.1 Term. This Agreement shall remain in effect through June 25, 2004
(the date of termination of a certain agreement between Intuit Inc. and Excite
(the "Intuit/Excite Agreement"). Thereafter, if the Intuit/Excite Agreement is
extended, this Agreement shall be automatically extended for an additional three
(3) years after the end of the initial term. The initial term and any renewal
term of this Agreement shall be collectively referred to as the "Term."
8.2 Termination. This Agreement may be terminated by written notice of
either party prior to the end of the Term due to one of the following Events of
Default, after giving the defaulting party the applicable notice and opportunity
to cure set forth below:
(a) Breach of the Agreement. If a party breaches a material term or
condition of this Agreement, the non-defaulting party must give the defaulting
party written notice of the breach. If the breach is of a monetary nature, the
defaulting party will have five (5) business days to cure the default.
Otherwise, the defaulting party will have thirty (30) days to cure the default.
The non-defaulting party may terminate this Agreement at the expiration of the
applicable cure period if the breach is not cured within the given cure period.
(b) Change in Control. If FMN merges with, or is acquired by, a third
party, and, in the reasonable opinion of ILSI, such change in control materially
adversely affects FMN's ability to perform under this Agreement, then ILSI may
terminate this Agreement after giving three (3), months' prior written notice.
This provision shall specifically exclude mergers in which FMN is the surviving
entity.
(c) Change in Financial Condition. If FMN undergoes a material change
in financial condition such that it is unable to meet its obligations under this
Agreement, ILSI may terminate this Agreement if, after giving FMN written notice
and a 15-day opportunity to cure, FMN's financial condition has not been
restored to the extent that it can perform its obligations hereunder; provided,
however, that if the adverse change in FMN's financial condition results in
FMN's failure to fund loans as and when scheduled for three (3) consecutive
days, ILSI may thereafter immediately terminate this Agreement and at its
option, seek alternative funding for the affected loans.
(d) Performance. If FMN does not meet its minimum requirements for
closing ILSI Loans as set forth in Section 3.4 of this Agreement, ILSI shall
notify FMN in writing of the shortfall. FMN shall have ninety (90) days after
notice to cure the shortfall. If FMN has failed to cure the shortfall during
that period, then ILSI may terminate this Agreement after six (6) months' prior
written notice.
(e) Insufficient Volume. If ILSI does not achieve eighty percent (80%)
of capacity levels set forth in Section 3.2 for three (3) consecutive months,
FMN shall notify ILSI in writing of the shortfall. ILSI shall have ninety (90)
days after notice to cure the shortfall. If ILSI has failed to cure the
shortfall during that period, and for six (6) consecutive months thereafter,
then FMN may terminate this Agreement after giving six (6) months' prior written
notice.
20
<PAGE>
(f) Bankruptcy. In the event of the occurrence of any of the following
events, the non-defaulting party may terminate this Agreement immediately upon
giving prior written notice to the defaulting party:
(i) the commencement of any bankruptcy, insolvency,
reorganization, dissolution, liquidation of debt, receivership or
conservatorship proceeding or other similar proceeding under federal or state
bankruptcy, debtors relief, bank regulatory or other law by or against either
party; or
(ii) the appointment of a receiver, conservator, trustee or
similar officer to take charge of, a substantial part of the property of either
party.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. Any written notice required or permitted to be given to
the parties hereunder shall be addressed as follows:
If to ILSI: Intuit Lender Services, Inc.
2535 Garcia Avenue
Mountain View, CA 94043
Tel: (619) 784-1214
Fax: (619) 784-1244
Attention: Carl Reese, President
[email protected]
with a copy to:
Andrea Lee Negroni, Esq.
Negroni & Winston PLLC
1156 Fifteenth Street, N.W.
Suite 1105
Washington, D.C. 20005
Tel: 202-887-1610
Fax: 202-887-1902
[email protected]
If to FMN: Seth Werner, Chairman
First Mortgage Network, Inc.
8751 Broward Blvd
Plantation, FL 33324
Tel: (954) 452-0000
Fax: (954) 472-0800
E-mail address _________
21
<PAGE>
with a copy to:
Luke Sadler, Esq.
Foley & Lardner
200 Laura St.
Jacksonville, FL 32202
Tel: (904) 359-2000
Fax: (904) 359-8700
[email protected]
All notices shall be in writing and delivered in person or shall be
sent by registered or certified mail, return receipt requested, and shall be
deemed effective, three days after the same is mailed as provided above with
postage prepaid. Notice sent by any other method shall be effective only upon
actual receipt.
9.2 Assignment; Contracting. This Agreement shall not be assignable in
whole or in part by ILSI or FMN without the other party's prior written consent,
and any attempted assignment without such consent shall be void. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
9.3 [REDACTED]
9.4 Waiver. No term or provision hereof will be deemed waived, and no
variation of terms or provisions hereof shall be deemed consented to, unless
such waiver or consent shall be in writing and signed by the party against whom
such waiver or consent is sought to be enforced. Any delay, waiver or omission
by ILSI or FMN to exercise any right or power arising from any breach or default
of the other party in any of the terms, provisions or covenants of this
Agreement shall not be construed to be a waiver by ILSI or FMN of any subsequent
breach or default of the same or other terms, provisions or covenants on the
part of either party.
9.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of California, without respect to its conflicts of law
principles.
22
<PAGE>
9.6 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto relating to the subject matter hereof, except where
expressly noted herein, and all prior negotiations, agreements and
understandings, whether oral or written, are superseded or canceled hereby.
9.7 Modification. This Agreement may not be amended or modified except
in a written document signed by both parties.
9.8 Severability. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void, this Agreement shall be construed as
if not containing that provision, and the rest of the Agreement shall remain in
full force and effect, and the rights and obligations of the parties hereto
shall be construed and enforced accordingly.
9.9 Independent Contractor. FMN, in performance of this Agreement, is
acting as an independent contractor, is not the partner, joint venturer or agent
of ILSI and has no authority to act on behalf of ILSI except as necessary or
desirable to carry out FMN's obligations under this Agreement. The parties shall
each be responsible for payment of their respective taxes and assessments
incurred in connection with performance of this Agreement. Neither party's
employees are eligible for employee benefits of the other party.
9.10 Confidentiality. Each party agrees to keep all information related
to the other party confidential, as provided in the Non-Disclosure Agreement
dated April 29, 1998. The parties further agree that the business strategy,
marketing plans and product specifications of either party disclosed in
connection with this transaction, as well as the terms of this Agreement, are
confidential and shall not be used by the other party or disclosed by such other
party to third parties unless such information is (i) required to effect the
transactions contemplated herein, (ii) in the public domain or already in the
possession of a party prior to the disclosure to it by the other party
(including information received lawfully from third parties without an
obligation of confidentiality); or (iii) required by law or regulation to be
disclosed.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
23
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
signed and delivered by its duly authorized officer as of the date first written
above.
INTUIT LENDER SERVICES, INC.
By /s/ Mark Gains
---------------------------------
Name Mark Gains
---------------------------------
Title Sr Vice President
---------------------------------
FIRST MORTGAGE NETWORK, INC.
By /s/ Seth Werner
---------------------------------
Name Seth Werner
---------------------------------
Title Chairman & CEO
---------------------------------
24
<PAGE>
APPENDIX A
- ----------
[REDACTED]
25
<PAGE>
APPENDIX B
- ----------
INITIAL COST-REDUCTION PROJECTS
1. Automated underwriting/automated document transmission systems.
2. Pulling single in-file credit reports.
3. Automated provision of documents/information from consumer.
4. Automated transfer of data from Quicken(R), TurboTax(R) and other sources.
5. Using Brightware for automated e-mail responses.
26
<PAGE>
APPENDIX C
----------
[REDACTED]
Date of this Appendix: [REDACTED]
Site Company
1. [REDACTED] [REDACTED]
2. [REDACTED] [REDACTED]
3. [REDACTED] [REDACTED]
4. [REDACTED] [REDACTED]
5. [REDACTED] [REDACTED]
6. [REDACTED] [REDACTED]
7. [REDACTED] [REDACTED]
8. [REDACTED] [REDACTED]
27
<PAGE>
APPENDIX D
----------
Roll-Up Inquiry Prequalification Short Application
- ------- ------- ---------------- -----------------
Total Origination Expense [REDACTED] [REDACTED] [REDACTED]
Total Processing Expense [REDACTED] [REDACTED] [REDACTED]
Total Underwriting Expense [REDACTED] [REDACTED] [REDACTED]
Total Closing Expense [REDACTED] [REDACTED] [REDACTED]
General & Administrative [REDACTED] [REDACTED] [REDACTED]
Total Secondary Expense [REDACTED] [REDACTED] [REDACTED]
Total Expense Per Loan [REDACTED] [REDACTED] [REDACTED]
28
MORTGAGE LOAN PROCESSING AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of the 1st day of April,
1998 by and between FIRST MORTGAGE NETWORK, INC. ("PROCESSOR"), a Florida
corporation having an office at 8751 Broward Blvd., Fifth Floor, Plantation, FL
33324, Attention: John T. Rodgers, and ATLANTA INTERNET BANK, FSB ("LENDER"), a
Federal savings bank having an office located at 950 Northpoint Parkway, Suite
350, Alpharetta, Georgia 30005, Attention: Don Shapleigh.
RECITALS
--------
PROCESSOR operates a program that is characterized by borrower
convenience features such as direct on-line Internet access, a 24-hour toll-free
interest rate hotline, toll-free telephone access, speed of commitment, and
nationwide availability. PROCESSOR will establish a loan processing service
bureau (the "Loan Processing Program") to allow LENDER to offer residential
mortgage products in certain states through its Internet and telemarketing call
center facilities operated by LENDER under the trade name "American Finance"
("American Finance Internet Origination Center") pursuant to a separate License,
Staffing, Purchase and Sale Agreement between the parties, dated as of even date
herewith (the "License Agreement").
In consideration of the above recitals, the terms and covenants of this
Agreement, and other valuable consideration, the receipt and sufficiency of
which are acknowledged, the parties agree as follows:
AGREEMENT
---------
1. Loan Processing Program.
1.1 Duties of PROCESSOR. PROCESSOR will perform the following loan
processing and underwriting services on behalf of LENDER in connection
with all loans originated through LENDER's American Finance Internet
Origination Center with respect to certain states as identified in
Appendix A.
1.1.1 PROCESSOR will provide information on loan products and interest rate
pricing information to LENDER, to be updated each business day.
1.1.2 PROCESSOR will provide support and counseling services to assist with
the completion of loan applications and will receive loan applications
transmitted by LENDER or LENDER's customers by electronic mail or other
means. PROCESSOR will handle all aspects of loan processing and
underwriting, including verification of borrower information, loan
approval, closing, shipping and post-closing. PROCESSOR will underwrite
the loans in conformity with underwriting standards adopted by the
LENDER. All loans made under the Loan Processing Program will be closed
in the name of the LENDER and be funded by LENDER. PROCESSOR will issue
instructions to LENDER for funding and will supervise the closing of
loans.
<PAGE>
1.1.3 PROCESSOR will make all disclosures required by federal or state law to
loan applicants, including disclosures required by the Real Estate
Settlement Procedures Act, Truth in Lending Act, and Equal Credit
Opportunity Act. PROCESSOR warrants that it will issue all disclosures
within the applicable legal time period.
1.1.4 Pursuant to the License Agreement, the PROCESSOR shall purchase, on a
non-recourse basis, all loans closed and funded by LENDER under the
Loan Processing Program.
1.1.5 PROCESSOR will assist LENDER in compiling information required by
federal or state regulatory agencies, including information required by
LENDER for compliance with the Home Mortgage Disclosure Act and
Community Reinvestment Act.
1.1.6 PROCESSOR will provide LENDER with status reports of the Loan
Processing Program upon demand of LENDER, which reports will include
information on Program usage and comments by users.
1.1.7 PROCESSOR will respond promptly and professionally to questions,
comments, complaints and other reasonable requests regarding loans from
LENDER's customers or on request by LENDER and shall cooperate and
assist in promptly answering same.
1.1.8 PROCESSOR shall promptly provide copies to LENDER of all written
correspondence related to the Loan Processing Program or any loan
originated thereunder which could reasonably lead to a claim or demand
against LENDER and/or its affiliates by any third party or any
liability of LENDER and/or its affiliates to a third party.
1.1.9 At its sole discretion, PROCESSOR shall use commercially reasonable
efforts to market the Loan Processing Program and shall, at a minimum,
cooperate with and reasonably assist LENDER by supplying material,
advice and information for LENDER's marketing and promotional
activities which relate to the Loan Processing Program.
1.1.10 PROCESSOR hereby represents and warrants to LENDER, and covenants in
favor of LENDER, that all loans originated on LENDER's behalf pursuant
to this Agreement and the License Agreement will be underwritten,
processed, originated, and closed (i) in conformity with all conditions
and requirements necessary for sale of such loans in the secondary
market for single-family residential mortgage loans and (ii) in
compliance with all applicable federal, state and local laws, rules and
regulations, including, without limitation, the Real Estate Settlement
Procedures Act, Truth in Lending Act, Flood Disaster Protection Act,
Equal Credit Opportunity Act, applicable usury limitations, and
applicable lending laws (all conditions, requirements, laws, rules and
regulations referenced in clauses (i) and (ii) of this Section 1.1.10
being herein collectively referred to as the "Applicable
Requirements"). PROCESSOR further represents and warrants to LENDER,
and covenants in favor of LENDER, that PROCESSOR (and its agents and
employees performing work pursuant to this Agreement and the License
Agreement) have such familiarity and experience with the Applicable
Requirements as is necessary to
2
<PAGE>
ensure the accuracy of the foregoing representation and warranty under
this Section 1.1.10 and the fulfillment of the foregoing covenant under
this Section 1.1.10.
1.1.11 No later than 4:00pm (prevailing Atlanta, Georgia time) on the business
day immediately preceding the business day on which funding for any
loan will be due from LENDER in accordance with Section 1.2.7 hereof,
PROCESSOR shall deliver to LENDER true, correct and complete copies of
(1) a nationally recognized title insurance company's insured closing
letter covering the applicable closing attorney with respect to such
loan, (2) the pertinent borrower's loan application, and (3) the
PROCESSOR's "Net Check Letter to Escrow Agent" (including, without
limitation, itemization of settlement fees) with respect to such loan,
and (4) wiring instructions. Within three (3) business days after
closing of each loan pursuant to this Agreement and the License
Agreement, PROCESSOR shall cause delivery to LENDER (i) the fully
executed original promissory note evidencing such loan, LENDER agrees
to notify PROCESSOR of receipt of such note, and (ii) a true, correct
and complete copy of the security instrument (i.e., mortgage, deed of
trust, or deed to secure debt) securing such loan. Each loan funded by
LENDER pursuant to this Agreement shall be the sole and exclusive
property of LENDER until such loan is duly sold by LENDER. So long as
any such loan is the property of LENDER: (a) all documents evidencing,
securing, or otherwise relating to such loan shall likewise be the sole
and exclusive property of LENDER and shall specify LENDER as sole
holder of such loan; and (b) any such documents remaining in the
possession of PROCESSOR or its closing attorney or other agent shall be
deemed to be held by PROCESSOR as custodian for LENDER, with PROCESSOR
hereby being charged with all reasonable due care in safeguarding such
documents on behalf of LENDER and hereby being authorized to take only
those actions (with respect to such documents) which LENDER hereafter
authorizes in writing.
1.2 Duties of LENDER.
LENDER will use the Loan Processing Program as its exclusive mortgage
lending program for loans originated by it through its American Finance
Internet Origination Center with respect to those states identified in
Appendix A. In connection with the Loan Processing Program, LENDER will
perform the following functions:
1.2.1 LENDER will use its best efforts to market, promote and advertise the
availability of residential mortgage loans, pursuant to LENDER's
marketing plan and budget.
1.2.2 LENDER will originate and deliver to PROCESSOR applications for
mortgage loans in accordance with all applicable mortgage loan
specifications and guidelines agreed upon by LENDER and PROCESSOR.
1.2.3 LENDER will transmit to PROCESSOR, by electronic mail or other means,
any mortgage loan application received from its customers by LENDER
through the American Finance Internet Origination Center with respect
to the states identified in Appendix A. The complete application
packages must be transmitted to and received by PROCESSOR for
processing within 24 hours of receipt.
3
<PAGE>
1.2.4 Underwriting standards utilized by LENDER will be in conformity with
applicable law and guidelines of secondary market investors, including
the Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation, and the Government National Mortgage Association, and/or
the guidelines of private investors, as applicable.
1.2.5 LENDER will retain ultimate responsibility for underwriting decisions
and will review and approve or deny each loan, including PROCESSOR's
recommended credit and underwriting decisions for each loan. LENDER
shall have the opportunity to provide a "second review" of all denied
or incomplete loan application files.
1.2.6 LENDER will be named as the payee on all loans and all disclosures will
be given to borrowers in the name of the LENDER.
1.2.7 LENDER will fund all loans originated through the Loan Processing
Program, using its own funds or funds obtained through a warehouse line
of credit, which funds shall be disbursed by LENDER to PROCESSOR or its
agent in accordance with funding instructions from PROCESSOR for the
loan closing.
1.2.8 LENDER agrees to sell to PROCESSOR all loans made by LENDER under the
Loan Processing Program under terms and conditions set forth in the
License Agreement. Such loans will be sold on a non-recourse basis.
1.3 Exclusive Agreement. During the term of this Agreement, PROCESSOR will
have the exclusive right to perform the duties outlined above as part
of the Loan Processing Program and LENDER will not enter into any
agreement with third parties for similar services (whether in the
aggregate or singly) with respect to the operation of the American
Finance Internet Origination Center. PROCESSOR retains the right to
offer residential mortgage loans to any customer who applies to
PROCESSOR through another of the PROCESSOR's mortgage loan programs or
through a loan offer made to the public by PROCESSOR. PROCESSOR also
retains the right to offer similar Loan Processing Programs to other
lenders.
LENDER retains the right to offer residential mortgage loans to any
customer who applies to LENDER through another of the LENDER's mortgage
loan programs or through a loan offer made to the public by LENDER.
2. Compensation.
2.1 [REDACTED]
4
<PAGE>
2.2 It is the intent of the parties that all compensation received by
PROCESSOR shall not exceed the reasonable value of the services
rendered within the meaning of the Real Estate Settlement Procedures
Act, 12 U.S.C. Section 2601 et seq. as amended from time to time and
the regulations which are promulgated thereunder.
3. Term.
3.1 Except as otherwise provided herein, the term of this Agreement shall
expire one (1) year from the date of this Agreement.
3.2 At its option exercisable by giving written notice to LENDER at least
sixty (60) days prior to the first anniversary of the date of this
Agreement, PROCESSOR may renew this Agreement for one (1) additional
term of (1) year if PROCESSOR shall have satisfied all monetary
obligations owed by PROCESSOR to LENDER and its parent, subsidiaries,
and affiliates under this Agreement and any other contract between the
parties as of the date of such notice and as of the date of
commencement of the renewal term.
3.3 At its option exercisable by giving written notice to PROCESSOR at
least sixty (60) days prior to the first anniversary of the date of
this Agreement, LENDER may renew this Agreement for one (1) additional
term of (1) year if LENDER shall have satisfied all monetary
obligations owed by LENDER to PROCESSOR and its parent, subsidiaries,
and affiliates under this Agreement and any other contract between the
parties as of the date of such notice and as of the date of
commencement of the renewal term.
3.4 This Agreement may be terminated with or without cause by PROCESSOR or
LENDER upon sixty (60) days written notice to the other party.
3.5 In the event this Agreement is terminated by either party, PROCESSOR
will continue to process, underwrite and close any complete application
for a Mortgage Loan that has been received from LENDER as of the date
of notification of termination under the same terms and conditions of
this Agreement. In addition, LENDER shall continue to be obligated
under the same terms and conditions of this Agreement to fund all such
Mortgage Loans and pay for the services provided by PROCESSOR.
4. Legal Fees.
In the event action is taken by either party to enforce the provisions
of this Agreement, whether suit is brought or not, the prevailing party
shall be entitled to reasonable attorney's fees and costs from the
nonprevailing party.
5. Indemnity.
5.1 Each party hereby indemnifies and agrees to hold harmless the other
party against liabilities, damages, costs, charges, legal fees,
judgments, expenses (including attorneys' fees) or any other losses
(collectively, the "Liabilities") incurred as a result of a third
party's use of LENDER's American Finance Internet Origination Center to
the extent
5
<PAGE>
such Liabilities result from any negligent acts or omissions, bad
faith, or willful misconduct of the indemnifying party or its
employees, agents or affiliates.
5.2 PROCESSOR will indemnify and hold LENDER harmless against, and will at
its own expense defend, any action brought against LENDER to the extent
such action is based upon a breach of this Agreement by PROCESSOR;
provided that PROCESSOR is promptly notified in writing by LENDER of
any such action; and provided, further, that PROCESSOR shall have the
exclusive right to control such defense. In no event shall LENDER
settle any such claim, lawsuit or proceeding without PROCESSOR's prior
written approval.
5.3 LENDER will indemnify and hold PROCESSOR harmless against, and will at
its own expense defend, any action brought against PROCESSOR to the
extent such action is based upon a breach of this Agreement by LENDER;
provided that LENDER is promptly notified in writing by PROCESSOR of
any such action; and provided, further that LENDER shall have the
exclusive right to control such defense. In no event shall PROCESSOR
settle such claim, lawsuit or proceeding without LENDER's prior written
approval.
6. Liability.
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE FOR INDIRECT,
INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (SUCH AS, BUT
NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST
BUSINESS) ARISING FROM THE USE OR INABILITY TO USE THE AMERICAN FINANCE
INTERNET ORIGINATION CENTER AND THE LOAN PROCESSING PROGRAM OR ARISING
FROM THE USE OF ANY LINKED UP INTERNET SITE (EVEN IF THAT PARTY HAS
BEEN ADVISED OF, OR HAS FORESEEN THE POSSIBILITY OF, SUCH DAMAGES).
7. Miscellaneous.
7.1 PROCESSOR represents that it is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Florida,
and that it has all corporate power necessary to make and perform its
obligations under this Agreement.
7.2 LENDER represents that it is a federal savings bank duly chartered,
validly existing, and in good standing under the laws of the United
States^ and that it has all corporate power necessary to make and
perform this Agreement^.
7.3 LENDER represents and warrants that it has not entered into any other
agreement, whether written or oral, or engaged in any course of
conduct, that is currently binding or continuing that would prohibit it
from entering into this Agreement.
7.4 Each party agrees that it will not use the trademarks, service marks,
logo, name or any other proprietary descriptions of the other party or
the other party's parent or affiliate(s), whether registered or
unregistered, without the other party's prior written consent.
6
<PAGE>
7.5 Each party agrees to notify the other as soon as practicable of any
formal request by a governmental agency to examine records pertaining
to the other party or its customers, if the party being subjected to
such examination is permitted to so notify the other party. Each party
agrees that the other party is authorized to fully cooperate with any
such examination, and that such cooperation will not constitute a
breach of this Agreement, including, without limitation, a breach of
the confidentiality provisions in ^ paragraph 7.15.
7.6 Nothing in this Agreement or the License Agreement will be deemed to
constitute a partnership, joint venture, employment, affiliated
business arrangement, or agency relationship between the parties.
7.7 This Agreement may not be assigned, in whole or in part, by any party
hereto without the prior written consent of the other party, except to:
(1) a parent company or wholly owned subsidiary of the assigning party,
(2) a person or entity that purchases in excess of fifty percent (50%)
of either party's voting stock, or (3) any entity which purchases
substantially all assets of the assigning party. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
7.8 All notices required to be given hereunder shall be made by regular
mail, facsimile or express courier to the addresses as set forth at the
beginning of this Agreement.
7.9 This Agreement constitutes the entire agreement of the parties and
supersedes all prior understandings, whether written or oral, between
the parties thereto. This Agreement will not be modified except by
written instrument executed by PROCESSOR and LENDER. Any approvals
required by either party by the terms of this Agreement shall not be
unreasonably withheld. Notwithstanding the above, in the event either
party expressly waives a default or breach of the other party, this
waiver will not be considered a waiver of a later default or breach of
the same or any other provision of the Agreement. If either party fails
to object or take affirmative action with respect to any conduct of the
other party which is in violation of the terms of this Agreement, this
failure shall not be construed as a waiver of such understanding or
representations, between the parties hereto, whether oral or written.
7.10 This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and
the same agreement^.
7.11 Neither party shall be liable to the other party for any loss or damage
due to delays or failure to perform resulting from an event of "Force
Majeure," including without limitation: an act of God; accident; war;
fire; lockout; strike or labor dispute; riot or civil commotion; act of
public enemy; enactment, rule, order or act of civil or military
authority; acts or omissions of the other party; defaults of
subcontractors or suppliers; the inability of carriers to make
scheduled deliveries; or any other event beyond the reasonable control
of such party. Notwithstanding the foregoing, such Force Majeure shall
not excuse either party from making payments when due.
7
<PAGE>
7.12 The invalidity, in whole or in part, of any term of this Agreement does
not affect the validity of the remainder of the Agreement.
7.13 This Agreement will be interpreted and construed in accordance with,
and will be governed by, the laws of the State of Georgia. The parties
hereto irrevocably submit themselves to the jurisdiction of the courts
of the State of Georgia. Any suit or action arising out of this
Agreement may be brought in the court of competent jurisdiction in the
County of Fulton, State of Georgia. Service of process may be made, in
addition to any other method permitted by law, by certified mail,
return receipt requested, sent to the applicable address set forth
herein.
7.14 The parties acknowledge and agree that the Loan Processing Program is
not intended to permit the access or transmission of LENDER's customer
names, screen names, addresses or any information concerning LENDER's
customers ("Customer Information"), other than that required to be
accessed or transmitted in connection with a Mortgage Loan
application.
7.15 The parties agree to maintain the terms and conditions of this
Agreement confidential during the term of this Agreement. In addition,
each party acknowledges that in performing under this Agreement it may
gain access to confidential information belonging to the other party
and its customers, including but not limited to business, financial and
technological information (collectively, "Confidential Information"),
which Confidential Information constitutes and shall constitute
valuable assets and trade secrets. Accordingly, when a party (the
"Receiving Party") receives Confidential Information from another party
(the "Owning Party"), the Receiving Party shall, both during the term
of this Agreement and following the termination thereof, (i) keep
secret and retain in strict confidence any Confidential Information
received from the Owning Party, (ii) not disclose to any third party
any Confidential Information received from the Owning Party for any
reason whatsoever, (iii) not disclose any Confidential Information
received from the Owning Party to the Receiving Party's employees,
except on a need-to-know basis, and (iv) not make use of any
Confidential Information received from the Owning Party for its own
purposes or for the benefit of any third party except as authorized by
this Agreement. Notwithstanding the foregoing, the parties' duty
regarding Confidential Information shall not apply when disclosure is
made pursuant to (i) any state or federal law or regulation, or (ii)
the order of any state or federal court or agency, provided the party
disclosing such Confidential Information provides prior written notice,
wherever practicable, to the other party.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK^]
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date and year first set forth above.
FIRST MORTGAGE NETWORK, INC.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
[CORPORATE SEAL]
ATLANTA INTERNET BANK, FSB
By: /s/ D. R. Grimes
--------------------------------------
Name: D. R. Grimes
--------------------------------------
Title: Vice Chairman & CEO
--------------------------------------
[BANK SEAL]
9
ATLANTA INTERNET BANK MORTGAGE CENTER
MORTGAGE LOAN ORIGINATION, PROCESSING,
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of the __ day of
__________, 1998 by and between ATLANTA INTERNET BANK, FSB ("LENDER"), a Federal
savings bank having an office at 950 Northpoint Parkway, Suite 350, Alpharetta,
Georgia 30005, Attention: Don Shapleigh, and FIRST MORTGAGE NETWORK, INC.
("PROCESSOR"), a Florida corporation having an office located at 8751 Broward
Boulevard, Fifth Floor, Plantation, Florida 33324, Attention: John T. Rodgers.
RECITALS
--------
PROCESSOR operates a program that is characterized by borrower
convenience features such as direct on-line Internet access, a standard
business-hour toll-free residential mortgage loan origination hot-line, speed of
commitment, and nationwide availability. PROCESSOR will establish a private
label service bureau (the "Private Label Program") to allow LENDER to offer
residential mortgage loan products on its Internet Bank Mortgage Center via
PROCESSOR's Internet application process. PROCESSOR will develop all forms and
documents necessary in a generic format or will customize the same to be
consistent with the look and feel of LENDER'S other marketing materials and
existing Internet site design. For purposes of this Agreement, "Business Day"
shall mean a day on which national banks are open for the transaction of
business required for this Agreement.
In consideration of the above recitals, the terms and covenants of this
Agreement, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
AGREEMENT
---------
1. Private Label Program.
1.1 Duties of PROCESSOR.
PROCESSOR will perform the following loan processing and underwriting
services on behalf of LENDER in connection with single-family
residential mortgage loans originated through the Private Label Program
("Loans"):
1.1.1 PROCESSOR will provide information on loan products and interest rate
pricing information to LENDER, to be updated each business day.
1.1.2 PROCESSOR will host on the Internet the LENDER's Internet Bank Mortgage
Center site providing FTP access to LENDER. PROCESSOR will add or make
available its Internet mortgage loan application and rate posting
modules to be used in conjunction with LENDER's mortgage loan web site.
<PAGE>
1.1.3 PROCESSOR will provide all desired support and counseling services to
assist with the completion of Loan applications and will receive Loan
applications transmitted by LENDER or LENDER's customers by electronic
mail or other means. PROCESSOR will handle all aspects of Loan
processing, underwriting, and origination (collectively, "Loan
Processing Work"), including, without limitation, verification of
borrower information, Loan approval, closing, shipping, and
post-closing work. PROCESSOR will underwrite the Loans and perform all
other Loan Processing Work in conformity with underwriting standards
provided by LENDER to PROCESSOR from time to time (collectively the
"Loan Criteria"). PROCESSOR shall be responsible for promptly advising
LENDER in writing of any Loan Criteria which are inconsistent with the
Applicable Requirements (as defined in Section 1.1.10 below). All Loans
made under the Private Label Program will be closed in the name of
LENDER and will be funded by LENDER. Without limiting the foregoing
provisions of this Section 1.1.3, PROCESSOR will issue timely
instructions to LENDER for funding Loans and will supervise the closing
of Loans in accordance with the Loan Criteria and the Applicable
Requirements.
1.1.4 PROCESSOR will make all disclosures required by federal or state law to
Loan applicants, including, without limitation, disclosures required by
the Real Estate Settlement Procedures Act, Truth in Lending Act, and
Equal Credit Opportunity Act. In all cases, PROCESSOR will issue all
such disclosures within the applicable legal time periods.
1.1.5 PROCESSOR will assist LENDER in compiling any and all information
required in connection with the Loans by federal or state regulatory
agencies, including, without limitation, information required by LENDER
for compliance with the Home Mortgage Disclosure Act and the Community
Reinvestment Act.
1.1.6 PROCESSOR will provide LENDER with weekly status updates of the Private
Label Program, which updates will include information on weekly Private
Label Program usage, comments by users, Loan pipeline reports, and Loan
application reports.
1.1.7 PROCESSOR will respond promptly and professionally to questions,
comments, complaints and other reasonable requests regarding Loans from
LENDER's customers (whether or not expressly requested by LENDER to do
so) and shall cooperate and assist in promptly answering same.
1.1.8 PROCESSOR shall promptly provide copies to LENDER of all written
correspondence related to the Loan Processing Program or any loan
originated thereunder which could reasonably lead to a claim or demand
against LENDER and/or its affiliates by any third party or any
liability of LENDER and/or its affiliates to any third party.
1.1.9 At its sole discretion, PROCESSOR shall use commercially reasonable
efforts to market the Private Label Program and shall, at a minimum,
cooperate with and reasonably assist LENDER by supplying material,
advice and information for LENDER's marketing and promotional
activities which relate to the Private Label Program.
2
<PAGE>
1.1.10 PROCESSOR hereby represents and warrants to LENDER, and covenants in
favor of LENDER, that all Loans originated on LENDER's behalf pursuant
to this Agreement will be underwritten, processed, originated, and
closed (i) in conformity with all conditions and requirements necessary
for sale of such Loans in the secondary market for single-family
residential mortgage loans and (ii) in compliance with all applicable
federal, state and local laws, rules and regulations, including,
without limitation, the Real Estate Settlement Procedures Act, Truth in
Lending Act, Flood Disaster Protection Act, Equal Credit Opportunity
Act, applicable usury limitations, and applicable lending laws (all
conditions, requirements, laws, rules and regulations referenced in
clauses (i) and (ii) of this Section 1.1.10 being herein collectively
referred to as the "Applicable Requirements"). PROCESSOR further
represents and warrants to LENDER, and covenants in favor of LENDER,
that PROCESSOR (and its agents and employees performing Loan Processing
Work) have such familiarity and experience with the Applicable
Requirements as is necessary to ensure the accuracy of the foregoing
representation and warranty under this Section 1.1.10 and the
fulfillment of the foregoing covenant under this Section 1.1.10.
1.1.11 No later than 4:00pm (prevailing Atlanta, Georgia time) on the business
day immediately preceding the business day on which funding for any
Loan will be due from LENDER in accordance with Section 1.2.7 hereof,
PROCESSOR shall deliver to LENDER true, correct and complete copies of
(1) a nationally recognized title insurance company's insured closing
letter covering the applicable closing attorney with respect to such
Loan, (2) the pertinent borrower's Loan application, and (3) the
PROCESSOR's "Net Check Letter to Escrow Agent" (including, without
limitation, itemization of settlement fees) with respect to such Loan,
and (4) wiring instructions. Within three (3) business days after
closing of each Loan pursuant to this Agreement and the License
Agreement, PROCESSOR shall cause delivery to LENDER (i) the fully
executed original promissory note evidencing such Loan, LENDER agrees
to notify PROCESSOR of receipt of such note, and (ii) a true, correct
and complete copy of the security instrument (i.e., mortgage, deed of
trust, or deed to secure debt) securing such Loan. Each Loan funded by
LENDER pursuant to this Agreement shall be the sole and exclusive
property of LENDER until such Loan is duly sold by LENDER. So long as
any such Loan is the property of LENDER: (a) all documents evidencing,
securing, or otherwise relating to such Loan shall likewise be the sole
and exclusive property of LENDER and shall specify LENDER as sole
holder of such Loan; and (b) any such documents remaining in the
possession of PROCESSOR or its closing attorney or other agent shall be
deemed to be held by PROCESSOR as custodian for LENDER, with PROCESSOR
hereby being charged with all reasonable due care in safeguarding such
documents on behalf of LENDER and hereby being authorized to take only
those actions (with respect to such documents) which LENDER hereafter
authorizes in writing.
1.2 Duties of LENDER.
LENDER will use the Private Label Program as a nonexclusive
single-family residential mortgage lending program. In connection with
the Private Label Program, LENDER will perform the following functions:
3
<PAGE>
1.2.1 LENDER will use its best efforts to market, promote and advertise the
availability of Loans through the Private Label Program, pursuant to
LENDER's marketing plan and budget.
1.2.2 LENDER may advertise, market, or originate applications for mortgage
loans to be processed, underwritten, closed and funded for LENDER's own
portfolio or for sale by LENDER to other secondary market purchasers
outside the Private Label Program.
1.2.3 LENDER will transmit to PROCESSOR, by electronic mail or other means,
mortgage loan applications received from LENDER's customers for
processing under the Private Label Program in a timely manner. LENDER
shall exercise its best efforts to ensure that the complete Loan
application packages are transmitted to and received by PROCESSOR for
processing within 24 hours of LENDER's receipt. LENDER's failure to
deliver a complete Loan application package to PROCESSOR within such
24-hour period will only relieve PROCESSOR of liability for untimely
disclosures resulting from such delayed delivery.
1.2.4 LENDER, in conjunction with PROCESSOR, will develop and provide to
PROCESSOR the Loan Criteria standards in conformity with applicable
laws, rules and regulations and guidelines of secondary market
investors, including the Federal National Mortgage Association, Federal
Home Loan Mortgage Corporation, and the Government National Mortgage
Association.
1.2.5 LENDER shall be entitled to rely on PROCESSOR's underwriting decisions
on each Loan, provided, however, that LENDER shall maintain ultimate
authority for underwriting decisions and may review and approve or deny
each Loan, including PROCESSOR's recommended credit ^ and underwriting
decisions on any and all Loans. LENDER will, therefore, not be
obligated to fund any Loan which LENDER has not approved.
1.2.6 LENDER will be named as the payee on all Loans, and all disclosures
will be given to Loan borrowers in the name of the LENDER.
1.2.7 LENDER will fund^ all Loans originated through the Private Label
Program, using its own funds or funds obtained by LENDER through a
warehouse line of credit, which funds shall be disbursed by LENDER to
PROCESSOR or its agent in accordance with funding instructions from
PROCESSOR for the Loan closing.
1.3 Purchase and Sale of Loans.
1.3.1 PROCESSOR agrees to purchase from LENDER, and LENDER agrees to sell to
PROCESSOR, in accordance with and subject to the terms and conditions
of this Agreement, all Loans made by LENDER under the Private Label
Program, with each Loan purchase and sale to be consummated (by payment
of the Purchase Price for such Loan in accordance with Section 1.3.2
hereof) within forty-eight (48) hours after Loan
4
<PAGE>
settlement and funding to the greatest extent practicable and in all
events within seven (7) calendar days after Loan settlement and
funding. Such Loans will be sold by LENDER and purchased by PROCESSOR
without recourse and on a servicing-released basis, with PROCESSOR
undertaking servicing of all Loans so purchased by PROCESSOR.
Notwithstanding the foregoing, LENDER hereby reserves the right,
exercisable in Lender's sole discretion, either to retain Loans funded
under this Agreement in LENDER's portfolio or to sell such Loans
directly to secondary market purchasers other than PROCESSOR; provided
that LENDER must exercise this reserved right by notifying PROCESSOR,
at any time prior to locking in the borrower's interest rate on any
applicable Loan, that such Loan will not be sold to PROCESSOR pursuant
to this Agreement. PROCESSOR shall not be entitled or obligated to
purchase from LENDER, and LENDER shall not be obligated to sell to
PROCESSOR, any Loan in respect of which Seller has exercised such
reserved right under this Section 1.3.1.
1.3.2 The purchase price ("Purchase Price") to be paid by PROCESSOR and
accepted by LENDER for each Loan sold to PROCESSOR pursuant to Section
1.3.1 hereof shall be equal to the sum of: (1) the Loan amount at the
interest rate specified in the note, plus (2) the accrued and unpaid
interest on the Loan through and including the date on which the
purchase and sale of the Loan is consummated, plus (3) all origination
fees and/or discount points paid by or refunded to the borrower, plus
(4) an amount equal to 0.05 percent of loan amount (5 basis points).
PROCESSOR shall be entitled to a credit against the Purchase Price in
the amount of any prepaid interest which is actually received and
retained by LENDER with respect to such Loan and which is applicable to
any period (i) from and including the date on which the sale and
purchase of such Loan is consummated between LENDER and PROCESSOR if
the Purchase Prices is not received by LENDER by12 noon on the date of
consummation, or (ii) after the date on which the sale and purchase of
such Loan is consummated between LENDER and PROCESSOR if the Purchase
Price is not received by LENDER by 12 noon (prevailing Atlanta, Georgia
time) on the date of consummation. The Purchase Price for each Loan
(after netting any applicable credit for prepaid interest) shall be
paid by PROCESSOR to LENDER in immediately available funds.
1.3.3 Upon PROCESSOR's delivery of the Purchase Price applicable to any Loan
which PROCESSOR is obligated to purchase under this Agreement, LENDER
(1) shall deliver to PROCESSOR any and all documents and instruments
which evidence, secure, or otherwise relate to such Loan and which are
then in LENDER's actual possession and (2) shall release in PROCESSOR's
favor any and all rights of LENDER in, to, and under such documents and
instruments.
1.3.4 If PROCESSOR fails to deliver the Purchase Price (for any Loan which
PROCESSOR is obligated to purchase under this Agreement) within seven
(7) calendar days after settlement and funding of such Loan or if
PROCESSOR otherwise fails to consummate the purchase of such Loan in
accordance with this Section 1.3, then LENDER, in its sole discretion,
shall be entitled to exercise any and all rights and remedies, at law
or in equity or otherwise, with respect to any and all
5
<PAGE>
such failures by PROCESSOR and any and all Loans subject to such
failures by PROCESSOR, including, without limitation, the following:
(1) LENDER shall be entitled to effect the sale of any and all
such Loans to any other person(s) or entity(ies) at any
commercially reasonable price(s) (any such sale being an
"Alternative Sale"), with PROCESSOR being obligated to
indemnify LENDER for any and all losses, damages, liabilities,
claims, legal fees, and other expenses incurred by LENDER as a
direct or indirect consequence of any and all Alternative
Sales, including, without limitation, any positive difference
between the Purchase Price due under this Agreement for any
such Loan and the price actually received by LENDER through
the Alternative Sale of such Loan; and
(2) LENDER shall be entitled to specific performance of
PROCESSOR's obligation to purchase any and all such Loans,
together with monetary relief for any and all losses, damages,
liabilities, claims, legal fees, and other expenses incurred
by LENDER as a direct or indirect consequence of PROCESSOR's
breach of this Agreement.
1.4 Features of the Program.
Customers of LENDER who are qualified for a Loan under the Private
Label Program will be entitled to the following features and services:
1.4.1 A Pre-Approval program which provides customers a written commitment to
obtain a loan prior to purchasing residential property.
1.4.2 Flexible application options, including loan-by-phone, in person, by
mail, fax, or on-line.
1.4.3 Flexible interest rate lock-in options, with interest rate lock
duration up to 270 days, when available.
2. Nonexclusive Agreement.
During the term of this Agreement, PROCESSOR will have the
non-exclusive right to perform the duties outlined above as part of the
Private Label Program. LENDER may enter into any agreement with third
parties for similar services (whether in the aggregate or individually)
or otherwise directly offer mortgage loans through its Internet Bank
Mortgage Center. PROCESSOR retains the right to offer residential
mortgage loans to any customer who applies to PROCESSOR through another
of the PROCESSOR's mortgage loan programs or through a loan offer made
to the public by PROCESSOR. PROCESSOR also retains the right to offer
programs similar to the Private Label Programs to other lenders.
3. Consideration.
3.1 Compensation Due PROCESSOR.
6
<PAGE>
3.1.1 [REDACTED]
3.1.2 PROCESSOR shall receive no compensation for any Loan which is not
purchased by PROCESSOR pursuant to this Agreement because PROCESSOR
defaults in its obligation to purchase such Loan.
3.1.3 PROCESSOR's compensation under this Section 3.1 shall be subject to
reduction in the amount of any loan administration fees ("Loan
Administration Fees") (as defined in Section 3.2.2 below) which the
PROCESSOR fails to charge borrower, provided that the amount and
characterization of such Loan Administration Fees has been communicated
to PROCESSOR in writing at the time the Loan application is delivered
to PROCESSOR.
3.2 Compensation Due LENDER.
3.2.1 [REDACTED]
3.2.2 Except for pass-through fees, all other fees collected from Loan
borrowers ("Loan Administration Fees") in connection with any Loan
Processing Work or any other aspect of originating Loans shall be
remitted by PROCESSOR to LENDER immediately upon PROCESSOR's receipt
thereof and shall be the sole and exclusive property of LENDER at all
times. LENDER shall have sole authority to establish all Loan
Administration Fees and to set the amount(s) thereof.
4. Term.
Subject to the provisions of Section 5 hereof, this Agreement will
continue in full force and effect for a period of one (1) year from the
date of this Agreement and will thereafter automatically be renewed for
additional periods of one (1) year; provided, however, that either
party may cancel this Agreement as of the expiration of any such
one-year period by giving written notice to the other party hereto at
least sixty (60) days prior to the end of either the initial one-year
term or any subsequent one-year term of this Agreement.
5. Termination.
5.1. Events Causing Termination.
Subject to the provisions of Section 5.2. hereof, this Agreement may be
terminated by either party during the existence of any of the following
conditions:
5.1.1 If the other party ("Other Party") is the subject of any of the
following: (1) a court having jurisdiction shall have entered a decree
or order constituting an order for relief in respect
7
<PAGE>
of the Other Party under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal or
state bankruptcy law or other similar law, or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator, or similar
official of the Other Party or any substantial part of its properties,
or ordering the winding-up or liquidation of the affairs of the Other
Party, or any petition seeking such relief or appointment shall have
been filed in such a court and shall not have been dismissed within a
period of forty-five (45) days; (2) the Other Party shall have filed a
petition, answer, or consent seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy law or other similar law,
or the Other Party shall consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment
or taking of possession of a receiver, liquidator, assignee, trustee,
custodian, sequestrator, or other similar official of the Other Party
or of any substantial part of properties, or the Other Party shall fail
generally to pay its debts as such debts become due, or the Other Party
shall take any corporate action in furtherance of any such action; (3)
any admission by the Other Party of its insolvency or inability to pay
its debts as they fall due; or (4) the adjudication of the Other Party
as bankrupt or insolvent;
5.1.2 If the Other Party fails to pay the terminating party any amount within
sixty (60) days after the date on which such amount was first due the
terminating party in accordance with this Agreement or, if a due date
is not specified herein or therein, within sixty (60) days after the
Other Party's receipt of an invoice for such amount;
5.1.3 If the Other Party is in material breach of or material default under
this Agreement;
5.1.4 If the Other Party engages in any dishonest or fraudulent conduct; or
5.1.5 If it becomes unlawful for the parties hereto to do business in
accordance with this Agreement.
5.2 Duties Upon Termination.
Upon termination of this Agreement for any cause pursuant to Section
5.1 hereof:
5.2.1 The parties agree to continue their cooperation in order to affect an
orderly termination of their relationship. Each party shall immediately
cease accepting applications under the Private Label Program, provided,
however, that PROCESSOR shall, at LENDER's option, continue the Loan
Processing Work under the terms and conditions of this Agreement in
order to consummate any Loan(s) for which an application has been
received by PROCESSOR or LENDER on or prior to the date of termination.
All compensation due any party in connection with any such Loan(s)
shall be paid in accordance with this Agreement, and PROCESSOR's
obligation to purchase any such Loan(s) shall be in full force and
effect in accordance with and subject to the terms and conditions of
this Agreement.
8
<PAGE>
5.2.2 Each party shall return all copies of promotional materials, marketing
literature, written information and reports pertaining to the other
party's products or services that have been supplied by such other
party.
6. Arbitration.
Any controversy arising in conjunction with or relating to this
Agreement, and any amendment hereof, shall be determined and settled by
arbitration in a location mutually agreed upon by the parties, in
accordance with the rules of the American Arbitration Association. Any
arbitration award rendered hereunder shall be final and binding on each
of the parties hereto and their respective successors and assigns, and
judgment may be entered thereon by any court having jurisdiction. The
parties shall continue their performance under this Agreement while the
arbitration proceeding is pending.
7. Indemnity.
7.1 Each party hereby indemnifies and agrees to hold harmless the other
party against liabilities, claims, damages, costs, charges, judgments,
expenses (including, without limitation, reasonable attorneys' fees),
or any other losses (collectively, "Liabilities") incurred by such
other party as a result of a third party's use of the mortgage loan
origination functions of LENDER's Internet Bank Mortgage Center to the
extent such Liabilities result from any negligent acts or omissions,
bad faith, or willful misconduct of the indemnifying party or its
employees, agents or affiliates (provided that neither party hereto
shall be deemed the other party's agent or affiliate for any purposes,
including, without limitation, the application of this Section 6).
7.2 PROCESSOR will indemnify and hold LENDER harmless against, any and all
Liabilities incurred by LENDER and arising from any act or omission of
PROCESSOR or its agents or employees in connection with PROCESSOR's
rights and obligations under this Agreement, including, without
limitation, any breach of this Agreement by PROCESSOR ^, any breach of
any of PROCESSOR's representations and warranties set forth in Sections
^ 1.1.10, 9.1 and 9.3, or any and all claims by borrowers relating to
such acts or omissions. PROCESSOR will, at its own expense, defend any
action brought against LENDER; provided that PROCESSOR is promptly
notified in writing by LENDER of any such action; and provided,
further, that PROCESSOR shall have the exclusive right to control such
defense. In no event shall LENDER settle any such claim, lawsuit or
proceeding involving Liabilities covered by PROCESSOR's indemnification
obligation under this Section 7.2 without PROCESSOR's prior written
approval, which shall not be unreasonably withheld.
7.3 LENDER will indemnify and hold PROCESSOR harmless against, and will at
its own expense defend, any action brought against PROCESSOR to the
extent such action is based upon a breach of LENDER's representations
and warranties set forth in Sections 9.2 and 9.3; provided that LENDER
is promptly notified in writing by PROCESSOR of any such action; and
provided further that LENDER shall have the exclusive right to control
such defense. In no event shall PROCESSOR settle such claim, lawsuit or
9
<PAGE>
proceeding without LENDER's prior written approval, which shall not be
unreasonably withheld.
8. Liability.
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE FOR INDIRECT,
INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (SUCH AS, BUT
NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST
BUSINESS) ARISING FROM THE USE OR INABILITY TO USE THE INTERNET BANK
MORTGAGE CENTER AND THE PRIVATE LABEL PROGRAM OR ARISING FROM THE USE
OF ANY LINKED UP INTERNET SITE (EVEN IF THAT PARTY HAS BEEN ADVISED OF,
OR HAS FORESEEN THE POSSIBILITY OF, SUCH DAMAGES).
9. Representations, Warranties and Covenants of PROCESSOR and LENDER.
9.1 PROCESSOR hereby represents, warrants and covenants to LENDER as
follows:
9.1.1 PROCESSOR is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida and that it has
all requisite corporate power and authority necessary to make and
perform its obligations under this Agreement. The execution and
delivery of this Agreement and all documents, instruments and
agreements required to be executed by PROCESSOR pursuant hereto, and
the consummation of the transactions contemplated hereby, have each
been duly and validly authorized by all necessary action of PROCESSOR.
This Agreement constitutes a valid, legal and binding agreement of
PROCESSOR enforceable by LENDER in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, receivership or other laws
affecting rights of creditors generally and subject to general equity
principles.
9.1.2 PROCESSOR is qualified to do business in all states and in any other
jurisdiction in which such qualification is required or where PROCESSOR
maintains an office or does substantial business.
9.1.3 The execution, delivery and performance of this Agreement by PROCESSOR,
its compliance with the terms hereof and consummation of the
transactions contemplated hereby will not violate, conflict with,
result in a breach of, give rise to any right of termination,
cancellation or acceleration under, constitute a default under, be
prohibited by or require any additional approval under: (1) PROCESSOR's
charter, by-laws, or other organizational documents, or any other
material instrument or agreement to which PROCESSOR is a party or by
which PROCESSOR is bound or which affects this Agreement, or (2) any
and all laws, orders, injunctions or decrees applicable to PROCESSOR.
9.1.4 PROCESSOR possesses and will maintain at all times while this Agreement
is in effect any and all necessary licenses and permits required by any
and all laws necessary to conduct the business contemplated by the
terms of this Agreement. LENDER's
10
<PAGE>
obligations under this Agreement do not require LENDER to obtain or
maintain any such state or local licenses or permits.
9.1.5 Neither PROCESSOR nor its agents know of, or with the exercise of
reasonable diligence, would know of any suit, action, arbitration or
legal or administrative or other proceeding pending or threatened
against PROCESSOR which would affect its ability to perform its
obligations under this Agreement.
9.2 LENDER hereby represents, warrants and covenants to PROCESSOR as
follows:
9.2.1 LENDER is a federal savings bank duly chartered, validly existing, and
in good standing under the laws of the United States and that it has
all requisite corporate power and authority necessary to make and
perform this Agreement. The execution and delivery of this Agreement
and all documents, instruments and agreements required to be executed
by LENDER pursuant hereto, and the consummation of the transactions
contemplated hereby, have each been duly and validly authorized by all
necessary action of LENDER. This Agreement constitutes a valid, legal
and binding agreement of LENDER enforceable by PROCESSOR in accordance
with its terms, subject to bankruptcy, insolvency, reorganization,
receivership or other laws affecting rights of creditors generally and
subject to general equity principles.
9.2.2 Subject to PROCESSOR's full compliance with all terms and conditions of
this Agreement and with all Loan Criteria:
(1) The execution, delivery and performance of this Agreement by
LENDER, its compliance with the terms hereof and consummation
of the transactions contemplated hereby will not violate,
conflict with, result in a breach of, give rise to any right
of termination, cancellation or acceleration under, constitute
a default under, be prohibited by or require any additional
approval under: (i) LENDER's charter, by-laws, or other
organizational documents, or any other material instrument or
agreement to which LENDER is a party or by which LENDER is
bound or which affects this Agreement, or (ii) any and all
laws, orders, injunctions or decrees applicable to LENDER.
(2) LENDER possesses and will maintain its federal savings bank
charter at all times while this Agreement is in effect.
(3) Neither LENDER nor its agents know of, or with the exercise of
reasonable diligence, would know of any suit, action,
arbitration or legal or administrative or other proceeding
pending or threatened against LENDER which would affect its
ability to perform its obligations under this Agreement.
9.3 Each party agrees that it will not use the trademarks, service marks,
logo, name or any other proprietary descriptions of the other party or
the other party's parent or affiliates, whether registered or
unregistered, without the other party's prior written consent.
11
<PAGE>
9.4 Each party agrees to notify the other as soon as practicable of any
formal request by a governmental agency to examine records pertaining
to the other party or its customers, if the party being subjected to
such examination is permitted to so notify the other party. Each party
agrees that the other party is authorized to fully cooperate with any
such examination, and that such cooperation will not constitute a
breach of this Agreement, including, without limitation, a breach of
the confidentiality provisions in Section 10.13 hereof.
10. Miscellaneous.
10.1 Nothing in this Agreement will be deemed to constitute a partnership,
joint venture, employment, affiliated business arrangement, or agency
relationship between the parties.
10.2 This Agreement may not be assigned, in whole or in part, by any party
hereto without the prior written consent of the other party, except to:
(1) a parent company or wholly owned subsidiary of the assigning party,
(2) a person or entity that purchases in excess of fifty percent (50%)
of either party's voting stock, or (3) any entity which purchases
substantially all assets of the assigning party. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
10.3 All notices required to be given hereunder will be considered delivered
when placed in the United States Mail, certified mail, return receipt
requested, properly addressed, or when delivered by courier, to the
parties at their respective addresses as set forth at the beginning of
this Agreement; provided that a party may change its address for
notices hereunder by giving the other party written notice of such
change.
10.4 This Agreement constitutes the entire agreement of the parties and
supersedes all prior understandings, whether written or oral, between
the parties thereto. This Agreement will not be modified except by
written instrument duly executed by PROCESSOR and LENDER. Any approvals
or consents required by either party by the terms of this Agreement
shall not be unreasonably withheld. Notwithstanding the above, in the
event either party expressly waives a default or breach of the other
party, this waiver will not be considered a waiver of a later default
or breach of the same or any other provision of this Agreement. If
either party fails to object or take affirmative action with respect to
any conduct of the other party which is in violation of the terms of
this Agreement, this failure shall not be construed as a waiver of such
terms between the parties hereto.
10.5 This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same agreement.
10.6 Neither party shall be liable to the other party for any loss or damage
due to delays or failure to perform resulting from an event of "Force
Majeure," which shall mean and include: an act of God; accident; war;
fire; lockout; strike or labor dispute; riot or civil commotion; act of
public enemy; enactment, rule, order or act of civil or military
12
<PAGE>
authority; acts or omissions of the other party; judicial action;
inability to secure adequate materials, labor, or facilities; the
inability of carriers to make scheduled deliveries; or any other event
beyond the reasonable control of such party. Notwithstanding the
foregoing, Force Majeure shall not excuse either party from making
payments when due.
10.7 If any provision or part of this Agreement is deemed invalid or
unenforceable under applicable laws, the remainder of this Agreement
shall not be affected thereby and shall be fully enforceable to the
extent of the valid portions thereof.
10.8 LENDER shall not solicit or cause to be solicited any Loan borrower for
the purpose of prepaying a Loan in whole or substantially in whole for
a period of three (3) years after the sale of such Loan to PROCESSOR
except with the written permission of PROCESSOR, which may be withheld
for any reason, and provided that nothing in this Section 10.8 will
prevent LENDER from general solicitations in its marketplace for
mortgage loans. Notwithstanding LENDER's agreement to refrain from
making mortgage loan solicitations as described in the preceding
sentence, all customer data relating to Loans sold under this Agreement
will remain the property of LENDER.
10.9 Each party shall pay its own expenses incident to this Agreement and
the transactions contemplated hereby, including, but not limited to,
all fees of its counsel and accountants, whether or not any of the
transactions contemplated shall be consummated; provided, however, that
in addition to the compensation due LENDER pursuant to Section 3.2
hereof, PROCESSOR shall immediately reimburse LENDER for its reasonable
legal fees and related actual expenses for initial development of this
Agreement and related documentation in an amount not to exceed $10,000.
10.10 This Agreement shall be construed fairly as to both parties and not in
favor of or against either party, regardless of which party prepared
this Agreement.
10.11 This Agreement will be interpreted and construed in accordance with,
and will be governed by, the laws of the State of Georgia. The parties
hereto irrevocably submit themselves to the jurisdiction of the courts
of the State of Georgia. Any suit or action arising out of this
Agreement may be brought in the court of competent jurisdiction in the
County of Fulton, State of Georgia. Service of process may be made, in
addition to any other method permitted by law, by certified mail,
return receipt requested, sent to the applicable address set forth
herein.
10.12 The parties acknowledge and agree that the Private Label Program is not
intended to permit the access or transmission of LENDER's customer
names, screen names, addresses or any information concerning LENDER's
customers, other than that required to be accessed or transmitted in
connection with a Loan application.
13
<PAGE>
10.13 The parties agree to maintain the terms and conditions of this
Agreement confidential during the term of this Agreement. In addition,
each party acknowledges that in performing under this Agreement it may
gain access to confidential information belonging to the other party
and its customers, including but not limited to business, financial and
technological information (collectively, "Confidential Information"),
which Confidential Information constitutes and shall constitute
valuable assets and trade secrets. Accordingly, when a party (the
"Receiving Party") receives Confidential Information from another party
(the "Owning Party"), the Receiving Party shall, both during the term
of this Agreement and following the termination thereof, (1) keep
secret and retain in strict confidence any Confidential Information
received from the Owning Party, (2) not disclose to any third party any
Confidential Information received from the Owning Party for any reason
whatsoever, (3) not disclose any Confidential Information received from
the Owning Party to the Receiving Party's employees, except on a
need-to-know basis, and (4) not make use of any Confidential
Information received from the Owning Party for its own purposes or for
the benefit of any third party except as authorized by this Agreement.
Notwithstanding the foregoing, the parties' duty regarding Confidential
Information shall not apply when disclosure is made pursuant to (i) any
state or federal law or regulation, or (ii) the order of any state or
federal court or agency, provided the party disclosing such
Confidential Information provides prior written notice, wherever
practicable, to the other party.
10.14 All warranties and indemnities by either party under this Agreement
shall survive the expiration or termination of this Agreement.
10.15 In the event PROCESSOR makes secondary market commitments in the name
of LENDER to sell Loans on behalf of LENDER and pursuant to this
Agreement, PROCESSOR agrees to sell and deliver such Loans in
accordance with the secondary market commitments made in the name of
and on behalf of LENDER with respect to such Loans, provided that
nothing in this Agreement shall authorize PROCESSOR to make such
commitments in the name of or on behalf of LENDER.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under
seal as of the date and year first set forth above.
LENDER: Atlanta Internet Bank, FSB
By: ________________________________
Name: ______________________________
Title: _____________________________
[BANK SEAL]
PROCESSOR: First Mortgage Network, Inc.
By: ___________________________________
Name: _________________________________
Title: ________________________________
[CORPORATE SEAL]
EX-10.17
LICENSE, STAFFING, PURCHASE AND SALE AGREEMENT
BETWEEN
FIRST MORTGAGE NETWORK, INC.
AND
ATLANTA INTERNET BANK, INC.
Dated as of April 1, 1998
THIS LICENSE, STAFFING, PURCHASE AND SALE AGREEMENT (this "Agreement") is made
and entered into as of April 1, 1998 between FIRST MORTGAGE NETWORK, INC., a
Florida corporation having an office at 8751 Broward Blvd., Fifth Floor,
Plantation, Florida 33324 ("Licensor"), and ATLANTA INTERNET BANK, FSB, a
Federal savings bank having an office located at 950 Northpoint Parkway, Suite
350, Alpharetta, Georgia 30005 ("Licensee").
WHEREAS, Licensor owns a unique and distinctive format and system (the "System")
relating to the establishment and operation of a proprietary single-family
residential mortgage loan origination system utilizing the Internet and
telemarketing call centers (the "Program");
WHEREAS, Licensor identifies the System by means of certain trade names, service
marks, trademarks, logos, emblems and indicia of origin, including but not
limited to the Licensor's name and the marks and logos and such other trade
names, service marks, and trademarks as are now designated (and may hereinafter
be designated by Licensor in writing) for use in connection with the System (the
"Proprietary Marks");
WHEREAS, Licensor continues to develop, use, and control the use of such
Proprietary Marks in order to identify for the public its ownership of the
System, and to represent the System's high standards of quality and service;
WHEREAS, Licensee desires to enter into the business of operating the Program in
order to make single-family residential mortgage loans ("Loans") under
Licensor's System and wishes to obtain a non-exclusive, non-transferable license
(the "License") from Licensor to operate the Program and use the Proprietary
Marks in connection therewith, as well as to receive other assistance to be
provided by Licensor in connection therewith;
WHEREAS, Licensor operates and outsources a telemarketing call center in support
of the operations of financial services companies, including mortgage companies,
and Licensee desires assistance with its staffing, space and equipment needs on
an interim basis as it establishes its Internet and telemarketing call center
under the trade name "American Finance" ("American Finance Internet Origination
Center").
NOW THEREFORE, the parties, in consideration of the undertakings and commitments
of each party to the other party set forth herein, hereby agree as follows:
1. GRANT AND LICENSE FEE
1.1 Licensor grants Licensee a non-exclusive license to use the
System, including the Program and the Proprietary Marks, solely
in regard to those states indicated in Appendix A and during the
term of this Agreement (the "License").
1.2 [REDACTED]
2
<PAGE>
2. TERM AND RENEWAL
2.1 Except as otherwise provided herein, the term of this
Agreement shall expire one (1) year from the date of this
Agreement.
2.2 At its option exercisable by giving written notice to
Licensee at least sixty (60) days prior to the first anniversary
of the date of this Agreement, Licensor may renew this Agreement
for one (1) additional term of one (1) year if Licensor shall
have satisfied all monetary obligations owed by Licensor to
Licensee and its parent, subsidiaries and affiliates under this
Agreement and under any other contract between the parties as of
the date of such notice and as of the date of commencement of the
renewal term.
2.3 At its option exercisable by giving written notice to
Licensor at least sixty (60) days prior to the first anniversary
of the date of this Agreement, Licensee may renew this Agreement
for one (1) additional term of one (1) year if Licensee shall
have satisfied all monetary obligations owed by Licensee to
Licensor and its parent, subsidiaries and affiliates under this
Agreement and under any other contract between the parties as of
the date of such notice and as of the date of commencement of the
renewal term.
2.4 This Agreement may be terminated with or without cause by
Licensor or Licensee upon sixty (60) days written notice to the
other party.
3. FUNDING, PURCHASE AND SALE OF LOANS
3.1 Licensor agrees to purchase from Licensee, and Licensee
agrees to sell to Licensor, in accordance with and subject to the
terms and conditions of this Agreement, all Loans made by
Licensee under the Program and processed, underwritten and closed
under the separate Mortgage Loan Processing Agreement between the
parties dated as of even date herewith (the "Processing
Agreement"), with each Loan purchase and sale to be consummated
(by payment of the Purchase Price for such Loan in accordance
with Section 3.2 hereof) within forty-eight (48) hours after Loan
settlement and funding to the greatest extent practicable and in
all events within seven (7) calendar days after Loan settlement
and funding. Such Loans will be sold by Licensee and purchased by
Licensor without recourse and on a servicing-released basis, with
Licensor undertaking servicing of all Loans so purchased by
Licensor.
3.2 The purchase price ("Purchase Price") to be paid by Licensor
and accepted by Licensee for each Loan sold to Licensor pursuant
to Section 3.1 hereof shall be equal to the sum of: [REDACTED]
3
<PAGE>
3.3 [REDACTED]
3.4 Upon Licensor's delivery of the Purchase Price and Loan Sale
Fee applicable to any Loan, Licensee (1) shall deliver to
Licensor any and all documents and instruments which evidence,
secure, or otherwise relate to such Loan and which are then in
Licensee's actual possession and (2) shall release in Licensor's
favor any and all rights of Licensee in, to, and under such
documents and instruments.
3.5 If Licensor fails to deliver the Purchase Price and Loan Sale
Fee for any Loan within seven (7) calendar days after settlement
and funding of such Loan or if Licensor otherwise fails to
consummate the purchase of such Loan in accordance with this
Section 3, Licensee, in its sole discretion, shall be entitled to
exercise any and all rights and remedies, at law or in equity or
otherwise, with respect to any and all such failures by Licensor
4
<PAGE>
and any and all Loans subject to such failures by Licensor,
including, without limitation, the following:
(1) Licensee shall be entitled to effect the sale of any
and all such Loans to any other person(s) or entity(ies)
at any commercially reasonable price(s) (any such sale
being an Alternative Sale"), with Licensor being obligated
to indemnify Licensee for any and all losses, damages,
liabilities, claims, legal fees, and other expenses
incurred by Licensee as a direct or indirect consequence
of any and all Alternative Sales, including, without
limitation, (i) the Loan Sale Fee which is due for any
such Loan under this Agreement and which has not been paid
to Licensee and (ii) any positive difference between the
Purchase Price due under this Agreement for any such Loan
and the price actually received by Licensee through the
Alternative Sale of such Loan; and
(2) Licensee shall be entitled to specific performance of
Licensor's obligation to purchase any and all such Loans,
together with monetary relief for any and all losses,
damages, liabilities, claims, legal fees, and other
expenses incurred by Licensee as a direct or indirect
consequence of Licensor's breach of this Agreement.
4. DUTIES OF LICENSOR
4.1 Licensor shall provide to Licensee technical and
administrative support, including the service of contract
employees and the rental of requisite space and equipment, as set
forth in Section 9 below.
4.2 Licensor shall provide periodic and continuing advisory
assistance to Licensee as to the operation and promotion of the
Program as Licensor deems advisable.
4.3 Licensor shall market and promote the Program, as set forth
in Section 10 below.
5. DUTIES OF LICENSEE
5.1 Licensee shall operate the Program, under a separate division
of Licensee to be known as "American Finance, a division of
Atlanta Internet Bank, FSB," or as otherwise denominated by
Licensee after consultation with Licensor. Such division shall be
operated and managed separately from the mortgage lending
operations of Licensee.
5.2 Licensee will prominently use the Proprietary Marks, subject
to specific prior review and approval by Licensor, in all aspects
of the Program and otherwise, including, without limitation, in
the operation of the Program in relation to prospective
borrowers.
5
<PAGE>
5.3 Licensee acknowledges the proprietary interest of Licensor in
all information with respect to the System and Program. Licensee
undertakes to comply with its obligations under the Agreement
with respect to all Licensor Confidential Information, as defined
in Section 8.4 below, and at no time to divulge, disclose,
reference, or transfer to any other person such Licensor
Confidential Information, including the identities of customers
and related information or to use the same for any purpose other
than its operations under the License, without the written
consent of Licensor.
5.4 Except as otherwise required by law, all statements of any
kind whatsoever by Licensee with regard to the System and Program
shall identify Licensor as the sole owner and developer the
System and Program. Licensee shall at no time or in any manner
whatsoever claim or represent itself to have any rights or
interest in the development or ownership of the System or
Program, except as explicitly provided by this Agreement.
5.5 Licensee understands and acknowledges that the rights and
duties set forth in this Agreement are solely related to
Licensee, and that Licensor has granted this License in reliance
on Licensee's business skill, financial capacity, and personal
character. Accordingly, Licensee shall not, without prior written
consent of Licensor, transfer, pledge, or in any way encumber
either the rights and obligations of Licensee under this
Agreement or any interest in the System or Program hereunder,
except to a permitted assignee under Section 16.1 hereof.
5.6 Licensee covenants to operate in compliance with the System
and shall use best efforts to maintain the highest degree of
quality and services. Licensee shall operate the Program in
strict conformity with such methods, standards, and
specifications as Licensor may from time to time prescribe in the
Manual (as defined in Section 7 below) or otherwise in writing.
5.7 Licensee acknowledges that, subject to Licensor's compliance
with its obligations under this Agreement and subject to
compliance of the System and the Program with all applicable
laws, rules and regulations: (1) Licensor has the full, exclusive
authority over the information presented in the Program and over
all rules and standards included therein; and (2) in its sole
discretion, Licensor may change such content at any time and from
time to time; provided that any material changes that would
affect Licensee's Program operations or product information will
require prior notification of at least three (3) business days to
Licensee.
6. PROPRIETARY MARKS
6.1 Licensor represents and warrants to Licensee that Licensor is
the owner of all right, title, and interest in and to the
Proprietary Marks, free and clear of all liens, encumbrances and
claims of any kind.
6
<PAGE>
6.2 With respect to Licensee's use of the Proprietary Marks
designated by Licensor, Licensee shall use them only in the
manner authorized and permitted by Licensor.
6.3 Licensee shall use the Proprietary Marks designated only for
the operation of the Program licensed hereunder.
6.4 Unless otherwise authorized or required by Licensor, Licensee
shall operate the Program only under the name permitted under
Section 5.1 hereof, without prefix or suffix.
6.5 During the term of this Agreement and renewal thereof,
Licensee shall identify Licensor (in a manner reasonably
acceptable to Licensor) as the owner of the System and Program in
conjunction with any use of the Proprietary Marks.
6.6 Licensee's right to use the Proprietary Marks is limited to
such uses as are designated by Licensor or authorized under this
Agreement, and any unauthorized use thereof shall constitute an
infringement of Licensor's rights if Licensee continues such use
on or after the tenth (10th) calendar day following Licensee's
receipt of written notice from Licensor to cease such
unauthorized use.
6.7 Licensee expressly understands and acknowledges that:
6.7.1 Licensor is the owner of all rights, title and
interests in and to the Proprietary Marks and the goodwill
associated with and symbolized by them.
6.7.2 The Proprietary Marks are valid and serve to
identify the System and Program and those who are
authorized to operate under the System.
6.7.3 Neither Licensee nor any affiliate of Licensee shall
directly or indirectly contest the validity of Licensor's
ownership of the Proprietary Marks, nor shall Licensee,
directly or indirectly, seek to register the Proprietary
Marks with any government agency, except with Licensor's
express written permission.
6.7.4 Licensee's use of the Proprietary Marks does not
give Licensee any ownership interest or other interest in
or to the Proprietary Marks, except the License granted by
this Agreement.
6.7.5 Any and all goodwill arising from Licensee's use of
the Proprietary Marks shall inure solely and exclusively
to Licensor's benefit, and upon expiration or termination
of this Agreement and the License herein granted, no
monetary amount shall be assigned as attributable to any
goodwill associated with Licensee's use of the System or
the Proprietary Marks.
7
<PAGE>
6.7.6 The right and license to use the Proprietary Marks
granted hereunder to Licensee is non-exclusive, and
Licensor thus has and retains the rights, among others: to
use the Proprietary Marks itself in connection with
selling products and services; to grant other licenses for
the Proprietary Marks; and to develop and establish other
systems using the same or similar Proprietary Marks, or
any other proprietary marks, and to grant licenses or
franchises thereto without providing any rights therein to
Licensee.
6.7.7 Licensor reserves the right to substitute different
proprietary marks for use in identifying the System and
Program and the businesses operating thereunder if
Licensor's currently owned Proprietary Marks no longer can
be used, or if Licensor, in its sole discretion,
determines that substitution of different proprietary
marks is desirable.
6.8 Licensee shall require all signs and other materials and
documentation which may be designated by Licensor to bear the
Proprietary Marks in the form, color, location and manner
prescribed by Licensor.
7. CONFIDENTIAL OPERATING MANUAL
7.1 In order to protect the reputation and goodwill of Licensor
and to maintain high standards of operation under Licensor's
Proprietary Marks, Licensee shall conduct its business in
accordance with the Licensor's operating manual (the "Manual"), a
copy of which will be provided to Licensee concurrently with the
parties' execution of this Agreement.
7.2 Licensee shall at all times treat the Manual, any other
materials created for or approved by Licensor for use in the
operation of the Program, and the information contained therein,
as confidential, and shall use all reasonable efforts to maintain
such information as secret and confidential. Licensee shall not
at any time copy, duplicate, record or otherwise reproduce the
foregoing materials, in whole or in part, nor otherwise make the
same available to any unauthorized person.
7.3 The Licensee's copy of the Manual shall at all times remain
the sole property of Licensor and shall at all times be kept in a
secure place on Licensee's premises.
7.4 Subject to the terms and conditions of Section 5.7, Licensor
may from time to time revise the contents of the Manual, and
Licensee expressly agrees to make corresponding revisions to its
copy of the Manual and to comply with each new or changed
standard.
7.5 Licensee shall at all times maintain the Manual and insure
that the Manual is kept current and up to date; and, in the event
of any dispute as to the contents of the Manual, the terms of the
master copy of the Manual maintained by Licensor at Licensor's
home office shall be controlling.
8
<PAGE>
8. CONFIDENTIAL INFORMATION
8.1 Licensor retains all rights of ownership and copyright in the
System and Program and Proprietary Marks except as provided for
temporary use by the Licensee under the terms of this Agreement.
8.2 As between Licensor and Licensee, the System and Program,
including its design, structure, operation, programming, output,
content, graphics, and all derivative works thereof (other than
the proprietary logos and graphics of Licensee), are the sole and
exclusive property of Licensor to be licensed under the terms of
this Agreement for use by Licensee.
8.3 Except for the non-exclusive, non-transferable License to use
the System and operate the Program, Licensee has no, and shall
not acquire any, ownership or other rights or interest in the
System or Program as a result of this Agreement or any business
relationship with the Licensor, unless the parties hereafter
agree to the contrary.
8.4 Licensee understands and acknowledges that the System and
Program contain and embody valuable trade secrets of Licensor.
Licensee shall keep confidential the Program and all other
information provided by Licensor to Licensee or otherwise
acquired by Licensee through the operation of the Program as
referred to in Section 10.1 hereof (collectively, the "Licensor
Confidential Information") and all copies or physical embodiments
thereof in its possession, and shall limit access to the Licensor
Confidential Information to those of its personnel. Licensee
shall not use any part of the Licensor Confidential Information
in any manner other than as expressly permitted under this
Agreement. Licensee shall secure and protect the Licensor
Confidential Information and any and all copies thereof in its
possession through security measures at least as protective as
those used by Licensee to maintain the security of its valuable
confidential and proprietary information. Upon termination of
this Agreement for any reason, Licensee shall upon request return
to Licensor all tangible embodiments of Licensor Confidential
Information in its possession or under its control, or destroy
all such tangible embodiments and certify such destruction in
writing. The obligations provided in this Section 8.4 shall not
apply to any information which (1) is generally known to the
public or in the trade or becomes so generally known without
breach of this Agreement by Licensee; (2) is shown by written
record to have been known to Licensee prior to its disclosure by
Licensor hereunder; (3) is disclosed to Licensee without
restriction of confidentiality by a third party who is not in
breach of an obligation of confidentiality to Licensor in making
such disclosure; or (4) is disclosed by Licensee pursuant to
judicial, administrative, or other legally binding order. The
obligations of this Section 8.4 shall survive any termination of
this Agreement.
9
<PAGE>
8.5 Licensee acknowledges that any failure to comply with the
requirements of this Section 8 will cause Licensor irreparable
injury, and Licensee agrees to pay all court costs and reasonable
attorney's fees incurred by Licensor in any successful action or
proceeding to obtain specific performance of, or an injunction
against violation of, the requirements of this Section 8.
9. STAFFING, SPACE AND EQUIPMENT
9.1 In order to enable Licensee to utilize the License and make
Loans thereunder, Licensor will provide personnel to Licensee on
an "as needed" basis and in sufficient number to support the
telemarketing functions of Licensee's American Finance Internet
Origination Center (the "Support Work"). Such employees shall be
assigned to the Support Work on a full-time basis (40 hours per
week). All personnel provided for the Support Work shall be
selected and trained by Licensor under standards that are
consistent with the Program and are not less than those used by
Licensor for its own call center operations.
9.2 Each assigned employee is and shall remain an employee of
Licensor and shall not be considered an employee of Licensee.
Although it is the responsibility of Licensee to supervise and
review the Support Work of each Licensor employee, Licensee will
also be entitled to review such Support Work. Any questions or
problems with assigned employees shall be communicated to
Licensor immediately by Licensee. All contact with an assigned
Licensor employee regarding assignment scheduling for Support
Work must be coordinated through Licensor.
9.3 Licensor guarantees satisfaction with each Licensor employee
assigned to Support Work for Licensee. If, for any reason,
Licensee is dissatisfied with any such Licensor employee's
performance, a different Licensor employee will immediately be
assigned to the Support Work.
9.4 Licensor represents and warrants that its employees are
adequately covered by workers' compensation insurance and that
Licensor assumes total responsibility to pay the employees'
salary, all related federal, state, and local payroll taxes and
any other applicable charges required by law, and applicable
employee benefits, such as health insurance, retirement, etc., if
any.
9.5 Licensor agrees to provide all necessary space to Licensee
for its American Finance Internet Origination Center, as well as
the use of telephone, computer and other equipment on an "as
needed" basis for the operation of Licensee's American Finance
Internet Origination Center during the term of this Agreement.
Licensor and Licensee will review monthly the space and equipment
needs of Licensee. Licensee is authorized to utilize reasonable
signage or other marks to indicate to the public Licensee's
presence in operating its American Finance Internet Origination
Center.
10
<PAGE>
9.6 As compensation for the staffing, space and equipment
provided to Licensee by Licensor in accordance with this Section
9, Licensee shall, with respect to each calendar month during the
term hereof, pay Licensor the Staffing Fee and the Facility Fee
(as both are hereinafter defined) due for such calendar month, in
arrears, on or before the seventh (7th) calendar day of the next
succeeding calendar month. All Staffing Fees and Facility Fees
shall be paid in immediately available Funds.
9.7 [REDACTED]
9.8 [REDACTED]
(1) [REDACTED]
(2) [REDACTED]
(3) [REDACTED]
9.9 It is the intent of the parties that all compensation
received by Licensor in the form of Staffing Fees and Facility
Fees shall not exceed the reasonable value of the services
rendered or goods or facilities furnished within the meaning of
the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq.
as amended from time to time and the regulations which are
promulgated thereunder.
10. MARKETING AND PROMOTION
10.1 Licensor shall have sole responsibility for the marketing of
the Program on behalf of Licensee, including, without limitation,
television, radio, print, or electronic advertising and other
promotion.
10.2 Licensee shall at no time advertise, promote, or in any
manner whatsoever publish or communicate its role in operation of
the System or Program, without the prior written approval of
Licensor, except as required by law or regulation.
11. DEFAULT, TERMINATION, AND OBLIGATIONS THEREAFTER; ARBITRATION
11.1 If either party or any person holding a controlling interest
(direct or indirect) in Licensee becomes a debtor in proceedings
under the U.S. Bankruptcy Code or any similar law in the United
States or elsewhere, it is the parties' understanding and
agreement that any transfer of the License, or any obligations
and/or rights hereunder, shall be subject to written approval of
11
<PAGE>
the transfer or termination of the Agreement at the sole
discretion of the Licensor.
11.2 Licensee shall be deemed to be in default and Licensor may,
at its option, terminate this Agreement and all rights granted
hereunder, without affording Licensee any opportunity to cure the
default, effective immediately upon the delivery of written
notice to Licensee by Licensor, upon the occurrence of any of the
following events, provided that Licensor shall have remitted to
Licensee, prior to any such termination being effective, any and
all amounts due Licensee from Licensor under this Agreement as of
the date of such termination:
11.2.1 If Licensee at any time ceases to operate or
otherwise abandons use of the System and operation of the
Program;
11.2.2 If Licensee or any senior policy making officer
thereof is convicted of a felony, a crime involving moral
turpitude, or any other crime or offense that is
reasonably likely to have a material adverse effect on the
System, the Proprietary Marks, the goodwill associated
therewith, or Licensor's interest therein;
11.2.3 If Licensee purports to transfer any rights or
obligations under this Agreement or any interest to any
third party in a manner that is contrary to the terms of
this Agreement; or
11.2.4 If, contrary to the terms hereof, Licensee
discloses or divulges the contents of the Manual or other
Licensor Confidential Information provided to Licensee by
Licensor without the written approval of Licensor.
11.3 Subject to the provisions of Section 11.4 hereof, this
Agreement may be terminated by either party during the existence
of any of the following conditions.
11.3.1 If the other party ("Other Party") is the subject
of any of the following: (1) a court having jurisdiction
shall have entered a decree or order constituting an order
for relief in respect of the Other Party under Title 11 of
the United States Code, as now constituted or hereafter
amended, or any other applicable federal or state
bankruptcy law or other similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian,
sequestrator, or similar official of the Other Party or
any substantial part of its properties, or ordering the
winding-up or liquidation of the affairs of the Other
Party, or any petition seeking such relief or appointment
shall have been filed in such a court and shall not have
been dismissed within a period of forty-five (45) days (2)
the Other Party shall have filed a petition, answer, or
consent seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy law or other
similar law, or the Other Party shall consent to the
institution of proceedings thereunder or to the filing of
12
<PAGE>
any such petition or to the appointment or taking of
possession of a receiver, liquidator, assignee, trustee,
custodian, sequestrator, or other similar official of the
Other Party or of any substantial part of properties, or
the Other Party shall fail generally to pay its debts as
such debts become due, or the Other Party shall take any
corporate action in furtherance of any such action; (3)
any admission by the Other Party of its insolvency or
inability to pay its debts as they fall due; or (4) the
adjudication of the Other Party as bankrupt or insolvent;
11.3.2 If the Other Party fails to pay the terminating
party any amount within sixty (60) days after the date on
which such amount was first due the terminating party in
accordance with this Agreement or, if a due date is not
specified herein or therein, within sixty (60) days after
the Other Party's receipt of an invoice for such amount.
11.3.3 If the Other Party is in material breach of or
material default under this Agreement.
11.3.4 If the Other party engages in any dishonest or
fraudulent conduct; or
11.3.5 If it becomes unlawful for the parties hereto to do
business in accordance with this Agreement.
11.4 Upon either party's issuance of proper notice of termination
of this Agreement pursuant to this Section 11 or Section 2.4
hereof:
11.4.1 The parties agree to continue their cooperation in
order to affect an orderly termination of their
relationship. Each party shall immediately cease accepting
Loan applications under the Program, provided, however,
that Licensor shall, at Licensee's option, continue the
Support Work under the terms and conditions of this
Agreement in order to consummate any Loan(s) for which an
application has been received by Licensor or Licensee on
or prior to the date of termination. All compensation due
any party in connection with any such Loan(s) shall be
paid in accordance with this Agreement, and Licensor's
obligation to purchase any such Loan(s) shall be in full
force and effect in accordance with and subject to the
terms and conditions of this Agreement.
11.4.2 Licensee shall comply with Section 11.8 hereof.
11.5 Any controversy arising in conjunction with or relating to
this Agreement, and any amendment hereof, shall be determined and
settled by arbitration in a location mutually agreed upon by the
parties, in accordance with the rules of the American Arbitration
Association. Any arbitration award rendered hereunder shall be
final and binding on each of the parties hereto and their
respective successors and assigns, and judgment may be entered
thereon by any court having jurisdiction. The parties shall
13
<PAGE>
continue their performance under this Agreement while the
arbitration proceeding is pending.
11.6 Licensee agrees, if at any time it operates or begins
hereafter to operate any other similar System or Program, not to
use any reproduction, counterfeit copy, or colorable imitation of
the Proprietary Marks, either in connection with such other
System or Program or the promotion thereof, which is likely to
cause confusion, mistake or deception or which is likely to
dilute Licensor's rights in and to the Proprietary Marks, and
further agrees not to utilize any designation of origin,
description, trademark, service mark, or representation which
suggests or represents a present or past association or
connection with Licensor, the System, or the Proprietary Marks.
11.7 Licensee shall pay Licensor all damages, costs, and expenses
(including reasonable attorney's fees) incurred by Licensor,
subsequent to the termination of this Agreement pursuant to
Section 11.2 hereof, in any successful action or proceeding to
obtain injunctive or other relief for the enforcement of any
provisions of this Section 11.
11.8 Licensee shall immediately upon expiration or termination of
this Agreement deliver to Licensor the Manual, and all other
manuals, records, and instructions containing Licensor
Confidential Information (including without limitation any copies
thereof, even if such copies were made in violation of this
Agreement), all of which are acknowledged to be the property of
Licensor.
11.9 Licensor shall provide such access to any copies of the
Manual, any records delivered pursuant to Section 11.5, or any
reports prepared by Licensee hereunder for any federal or state
regulator asserting authority over the activities of Licensee as
shall be required by law or regulation or as shall be requested
in writing by Licensee.
11.10 Licensor shall have the option, to be exercised within
sixty (60) days after expiration or termination, to purchase from
Licensee any or all of its equipment, signs, supplies, or
inventory of Licensee related to the operation of the System, at
Licensee's cost or fair market value, whichever is less.
12. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
12.1 It is understood and agreed by the parties that: (1) neither
this Agreement nor the Processing Agreement creates a fiduciary
relationship between them; (2) Licensee shall be an independent
contractor in its use of the License; (3) Licensor shall be an
independent contractor in performing its obligations under
Section 9 hereof; and (4) nothing in this Agreement or the
Processing Agreement is intended to constitute either party an
agent, legal representative, subsidiary, joint venturer, partner,
employee, or servant of the other for any purpose whatsoever.
14
<PAGE>
12.2 It is understood and agreed that nothing in this Agreement
authorizes either party to make any contract, agreement,
warranty, or representation on the other party's behalf, or to
incur any debt or other obligation in the other party's name; and
that the other party shall in no event assume liability for, or
be deemed liable hereunder as a result of, any such action.
12.3 Licensor shall indemnify and hold Licensee harmless from and
against any and all losses, damages, costs, expenses,
liabilities, obligations and claims of any kind (collectively,
"Liabilities"), and agrees to promptly defend Licensee from, and
reimburse Licensee for, all such Liabilities, including, without
limitation, reasonable attorney's fees, arising or resulting
from: (1) any challenge by another person to any patent,
trademark or intellectual property interest used by Licensee
under this Agreement; or (2) Licensor's negligence or wrongdoing
in any related proceeding; or (3) any failure of the System,
the Program or Licensor to comply, and to cause all Loans to be
in compliance, with any applicable Federal or state law, rule or
regulation (including without limitation the Consumer Credit
Protection Act, the Fair Credit Reporting Act, the Real Estate
Settlement Procedures Act, the Federal Trade Commission Act, and
state statutes purporting to regulate or license the origination
of or terms and conditions of Loans generated by the Program);
(4) any challenge to Licensee's authority to use the System and
operate the Program; (5) any breach of Licensor's
representations and warranties under this Agreement; or (6) any
and all claims by borrowers relating to any matters referenced
under foregoing clauses (1) through (5), inclusive. This Section
12.3 shall survive the expiration or termination of this
Agreement.
12.4 Licensee shall indemnify and hold Licensor harmless against
any and all claims arising directly from or as a result of: (1)
Licensee's use of the System and operation of the Program (as
well as the costs, including reasonable attorney's fees, of
defending against them) in violation of this Agreement; or (2)
any breach of Licensee's representations and warranties under
this Agreement. This Section 12.4 shall survive the expiration or
termination of this Agreement.
13. APPROVALS AND WAIVERS
13.1 No delay, waiver, omission, or forbearance on the part of
either party to exercise any right, option, duty, or power
arising out of any breach or default by the other party under any
of the terms, provisions, covenants, or conditions hereof, shall
constitute a waiver by such first party to enforce any such
right, option, duty or power against the other party, or as to
subsequent breach or default by the other party.
14. SEVERABILITY AND CONSTRUCTION
14.1 Each portion, section, part, term, and/or provision of this
Agreement shall be considered severable; and if, for any reason,
any section, part, term, and/or provision herein is determined to
be invalid and contrary to, or in conflict with, any existing or
15
<PAGE>
future law or regulation by a court or agency asserting
jurisdiction, such shall not impair the operation of, or have any
other effect upon, such other portions, sections, parts, and/or
provisions of this Agreement as may remain otherwise
intelligible; and the latter shall continue to be given full
force and effect and bind the parties hereto; and said invalid
portions, sections, parts, terms and/or provisions shall be
deemed not to be part of this Agreement.
14.2 All captions in this Agreement are intended solely for the
convenience of the parties, and shall not be deemed to affect the
meaning or construction of any provision hereof.
14.3 All provisions of this Agreement which, by their terms or
intent, are designed to survive the expiration or termination of
this Agreement, shall so survive the expiration and/or
termination of the this Agreement. Without limiting the
immediately preceding sentence, all warranties and indemnities by
either party under this Agreement shall survive the expiration or
termination of this Agreement.
14.4 No right or remedy conferred upon or reserved to Licensor or
Licensee by this Agreement is intended to be, nor shall be
deemed, exclusive of any other right.
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSOR AND LICENSEE.
15.1 Licensor hereby represents, warrants and covenants to
Licensee as follows:
15.1.1 Licensor is a corporation duly organized, validly
existing, and in good standing under the laws of the State
of Florida and that it has all requisite corporate power
and authority necessary to make and perform its
obligations under this Agreement. The execution and
delivery of this Agreement and all documents, instruments
and agreements required to be executed by Licensor
pursuant hereto, and the consummation of the transactions
contemplated hereby, have each been duly and validly
authorized by all necessary action of Licensor. This
Agreement constitutes a valid, legal and binding agreement
of Licensor enforceable by Licensee in accordance with its
terms, subject to bankruptcy, insolvency, reorganization,
receivership or other laws affecting rights of creditors
generally and subject to general equity principles.
15.1.2 Licensor is qualified to do business in all states
and in any other jurisdiction in which such qualification
is required or where Licensor maintains an office or does
substantial business.
15.1.3 The execution, delivery and performance of this
Agreement by Licensor, its compliance with the terms
hereof and consummation of the transactions contemplated
hereby will not violate, conflict with, result in a breach
16
<PAGE>
of, give to any right of termination, cancellation or
acceleration under, constitute a default under, be
prohibited by or require any additional approval under:
(1) Licensor's charter, by-laws, or other organizational
documents, or any other material instrument or agreement
to which Licensor is a party or by which Licensor is bound
or which affects this Agreement, or (2) any and all laws,
orders, injunctions or decrees applicable to Licensor.
15.1.4 Licensor possesses and will maintain at all times
while this Agreement is in effect any and all necessary
licenses and permits required by any and all laws
necessary to conduct the business contemplated by the
terms of this Agreement. Licensee's obligations under this
Agreement and the Processing Agreement do not require
Licensee to obtain or maintain any such state or local
licenses or permits.
15.1.5 Neither Licensor nor its agents know of, or with
the exercise of reasonable diligence, would know of any
suit, action, arbitration or legal or administrative or
other proceeding pending or threatened against Licensor
which would affect is ability to perform its obligations
under this Agreement.
15.2 Licensee hereby represents, warrants and covenants to Licensor as
follows:
15.2.1 Licensee is a federal savings bank duly chartered,
validly existing, and in good standing under the laws of
the United States and that it has all requisite corporate
power and authority necessary to make and perform this
Agreement. The execution and delivery of this Agreement
and all documents, instruments and agreements required to
be executed by Licensee pursuant hereto, and the
consummation of the transactions contemplated hereby, have
each been duly and validly authorized by all necessary
action of Licensee. This Agreement constitutes a valid,
legal and binding agreement of Licensee enforceable by
Licensor in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, receivership or
other laws affecting rights of creditors generally and
subject to general equity principles.
15.2.2 Subject to Licensor's full compliance with
Licensor's representations and warranties under this
Agreement:
(1) The execution, delivery and performance of this
Agreement by Licensee, its compliance with the terms
hereof and consummation of the transactions
contemplated hereby will not violate, conflict with,
result in a breach of, give rise to any right of
termination, cancellation or acceleration under,
constitute a default under, be prohibited by or
require any additional approval under: (i) Licensee's
charter, by-laws, or other organizational documents,
17
<PAGE>
or any other material instrument or agreement to which
Licensee is a party or by which Licensee is bound or
which affects this Agreement, or (ii) any and all
laws, orders, injunctions or decrees applicable to
Licensee.
(2) Licensee possesses and will maintain its federal
savings bank charter at all times while this Agreement
is in effect.
(3) Neither Licensee nor its agents know of, or
with the exercise of reasonable diligence, would know
of any suit, action, arbitration or legal or
administrative or other proceeding pending or
threatened against Licensee which would affect its
ability to perform its obligations under this
Agreement.
15.2.3 Each party agrees that it will not use the
trademarks, service marks, logo, name or any other
proprietary descriptions of the other party or the other
party's parent or affiliates, whether registered or
unregistered, without the other party's prior written
consent.
15.2.4 Each party agrees to notify the other as soon as
practicable of any formal request by a governmental agency
to examine records pertaining to the other party or its
customers, if the party being subjected to such
examination is permitted to so notify the other party.
Each party agrees that the other party is authorized to
fully cooperate with any such examination, and that such
cooperation will not constitute a breach of this
Agreement, including, without limitation, a breach of the
confidentiality provisions in Section 10.13 hereof.
16. MISCELLANEOUS.
16.1 This Agreement may not be assigned, in whole or in part, by
any party hereto without the prior written consent of the other
party, except to: (1) a parent company or wholly owned subsidiary
of the assigning party, (2) a person or entity that purchases in
excess of fifty percent (50%) of either party's voting stock, or
(3) any entity which purchases substantially all assets of the
assigning party. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and permitted assigns.
16.2 All notices required to be given hereunder will be
considered delivered when placed in the United States Mail,
certified mail, return receipt requested, properly addressed, or
when delivered by courier, to the parties at their respective
addresses as set forth on the signature page of this Agreement;
provided that a party may change its address for notices
hereunder by giving the other party written notice of such
change.
18
<PAGE>
16.3 This Agreement constitutes the entire agreement of the
parties and supersedes all prior understandings, whether written
or oral, between the parties thereto. This Agreement will not be
modified except by written instrument duly executed by Licensor
and Licensee. Any approvals or consents required by either party
by the terms of this Agreement shall not be unreasonably
withheld. Notwithstanding the above, in the event either party
expressly waives a default or breach of the other party, this
waiver will not be considered a waiver of a later default or
breach of the same or any other provision of this Agreement. If
either party fails to object or take affirmative action with
respect to any conduct of the other party which is in violation
of the terms of this Agreement, this failure shall not be
construed as a waiver of such terms between the parties hereto.
16.4 This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
16.5 Neither party shall be liable to the other party for any
loss or damage due to delays or failure to perform resulting from
an event of "Force Majeure," which shall mean and include: an act
of God; accident; war; fire; lockout; strike or labor dispute;
riot or civil commotion; act of public enemy; enactment, rule,
order or act of civil or military authority; acts or omissions of
the other party; judicial action; inability to secure adequate
materials, labor, or facilities; the inability of carriers to
make scheduled deliveries; or any other event beyond the
reasonable control of such party. Notwithstanding the foregoing,
Force Majeure shall not excuse either party from making payments
when due.
16.6 This Agreement shall be construed fairly as to both parties
and not in favor of or against either party, regardless of which
party prepared this Agreement.
16.7 This Agreement will be interpreted and construed in
accordance with, and will be governed by, the laws of the State
of Georgia. The parties hereto irrevocably submit themselves to
the jurisdiction of the courts of the State of Georgia. Any suit
or action arising out of this Agreement may be brought in the
court of competent jurisdiction in the County of Fulton, State of
Georgia. Service of process may be made, in addition to any other
method permitted by law, by certified mail, return receipt
requested, sent to the applicable address set forth herein.
16.8 Notwithstanding anything to the contrary in this Agreement,
Licensee may enter into any agreement with third parties for
similar services or otherwise directly offer, originate or make
mortgage loans in any states.
16.9 In the event Licensor makes secondary market commitments in
the name of Licensee to sell Loans on behalf of Licensee and
pursuant to this Agreement, Licensor agrees to sell and deliver
such Loans in accordance with the secondary market commitments
made in the name of and on behalf of Licensee with respect to
19
<PAGE>
such Loans; provided that nothing in this Agreement shall
authorize Licensor to make such commitments in the name of or on
behalf of Licensee.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed and delivered
this Agreement in duplicate on the day and year first above written.
ATLANTA INTERNET BANK, FSB FIRST MORTGAGE NETWORK, INC.
LICENSEE LICENSOR
By: /s/ D. R. Grimes By: /s/ David W. Larson
------------------------- ---------------------------
Name: D. R. Grimes Name: David W. Larson
Title: Vice Chairman & CEO Title: President
------------------------- ---------------------------
[BANK SEAL] [CORPORATE SEAL]
Address for Notices: Address for Notices:
Atlanta Internet Bank, FSB First Mortgage Network, Inc.
950 Northpoint Parkway 8751 Broward Blvd.
Suite 350 Fifth Floor
Alpharetta, GA 30005 Plantation, FL 33324
Fax: (770) 343-6464 Fax: (954) 452-0800
Attn: Don Shapleigh Attn: John T. Rodgers
<PAGE>
APPENDIX A
[REDACTED]
Ex-10.19
$2,000,000 NOTE PURCHASE AGREEMENT
dated as of February 9, 1999
among
MORTGAGE.COM, INC.
and
THE PURCHASERS LISTED ON SCHEDULE 1.01
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. PURCHASE, SALE AND TERMS OF NOTES........................................................................1
1.01. Authorization of Notes and Warrants..........................................................1
-----------------------------------
1.02. The Shares...................................................................................1
----------
1.03. Purchase Price and Closing...................................................................1
--------------------------
1.04. Use of Proceeds..............................................................................2
---------------
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................2
2.01. Organization, Standing and Power.............................................................2
--------------------------------
2.02. Authority; Enforceability; No Conflict.......................................................2
--------------------------------------
2.03. Capitalization...............................................................................3
--------------
2.04. Subsidiaries.................................................................................5
------------
2.05. Status of Notes, Warrants and Shares.........................................................6
------------------------------------
2.06. Financial Statements.........................................................................6
--------------------
2.07. Actions Pending..............................................................................7
---------------
2.08. Compliance with Law..........................................................................7
-------------------
2.09. No Material Adverse Change...................................................................7
--------------------------
2.10. Certain Fees.................................................................................7
------------
2.11. Disclosure...................................................................................7
----------
2.12. Securities Act of 1933.......................................................................8
----------------------
2.13. Governmental Approvals.......................................................................8
----------------------
2.14. United States Real Property Holding Corporation..............................................8
-----------------------------------------------
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.........................................................8
3.01. Organization and Standing of the Purchasers..................................................8
-------------------------------------------
3.02. Authority; Enforceability; No Conflict.......................................................9
--------------------------------------
3.03. Acquisition for Investment...................................................................9
--------------------------
3.04. Financing...................................................................................10
---------
4. CONDITIONS TO PURCHASERS' OBLIGATIONS FOR CLOSING.......................................................10
4.01. Representations and Warranties..............................................................10
------------------------------
4.02. Secretary's Certificate.....................................................................10
-----------------------
4.03. Officer's Certificate.......................................................................10
---------------------
4.04. [Intentionally Omitted].....................................................................10
4.05. Consents, Licenses, Approvals, etc..........................................................10
----------------------------------
4.06. Good Standing Certificates..................................................................11
--------------------------
4.07. No Proceedings or Litigation................................................................11
----------------------------
4.09. Legal Opinions..............................................................................11
--------------
4.10. Consents and Waivers of Equity Holders......................................................11
--------------------------------------
4.12. Expenses....................................................................................11
--------
i
<PAGE>
4.13. Compliance with this Agreement..............................................................11
4.14. Proceedings Satisfactory....................................................................11
5. COVENANTS OF THE COMPANY................................................................................12
5.01. Covenants of the Company Under the Series B
Purchase Agreement..........................................................................12
5.02. Registration Rights.........................................................................12
6. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES........................................................12
6.01. Note Register; Ownership of Notes...........................................................12
---------------------------------
6.02. Transfer and Exchange of Notes..............................................................12
------------------------------
6.03. Replacement of Notes........................................................................12
--------------------
7. PAYMENTS ON NOTES; REDEMPTION; CONVERSION...............................................................13
7.01. Place of Payment............................................................................13
----------------
7.02. Additional Interest.........................................................................13
-------------------
7.03. Mandatory Redemption........................................................................13
--------------------
7.04. Optional Redemption.........................................................................13
-------------------
7.05. Allocation of Partial Redemptions...........................................................13
---------------------------------
7.06. Maturity; Surrender; etc....................................................................14
------------------------
8. SUBORDINATION OF SENIOR SUBORDINATED OBLIGATIONS........................................................14
8.01. Generally...................................................................................14
---------
8.02. Restrictions................................................................................14
------------
8.03. Permitted Payments..........................................................................14
------------------
8.04. Turnover of Payments........................................................................15
--------------------
8.05. Insolvency, etc.............................................................................15
---------------
8.06. Obligations Not Impaired....................................................................15
------------------------
8.07. Payment of Senior Debt; Subrogation.........................................................15
-----------------------------------
9. EVENTS OF DEFAULT AND ACCELERATION......................................................................16
10. REMEDIES ON DEFAULT, ETC................................................................................17
10.01. Remedies....................................................................................17
--------
10.02. Annulment of Defaults.......................................................................18
---------------------
10.03. Waivers.....................................................................................18
-------
11. DEFINITIONS AND ACCOUNTING TERMS........................................................................18
11.01. Certain Defined Terms.......................................................................18
11.02. Accounting Terms............................................................................22
ii
<PAGE>
12. INDEMNIFICATION.........................................................................................23
12.01. General Indemnity...........................................................................23
12.02. Indemnification Procedure...................................................................23
13. MISCELLANEOUS...........................................................................................24
13.01. No Waiver; Cumulative Remedies..............................................................24
------------------------------
13.02. Amendments, Waivers and Consents............................................................24
--------------------------------
13.03. Addresses for Notices.......................................................................25
---------------------
13.04. Costs, Expenses and Taxes...................................................................25
-------------------------
13.05. Binding Effect; Assignment..................................................................26
--------------------------
13.06. Survival of Representations and Warranties..................................................26
------------------------------------------
13.07. Prior Agreements............................................................................26
----------------
13.08. Severability................................................................................26
------------
13.09. Confidentiality.............................................................................26
---------------
13.10. Governing Law...............................................................................27
-------------
13.11. Headings....................................................................................27
--------
13.12. Counterparts................................................................................27
------------
13.13. Further Assurances..........................................................................27
------------------
13.14. Waiver......................................................................................27
------
13.15. Specific Enforcement........................................................................28
--------------------
</TABLE>
iii
<PAGE>
$2,000,000 NOTE PURCHASE AGREEMENT
Dated as of February 9, 1999
Each of the Purchasers Listed
on Schedule 1.01
Ladies and Gentlemen:
MORTGAGE.COM, INC., a Florida corporation (the "Company"), hereby
agrees with each of you as follows:
1. PURCHASE, SALE AND TERMS OF NOTES
1.01. Authorization of Notes and Warrants. The Company has authorized
the issuance and sale of $2,000,000 in aggregate principal amount of its 12%
Senior Subordinated Notes (the "Notes") due February 9, 2000 (the "Final
Maturity Date"), to be substantially in the form of Exhibit A. The Company has
authorized the issuance of Warrants to purchase up to an aggregate of 6,668
shares of Common Stock in the form of the Common Stock Purchase Warrant attached
hereto as Exhibit B (the "Warrants") to be issued to the Purchasers hereunder as
Additional Interest on the Notes pursuant to Section 7.02. The Company agrees
that the value of all Warrants to be issued through the Closing Date is $1,000
and the Company agrees to use the foregoing for all federal, state, and local
income tax purposes with respect to the transactions contemplated by this
Agreement.
1.02. The Shares. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, a sufficient number of authorized but
unissued shares of Common Stock (the "Common Shares") to satisfy the rights of
exercise of the Warrants. The Common Shares are sometimes referred to herein as
the "Shares."
1.03. Purchase Price and Closing. The Company agrees to issue and sell
to the Persons (individually a "Purchaser" and collectively the "Purchasers")
listed on Schedule 1.01 hereto and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchasers, severally but not jointly, agree to purchase, that
principal amount of Notes set forth opposite their respective names in Schedule
1.01, for an amount equal to one hundred percent (100%) of the principal amount
thereof. The closing of the purchase
1
<PAGE>
and sale of the Notes hereunder (the "Closing") shall take place at the offices
of Messrs. LeBoeuf, Lamb, Greene and MacRae, L.L.P., 225 Asylum Street,
Hartford, CT 06103 at 10:00 a.m. on February 9, 1999, or at such time and date
thereafter as the Purchasers and the Company may agree (the "Closing Date"). At
the Closing, the Company will deliver to each Purchaser (i) Notes in the
principal amount to be purchased by such Purchaser as set forth on Schedule 1.01
registered in the Purchaser's name (or its nominee) and (ii) Warrants in the
amount required to be issued to such Purchaser in accordance with Section 7.02
as Additional Interest, against delivery of a check or checks payable to the
order of the Company, or a transfer of funds to the account of the Company by
wire transfer, representing the net cash consideration for the Notes to be
purchased at such Closing set forth opposite each such Purchaser's name on
Schedule 1.01.
1.04. Use of Proceeds. The Company shall use the cash proceeds from the
sale of the Notes for general working capital purposes.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers as
follows:
2.01. Organization, Standing and Power. Each of the Company and the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of the
Company and the Subsidiaries has all requisite power and authority to own, lease
and operate its properties and assets and to conduct its business as now being
conducted and is duly qualified to do business in good standing in those foreign
jurisdictions in which such qualification is required.
2.02. Authority; Enforceability; No Conflict. The Company has all
requisite corporate power and authority to enter into this Agreement, to issue
and sell the Notes, to issue the Warrants, and to carry out its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Company, the issuance and sale of the Notes and the issuance of the Warrants by
the Company have been duly and validly authorized by all requisite corporate
proceedings on the part of the Company. This Agreement when executed and
delivered by the Company is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, rehabilitation, liquidation, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. Except as set
forth on Schedule 2.02, the execution and delivery of this Agreement by the
Company does not, and the consummation by the Company of the transactions
2
<PAGE>
contemplated hereby and thereby will not result in or constitute: (a) a default,
breach or violation of or under the Articles of Incorporation or the By-laws,
(b) a default, breach or violation of or under any mortgage, deed of trust,
indenture, note, bond, license, lease agreement or other instrument or
obligation to which the Company or any Subsidiary is a party or by which any of
their respective properties or assets are bound, (c) a violation of any statute,
rule, regulation, order, judgment or decree of any court, public body or
authority by which the Company, any Subsidiary or any of their respective
properties or assets are bound, (d) an event which (with notice or lapse of time
or both) would permit any Person to terminate, accelerate the performance
required by, or accelerate the maturity of any indebtedness or obligation of the
Company or any Subsidiary under any agreement or commitment to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound, (e) the
creation or imposition of any lien, charge or encumbrance on any property of the
Company or any Subsidiary under any agreement or commitment to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound, or (f) an
event which would require any consent under any agreement to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or by which any of their respective properties or assets are bound.
2.03. Capitalization. The authorized capital stock of the Company
consists of:
(a) 30,000,000 shares of Common Stock, of which (i) 1,362,730
shares are outstanding, (ii) 225,225 are reserved for issuance upon conversion
of the Series A Preferred Stock, (iii) 1,171,191 are reserved for issuance upon
conversion of the Series B Preferred Stock, (iv) 1,007,000 are reserved for
issuance upon conversion of the Series C Preferred Stock, (v) 1,350,000 are
reserved for issuance upon conversion of the Series D Preferred Stock, (vi)
100,000 are reserved for issuance upon conversion of the Special Preferred Stock
(Northern California Division), (vii) 1,250,000 are reserved for issuance under
the Company's Stock Option Plan; (viii) 247,500 are reserved for issuance upon
the exercise of the warrants held by former 14% Subordinated Debenture Holders,
(ix) 500,000 are reserved for issuance upon the exercise of the warrants held by
Superior Bank, F.S.B., pursuant to a Sale and Marketing Agreement dated as of
April 28, 1995, between the Company and Superior Bank, F.S.B., as amended (the
"Sale and Marketing Agreement"), (x) 13,333 are reserved for issuance upon the
conversion of the 12% Subordinated Debentures, (xi) 25,000 are reserved for
issuance upon the exercise of options held by John Buscema and Glen Letizia (the
"Buscema Options"), (xii) 100,000 are reserved for issuance upon conversion of
rights in the Realeads Group held by John Tomko, Jason Massey and Dennis
Brunelle under a Second Amendment for the Agreement of Operation of First Realty
Network, Inc. dated on or about December 23, 1996 (the "FRN Agreement"), (xiii)
132,455 are reserved for issuance upon the exercise of the warrants held or
3
<PAGE>
which may be obtained by George A. Naddaff (other than as a former 14%
Subordinated Debenture Holder), (xiv) 92,436 are reserved for issuance upon the
exercise of warrants held by Raymond James & Associates, (xv) 50,000 are
reserved for issuance upon the exercise of warrants held by former holders of
12% Senior Subordinated Convertible Notes dated August 31, 1997, (xvi) 66,667
are reserved for issuance upon the exercise of warrants held by former holders
of 12% Senior Subordinated Convertible Notes dated January 30, 1998, (xvii)
100,000 are reserved for issuance pursuant to the Option Agreement dated January
28, 1998, between the Company, RM Holdings, Inc., John T. Rodgers, Andrew M.
Heller and Kyle Meyer, (xviii) 36,000 are reserved for issuance upon the
exercise of warrants held by FMN Associates, Ltd., (xix) 100,000 are reserved
for issuance upon conversion of rights held by Credit.com, LLC under the Domain
Name Assignment Agreement dated as of January 1, 1999, between the Company and
Credit.com, LLC (the "Domain Name Assignment Agreement") and (xx) 6,668 are
reserved for issuance upon exercise of the Warrants; and
(b) 15,000,000 shares of Preferred Stock, of which (i) 225,225
have been designated Series A Preferred Stock (all of which are outstanding),
(ii) 1,000 have been designated Special Preferred Stock (Northern California
Division) (all of which are outstanding), (iii) 1,171,191 have been designated
Series B Preferred Stock (959,614 of which are outstanding), (iv) 1,007,000 have
been designated Series C Preferred Stock (739,336 of which are outstanding) and
(v) 1,350,000 have been designated Series D Preferred Stock (1,273,898 of which
are outstanding and 18,650 of which have been reserved for issuance upon
exercise of warrants held by Dominion Fund III). All of the outstanding shares
of Common Stock, Series A Preferred Stock, Special Preferred Stock (Northern
California Division), Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock have been duly authorized and validly issued, and are
fully-paid and non-assessable.
Except (i) the Preferred Stock referred to herein, (ii) options and
warrants referred to herein, (iii) as required by the Sale and Marketing
Agreement, (iv) as required by the Series B Preferred Stock Purchase Agreement
dated as of March 29, 1996 among the Company, Purchasers of the Series B
Preferred Stock, purchasers of the Series C Preferred Stock, purchasers of the
Series D Preferred Stock, John T. Rodgers, Andrew M. Heller and Kyle Meyer, as
amended ("Series B Purchase Agreement"), (v) as required by the Operating
Agreement for the Northern California Division dated July 1, 1997 among the
Company, Mason-McDuffie Real Estate, Inc. and John Hogan ("Operating
Agreement"), as amended, (vi) as required by the Agreement Relating to Purchase
of John Hogan's Rights in the Northern California Division dated as of January
1, 1998, between the Company and John Hogan, (vii) as required by the Employment
Agreement dated July 18, 1997 between the Company and David Larson, (viii) as
required by the Note Purchase Agreement dated January 28, 1998, (ix) as required
by the Employment Agreements dated on or about January 28, 1998, between the
Company and Kyle Meyer, John T. Rodgers, Garth Graham and
4
<PAGE>
Barbara Mullen, (x) as required by the Domain Name Assignment Agreement, (xi) as
required by the Technology Member Correspondent Agreement dated on or about
November 1, 1998, between the Company and Mortgage Loan Specialists, Inc. and
(xii) as required by the Technology Member Correspondent Agreement dated on or
about November 1, 1998, between the Company and First Capital, Inc., there are
no outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon the Company for the purchase or
acquisition of any shares of capital stock of the Company or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe to any shares of such capital stock.
All outstanding shares of capital stock, convertible securities,
rights, options and warrants of the Company are owned by the stockholders and in
the numbers specified on Schedule 2.03. Except as required by the terms of the
Buscema Options, the Special Preferred Stock (Northern California Division), the
contingent repurchase rights of Superior Bank, F.S.B. under the Sale and
Marketing Agreement, the Agreement dated as of April 1, 1998, between the
Company and Superior Bank, F.S.B., the FRN Agreement, the Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, the Operating
Agreement, the Note Purchase Agreement and the Domain Name Assignment Agreement,
the Company is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or any
convertible securities, rights or options of the type described in the preceding
sentence.
Except as required by the terms of the Registration Rights Agreement
dated May 1, 1996, between the Company and Raymond James & Associates, Inc., the
Registration Rights Agreement dated March 15, 1996, between the Company and
Mason-McDuffie Real Estate, Inc., the Operating Agreement, the Series B Purchase
Agreement, as amended, registration rights held by Dominion Fund III under the
Warrant to Purchase Shares of Series D Preferred Stock dated April 1, 1998 and
the Registration Rights Agreement dated as of January 1, 1999, between the
Company and Credit.com, LLC, the Company is not a party to any agreement
granting registration rights to any person with respect to any of its equity or
debt securities.
Except as set forth in the Related Agreements and the Mason-McDuffie
Merger Agreement (which restricts the transfer of the Special Preferred Stock
(Northern California Division)), the Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company other than agreements enforcing restrictions
under state and federal securities laws. The offer and sale of all capital
stock, convertible securities, rights or options of the Company issued prior to
the Closing Date complied with or was exempt from all applicable federal and
state securities laws and no stockholder has a right of rescission or damages
with respect thereto.
5
<PAGE>
2.04. Subsidiaries. Schedule 2.04 sets forth each Subsidiary and each
Independent Division, showing the jurisdiction of the incorporation or
organization of each Subsidiary and showing the percentage of each Person's
ownership of the outstanding stock or other interests of each such Subsidiary or
Independent Division. All of the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, and are fully paid and
non-assessable. Except as set forth on Schedule 2.04 (i) there are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary or the Company
with respect to any Subsidiary or Independent Division for the purchase or
acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock or any other similar ownership
interests of any Independent Division and (ii) neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of capital stock or any convertible
securities, rights, options or warrants of any Subsidiary or similar ownership
interests of any Independent Division. Except as set forth herein, neither the
Company nor any Subsidiary is a party to, nor has any knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of any Subsidiary or similar ownership interests of any Independent Division.
2.05. Status of Notes, Warrants and Shares. The Notes and Warrants to
be issued at the Closing have been duly authorized by all necessary corporate
action on the part of the Company. The Shares have been duly authorized by all
necessary corporate action on the part of the Company and have been duly
reserved for issuance. When the Shares are issued such shares will be validly
issued and outstanding, fully paid and nonassessable and the issuance of such
shares will not be subject to preemptive or other similar contractual rights of
any other stockholder of the Company.
2.06. Financial Statements. As set forth on Schedule 2.06 hereto, the
audited consolidated balance sheets of the Company and the Subsidiaries as at
December 31, 1997, and the related consolidated income statements and statements
of cash flows and changes in stockholders' equity of the Company and the
Subsidiaries for the fiscal periods then ended, together with the opinion
thereon of KPMG Peat Marwick LLP, independent certified public accountants, and
the interim consolidated balance sheet of the Company and the Subsidiaries as at
December 31, 1998, and the related consolidated income statement and statement
of cash flows and changes in stockholders' equity of the Company and the
Subsidiaries for the twelve month period then ended, are complete and correct in
all material respects and fairly present the financial condition of the Company
and the Subsidiaries at such dates and the results of the operations of the
Company and the Subsidiaries for the periods covered by such statements, all in
accordance with GAAP consistently applied.
6
<PAGE>
2.07. Actions Pending. There is no action, suit, claim, investigation
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary which questions the validity of this Agreement or
any of the Related Agreements or any action taken or to be taken pursuant hereto
or thereto. Except as set forth on Schedule 2.07, there is no action, suit,
claim, investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary.
2.08. Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted so as to comply with all
applicable federal, state, and local governmental laws, rules, regulations and
ordinances (including, without limitation, all rules and regulations pertaining
to the producing, processing, underwriting, selling and servicing of residential
mortgage loans, loan brokerage operations and the sale of "business
opportunities"). Each of the Company and the Subsidiaries has all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it.
2.09. No Material Adverse Change. Except as set forth on Schedule 2.09,
since December 31, 1998, (a) there has been no material adverse change in the
business, assets, operations, affairs, prospects or financial condition of the
Company or any Subsidiary; and (b) neither the business, financial condition,
operation, prospects or affairs of the Company, any Subsidiary nor any of their
respective properties or assets have been adversely affected in any material
respect as the result of any legislative or regulatory change, any revocation or
change in any franchise, permit, license or right to do business, or any other
event or occurrence, whether or not insured against.
2.10. Certain Fees. No broker's, finder's or financial advisory fees or
commissions will be payable by the Company or any Subsidiary with respect to the
transactions contemplated by this Agreement and the Related Agreements.
2.11. Disclosure. Neither this Agreement or the Schedules hereto, nor
any other document, certificate or instrument furnished to the Purchasers by or
on behalf of the Company in connection with the transactions contemplated by
this Agreement, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading. The parties further agree that any agreement, event,
condition or other item which is disclosed on a particular Schedule hereto shall
be deemed to be disclosed for the purposes of all other Schedules to which it is
relevant, provided that all of the terms
7
<PAGE>
or effects of any such item which are relevant to any Schedule hereto are
adequately disclosed.
2.12. Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Notes and the issuance of the Warrants
hereunder. Neither the Company nor anyone acting on its behalf has or will sell,
offer to sell or solicit offers to buy the Notes or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any Person, so as to bring
the issuance and sale of the Notes or the issuance of the Warrants under the
registration provisions of the Securities Act and applicable state securities
laws.
2.13. Governmental Approvals. Except as set forth on Schedule 2.13 and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or federal securities laws (which, if
required, shall be filed on a timely basis), no authorization, consent,
approval, license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution and delivery by the Company of this Agreement, for the offer, issue,
sale, execution or delivery of the Notes or the Warrants, or for the performance
by the Company of its obligations under this Agreement.
2.14. United States Real Property Holding Corporation. Neither the
Company nor any Subsidiary is now nor has ever been a "United States Real
Property Holding Corporation" as defined in Section 897(c)(2) of the Code and
Section 1.897-2(b) of the Regulations promulgated by the Internal Revenue
Service.
2.15. Representations Under Series B Purchase Agreement. Except as set
forth on Schedule 2.15, the representations and warranties of the Company set
forth in Article 2 of the Series B Purchase Agreement are true and correct and
with the same effect as though made at and as of the date hereof, except for
those representations and warranties which speak of a specific date which remain
true and correct as of such date.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers severally but not jointly hereby represents and
warrants to the Company as follows:
3.01. Organization and Standing of the Purchasers. Each of the
Purchasers is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization.
8
<PAGE>
3.02. Authority; Enforceability; No Conflict. Each of the Purchasers
has all requisite power and authority to enter into this Agreement and to carry
out its obligations hereunder. The execution, delivery and performance of this
Agreement by each of the Purchasers has been duly and validly authorized by all
requisite proceedings on the part of such Purchaser. This Agreement when
executed and delivered by each of the Purchasers is a valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, rehabilitation, liquidation,
conservatorship, receivership or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The execution and delivery of this Agreement
by each of the Purchasers does not, and consummation by such Purchaser of the
transactions contemplated hereby will not, result in or constitute (a) a
default, breach or violation of or under the organizational documents of such
Purchaser, (b) a default, breach or violation of or under any mortgage, deed of
trust, indenture, note, bond, license, lease agreement or other instrument or
obligation to which such Purchaser is a party or by which any of its properties
or assets are bound, except for any defaults, breaches or violations which would
not, individually or in the aggregate, have a Material Adverse Effect on such
Purchaser or prevent or materially delay the consummation by such Purchaser of
the transactions contemplated hereby, or (c) a violation of any statute, rule,
regulation, order, judgment or decree of any court, public body or authority,
except for any violations which would not, individually or in the aggregate,
have a Material Adverse Effect on such Purchaser or prevent or materially delay
the consummation by such Purchaser of the transactions contemplated hereby.
3.03. Acquisition for Investment. Each of the Purchasers is an
"accredited investor" as defined in Regulation D under the Securities Act, and
is acquiring the Notes and the Warrants solely for its own account for the
purpose of investment and not with a view to or for sale in connection with any
distribution thereof, and it has no present intention or plan to effect any
distribution of the Notes or the Warrants. Each of the Purchasers acknowledges
that it is able to bear the financial risks associated with an investment in the
Notes and that it has been given full access to such records of the Company and
the Subsidiaries and to the officers of the Company and the Subsidiaries as it
has deemed necessary and appropriate to conducting its due diligence
investigation. The Notes and the Warrants may bear a legend to the following
effect:
"This security has not been registered under the Securities Act of
1933, as amended, or the laws of any state and may not be sold or
transferred except in compliance with that Act and such laws."
9
<PAGE>
3.04. Financing. Each of the Purchasers has sufficient funds and will
have sufficient funds at all times through the Closing Date to consummate the
transactions contemplated hereby. None of the Purchasers will be rendered
insolvent by reason of its investments in the Company nor will it be left with
unreasonably small capital for purposes of operating its businesses.
4. CONDITIONS TO PURCHASERS' OBLIGATIONS FOR CLOSING
The obligation of each of the Purchasers to purchase and pay for the
Notes to be purchased by it at the Closing is subject to the following
conditions:
4.01. Representations and Warranties. Each of the representations and
warranties set forth in Section 2 hereof shall be true, accurate and correct at
the Closing Date with the same effect as though made at and as of such time.
4.02. Secretary's Certificate. The Purchasers shall have received a
certificate of the Secretary or an Assistant Secretary of the Company, dated the
Closing Date, (a) attesting to corporate action taken by the Company, including
resolutions of the Board of Directors authorizing (i) the execution, delivery
and performance by the Company of this Agreement, (ii) the issuance of the Notes
and the Warrants to be issued to the Purchasers and (iii) the execution,
delivery and performance by the Company of all other agreements or matters
contemplated hereby or executed in connection herewith, (b) certifying the names
and true signatures of the officers of the Company authorized to sign this
Agreement, the Notes, the Warrants, and the other documents, instruments or
certificates to be delivered pursuant hereto and thereto, together with the true
signatures of such officers and (c) verifying that the Articles of Incorporation
and the By-Laws (as attached thereto) are true, correct and complete as of the
Closing Date.
4.03. Officer's Certificate. The Purchasers shall have received a
certificate of the President and Treasurer of the Company (an "Officer's
Certificate"), dated the Closing Date, which shall certify that the
representations and warranties contained in Section 2 hereof are true and
correct as of the Closing Date and that all conditions required to be performed
prior to or at the Closing have been performed as of the Closing Date.
4.04. [Intentionally Omitted]
4.05. Consents, Licenses, Approvals, etc. The Purchasers shall have
received certified true copies of all consents, licenses and approvals required
or advisable in connection with the execution, delivery, performance, validity
and enforceability of this Agreement, and such consents, licenses and approvals
shall be in full force and effect and be reasonably satisfactory in form and
substance to the Purchasers.
10
<PAGE>
4.06. Good Standing Certificates. The Purchasers shall have received a
certificate of the appropriate public official in the jurisdiction of
incorporation of the Company and each Subsidiary as to the due incorporation and
good standing of the Company and such Subsidiary together with, in the case of
the Company, a certified copy of the Articles of Incorporation of the Company.
4.07. No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers or directors of
the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
4.08. Warrants. The Company shall have issued to the Purchasers the
number of Warrants required to be issued as Additional Interest on the Closing
Date pursuant to Section 7.02
4.09. Legal Opinions. The Purchasers shall have received a legal
opinion from Foley & Lardner, counsel to the Company, dated the Closing Date and
substantially in the form of opinion attached as Exhibit C.
4.10. Consents and Waivers of Equity Holders. The Company shall have
obtained written agreements from a majority of the holders of each of the Series
B, Series C and Series D Preferred Stock consenting to the issuance of the
Notes, the Warrants and the Shares upon the exercise of the Warrants and waiving
any rights of first offer such holders may otherwise have with respect to the
issuance of the Notes, Warrants or the Shares.
4.11. Consents of Lenders. The Company shall have obtained consent to
the transactions contemplated hereby from Residential Funding Corporation
pursuant to the terms of the Residential Funding Agreement.
4.12. Expenses. All fees and disbursements required to be paid pursuant
to Section 13.04 hereof shall have been paid in full.
4.13. Compliance with this Agreement. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
4.14. Proceedings Satisfactory. All proceedings taken in connection
with the issuance and sale of the Notes and the issuance of the Warrants and all
documents and papers relating thereto shall be satisfactory in form and
substance to the
11
<PAGE>
Purchasers. The Purchasers shall have received copies of such documents and
papers as they may reasonably request in connection with this Agreement.
5. COVENANTS OF THE COMPANY
5.01. Covenants of the Company Under the Series B Purchase Agreement.
The Company covenants and agrees that on and after the Closing Date and until
the earlier of (i) the date on which the Notes shall be paid in full and all
Warrants and Shares shall no longer be held of record by the Purchasers or (ii)
the consummation of a Qualified Public Offering (as defined in the Series B
Purchase Agreement) it will comply, for the benefit of the Purchasers, in all
respects with the covenants of the Company set forth in Articles 6 and 7 of the
Series B Purchase Agreement.
5.02. Registration Rights. The Company shall amend the Series B
Purchase Agreement to ensure that the Purchasers shall have the right to
register Common Shares obtained by them upon exercise of the Warrants or any
other Registrable Securities (as defined in the Series B Purchase Agreement)
otherwise obtained by them pursuant to the registration rights provided by the
Company in the Series B Purchase Agreement to the same extent as if they were
original parties to such Agreement.
6. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES
6.01. Note Register; Ownership of Notes. The Company will keep at its
principal office a register in which the Company will provide for the
registration of Notes and the registration of transfers of Notes. The Company
may treat the Person in whose name any Note is registered on such register as
the owner thereof for the purpose of receiving payment of the principal of and
the premium, if any, and interest on such Note and for all other purposes,
whether or not such Note shall be overdue, and the Company shall not be affected
by any notice to the contrary.
6.02. Transfer and Exchange of Notes. Upon surrender of any Note for
registration of transfer or for exchange to the Company at its principal office,
the Company at its expense will execute and deliver in exchange therefor a new
Note or Notes of the same class as such surrendered Note in denominations, as
requested by the holder or transferee, which aggregate the unpaid principal
amount of such surrendered Note. Each such new Note shall be registered in the
name of such Person as such holder or transferee may request, shall be dated so
that there will be no loss of interest on such surrendered Note and shall be
otherwise of like tenor.
6.03. Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Note and, in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond in such reasonable amount as the Company may determine (or, in
the case of any Note held by a Purchaser or any institutional investor, of any
indemnity agreement from such
12
<PAGE>
Purchaser or such other holder reasonably satisfactory to the Company), or in
the case of any such mutilation, upon the surrender of such Note for
cancellation to the Company at its principal office, the Company at its expense
will execute and deliver, in lieu thereof, a new Note of the same class and of
like tenor, dated so that there will be no loss of interest on such lost,
stolen, destroyed or mutilated Note. Any Note in lieu of which any such new Note
has been executed and delivered by the Company shall not be deemed to be an
outstanding Note for any purpose hereof.
7. PAYMENTS ON NOTES; REDEMPTION; CONVERSION
7.01. Place of Payment. Payments of principal and interest becoming due
and payable on the Notes shall be made at the address of each holder set forth
on Schedule 1.01 hereto, unless the Company, by written notice from each holder
of any Note, shall be notified to make payment at a different address.
7.02. Additional Interest. At the Closing, the Company shall issue to
each Purchaser, as additional interest on the Notes ("Additional Interest"), (a)
Warrants to purchase that number of shares of Common Stock equal to the amount
obtained by dividing (i) 10% of the principal amount of the Notes held by such
Purchaser, by (ii) the exercise price of the Warrants (as set forth therein),
and (b) in cash, 1% of the principal amount of the Notes held by such Purchaser.
7.03. Mandatory Redemption. The Company shall redeem all of the then
outstanding Notes at 100% of the principal amount thereof without premium on the
earlier of (a) the Final Maturity Date, (b) the Initial Public Offering, or (c)
a merger of the Company with or into any other corporations, the conveyance
transfer or lease of substantially all of its accounts in a single transaction
or series of transactions, or a sale in one or more transactions of more than
50% of the Common Stock of the Company on a fully diluted basis.
7.04. Optional Redemption. (a) At any time or from time to time the
Company may, at its option, upon notice to each holder of Notes not less than 30
days and not more than 60 days prior to the date fixed for such redemption,
redeem all or any part (in integral multiples of $100,000) of the Notes, each
such redemption to be made at 100% of the principal amount of the Notes so
redeemed.
(b) Any redemption of Notes pursuant to this Section 7.04 shall
be accompanied by an Officer's Certificate (a) stating the principal amount of
each Note to be redeemed, (b) stating the proposed date of redemption (c)
stating the accrued interest on each such Note to the proposed date of
redemption to be paid in accordance with Section 7.06 and (d) stating that the
proposed redemption does not violate Article 8 of this Agreement or the terms or
any subordination agreement to which the Notes may be subject.
13
<PAGE>
7.05. Allocation of Partial Redemptions. In the case of each partial
redemption, the principal amount of the Notes to be redeemed shall be allocated
among all of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof not theretofore
called for redemption, with adjustments, to the extent practicable, to
compensate for any prior redemptions not made exactly in such proportion.
7.06. Maturity; Surrender; etc. In the case of each redemption of the
Notes, the principal amount of each Note to be redeemed shall mature and become
due and payable on the date fixed for such redemption, together with interest on
such principal amount accrued to such date. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest, interest on such principal amount shall cease to
accrue. Any Note redeemed in full shall be surrendered to the Company upon the
Company's written request and cancelled and shall not be reissued, and no Note
shall be issued in lieu of any repaid principal amount of any Note.
8. SUBORDINATION OF SENIOR SUBORDINATED OBLIGATIONS
8.01. Generally. All Senior Subordinated Obligations are subordinate
and junior in right of payment to all Senior Debt, but only to the extent
provided in this Article 8.
8.02. Restrictions. Except to the extent expressly permitted in this
Article, or as otherwise consented to in writing by the holders of Senior Debt,
the Purchasers shall not (a) receive payment of or collect in whole or in part,
or sue upon, the Senior Subordinated Obligations; (b) sell, assign, transfer,
pledge, hypothecate or encumber the Senior Subordinated Obligations unless the
proposed purchaser, assignee, transferee or pledgee acknowledges in writing that
it is bound by this Article; (c) enforce any lien they may now or in the future
have on the Senior Subordinated Obligations; (d) join in any petition in
bankruptcy, assignment for the benefit of creditors or creditors' agreement,
other than the filing of a claim or proof of debt or except as directed by the
holder of Senior Debt, so long as the Senior Debt of Company, or commitment to
extend credit to the Company in respect thereof, is in existence; or (e) accept
any pledge or transfer of property (other than shares of stock of the Company)
as security for or in payment of the Senior Subordinated Obligations, or
otherwise defease the Senior Subordinated Obligations.
8.03. Permitted Payments. So long as no default shall have occurred in
payment or performance of any obligation of the Company with respect to the
Senior Debt, payments of interest and principal on the Senior Subordinated
Obligations may be made at payment dates as specified under the Notes (it being
understood that no prepayment shall be made of the Senior Subordinated
Obligations and no modification, for default or otherwise, of such payment dates
as specified in the Notes shall be
14
<PAGE>
permitted without the prior written consent of the holder of the Senior Debt).
Upon prior written notice to the holder of the Senior Debt, the Purchasers shall
be permitted to accelerate the Senior Subordinated Obligations upon any Event of
Default (as defined herein). In the event the Company or any holder of Senior
Debt provides notice to the Purchasers of default with respect to the Senior
Debt of the Company, no interest and no principal payments on the Senior
Subordinated Obligations shall be made without the prior written consent of the
holder of such Senior Debt. The subordination of claims of the Purchasers
hereunder shall remain in effect so long as there shall be outstanding any
Senior Debt of the Company.
8.04. Turnover of Payments. In the event that any Purchaser receives a
payment from the Company in violation of the terms of this Article 8, such
Purchaser (a) shall hold such money in trust for the benefit of the holders of
Senior Debt, and (b) shall, upon request of the holders of Senior Debt,
forthwith remit an amount equal to such payment to such holders, or the payment
in the exact form received (but with any necessary endorsement to such holders
without recourse). After any Purchaser has received notice that a payment has
been made to such Purchaser in violation of the terms of this Article 8, such
Purchaser shall segregate such payment from (and shall not commingle such
payment with any of) the other funds of such Purchaser.
8.05. Insolvency, etc. In case of any assignment of the Company for the
benefit of creditors, or in case of any bankruptcy proceedings instituted by or
against the Company, or in case of the appointment of any receiver for the
Company's business or assets, or in case of any dissolution or winding up of the
affairs of the Company, the Company and any assignee, trustee in bankruptcy,
receiver, or other person or persons in charge, are hereby directed to pay to
the holders of Senior Debt the full amount of the Senior Debt of the Company
before making any payment of principal or interest to the Purchasers. Upon
payment in full of the amount of the Senior Debt, the Purchasers shall be
entitled to receive any excess proceeds.
8.06. Obligations Not Impaired. Nothing contained in this Article 8
shall impair, as between the Company and any holder of Senior Subordinated
Obligations, the obligation of the Company to pay to such holder the principal
thereof and premium, if any, and interest thereon as and when the same shall
become due and payable in accordance with the terms thereof, or prevent any
holder of Senior Subordinated Obligations from exercising all rights, powers and
remedies otherwise permitted by applicable law or under any agreement under
which such Senior Subordinated Obligations were incurred, all subject to the
rights of the holders of Senior Debt to receive cash, securities or other
property otherwise payable or deliverable to the holders of Senior Subordinated
Obligations.
8.07. Payment of Senior Debt; Subrogation. Upon the payment in full in
cash of all Senior Debt, the holders of Senior Subordinated Obligations shall be
subrogated to all rights of any holder of Senior Debt to receive any further
payments or
15
<PAGE>
distributions applicable to Senior Debt until all Senior Subordinated
Obligations shall have been paid in full, and such payments or distributions
received by the holders of Senior Subordinated Obligations by reason of such
subrogation, of cash, securities or other property that otherwise would be paid
or distributed to the holders of Senior Debt, shall, as between the Company and
its creditors other than the holders of Senior Debt, on the one hand, and the
holders of Senior Subordinated Obligations, on the other hand, be deemed to be a
payment by the Company on account of Senior Debt and not on account of Senior
Subordinated Obligations.
9. EVENTS OF DEFAULT AND ACCELERATION
The following conditions or events shall constitute events of default
("Events of Default"):
(a) if the Company shall default in the payment of any
principal on any Note when the same becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration or otherwise; or
(b) if the Company shall default in the payment of any
interest on any Note for more than five days after the same becomes due and
payable; or
(c) if the Company shall default in the performance of or
compliance with any term contained in Article 5 hereof; or
(d) if the Company shall default in the performance of or
compliance with any other term contained herein or in the Related Agreements and
such default shall not have been remedied within 30 days after the earlier of
(x) an officer of the Company obtaining knowledge of such default and (y)
receipt by the Company of written notice of such default from any holder of any
Note; or
(e) if any representation or warranty made in writing by or
on behalf of the Company herein or in any instrument furnished in compliance
with or in reference hereto or otherwise in connection with the transactions
contemplated hereby shall prove to have been false or incorrect in any material
respect on the date as of which made; or
(f) if the Company or any Subsidiary shall be in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or interest on any Indebtedness with a principal amount in excess of
$50,000 (other than the Notes) or in the performance of or compliance with any
term of any evidence of any such Indebtedness or of any mortgage, indenture or
other agreement relating thereto the effect of which is to cause such
Indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment, and such
16
<PAGE>
default, event or condition shall continue for more than the period of grace, if
any, specified therein and shall not have been waived pursuant thereto; or
(g) if the Company or any Subsidiary shall (i) be generally
not paying its debts as they become due, (ii) file, or consent by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an
assignment for the benefit of its creditors, (iv) consent to the appointment of
a custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, (v) be
adjudicated an insolvent or be liquidated, or (vi) take corporate action for the
purpose of any of the foregoing; or
(h) if a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by the Company or
any Subsidiary, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any
Subsidiary, or if any such petition shall be filed against the Company or any
Subsidiary and such petition shall not be dismissed within 30 days; or
(i) if a final judgment which, with other outstanding final
judgments against the Company and the Subsidiaries, exceeds $100,000 shall be
entered against the Company or any Subsidiary and if, within 60 days after entry
thereof, such judgment shall not have been discharged or execution thereof
stayed pending appeal, or if, within 60 days after the expiration of any such
stay, such judgment shall not have been discharged.
10. REMEDIES ON DEFAULT, ETC.
10.01. Remedies. Upon the occurrence of any Event of Default the
holders of the majority of outstanding principal amount of the Notes (the
"Required Holders"), may proceed to protect and enforce its or their rights by
suit in equity, action at law and/or other appropriate proceeding either for
specific performance of any covenant, provision or condition contained in this
Agreement or any Related Agreement, or in aid of the exercise of any power
granted in this Agreement or any Related Agreement, and (unless there shall have
occurred an Event of Default under Section 9(g) or 9(h), in which case the
unpaid balance of the Notes shall automatically become due and payable) may at
its or their option by notice to the Company declare all or any part of the
unpaid principal amount of the Notes then outstanding to be forthwith due and
payable, and thereupon such unpaid principal amount or part thereof, together
with interest accrued thereon and all other sums, if any, payable under this
Agreement, the
17
<PAGE>
Notes or the other Related Agreements, shall become so due and payable without
presentation, presentment, protest or further demand or notice of any kind, all
of which are hereby expressly waived, and such holder or holders may proceed to
enforce payment of such amount or part thereof in such manner as it or they may
elect.
10.02. Annulment of Defaults. An Event of Default shall not be deemed
to be in existence or to have occurred for any purpose of this Agreement until
the expiration of all grace periods under this Agreement or if the Required
Holders shall have waived such event in writing or stated in writing that the
same has been cured to their reasonable satisfaction. No waiver or statement of
satisfactory cure pursuant to this Section 10.02 shall extend to or affect any
subsequent or other Event of Default not specifically identified in such waiver
or statement of satisfactory cure or impair any of rights of the holder of any
Notes or Shares upon the occurrence thereof.
10.03. Waivers. The Company hereby waives to the extent not prohibited
by applicable law which cannot be waived (a) all presentments, demands for
performance, notice of nonperformance (except to the extent specifically
required by the provisions hereof), (b) any requirement of diligence or
promptness on the part of any holder of the Notes or the Shares in the
enforcement of its rights under this Agreement or the Notes, (c) except to the
extent required by other provisions of this Agreement, any and all notices of
every kind and description which may be required to be given by any statute or
rule of law, and (d) any defense of any kind (other than indefeasible payment)
which it may now or hereafter have with respect to its liability under this
Agreement.
11. DEFINITIONS AND ACCOUNTING TERMS
11.01. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"12% Subordinated Debentures" shall mean the 12% Convertible
Subordinated Debentures issued by the Company, maturing on May 1, 1999.
"14% Subordinated Debenture Holders" shall mean any holder of the 14%
Subordinated Debentures.
"14% Subordinated Debentures" shall mean the 14% Subordinated
Debentures, issued by the Company maturing on September 30, 1997.
"Additional Interest" shall have the meaning assigned to such term in
Section 7.02.
18
<PAGE>
"Agreement" shall mean this $2,000,000 Note Purchase Agreement,
including all amendments, modifications or supplements thereto.
"Articles of Incorporation" shall mean the Articles of Incorporation of
the Company, including all amendments, modifications or supplements thereto.
"Board of Directors" shall mean the board of directors of the Company
as constituted from time to time.
"Buscema Options" shall have the meaning assigned to such term in
Section 2.03.
"By-Laws" shall mean the By-Laws of the Company, including all
amendments, modifications or supplements thereto.
"Closing" shall have the meaning assigned to such term in Section 1.03.
"Closing Date" shall have the meaning assigned to such term in Section
1.03.
"Common Shares" shall have the meaning assigned to such term in
Section 1.02.
"Common Stock" shall mean (a) the Company's Common Stock, $0.01 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company, authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies or in the absence of any
provision to the contrary in the Certificate of Incorporation or the By-laws, be
entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency or provision), and (c) any other securities into which or for which
any of the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise.
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Domain Name Assignment Agreement" shall have the meaning assigned to
such term in Section 2.03.
"Event of Default" shall have the meaning assigned to such term in
Article 9.
19
<PAGE>
"Final Maturity Date" shall have the meaning assigned to such term in
Section 1.01.
"FRN Agreement" shall mean that certain Second Amendment to Agreement
for the Operation of First Realty Network, Inc., dated on or about December 23,
1996, among the Company, Realeads U.S.A., Inc., First Realty Network, Inc.,
Consumer Real Estate Research, Inc., and John Tomko, Jason Massey and Dennis
Brunelle.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 2.06 (except for changes concurred in by the independent
public accountants to the Company and the Subsidiaries).
"Indebtedness" shall mean (a) any liability for borrowed money or
evidenced by a note or similar obligation given in connection with the
acquisition of any property or other assets (other than trade accounts payable
incurred in the ordinary course of business); (b) all guaranties, endorsements
and other contingent obligations in respect of indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business, and (c) the present value of any lease payments due under leases
required to be capitalized in accordance with GAAP.
"Independent Division" shall mean any division of the Company or any
Subsidiary which is organized or operated pursuant to an agreement with any
other Person or Persons which grants such Person or Persons an ownership
interest in or other claim to the assets, revenue or value of such Division.
"Initial Public Offering" shall mean an initial public offering of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act of 1933, as amended.
"Mason-McDuffie Merger Agreement" shall mean the Agreement and Plan of
Merger dated as of March 15, 1996 among the Company, Western American Mortgage
Company and Mason-McDuffie Real Estate, Inc. and the Amended and Restated
Operating Agreement as of July 1, 1998 among the Company, Mason- McDuffie Real
Estate, Inc. and John Hogan.
"Material Adverse Effect" means any material adverse effect on (a) the
business, profits, properties or condition of the Company and the Subsidiaries,
taken as a whole, (b) the ability of the Company to perform its obligations
under the Agreement or any Related Agreement and (c) the binding nature,
validity or
20
<PAGE>
enforceability of this Agreement or any Related Agreement, which, in each case,
arises from, or reasonably could be expected to arise from, any action or
omission of action on the part of the Company or any Subsidiary or the
occurrence of any event or the existence of any fact or condition in respect of
the Company or any Subsidiary or any of their respective properties.
"Notes" shall have the meaning assigned to such term in Section 1.01.
"Operating Agreement" shall mean the Operating Agreement for the
Northern California Division, dated on or about July 1, 1997, among the Company,
Mason- McDuffie Real Estate, Inc., and John Hogan.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, university, or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Purchaser" shall have the meaning assigned to such term in Section
1.03.
"Residential Funding Agreement" shall mean that certain First Amended
and Restated Warehousing Credit and Security Agreement dated as of June 8, 1998
between the Company and Residential Funding Corporation, as amended.
"Related Agreements" shall mean the Notes, the Warrants and the
"Related Documents" defined therein, including all amendments, modifications or
supplements thereto.
"Required Holders" shall have the meaning assigned to such term in
Section 10.01.
"Sale and Marketing Agreement" shall have the meaning assigned to such
term in Section 2.03.
"Schindler Options" shall have the meaning assigned to such term in
Section 2.03.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time or any other federal act, rule or regulation requiring registration
with any federal agency in connection with a public offering of registrable
securities.
"Senior Debt" shall mean the unpaid principal of, premium (if any) and
interest of the Warehouse Lines of Credit.
"Senior Subordinated Obligations" shall mean the unpaid principal of,
premium (if any) and interest on the Notes and all other obligations of the
Company and the
21
<PAGE>
Subsidiaries of any kind whatsoever under or in respect of this Agreement and
the Related Agreements.
"Series A Preferred Stock" shall mean the shares of Preferred Stock
designated Series A Preferred Stock.
"Series B Preferred Stock" shall mean the shares of Preferred Stock
designated Series B Preferred Stock.
"Series B Purchase Agreement" shall mean that certain Series B
Preferred Stock Purchase Agreement, dated as of March 29, 1996, by and among the
Company and the Purchasers listed on Schedule 1.01 thereto.
"Series C Preferred Stock" shall mean the shares of Preferred Stock
designated Series C Preferred Stock.
"Series D Preferred Stock" shall mean the shares of Preferred Stock
designated Series D Preferred Stock.
"Shares shall have the meaning assigned to such term in Section 1.02.
"Special Preferred Stock (Northern California Division)" shall mean the
shares of Preferred Stock designated Special Preferred Stock (Northern
California Division).
"Stock Option Plan" shall mean any qualified or non-qualified incentive
stock option plan of the Company which is adopted by the Board of Directors,
including all amendments, supplements or modifications thereto.
"Subsidiary" shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries.
"Warehouse Lines of Credit" shall mean collectively (i) the line of
credit of the Company with Residential Funding Corporation pursuant to the
Residential Funding Agreement, as the same may be amended or increased or
otherwise modified from time to time and any refinancings or replacements
thereof and (ii) any other similar line of credit approved by the Required
Holders, the terms of which require the Senior Subordinated Obligations to be
subordinated to the borrowings by the Company thereunder.
"Warrants" shall have the meaning assigned to such term in Section
1.01.
11.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistently applied, and all
financial data
22
<PAGE>
submitted pursuant to this Agreement, unless otherwise specified, shall be
prepared in accordance with GAAP.
12. INDEMNIFICATION
12.01. General Indemnity. The Company agrees to indemnify and save
harmless the Purchasers and their respective directors, officers, affiliates,
successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys' fees, charges and disbursements) incurred by the
Purchasers as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein or in any of the Related
Agreements. Each Purchaser agrees severally but not jointly to indemnify and
save harmless the Company and its directors, officers, affiliates, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable
attorneys' fees, charges and disbursements) incurred by any such Person as a
result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Purchaser herein.
12.02. Indemnification Procedure. Any party entitled to indemnification
under this Section 12 (an "indemnified party") will give written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
promptly after the discovery by such party of any matters giving rise to a claim
for indemnification; provided that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 12 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist in respect of such action, proceeding or
claim, to assume the defense thereof, with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or
23
<PAGE>
proceeding shall be losses subject to indemnification hereunder. The indemnified
party shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its written consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. Anything in this Section
12 to the contrary notwithstanding, the indemnifying party shall not, without
the indemnified party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party, a release from all liability in respect of such claim. The
indemnification required by this Section 12 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred. The
indemnity agreements contained herein shall be in addition to (a) any cause of
action or similar right of the indemnified party against the indemnifying party
or others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.
13. MISCELLANEOUS
13.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
13.02. Amendments, Waivers and Consents. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement or any Related
Agreement may be made, and compliance with any covenant or provision set forth
herein may be omitted or waived, if the Company (a) shall obtain consent thereto
in writing from the holders of at least a majority of the then outstanding
principal amount of the Notes and (b) shall deliver copies of such consent in
writing to any holders who did not execute such consent; provided that (a) no
consents shall be effective to reduce the percentage in interest of the Notes or
Shares the consent of the holders of which is required under this Section 13.02
and (b) no amendment of
24
<PAGE>
Article 8 of this Agreement shall be made without the written consent of the
holders of Senior Debt. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
13.03. Addresses for Notices. Any notice, demand, request, waiver or
other communication under this Agreement or any Related Agreement shall be in
writing and shall be deemed to have been duly given on the date of service if
personally served or on the third day after mailing if mailed to the party to
whom notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
To the Company: Mortgage.com, Inc.
8751 Broward Blvd., 5th Floor
Plantation, Florida 33324
Attention: Seth S. Werner
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luther F. Sadler, Esq.
To any Purchaser: At its address or addresses specified
on Schedule 1.01 hereto
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, Connecticut 06103
Attention: Edward A. Reilly, Jr., Esq.
13.04. Costs, Expenses and Taxes. As a condition precedent to the
Closing, the Company agrees to pay at the Closing in connection with the
preparation, execution and delivery of this Agreement and the issuance of the
Notes and Warrants to be issued at the Closing, the reasonable fees and other
out-of-pocket expenses of Messrs. LeBoeuf, Lamb, Greene & MacRae, L.L.P. In
addition, the Company shall pay the reasonable fees and out of pocket expenses
of legal counsel, independent public accountants, consultants and other outside
experts retained by the Purchasers in connection with any amendment or waiver to
this Agreement or any Related Agreement or the successful enforcement of this
Agreement or any Related Agreement by the Purchasers. In addition, the Company
shall pay any and all stamp, or other similar taxes payable or determined to be
payable in connection with the execution and delivery of this Agreement, the
issuance of the Notes and the other instruments and documents to be delivered
hereunder or thereunder, and agrees to
25
<PAGE>
save the Purchasers harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
13.05. Binding Effect; Assignment. This Agreement and each Related
Agreement to which it is a party shall be binding upon and inure to the benefit
of each of the Company and the Purchasers and their respective heirs, successors
and assigns, except that the Company shall not have the right to delegate its
obligations hereunder or to assign its rights hereunder or any interest herein
without the prior written consent of the holders of at least a majority of the
then outstanding principal amount of the Notes. In addition, the Company
acknowledges and agrees that any Purchaser hereunder may assign all or any
portion of its rights under the Notes or Warrants held by it to any other Person
not currently a Purchaser hereunder. Upon any such assignment (i) the assigning
Purchaser shall deliver the Notes and Warrants held by it to the Company for
cancellation and reissuance in the names and amounts as directed by such
Purchaser, (ii) the Company, the Purchasers and the assignee shall enter into an
amendment to this Agreement in order to make the assignee a Purchaser hereunder
and entitled to all the rights evidenced hereby and to amend Schedule 1.01
hereto to reflect such assignment and (iii) the Company shall cause to be issued
to such assignee either a legal opinion in the form issued to the assigning
Purchaser pursuant to Section 4.09 of this Agreement or a letter from the issuer
of such opinion stating that the assignee may rely on such opinion as if it were
issued to assignee hereunder.
13.06. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, each Related Agreement, the Notes, or any
other instrument or document delivered in connection herewith or therewith,
shall survive the execution and delivery hereof or thereof for a period of two
years.
13.07. Prior Agreements. This Agreement, each Related Agreement, and
the other agreements executed and delivered herewith constitute the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
13.08. Severability. The provisions of this Agreement and each Related
Agreement are severable and, in the event that any court of competent
jurisdiction shall determine that any one or more of the provisions or part of a
provision contained in this Agreement or any Related Agreement shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or any Related Agreement; but this
Agreement and each Related Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of a provision, had never
been contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
26
<PAGE>
13.09. Confidentiality. Each Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Purchaser may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
such Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder or under any Related Agreement, unless such
information is known, or until such information becomes known, to the public;
provided, however, that the Purchasers may disclose such information (a) on a
confidential basis to their attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in connection
with their investment in the Company, (b) to any prospective purchaser of any
Notes or Shares from such Purchaser as long as such prospective purchaser agrees
in writing to be bound by the provisions of this Section 13.09, (c) to any
entity controlling, controlled by or under common control with the Purchaser, or
to any partner of such Purchaser, or (d) as required by applicable law.
13.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND
WITHOUT GIVING EFFECT TO CHOICE OF LAW PROVISIONS.
13.11. Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
13.12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
13.13. Further Assurances. From and after the date of this Agreement,
upon the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, each Related
Agreement and the Shares.
13.14. Waiver. At any time prior to the Closing Date, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party granting such waiver but such waiver or failure to
insist upon strict compliance with such obligation,
27
<PAGE>
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or future failure.
13.15. Specific Enforcement. Each of the Purchasers and the Company
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement and each Related Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement, each
Related Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which they may be entitled at law or
equity.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
MORTGAGE.COM, INC.
By:____________________________________
Name:
Title:
PURCHASERS:
CANAAN EQUITY, L.P.
By: Canaan Equity Partners L.L.C.
By: ___________________________________
Member/Manager
DOMINION FUND IV, L.P.
By: Dominion Management IV, L.L.C.,
its General Partner
By: ___________________________________
Michael K. Lee
Managing Member
INTUIT INC.
By:____________________________________
Name:
Title:
[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]
29
<PAGE>
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: Investment General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
Technology Crossover Ventures II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By:____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]
30
<PAGE>
TCV II Strategic Partners, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By:______________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
Technology Crossover Ventures II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: Investment General Partner
By:______________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]
31
<PAGE>
SCHEDULE 1.01
PURCHASER PRINCIPAL AMOUNT OF NOTES
- --------------------------------------------------------------------------------
Canaan Equity, L.P. $500,000
c/o Canaan Partners
105 Rowayton Avenue
Rowayton, CT 06853
- --------------------------------------------------------------------------------
Dominion Fund IV, L.P. $500,000
c/o Dominion Ventures
44 Montgomery Street
Suite 4200
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Intuit Inc. $500,000
2550 Garcia Avenue
Mountain View, CA 94043
- --------------------------------------------------------------------------------
TCV II, V.O.F.* $7,770
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
- --------------------------------------------------------------------------------
Technology Crossover Ventures II, L.P.* $239,187
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
- --------------------------------------------------------------------------------
TCV II (Q), L.P.* $183,890
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
- --------------------------------------------------------------------------------
TCV II Strategic Partners, L.P.* $32,634
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
- --------------------------------------------------------------------------------
Technology Crossover Ventures II, C.V.* $36,519
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
- --------------------------------------------------------------------------------
TOTAL $2,000,000
- ---------------------------
* Each with a copy to:
Technology Crossover
Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
32
EX-10.20
WARRANT
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THAT ACT AND SUCH LAWS.
No. WR-1 August 31, 1997
FIRST MORTGAGE NETWORK, INC.
COMMON STOCK PURCHASE WARRANT
33,333 shares of Common Stock, $.01 par value per share, subject to
adjustments as set forth herein.
This Common Stock Purchase Warrant certifies that Canaan Equity, L.P. (the
"Purchaser") or registered assigns, is entitled at any time on or after the date
hereof and prior to 5:00 p.m. (New York, New York time) on the Expiration Date,
to purchase from First Mortgage Network, Inc. (the "Company"), up to an
aggregate of 33,333 fully paid and nonassessable shares of Common Stock, $.01
par value, of the Company (the "Common Stock"), at a purchase price of $7.50 per
share of Common Stock (the "Exercise Price"). The number of shares of Common
Stock that may be purchased upon exercise of this Warrant set forth above, and
the Exercise Price per share of Common Stock set forth above, are subject to
adjustment as hereinafter provided.
This Common Stock Purchase Warrant is issued pursuant to that certain
$1,500,000 Note Purchase Agreement, dated as of August 31, 1997, among the
Company and certain Persons named therein (the "Purchase Agreement"), and it is
subject to all of the terms, provisions and conditions thereof, which Purchase
Agreement is hereby incorporated herein by reference and made a part hereof and
to which Purchase Agreement reference is hereby made for a full description of
the rights, obligations, duties and immunities of the Company and the holder of
this Warrant. Capitalized terms used but not defined herein have the meanings
assigned to them in the Purchase Agreement. Copies of the Purchase Agreement are
on file at the office of the Company as set forth herein.
1. EXERCISE OF WARRANTS; EXERCISE PRICE
1.01. Exercise of Warrants. At any time on or after the Closing Date and
prior to the Expiration Date, the holder of this Warrant may exercise the rights
evidenced hereby in whole or in part, by surrender of this Warrant, with an
election
<PAGE>
to purchase (a form of which is attached hereto in Exhibit A) attached thereto
duly executed, to the Company at its office referred to in Section 5.03 hereof,
together with payment of the Exercise Price (payable as set forth below) for
each share of Common Stock as to which this Warrants is exercised. The Exercise
Price shall be payable (a) in cash or by certified or official bank check
payable to the order of the Company or by wire transfer of immediately available
funds to the account of the Company, (b) by delivery of Warrants to the Company
for cancellation in accordance with the following formula: in exchange for each
share of Common Stock issuable upon exercise of each Warrant any holder thereof
so delivers for cancellation, such holder shall receive such number of shares of
Common Stock as is equal to the product of (i) the number of shares of Common
Stock issuable upon exercise of such Warrant at such time multiplied by (ii) a
fraction, the numerator of which is the Fair Market Value per share of Common
Stock at such time minus the Exercise Price per share of Common Stock at such
time, and the denominator of which is the Fair Market Value per share of Common
Stock at such time, or (c) by cancellation of amounts outstanding (whether in
respect of principal or interest) under the Notes in an amount equal to the
aggregate Exercise Price for the shares of Common Stock to be purchased on such
date upon delivery of such Notes to the Company for cancellation and reissuance
in the appropriate lesser principal amounts.
1.02. Issuance of Common Stock. Upon timely receipt of this Warrant, with
the form of election to purchase duly executed, accompanied by payment of the
Exercise Price for each of the shares to be purchased in the manner provided in
Section 1.01 and an amount equal to any applicable transfer tax (if not payable
by the Company as provided in Section 2.03 hereof), the Company shall thereupon
promptly cause certificates for the number of shares of Common Stock then being
purchased to be delivered to or upon the order of the registered holder of this
Warrant.
1.03. Unexercised Warrants. In case the registered holder of this Warrant
shall purchase less than all the shares of Common Stock purchasable thereunder,
a new Warrant evidencing the right to purchase the remaining shares of Common
Stock thereunder shall be issued by the Company to the registered holder of this
Warrant or to its duly authorized assigns.
1.04. Common Stock Record Date. Each Person in whose name any certificate
for shares of Common Stock is issued upon the exercise of this Warrant shall for
all purposes be deemed to have become the holder of record of the Common Stock
represented thereby on, and such certificate shall be dated the date upon which
this Warrant was duly surrendered with an election to purchase attached thereto
duly executed and payment of the aggregate Exercise Price (and any applicable
transfer taxes, if payable by such Person) was made in accordance with the terms
hereof. Prior to exercise, the holder of this Warrant shall not be entitled to
any rights of a
2
<PAGE>
stockholder of the Company with respect to the shares for which this Warrant
shall be exercisable, including, without limitation, the right to vote or to
receive dividends or other distributions (except as otherwise provided in the
Purchase Agreement) and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein or in any other applicable
agreement between the Company and such holder.
2. RESERVATION OF COMMON STOCK; TRANSFER TAXES
2.01. Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the exercise of the Warrants, such number of
its shares of Common Stock as shall from time to time be the maximum amount
which may be required to effect the exercise of all outstanding Warrants, and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the exercise of all then outstanding Warrants, the
Company shall take such action as may be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
2.02. Common Stock to be Duly Authorized and Issued, Fully Paid and
Nonassessable. The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock delivered
upon the exercise of any Warrants, at the time of delivery of the certificates
for such shares, shall be duly and validly authorized and issued and fully paid
and nonassessable and the issuance of such shares will not be subject to
preemptive or other similar contractual rights of any other stockholder of the
Company.
2.03. Transfer Taxes. The Company covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the initial issuance or delivery of (a) each
Warrant and (b) each share of Common Stock issued upon the exercise of any
Warrant. The Company shall not, however, be required to (y) pay any transfer tax
that may be payable in respect of the transfer or delivery of Warrants or the
issuance or delivery of certificates for shares of Common Stock in a name other
than that of the registered holder of any Warrant surrendered for exercise or
(z) issue or deliver any such certificates for shares of Common Stock upon the
exercise of any Warrant until any such tax shall have been paid (any such tax
being payable by the holder of such Warrant at the time of surrender).
3
<PAGE>
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES; FRACTIONAL
SHARES
3.01. Mechanical Adjustments. The number of shares of Common Stock
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) Dividends, Subdivisions and Combinations. In the event that the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares or (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, then the Exercise Price
in effect at the time of the record date for such dividend or of the effective
date of such subdivision or combination shall be proportionately adjusted to the
price determined by multiplying the Exercise Price in effect immediately prior
to such event by a fraction, (y) the numerator of which shall be the total
number of outstanding shares of Common Stock immediately prior to such event and
(z) the denominator of which shall be the total number of outstanding shares of
Common Stock immediately after such event. An adjustment made pursuant to this
Section 3.01(a) shall become effective on the effective date of such event.
(b) Distribution of Property. In the event that the Company shall
distribute to all holders of shares of Common Stock (including, without
limitation, any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) shares of stock
(other than Common Stock), evidences of its indebtedness, other assets
(excluding (i) any distribution or dividend resulting in a distribution pursuant
to Section 3.04 and (ii) dividends referred to in Section 3.01(a)(i) hereof),
or rights, options, warrants or convertible or exchangeable securities
(excluding those referred to in Section 3.01(c) hereof) then in each case, the
Exercise Price to be in effect after the record date in respect of which such
stock, indebtedness, other assets, rights, options, warrants or securities were
issued shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, (y) the numerator of which
shall be the Exercise Price in effect immediately prior to such record date
minus the then fair value (as determined in good faith and on a reasonable basis
by the Board of Directors) of the portion of the shares of stock or assets or
evidences of indebtedness so distributed or of such rights, options or warrants,
or of such convertible or exchangeable securities applicable to one share of
Common Stock and (z) the denominator of which shall be the Exercise Price in
effect immediately prior to such record date. Such adjustment shall be made
whenever any such distribution is made, and shall become effective on the date
of such distribution.
4
<PAGE>
(c) issuances of Common Stock and Other Securities.
(i) In the event that at any time on or prior to September 30,
1998, the Company shall consummate a single transaction or series of
transactions in which it issues or sells shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase shares of Common Stock and the net proceeds to the
Company are at least $2,000,000, the Exercise Price shall be adjusted to equal
the "price per share" of Common Stock (as determined in accordance with Section
3.01(c)(iii)) received by the Company in such transaction or series of
transactions.
(ii) In the event at any time after September 30, 1998, the
Company shall issue or sell shares of Common Stock, or rights, options, warrants
or convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock for no consideration or at a "price per
share" of Common Stock lower than the Exercise Price then in effect on the date
of such issuance or sale, then in each case, the Exercise Price to be in effect
immediately after such issuance or sale shall be determined by multiplying the
Exercise Price in effect immediately prior to such issuance or sale by a
fraction, (y) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issuance or sale plus the number of
additional shares the Aggregate Consideration Receivable (as defined below)
would purchase at the Exercise Price in effect immediately prior to such
issuance or sale and (z) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance or sale plus the
number of additional shares of Common Stock so issued or sold (or initially
issuable pursuant to such rights, options, or warrants or into which such
convertible or exchangeable securities are initially convertible or
exchangeable).
(iii) In the case of rights, options, warrants or convertible or
exchangeable securities, the "price per share" of Common Stock referred to above
shall be determined by dividing (A) the Aggregate Consideration Receivable in
respect of such rights, options, warrants or convertible or exchangeable
securities by (B) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities.
(iv) "Aggregate Consideration Receivable", in the case of a sale
of shares of Common Stock, means the aggregate amount paid to the Company in
connection therewith and, in the case of an issuance or sale of rights, options,
warrants, or convertible or exchangeable securities, means the aggregate amount
paid to the Company for such rights, options, warrants or convertible or
exchangeable securities, plus the aggregate consideration or premiums stated in
such rights,
5
<PAGE>
options, warrants or convertible or exchangeable securities to be payable for
the shares of Common Stock covered thereby.
(v) In the event that the Company shall issue and sell shares of
Common Stock, or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock, for a consideration consisting, in whole or in part, of property other
than cash or its equivalent, then in determining the "price per share" of Common
Stock and the "Aggregate Consideration Receivable", the Board of Directors shall
determine, in good faith and on a reasonable basis, the fair value of such
property.
(d) Consolidation and Merger. In the event that there shall be (i)
any consolidation of the Company with, or merger of the Company with or into,
another corporation (other than a merger in which the Company is the surviving
corporation and that does not result in any reclassification or change of shares
of Common Stock outstanding immediately prior to such merger), (ii) any sale or
conveyance to another corporation of the property of the Company substantially
as an entirety, or (iii) any reclassification of the Common Stock that results
in the issuance of other securities of the Company, then, in addition to and
notwithstanding any other rights provided to the holder this Warrant upon such
occurrence, lawful provision shall be made as a part of the terms of such
transaction so that such holder shall thereafter have the right to purchase the
number and kind of shares of stock (and/or other securities, cash, property or
rights) receivable upon such consolidation, merger, sale, conveyance or
reclassification by a holder of such number of shares of Common Stock as such
holder would have had the right to acquire upon the exercise of this Warrant
immediately prior to such consolidation, merger, sale or conveyance at the
Exercise Price then in effect.
(e) De Minimis Changes in Exercise Price. No adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) of the Exercise Price,
provided, however, that any adjustments that, at the time of the calculation
thereof, are less than one percent (1%) of the Exercise Price, at such time and
by reason of this Section 3.01(e) are not required to be made at such time
shall be carried forward and added to any subsequent adjustment or adjustments
for purposes of determining whether such subsequent adjustments, as so
supplemented, exceed the one percent (1%) amount set forth herein and, if any
such subsequent adjustment, as so supplemented or otherwise, should exceed such
one percent (1%) amount, all adjustments deferred prior thereto and not
previously made shall then be made. In any case, all such adjustments being
carried forward pursuant to this Section 3.01(e) shall be given effect upon the
exercise of this Warrant by the holder hereof for purposes of determining the
Exercise Price thereof and the number of shares of Common Stock
6
<PAGE>
then issuable upon such exercise. All calculations shall be made to the nearest
one-millionth of a Dollar ($.000001).
(f) Adjustment of Number of Shares Issuable Pursuant to this Warrant.
Upon each adjustment of the Exercise Price as a result of the calculations made
in this Section 3.01, this Warrant shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of shares of Common Stock
(calculated to the nearest one-thousandth) obtained by (i) multiplying the
number of shares of Common Stock covered by this Warrant immediately prior to
such adjustment by the Exercise Price in effect immediately prior to such
adjustment and (ii) dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment. Subsequent to any adjustment made to
the Exercise Price hereunder, this Warrant shall evidence the right to purchase,
at the adjusted Exercise Price, the number of shares of Common Stock determined
to be purchasable from time to time hereunder upon exercise of this Warrant, all
subject to further adjustment as provided herein. Irrespective of any adjustment
or change in the Exercise Price or the number of shares of Common Stock issuable
upon the exercise of this Warrant, this Warrant and any Warrants theretofore or
thereafter issued in replacement hereof may continue to express the Exercise
Price per share of Common Stock and the number of shares of Common Stock that
were expressed upon the initial issuance of this Warrant under the Purchase
Agreement.
(g) Miscellaneous. Adjustments shall be made pursuant to this Section
3.01 successively whenever any of the events referred to in Section 3.01(a)
through Section 3.01(d) inclusive hereof shall occur. If this Warrant shall be
exercised subsequent to the record date for any of the events referred to in
this Section 3.01, but prior to the effective date thereof, appropriate
adjustments shall be made immediately after such effective date so that the
holder of this Warrant on such record date shall have received, in the
aggregate, the kind and number of shares of Common Stock or other securities or
assets that it would have owned or been entitled to receive on such effective
date had this Warrant been exercised prior to such record date. Shares of Common
Stock owned by or held for the account of the Company shall not, for purposes of
the adjustments set forth in this Section 3.01 be deemed outstanding.
(h) Expiration of Rights, Options, etc. Upon the expiration of any
rights, options, warrants or conversion or exchange privileges referred to above
in this Section 3.01, without the full exercise thereof, the Exercise Price, and
the number of shares of Common Stock purchasable upon the exercise of this
Warrant shall, upon such expiration, be readjusted and shall thereafter be such
as such Exercise Price and such number of shares of Common Stock would have been
had they been originally adjusted as if (i) the only shares of Common Stock
available to be purchased upon exercise of such rights, options, warrants or
conversion or
7
<PAGE>
exchange privileges were the shares of Common Stock, if any, actually issued or
sold upon the exercise of such rights, options, warrants or conversion or
exchange privileges and (ii) such shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise
plus the aggregate consideration, if any, actually received by the Company for
the issuance, sale or grant of all such rights, options, warrants or conversion
or exchange privileges whether or not exercised; provided, however, that no such
readjustment shall have the effect of increasing the Exercise Price by an amount
in excess of the amount of the reduction initially made in respect of the
issuance, sale, or grant of such rights, options, warrants or conversion of
exchange privileges.
(i) Other Securities. In the event that at any time, as a result of
an adjustment made pursuant to Section 3.01, the holder of this Warrant shall
become entitled to purchase any securities of the Company other than shares of
Common Stock, the number or amount of such other securities so purchasable and
the purchase price of such securities shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions contained in Section 3.01(a) through Section 3.01(d), inclusive,
and all other relevant provisions of this Section 3.01 that are applicable to
shares of Common Stock shall be applicable to such other securities.
(j) Notice of Adjustment. Whenever the number of shares of Common
Stock issuable upon the exercise of this Warrant or the Exercise Price in
respect thereof is adjusted, as herein provided, the Company shall promptly give
to the holder of this Warrant, notice of such adjustment or adjustments and
shall promptly deliver to such holder a certificate of the Company's chief
financial officer setting forth (i) the number of shares of Common Stock
issuable upon the exercise of this Warrant and the Exercise Price of such shares
after such adjustment, (ii) a brief statement of the facts requiring such
adjustment, and (iii) the computation by which such adjustment was made. So long
as this Warrant is outstanding, within 90 days of the end of each fiscal year of
the Company, the Company shall deliver to the holder a certificate of a firm of
independent public accountants selected by the Board of Directors (who may be
the regular accountants employed by the Company) setting forth (i) the number of
shares of Common Stock issuable upon the exercise of this Warrant and the
Exercise Price of such shares as of the end of such fiscal year, (ii) a brief
statement of the facts requiring each such adjustment required to be made in
such fiscal year and (iii) the computation by which each such adjustment was
made.
3.02. Elimination of Fractional Interests. The Company shall not be
required upon the exercise of this Warrant to issue stock certificates
representing fractions of shares of Common Stock, but shall instead pay in cash,
in lieu of any tractional shares of Common Stock to which such holder would
otherwise be entitled if such
8
<PAGE>
fractional shares were issuable, an amount equal to the Fair Market Value per
share of Common Stock as of the date of such exercise.
3.03. Right of Action. All rights of action in respect of the Warrants are
vested in the respective registered holders of the Warrants and any registered
holder of any Warrant, without the consent of the holder of any other Warrant,
may, in its own behalf and for its own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, its right to exercise the Warrants held by it in
the manner provided therein.
3.04. Distributions. In the event that the Company shall distribute to all
holders of shares of Common Stock (including, without limitation, any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) cash or cash equivalents, then in each
case the holders of the Warrants shall be entitled to receive from the Company
the same amount of cash or cash equivalents that would have been distributed to
such holders if such Warrants had been exercised immediately prior to the record
date for such distribution. Such distribution to the holders of the Warrants
shall be made whenever any such distribution is made to the holders of shares of
Common Stock.
3.05. Exceptions to Antidilution Adjustments. Notwithstanding the
foregoing, no adjustments shall be made under Section 3.01 in respect of (a) up
to 760,000 shares of Common Stock, or options exercisable therefor, issued or to
be issued under the Stock Option Plan; (b) Series A Preferred Stock issued upon
any subdivision or combination of shares of Series A Preferred Stock; (c) Series
B Preferred Stock issued as a dividend to holders of Series B Preferred Stock or
upon any subdivision or combination of Series B Preferred Stock; (d) Series C
Preferred Stock issued as a dividend to holders of Series C Preferred Stock or
upon any subdivision or combination of shares of Series C Preferred Stock; (e)
Special Preferred Stock (Northern California Division) issued upon any
subdivision or combination of shares of Special Preferred Stock (Northern
California Division); (f) shares of Common Stock issued upon conversion of the
Series B Preferred Stock or Series C Preferred Stock; (g) shares of Series C
Preferred Stock issued upon conversion of the Notes; (h) 252,500 shares of
Common Stock issuable upon the exercise of the warrants held by the former 14%
Subordinated Debenture Holders and any additional shares required to be issued
thereunder to adjust for any stock split, stock dividend or combination of
Common Stock; (i) 500,000 shares of Common Stock issuable upon the exercise of
the warrants held or which may be obtained by Superior Bank FSB and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock; (j) 33,333 shares of
Common Stock issuable upon the conversion of the 12% Subordinated Debentures and
any additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock; (k) 25,000 shares of
Common Stock issuable upon
9
<PAGE>
the exercise of the Buscema Options and any additional shares required to be
issued thereunder to adjust for any stock split, stock dividend or combination
of Common Stock; (1) 109,728 shares of Common Stock issuable upon exercise of
the warrants held by George A. Naddaff (other than as a former 14% Subordinated
Debenture Holder) and any additional shares required to be issued thereunder to
adjust for any stock split, stock dividend or combination of Common Stock; (m)
25,000 shares of Common Stock issuable upon the exercise of the Schindler
Options and any additional shares required to be issued thereunder to adjust for
any stock split, stock dividend or combination of Common Stock; (n) 63,436
shares of Common Stock issuable upon the exercise of the Raymond James Warrants
and any additional shares required to be issued thereunder to adjust for any
stock split, stock dividend or combination of Common Stock; and (o) 71,668
shares of Common Stock issued or issuable to John Hogan pursuant to the
Agreement and Plan of Merger between the Company and OnLine Capital, dated July
1, 1997.
4. DEFINITIONS AND ACCOUNTING TERMS
As used herein, the following terms shall have the following meanings:
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Exercise Price" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Expiration Date" shall mean September 30, 2007.
"Fair Market Value" shall mean the fair market value of the Company,
determined in good faith by the Board of Directors, calculated on a per share
basis.
"Purchaser" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Warrants" shall mean this Warrant and all other Warrants issued by
the Company pursuant to the Purchase Agreement, together with all Warrants
issued in exchange, transfer or replacement thereof.
"Warrant Shares" shall mean any shares of Common Stock that are
issuable upon the exercise of any Warrant.
10
<PAGE>
5. MISCELLANEOUS
5.01. No Waiver; Cumulative Remedies. No failure or delay on the part of
the holder of this Warrant in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
5.02. Amendments, Waivers and Consents. Any provision in this Warrant to
the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to the Warrants may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company (a) shall obtain consent thereto in writing from the
holders of at least a majority of the Warrant Shares, and (b) shall deliver
copies of such consent in writing to any holders who did not execute such
consent; provided that no consents shall be effective (i) to amend any of the
provisions of the Warrants pertaining to the Exercise Price or the number of
shares of Common Stock purchasable upon the exercise of any Warrant or (ii) to
reduce the percentage in interest of the Warrant Shares the consent of the
holders of which is required under this Section 5.02. Any waiver or consent may
be given subject to satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
5.03. Addresses for Notices. Any notice, demand, request, waiver or other
communication hereunder shall be in writing and shall be deemed to have been
duly given on the date of service if personally served, on the date of
transmission if sent by telecopier (with confirming copy sent by a nationally
recognized express overnight courier service) or on the first business day after
mailing if mailed to the party to whom notice is given, by a nationally
recognized courier service and addressed as follows:
To the Company: First Mortgage Network, Inc.
8751 Broward Blvd., 5th Floor
Plantation, Florida 33324
Attention: Seth S. Werner
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luther F. Sadler, Esq.
11
<PAGE>
To any holder: At its address set forth on the record books of the
Company
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attn: Edward A. Reilly, Jr., Esq.
5.04. Binding Effect; Assignment. This Warrant shall be binding upon and
inure to the benefit of each of the Company and the holder hereof and their
respective heirs, successors and assigns, except that the Company shall not have
the right to delegate its obligations hereunder or to assign its rights
hereunder or any interest herein.
5.05. Severability. The provisions of this Warrant are severable and, in
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of a provision contained in this Warrant
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Warrant; but the terms of this
Warrant shall be reformed and construed as if such invalid or illegal or
unenforceable provision, or part of a provision, had never been contained
herein, and such provisions or part reformed so that it would be valid, legal
and enforceable to the maximum extent possible.
5.06. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND WITHOUT GIVING
EFFECT TO CHOICE OF LAW PROVISIONS.
5.07. Headings. Article, section and subsection headings in this Warrant
are included herein for convenience of reference only and shall not constitute a
part of this Warrant for any other purpose.
5.08. Specific Enforcement. The Company acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the holder hereof shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Warrant and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which it may be entitled at law or
equity.
12
<PAGE>
5.09. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other Company, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company,
then and in each such event the Company shall mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be sent by a nationally recognized overnight
courier, hand delivery or facsimile at least twenty (20) days prior to the date
specified in such notice on which such action is to be taken.
13
<PAGE>
WITNESS the signature of the proper officer of the Company as of the date
first above written.
FIRST MORTGAGE NETWORK, INC.
By /s/ Seth Werner
--------------------------------
Seth Warner
Chairman
ATTEST:
/s/ Chris Anderson
- ------------------------
Secretary
<PAGE>
Exhibit A
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if
such holder desires to transfer the Warrant)
FOR VALUE RECEIVED, _____________________________ hereby sells, assigns and
transfers unto
_______________________________________________________________________________
the accompanying Warrant, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________
attorney, to transfer the accompanying Warrant on the books of the Company of
such Warrant, with full power of substitution.
Dated: __________________, ______.
[HOLDER OF WARRANT]
By
--------------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the accompanying Warrant or any prior assignment
thereof in every particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(To be executed by the registered holder if
such holder desires to exercise the Warrant)
To FIRST MORTGAGE NETWORK, INC.
The undersigned hereby irrevocably elects to exercise the accompanying
Warrant to purchase ______ shares of Common Stock issuable upon the exercise of
such Warrant and requests that certificates for such shares be issued in the
name of:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
(Please insert social security number or other identifying number)
If such number of shares of Common Stock shall not be all the shares of Common
Stock purchasable upon the exercise of the accompanying Warrant, a new Warrant
for the balance of such remaining shares of Common Stock shall be registered in
the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
(Please insert social security number or other identifying number)
Dated: _______________, _______.
[HOLDER OF WARRANT]
By
---------------------------------
<PAGE>
NOTICE
The signature to the foregoing Election to Purchase must correspond to the
name as written upon the face of the accompanying Warrant or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
EX-10.21
WARRANT
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THAT ACT AND SUCH LAWS.
No. WR-5 January 30, 1998
FIRST MORTGAGE NETWORK, INC.
COMMON STOCK PURCHASE WARRANT
16,667 shares of Common Stock, $.01 par value per share, subject to
adjustments as set forth herein.
This Common Stock Purchase Warrant certifies that Dominion Fund III
[the "Purchaser") or registered assigns, is entitled at any time on or after the
date hereof and prior to 5:00 p.m. (New York, New York time) on the Expiration
Date, to purchase from First Mortgage Network, Inc. (the "Company"), up to an
aggregate of 16,667 fully paid and nonassessable shares of Common Stock, $.01
par value, of the Company (the "Common Stock"), at a purchase price of $7.50 per
share of Common Stock (the "Exercise Price"). The number of shares of Common
Stock that may be purchased upon exercise of this Warrant set forth above, and
the Exercise Price per share of Common Stock set forth above, are subject to
adjustment as hereinafter provided.
This Common Stock Purchase Warrant is issued pursuant to that certain
$2,000,000 Note Purchase Agreement, dated as of January 29, 1998, among the
Company and certain Persons named therein (the "Purchase Agreement"), and it is
subject to all of the terms, provisions and conditions thereof, which Purchase
Agreement is hereby incorporated herein by reference and made a part hereof and
to which Purchase Agreement reference is hereby made for a full description of
the rights, obligations, duties and immunities of the Company and the holder of
this Warrant. Capitalized terms used but not defined herein have the meanings
assigned to them in the Purchase Agreement. Copies of the Purchase Agreement are
on file at the office of the Company as set forth herein.
1. EXERCISE OF WARRANTS; EXERCISE PRICE
1.01. Exercise of Warrants. At any time on or after the Closing Date and
prior to the Expiration Date, the holder of this Warrant may exercise the rights
evidenced hereby in whole or in part, by surrender of this Warrant, with an
election
<PAGE>
to purchase (a form of which is attached hereto in Exhibit A) attached thereto
duly executed, to the Company at its office referred to in Section 5.03 hereof,
together with payment of the Exercise Price (payable as set forth below) for
each share of Common Stock as to which this Warrants is exercised. The Exercise
Price shall be payable (a) in cash or by certified or official bank check
payable to the order of the Company or by wire transfer of immediately available
funds to the account of the Company, (b) by delivery of Warrants to the Company
for cancellation in accordance with the following formula: in exchange for each
share of Common Stock issuable upon exercise of each Warrant any holder thereof
so delivers for cancellation, such holder shall receive such number of shares of
Common Stock as is equal to the product of (i) the number of shares of Common
Stock issuable upon exercise of such Warrant at such time multiplied by (ii) a
fraction, the numerator of which is the Fair Market Value per share of Common
Stock at such time minus the Exercise Price per share of Common Stock at such
time, and the denominator of which is the Fair Market Value per share of Common
Stock at such time, or (c) by cancellation of amounts outstanding (whether in
respect of principal or interest) under the Notes in an amount equal to the
aggregate Exercise Price for the shares of Common Stock to be purchased on such
date upon delivery of such Notes to the Company for cancellation and reissuance
in the appropriate lesser principal amounts.
1.02. Issuance of Common Stock. Upon timely receipt of this Warrant, with
the form of election to purchase duly executed, accompanied by payment of the
Exercise Price for each of the shares to be purchased in the manner provided in
Section 1.01 and an amount equal to any applicable transfer tax (if not payable
by the Company as provided in Section 2.03 hereof), the Company shall thereupon
promptly cause certificates for the number of shares of Common Stock then being.
purchased to be delivered to or upon the order of the registered holder of this
Warrant.
1.03. Unexercised Warrants. In case the registered holder of this Warrant
shall purchase less than all the shares of Common Stock purchasable thereunder,
a new Warrant evidencing the right to purchase the remaining shares of Common
Stock thereunder shall be issued by the Company to the registered holder of this
Warrant or to its duly authorized assigns.
1.04. Common Stock Record Date. Each Person in whose name any certificate
for shares of Common Stock is issued upon the exercise of this Warrant shall for
all purposes be deemed to have become the holder of record of the Common Stock
represented thereby on, and such certificate shall be dated the date upon which
this Warrant was duly surrendered with an election to purchase attached thereto
duly executed and payment of the aggregate Exercise Price (and any applicable
transfer taxes, if payable by such Person) was made in accordance with the terms
hereof. Prior to exercise, the holder of this Warrant shall not be entitled to
any rights of a
2
<PAGE>
stockholder of the Company with respect to the shares for which this Warrant
shall be exercisable, including, without limitation, the right to vote or to
receive dividends or other distributions (except as otherwise provided in the
Purchase Agreement) and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein or in any other applicable
agreement between the Company and such holder.
2. RESERVATION OF COMMON STOCK; TRANSFER OF WARRANTS; TRANSFER TAXES
2.01. Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the exercise of the Warrants, such number of
its shares of Common Stock as shall from time to time be the maximum amount
which may be required to effect the exercise of all outstanding Warrants, and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the exercise of all then outstanding Warrants, the
Company shall take such action as may be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
2.02. Common Stock to be Duly Authorized and Issued, Fully Paid and
Nonassessable. The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock delivered
upon the exercise of any Warrants, at the time of delivery of the certificates
for such shares, shall be duly and validly authorized and issued and fully paid
and nonassessable and the issuance of such shares will not be subject to
preemptive or other similar contractual rights of any other stockholder of the
Company.
2.03. Transfer, Split Up, etc. This Warrant, with or without any Warrants,
may be transferred, split up, combined or exchanged for another Warrant or
Warrants, entitling the registered holder or transferee thereof to purchase a
like number of shares of Common Stock as the Warrant or Warrants surrendered
then entitled such registered holder to purchase. Any registered holder desiring
to transfer, split up, combine or exchange this Warrant shall make such request
in writing delivered to the Company, and shall surrender the Warrant or Warrants
to be transferred, split up, combined or exchanged at the office of the Company
referred to in Section 5.03 hereof. Thereupon the Company shall deliver promptly
to the Person entitled thereto (as set forth in the written notice) a Warrant or
Warrants, as the case may be, as so requested.
2.04. Transfer Taxes. The Company covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the initial issuance or delivery of (a) each
Warrant and
3
<PAGE>
(b) each share of Common Stock issued upon the exercise of any Warrant. The
Company shall not, however, be required to (y) pay any transfer tax that may be
payable in respect of the transfer or delivery of Warrants or the issuance or
delivery of certificates for shares of Common Stock in a name other than that of
the registered holder of any Warrant surrendered for exercise or (z) issue or
deliver any such certificates for shares of Common Stock upon the exercise of
any Warrant until any such tax shall have been paid (any such tax being payable
by the holder of such Warrant at the time of surrender).
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES; FRACTIONAL SHARES
3.01. Mechanical Adjustments. The number of shares of Common Stock
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) Dividends, Subdivisions and Combinations. In the event that the Company
shall (i) pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a greater number of shares or (iii) combine its outstanding shares of
Common Stock into a smaller number of shares, then the Exercise Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision or combination shall be proportionately adjusted to the price
determined by multiplying the Exercise Price in effect immediately prior to such
event by a fraction, (y) the numerator of which shall be the total number of
outstanding shares of Common Stock immediately prior to such event and (z) the
denominator of which shall be the total number of outstanding shares of Common
Stock immediately after such event. An adjustment made pursuant to this Section
3.01(a) shall become effective on the effective date of such event.
(b) Distribution of Property. In the event that the Company shall
distribute to all holders of shares of Common Stock (including, without
limitation, any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) shares of stock
(other than Common Stock), evidences of its indebtedness, other assets
(excluding (i) any distribution or dividend resulting in a distribution pursuant
to Section 3.04 and (ii) dividends referred to in Section 3.01(a)(i) hereof),
or rights, options, warrants or convertible or exchangeable securities
(excluding those referred to in Section 3.01(c) hereof) then in each case, the
Exercise Price to be in effect after the record date in respect of which such
stock, indebtedness, other assets, rights, options, warrants or securities were
issued shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, (y) the numerator of which
shall be the Exercise Price in effect immediately prior to such record date
minus the then fair value (as determined
4
<PAGE>
in good faith and on a reasonable basis by the Board of Directors) of the
portion of the shares of stock or assets or evidences of indebtedness so
distributed or of such rights, options or warrants, or of such convertible or
exchangeable securities applicable to one share of Common Stock and (z) the
denominator of which shall be the Exercise Price in effect immediately prior to
such record date. Such adjustment shall be made whenever any such distribution
is made, and shall become effective on the date of such distribution.
(c) Issuances of Common Stock and Other Securities.
(i) In the event that at any time on or prior to September 30, 1998,
the Company shall consummate a single transaction or series of transactions in
which it issues or sells shares of Common Stock, or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock and the net proceeds to the Company are at least
$2,000,000, the Exercise Price shall be adjusted to equal the "price per share"
of Common Stock (as determined in accordance with Section 3.01(c)(iii)) received
by the Company in such transaction or series of transactions.
(ii) In the event at any time after September 30, 1998, the Company
shall issue or sell shares of Common Stock, or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock for no consideration or at a "price per share"
of Common Stock lower than the Exercise Price then in effect on the date of such
issuance or sale, then in each case, the Exercise Price to be in effect
immediately after such issuance or sale shall be determined by multiplying the
Exercise Price in, effect immediately prior to such issuance or sale by a
fraction, (y) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issuance or sale plus the number of
additional shares the Aggregate Consideration Receivable (as defined below)
would purchase at the Exercise Price in effect immediately prior to such
issuance or sale and (z) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance or sale plus the
number of additional shares of Common Stock so issued or sold (or initially
issuable pursuant to such rights, options, or warrants or into which such
convertible or exchangeable securities are initially convertible or
exchangeable).
(iii) In the case of rights, options, warrants or convertible or
exchangeable securities, the "price per share" of Common Stock referred to above
shall be determined by dividing (A) the Aggregate Consideration Receivable in
respect of such rights, options, warrants or convertible or exchangeable
securities by (B) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities.
5
<PAGE>
(iv) "Aggregate Consideration Receivable", in the case of a sale of
shares of Common Stock, means the aggregate amount paid to the Company in
connection therewith and, in the case of an issuance or sale of rights, options,
warrants, or convertible or exchangeable securities, means the aggregate amount
paid to the Company for such rights, options, warrants or convertible or
exchangeable securities, plus the aggregate consideration or premiums stated in
such rights, options, warrants or convertible or exchangeable securities to be
payable for the shares of Common Stock covered thereby.
(v) In the event that the Company shall issue and sell shares of Common
Stock, or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock, for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then in determining the "price per share" of Common Stock and
the "Aggregate Consideration Receivable", the Board of Directors shall
determine, in good faith and on a reasonable basis, the fair value of such
property.
(d) Consolidation and Merger. In the event that there shall be (i) any
consolidation of the Company with, or merger of the Company with or into,
another corporation (other than a merger in which the Company is the surviving
corporation and that does not result in any reclassification or change of shares
of Common Stock outstanding immediately prior to such merger), (ii) any sale or
conveyance to another corporation of the property of the Company substantially
as an entirety, or (iii) any reclassification of the Common Stock that results
in the issuance of other securities of the Company, then, in addition to and
notwithstanding any other rights provided to the holder this Warrant upon such
occurrence, lawful provision shall be made as a part of the terms of such
transaction so that such holder shall thereafter have the right to purchase the
number and kind of shares of stock (and/or other securities, cash, property or
rights) receivable upon such consolidation, merger, sale, conveyance or
reclassification by a holder of such number of shares of Common Stock as such
holder would have had the right to acquire upon the exercise of this Warrant
immediately prior to such consolidation, merger, sale or conveyance at the
Exercise Price then in effect.
(e) De Minimis Changes in Exercise Price. No adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) of the Exercise Price, provided, however,
that any adjustments that, at the time of the calculation thereof, are less than
one percent (1%) of the Exercise Price, at such time and by reason of this
Section 3.01(e) are not required to be made at such time shall be carried
forward and added to any subsequent adjustment or adjustments for purposes of
determining whether such subsequent adjustments, as so supplemented, exceed the
one percent (1%) amount set forth herein and, if any such subsequent adjustment,
as so supplemented or
6
<PAGE>
otherwise, should exceed such one percent (1%) amount, all adjustments deferred
prior thereto and not previously made shall then be made. In any case, all such
adjustments being carried forward pursuant to this Section 3.01(e) shall be
given effect upon the exercise of this Warrant by the holder hereof for purposes
of determining the Exercise Price thereof and the number of shares of Common
Stock then issuable upon such exercise. All calculations shall be made to the
nearest one-millionth of a Dollar ($.000001).
(f) Adjustment of Number of Shares Issuable Pursuant to this Warrant. Upon
each adjustment of the Exercise Price as a result of the calculations made in
this Section 3.01, this Warrant shall thereafter evidence the right to purchase,
at the adjusted Exercise Price, that number of shares of Common Stock
(calculated to the nearest one-thousandth) obtained by (i) multiplying the
number of shares of Common Stock covered by this Warrant immediately prior to
such adjustment by the Exercise Price in effect immediately prior to such
adjustment and (ii) dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment. Subsequent to any adjustment made to
the Exercise Price hereunder, this Warrant shall evidence the right to purchase,
at the adjusted Exercise Price, the number of shares of Common Stock determined
to be purchasable from time to time hereunder upon exercise of this Warrant,
all subject to further adjustment as provided herein. Irrespective of any
adjustment or change in the Exercise Price or the number of shares of Common
Stock issuable upon the exercise of this Warrant, this Warrant and any Warrants
theretofore or thereafter issued in replacement hereof may continue to express
the Exercise Price per share of Common Stock and the number of shares of Common
Stock that were expressed upon the initial issuance of this Warrant under the
Purchase Agreement.
(g) Miscellaneous. Adjustments shall be made pursuant to this Section 3.01
successively whenever any of the events referred to in Section 3.01(a) through
Section 3.01(d) inclusive hereof shall occur. If this Warrant shall be
exercised subsequent to the record date for any of the events referred to in
this Section 3.01, but prior to the effective date thereof, appropriate
adjustments shall be made immediately after such effective date so that the
holder of this Warrant on such record date shall have received, in the
aggregate, the kind and number of shares of Common Stock or other securities or
assets that it would have owned or been entitled to receive on such effective
date had this Warrant been exercised prior to such record date. Shares of Common
Stock owned by or held for the account of the Company shall not, for purposes of
the adjustments set forth in this Section 3.01 be deemed outstanding.
(h) Expiration of Rights, Options, etc. Upon the expiration of any rights,
options, warrants or conversion or exchange privileges referred to above in this
Section 3.01, without the full exercise thereof, the Exercise Price, and the
7
<PAGE>
number of shares of Common Stock purchasable upon the exercise of this Warrant
shall, upon such expiration, be readjusted and shall thereafter be such as such
Exercise Price and such number of shares of Common Stock would have been had
they been originally adjusted as if (i) the only shares of Common Stock
available to be purchased upon exercise of such rights, options, warrants or
conversion or exchange privileges were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange privileges and (ii) such shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company upon
such exercise plus the aggregate consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion or exchange privileges whether or not exercised; provided, however,
that no such readjustment shall have the effect of increasing the Exercise Price
by an amount in excess of the amount of the reduction initially made in respect
of the issuance, sale, or grant of such rights, options, warrants or conversion
of exchange privileges.
(i) Other Securities. In the event that at any time, as a result of an
adjustment made pursuant to Section 3.01, the holder of this Warrant shall
become entitled to purchase any securities of the Company other than shares of
Common Stock, the number or amount of such other securities so purchasable and
the purchase price of such securities shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions contained in Section 3.01(a) through Section 3.01(d), inclusive, and
all other relevant provisions of this Section 3.01 that are applicable to shares
of Common Stock shall be applicable to such other securities.
(j) Notice of Adjustment. Whenever the number of shares of Common Stock
issuable upon the exercise of this Warrant or the Exercise Price in respect
thereof is adjusted, as herein provided, the Company shall promptly give to the
holder of this Warrant, notice of such adjustment or adjustments and shall
promptly deliver to such holder a certificate of the Company's chief financial
officer setting forth (i) the number of shares of Common Stock issuable upon the
exercise of this Warrant and the Exercise Price of such shares after such
adjustment, (ii) a brief statement of the facts requiring such adjustment, and
(iii) the computation by which such adjustment was made. So long as this Warrant
is outstanding, within 90 days of the end of each fiscal year of the Company,
the Company shall deliver to the holder a certificate of a firm of independent
public accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) setting forth (i) the number of shares of
Common Stock issuable upon the exercise of this Warrant and the Exercise Price
of such shares as of the end of such fiscal year, (ii) a brief statement of the
facts requiring each such adjustment required to be made in such fiscal year and
(iii) the computation by which each such adjustment was made.
8
<PAGE>
3.02. Elimination of Fractional Interests. The Company shall not be
required upon the exercise of this Warrant to issue stock certificates
representing fractions of shares of Common Stock, but shall instead pay in cash,
in lieu of any fractional shares of Common Stock to which such holder would
otherwise be entitled if such fractional shares were issuable, an amount equal
to the Fair Market Value per share of Common Stock as of the date of such
exercise.
3.03. Right of Action. All rights of action in respect of the Warrants are
vested in the respective registered holders of the Warrants and any registered
holder of any Warrant, without the consent of the holder of any other Warrant,
may, in its own behalf and for its own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, its right to exercise the Warrants held by it in
the manner provided therein.
3.04. Distributions. In the event that the Company shall distribute to all
holders of shares of Common Stock (including, without limitation, any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) cash or cash equivalents, then in each
case the holders of the Warrants shall be entitled to receive from the Company
the same amount of cash or cash equivalents that would have been distributed to
such holders if such Warrants had been exercised immediately prior to the record
date for such distribution. Such distribution to the holders of the Warrants
shall be made whenever any such distribution is made to the holders of shares of
Common Stock.
3.05. Exceptions to Antidilution Adjustments. Notwithstanding the
foregoing, no adjustments shall be made under Section 3.01 in respect of (a) up
to 760,000 shares of Common Stock, or options exercisable therefor, issued or to
be issued under the Stock Option Plan; (b) Series A Preferred Stock issued upon
any subdivision or combination of shares of Series A Preferred Stock; (c) Series
B Preferred Stock issued as a dividend to holders of Series B Preferred Stock or
upon any subdivision or combination of Series B Preferred Stock; (d) Series C
Preferred Stock issued as a dividend to holders of Series C Preferred Stock or
upon any subdivision or combination of shares of Series C Preferred Stock; (e)
Special Preferred Stock (Northern California Division) issued upon any
subdivision or combination of shares of Special Preferred Stock (Northern
California Division); (f) shares of Common Stock issued upon conversion of the
Series B Preferred Stock or Series C Preferred Stock; (g) shares of Series C
Preferred Stock issued upon conversion of the Notes; (h) 252,500 shares of
Common Stock issuable upon the exercise of the warrants held by the former 14%
Subordinated Debenture Holders and any additional shares required to be issued
thereunder to adjust for any stock split, stock dividend or combination of
Common Stock; (i) 500,000 shares of Common Stock issuable upon the exercise of
the warrants held or which may be obtained by Superior Bank FSB and any
additional shares required to be issued thereunder to adjust for any stock
split,
9
<PAGE>
stock dividend or combination of Common Stock; (j) 33,333 shares of Common
Stock issuable upon the conversion of the 12% Subordinated Debentures and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock; (k) 25,000 shares of
Common Stock issuable upon the exercise of the Buscema Options and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock; (l) 121,468 shares of
Common Stock issuable upon exercise of the warrants held by George A. Naddaff
(other than as a former 14% Subordinated Debenture Holder) and any additional
shares required to be issued thereunder to adjust for any stock split, stock
dividend or combination of Common Stock; (m) 25,000 shares of Common Stock
issuable upon the exercise of the Schindler Options and any additional shares
required to be issued thereunder to adjust for any stock split, stock dividend
or combination of Common Stock; (n) 71,436 shares of Common Stock issuable upon
the exercise of the Raymond James Warrants and any additional shares required to
be issued thereunder to adjust for any stock split, stock dividend or
combination of Common Stock; (o) 35,844 shares of Common Stock issued or
issuable to John Hogan pursuant to the Agreement and Plan of Merger between the
Company and OnLine Capital, dated July 1, 1997, and any additional shares issued
to John Hogan pursuant to the Operating Agreement entered into in connection
therewith; (p) up to 100,000 shares of Common Stock and warrants to purchase up
to an additional 100,000 shares of Common Stock (and such shares of Common Stock
issued upon the exercise thereof) issued pursuant to the terms of the RMF Merger
Documents; and (q) shares of Common Stock issued upon the exercise of the
warrants issued as of August 31, 1997.
4. DEFINITIONS AND ACCOUNTING TERMS
As used herein, the following terms shall have the following meanings:
"Company" shall have the meaning assigned to such term in the introductory
sentence hereof.
"Exercise Price" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Expiration Date" shall mean January 31, 2008.
"Fair Market Value" shall mean the fair market value of the Company,
determined in good faith by the Board of Directors, calculated on a per share
basis.
"Purchaser" shall have the meaning assigned to such term in the
introductory sentence hereof.
10
<PAGE>
"Warrants" shall mean this Warrant and all other Warrants issued by the
Company pursuant to the Purchase Agreement, together with all Warrants issued in
exchange, transfer or replacement thereof.
"Warrant Shares" shall mean any shares of Common Stock that are issuable
upon the exercise of any Warrant.
5. MISCELLANEOUS
5.01. No Waiver; Cumulative Remedies. No failure or delay on the part of
the holder of this Warrant in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
5.02. Amendments, Waivers and Consents. Any provision in this Warrant to
the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to the Warrants may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company (a) shall obtain consent thereto in writing from the
holders of at least a majority of the Warrant Shares, and (b) shall deliver
copies of such consent in writing to any holders who did not execute such
consent; provided that no consents shall be effective (i) to amend any of the
provisions of the Warrants pertaining to the Exercise Price or the number of
shares of Common Stock purchasable upon the exercise of any Warrant or (ii) to
reduce the percentage in interest of the Warrant Shares the consent of the
holders of which is required under this Section 5.02. Any waiver or consent may
be given subject to satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
5.03. Addresses for Notices. Any notice, demand, request, waiver or other
communication hereunder shall be in writing and shall be deemed to have been
duly given on the date of service if personally served, on the date of
transmission if sent by telecopier (with confirming copy sent by a nationally
recognized express overnight courier service) or on the first business day after
mailing if mailed to the party to whom notice is given, by a nationally
recognized courier service and addressed as follows:
To the Company: First Mortgage Network, Inc.
8751 Broward Blvd., 5th Floor
Plantation, Florida 33324
Attention: Seth S. Werner
11
<PAGE>
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luther F. Sadler, Esq.
To any holder: At its address set forth on the record books of the
Company
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attn: Edward A. Reilly, Jr., Esq.
5.04. Binding Effect; Assignment. This Warrant shall be binding upon and
inure to the benefit of each of the Company and the holder hereof and their
respective heirs, successors and assigns, except that the Company shall not have
the right to delegate its obligations hereunder or to assign its rights
hereunder or any interest herein.
5.05. Severability. The provisions of this Warrant are severable and, in
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of a provision contained in this Warrant
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Warrant; but the terms of this
Warrant shall be reformed and construed as if such invalid or illegal or
unenforceable provision, or part of a provision, had never been contained
herein, and such provisions or part reformed so that it would be valid, legal
and enforceable to the maximum extent possible.
5.06. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND WITHOUT GIVING
EFFECT TO CHOICE OF LAW PROVISIONS.
5.07. Headings. Article, section and subsection headings in this Warrant
are included herein for convenience of reference only and shall not constitute a
part of this Warrant for any other purpose.
5.08. Specific Enforcement. The Company acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the holder hereof shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Warrant
12
<PAGE>
and to enforce specificaliy the terms and provisions hereof in any court of the
United States or any state thereof having jurisdiction, this being in addition
to any other remedy to which it may be entitled at law or equity.
5.09. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of capital stock of any class or any
other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other Company, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or winding up of
the Company,
then and in each such event the Company shall mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be sent by a nationally recognized overnight
courier, hand delivery or facsimile at least twenty (20) days prior to the date
specified in such notice on which such action is to be taken.
13
<PAGE>
WITNESS the signature of the proper officer of the Company as of the date
first above written.
FIRST MORTGAGE NETWORK, INC.
By /s/ David Larson
--------------------------------------------
David Larson
President
ATTEST:
- --------------------------
Secretary
<PAGE>
Exhibit A
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if
such holder desires to transfer the Warrant)
FOR VALUE RECEIVED, _________________________ hereby sells, assigns and
transfers unto
_______________________________________________________________________________
the accompanying Warrant, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________
attorney, to transfer the accompanying Warrant on the books of the Company of
such Warrant, with full power of substitution.
Dated:____________________, ________.
[HOLDER OF WARRANT]
By ______________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the accompanying Warrant or any prior assignment
thereof in every particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(To be executed by the registered holder if
such holder desires to exercise the Warrant)
To FIRST MORTGAGE NETWORK, INC.
The undersigned hereby irrevocably elects to exercise the accompanying
Warrant to purchase ______ shares of Common Stock issuable upon the exercise of
such Warrant and requests that certificates for such shares be issued in the
name of:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security number or other identifying number)
If such number of shares of Common Stock shall not be all the shares of Common
Stock purchasable upon the exercise of the accompanying Warrant, a new Warrant
for the balance of such remaining shares of Common Stock shall be registered in
the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security number or other identifying number)
Dated: __________________, _______.
[HOLDER OF WARRANT]
By ______________________________
<PAGE>
NOTICE
The signature to the foregoing Election to Purchase must correspond to the
name as written upon the face of the accompanying Warrant or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
Ex-10.22
WARRANT
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THAT ACT AND SUCH LAWS.
No. WR-9 February 9, 1999
MORTGAGE.COM, INC.
COMMON STOCK PURCHASE WARRANT
26 shares of Common Stock, $.01 par value per share, subject to
adjustments as set forth herein.
This Common Stock Purchase Warrant certifies that TCV II, V.O.F. (the
"Purchaser") or registered assigns, is entitled at any time on or after the date
hereof and prior to 5:00 p.m. (New York, New York time) on the Expiration Date,
to purchase from Mortgage.com, Inc. (the "Company"), up to an aggregate of 26
fully paid and nonassessable shares of Common Stock, $.01 par value, of the
Company (the "Common Stock"), at a purchase price of $30.00 per share of Common
Stock (the "Exercise Price"). The number of shares of Common Stock that may be
purchased upon exercise of this Warrant set forth above, and the Exercise Price
per share of Common Stock set forth above, are subject to adjustment as
hereinafter provided.
This Common Stock Purchase Warrant is issued pursuant to that certain
$2,000,000 Note Purchase Agreement, dated as of February 9, 1999, among the
Company and certain Persons named therein (the "Purchase Agreement"), and it is
subject to all of the terms, provisions and conditions thereof, which Purchase
Agreement is hereby incorporated herein by reference and made a part hereof and
to which Purchase Agreement reference is hereby made for a full description of
the rights, obligations, duties and immunities of the Company and the holder of
this Warrant. Capitalized terms used but not defined herein have the meanings
assigned to them in the Purchase Agreement. Copies of the Purchase Agreement are
on file at the office of the Company as set forth herein.
Florida Documentary Stamp Tax required by law in the amount of $0.35 has been
paid or will be paid directly to the Department of Revenue. Certificate of
Registration No. 390473800-26-001.
1
<PAGE>
1. EXERCISE OF WARRANTS; EXERCISE PRICE
1.01. Exercise of Warrants. At any time on or after the earlier of (x)
February 9, 2000, (y) the effectiveness of the Initial Public Offering (as
hereinafter defined) and (z) a merger of the Company with or into any other
corporation, the conveyance transfer or lease of substantially all of its assets
in a single transaction or series of transactions, or a sale, in one or more
transactions of more than 50% of the Common Stock of the Company on a fully
diluted basis; and prior to the Expiration Date, the holder of this Warrant may
exercise the rights evidenced hereby in whole or in part, by surrender of this
Warrant, with an election to purchase (a form of which is attached hereto in
Exhibit A) attached thereto duly executed, to the Company at its office referred
to in Section 5.03 hereof, together with payment of the Exercise Price (payable
as set forth below) for each share of Common Stock as to which this Warrants is
exercised. The Exercise Price shall be payable (a) in cash or by certified or
official bank check payable to the order of the Company or by wire transfer of
immediately available funds to the account of the Company, (b) by delivery of
Warrants to the Company for cancellation in accordance with the following
formula: in exchange for each share of Common Stock issuable upon exercise of
each Warrant any holder thereof so delivers for cancellation, such holder shall
receive such number of shares of Common Stock as is equal to the product of (i)
the number of shares of Common Stock issuable upon exercise of such Warrant at
such time multiplied by (ii) a fraction, the numerator of which is the Fair
Market Value per share of Common Stock at such time minus the Exercise Price per
share of Common Stock at such time, and the denominator of which is the Fair
Market Value per share of Common Stock at such time, or (c) by cancellation of
amounts outstanding (whether in respect of principal or interest) under the
Notes in an amount equal to the aggregate Exercise Price for the shares of
Common Stock to be purchased on such date upon delivery of such Notes to the
Company for cancellation and reissuance in the appropriate lesser principal
amounts.
1.02. Issuance of Common Stock. Upon timely receipt of this Warrant,
with the form of election to purchase duly executed, accompanied by payment of
the Exercise Price for each of the shares to be purchased in the manner provided
in Section 1.01 and an amount equal to any applicable transfer tax (if not
payable by the Company as provided in Section 2.03 hereof), the Company shall
thereupon promptly cause certificates for the number of shares of Common Stock
then being purchased to be delivered to or upon the order of the registered
holder of this Warrant.
1.03. Unexercised Warrants. In case the registered holder of this
Warrant shall purchase less than all the shares of Common Stock purchasable
thereunder, a new Warrant evidencing the right to purchase the remaining shares
of Common Stock
2
<PAGE>
thereunder shall be issued by the Company to the registered holder of this
Warrant or to its duly authorized assigns.
1.04. Common Stock Record Date. Each Person in whose name any
certificate for shares of Common Stock is issued upon the exercise of this
Warrant shall for all purposes be deemed to have become the holder of record of
the Common Stock represented thereby on, and such certificate shall be dated the
date upon which this Warrant was duly surrendered with an election to purchase
attached thereto duly executed and payment of the aggregate Exercise Price (and
any applicable transfer taxes, if payable by such Person) was made in accordance
with the terms hereof. Prior to exercise, the holder of this Warrant shall not
be entitled to any rights of a stockholder of the Company with respect to the
shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote or to receive dividends or other distributions
(except as otherwise provided in the Purchase Agreement) and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided herein or in any other applicable agreement between the Company and
such holder.
2. RESERVATION OF COMMON STOCK; TRANSFER OF WARRANTS; TRANSFER
TAXES
2.01. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the exercise of the Warrants, such
number of its shares of Common Stock as shall from time to time be the maximum
amount which may be required to effect the exercise of all outstanding Warrants,
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the exercise of all then outstanding Warrants,
the Company shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
2.02. Common Stock to be Duly Authorized and Issued, Fully Paid and
Nonassessable. The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock delivered
upon the exercise of any Warrants, at the time of delivery of the certificates
for such shares, shall be duly and validly authorized and issued and fully paid
and nonassessable and the issuance of such shares will not be subject to
preemptive or other similar contractual rights of any other stockholder of the
Company.
2.03. Transfer, Split Up, etc. This Warrant, with or without any
Warrants, may be transferred, split up, combined or exchanged for another
Warrant or Warrants, entitling the registered holder or transferee thereof to
purchase a like number of shares
3
<PAGE>
of Common Stock as the Warrant or Warrants surrendered then entitled such
registered holder to purchase. Any registered holder desiring to transfer, split
up, combine or exchange this Warrant shall make such request in writing
delivered to the Company, and shall surrender the Warrant or Warrants to be
transferred, split up, combined or exchanged at the office of the Company
referred to in Section 5.03 hereof. Thereupon the Company shall deliver promptly
to the Person entitled thereto (as set forth in the written notice) a Warrant or
Warrants, as the case may be, as so requested.
2.04. Transfer Taxes. The Company covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the initial issuance or delivery of (a) each
Warrant and (b) each share of Common Stock issued upon the exercise of any
Warrant. The Company shall not, however, be required to (y) pay any transfer tax
that may be payable in respect of the transfer or delivery of Warrants or the
issuance or delivery of certificates for shares of Common Stock in a name other
than that of the registered holder of any Warrant surrendered for exercise or
(z) issue or deliver any such certificates for shares of Common Stock upon the
exercise of any Warrant until any such tax shall have been paid (any such tax
being payable by the holder of such Warrant at the time of surrender).
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES;
FRACTIONAL SHARES
3.01. Mechanical Adjustments. The number of shares of Common Stock
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) Dividends, Subdivisions and Combinations. In the event
that the Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares or (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, then the Exercise Price
in effect at the time of the record date for such dividend or of the effective
date of such subdivision or combination shall be proportionately adjusted to the
price determined by multiplying the Exercise Price in effect immediately prior
to such event by a fraction, (y) the numerator of which shall be the total
number of outstanding shares of Common Stock immediately prior to such event and
(z) the denominator of which shall be the total number of outstanding shares of
Common Stock immediately after such event. An adjustment made pursuant to this
Section 3.01(a) shall become effective on the effective date of such event.
4
<PAGE>
(b) Distribution of Property. In the event that the Company
shall distribute to all holders of shares of Common Stock (including, without
limitation, any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) shares of stock
(other than Common Stock), evidences of its indebtedness, other assets
(excluding (i) any distribution or dividend resulting in a distribution pursuant
to Section 3.04 and (ii) dividends referred to in Section 3.01(a)(i) hereof), or
rights, options, warrants or convertible or exchangeable securities (excluding
those referred to in Section 3.01(c) hereof) then in each case, the Exercise
Price to be in effect after the record date in respect of which such stock,
indebtedness, other assets, rights, options, warrants or securities were issued
shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, (y) the numerator of which shall be the
Exercise Price in effect immediately prior to such record date minus the then
fair value (as determined in good faith and on a reasonable basis by the Board
of Directors) of the portion of the shares of stock or assets or evidences of
indebtedness so distributed or of such rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock
and (z) the denominator of which shall be the Exercise Price in effect
immediately prior to such record date. Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the date of such
distribution.
(c) Issuances of Common Stock and Other Securities.
(i) In the event that the Company shall issue or sell
shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock for no consideration or at a "price per share" of Common Stock
lower than the Exercise Price then in effect on the date of such issuance or
sale, then in each case, the Exercise Price to be in effect immediately after
such issuance or sale shall be determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, (y) the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus the number of additional shares
the Aggregate Consideration Receivable (as defined below) would purchase at the
Exercise Price in effect immediately prior to such issuance or sale and (z) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus the number of additional shares
of Common Stock so issued or sold (or initially issuable pursuant to such
rights, options, or warrants or into which such convertible or exchangeable
securities are initially convertible or exchangeable).
(ii) In the case of rights, options, warrants or
convertible or exchangeable securities, the "price per share" of Common Stock
referred to above
5
<PAGE>
shall be determined by dividing (A) the Aggregate Consideration Receivable in
respect of such rights, options, warrants or convertible or exchangeable
securities by (B) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities.
(iii) "Aggregate Consideration Receivable", in the
case of a sale of shares of Common Stock, means the aggregate amount paid to the
Company in connection therewith and, in the case of an issuance or sale of
rights, options, warrants, or convertible or exchangeable securities, means the
aggregate amount paid to the Company for such rights, options, warrants or
convertible or exchangeable securities, plus the aggregate consideration or
premiums stated in such rights, options, warrants or convertible or exchangeable
securities to be payable for the shares of Common Stock covered thereby.
(iv) In the event that the Company shall issue and
sell shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in part, of
property other than cash or its equivalent, then in determining the "price per
share" of Common Stock and the "Aggregate Consideration Receivable", the Board
of Directors shall determine, in good faith and on a reasonable basis, the fair
value of such property.
(d) Consolidation and Merger. In the event that there shall be
(i) any consolidation of the Company with, or merger of the Company with or
into, another corporation (other than a merger in which the Company is the
surviving corporation and that does not result in any reclassification or change
of shares of Common Stock outstanding immediately prior to such merger), (ii)
any sale or conveyance to another corporation of the property of the Company
substantially as an entirety, or (iii) any reclassification of the Common Stock
that results in the issuance of other securities of the Company, then, in
addition to and notwithstanding any other rights provided to the holder this
Warrant upon such occurrence, lawful provision shall be made as a part of the
terms of such transaction so that such holder shall thereafter have the right to
purchase the number and kind of shares of stock (and/or other securities, cash,
property or rights) receivable upon such consolidation, merger, sale, conveyance
or reclassification by a holder of such number of shares of Common Stock as such
holder would have had the right to acquire upon the exercise of this Warrant
immediately prior to such consolidation, merger, sale or conveyance at the
Exercise Price then in effect.
(e) De Minimis Changes in Exercise Price. No adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) of the Exercise Price,
provided, however, that
6
<PAGE>
any adjustments that, at the time of the calculation thereof, are less than one
percent (1%) of the Exercise Price, at such time and by reason of this Section
3.01(e) are not required to be made at such time shall be carried forward and
added to any subsequent adjustment or adjustments for purposes of determining
whether such subsequent adjustments, as so supplemented, exceed the one percent
(1%) amount set forth herein and, if any such subsequent adjustment, as so
supplemented or otherwise, should exceed such one percent (1%) amount, all
adjustments deferred prior thereto and not previously made shall then be made.
In any case, all such adjustments being carried forward pursuant to this Section
3.01(e) shall be given effect upon the exercise of this Warrant by the holder
hereof for purposes of determining the Exercise Price thereof and the number of
shares of Common Stock then issuable upon such exercise. All calculations shall
be made to the nearest one-millionth of a Dollar ($.000001).
(f) Adjustment of Number of Shares Issuable Pursuant to this
Warrant. Upon each adjustment of the Exercise Price as a result of the
calculations made in this Section 3.01 or as a result of the occurrence of the
Initial Public Offering, this Warrant shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of shares of Common Stock
(calculated to the nearest one-thousandth) obtained by (i) multiplying the
number of shares of Common Stock covered by this Warrant immediately prior to
such adjustment by the Exercise Price in effect immediately prior to such
adjustment and (ii) dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment. Subsequent to any adjustment made to
the Exercise Price hereunder, this Warrant shall evidence the right to purchase,
at the adjusted Exercise Price, the number of shares of Common Stock determined
to be purchasable from time to time hereunder upon exercise of this Warrant, all
subject to further adjustment as provided herein. Irrespective of any adjustment
or change in the Exercise Price or the number of shares of Common Stock issuable
upon the exercise of this Warrant, this Warrant and any Warrants theretofore or
thereafter issued in replacement hereof may continue to express the Exercise
Price per share of Common Stock and the number of shares of Common Stock that
were expressed upon the initial issuance of this Warrant under the Purchase
Agreement.
(g) Miscellaneous. Adjustments shall be made pursuant to this
Section 3.01 successively whenever any of the events referred to in Section
3.01(a) through Section 3.01(d) inclusive hereof shall occur. If this Warrant
shall be exercised subsequent to the record date for any of the events referred
to in this Section 3.01, but prior to the effective date thereof, appropriate
adjustments shall be made immediately after such effective date so that the
holder of this Warrant on such record date shall have received, in the
aggregate, the kind and number of shares of Common Stock or other securities or
assets that it would have owned or been entitled to receive on such effective
date had this Warrant been exercised prior to such record date.
7
<PAGE>
Shares of Common Stock owned by or held for the account of the Company shall
not, for purposes of the adjustments set forth in this Section 3.01 be deemed
outstanding.
(h) Expiration of Rights, Options, etc. Upon the expiration of
any rights, options, warrants or conversion or exchange privileges referred to
above in this Section 3.01, without the full exercise thereof, the Exercise
Price, and the number of shares of Common Stock purchasable upon the exercise of
this Warrant shall, upon such expiration, be readjusted and shall thereafter be
such as such Exercise Price and such number of shares of Common Stock would have
been had they been originally adjusted as if (i) the only shares of Common Stock
available to be purchased upon exercise of such rights, options, warrants or
conversion or exchange privileges were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange privileges and (ii) such shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company upon
such exercise plus the aggregate consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion or exchange privileges whether or not exercised; provided, however,
that no such readjustment shall have the effect of increasing the Exercise Price
by an amount in excess of the amount of the reduction initially made in respect
of the issuance, sale, or grant of such rights, options, warrants or conversion
of exchange privileges.
(i) Other Securities. In the event that at any time, as a result of an
adjustment made pursuant to Section 3.01, the holder of this Warrant shall
become entitled to purchase any securities of the Company other than shares of
Common Stock, the number or amount of such other securities so purchasable and
the purchase price of such securities shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions contained in Section 3.01(a) through Section 3.01(d), inclusive, and
all other relevant provisions of this Section 3.01 that are applicable to shares
of Common Stock shall be applicable to such other securities.
(j) Notice of Adjustment. Whenever the number of shares of Common Stock
issuable upon the exercise of this Warrant or the Exercise Price in respect
thereof is adjusted, as herein provided, the Company shall promptly give to the
holder of this Warrant, notice of such adjustment or adjustments and shall
promptly deliver to such holder a certificate of the Company's chief financial
officer setting forth (i) the number of shares of Common Stock issuable upon the
exercise of this Warrant and the Exercise Price of such shares after such
adjustment, (ii) a brief statement of the facts requiring such adjustment, and
(iii) the computation by which such adjustment was made. So long as this Warrant
is outstanding, within 90 days of the end of each fiscal year of the Company,
the Company shall deliver to the holder a certificate of a firm of
8
<PAGE>
independent public accountants selected by the Board of Directors (who may be
the regular accountants employed by the Company) setting forth (i) the number of
shares of Common Stock issuable upon the exercise of this Warrant and the
Exercise Price of such shares as of the end of such fiscal year, (ii) a brief
statement of the facts requiring each such adjustment required to be made in
such fiscal year and (iii) the computation by which each such adjustment was
made.
3.02. Elimination of Fractional Interests. The Company shall not be
required upon the exercise of this Warrant to issue stock certificates
representing fractions of shares of Common Stock, but shall instead pay in cash,
in lieu of any fractional shares of Common Stock to which such holder would
otherwise be entitled if such fractional shares were issuable, an amount equal
to the Fair Market Value per share of Common Stock as of the date of such
exercise.
3.03. Right of Action. All rights of action in respect of the Warrants
are vested in the respective registered holders of the Warrants and any
registered holder of any Warrant, without the consent of the holder of any other
Warrant, may, in its own behalf and for its own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, its right to exercise the Warrants held
by it in the manner provided therein.
3.04. Distributions. In the event that the Company shall distribute to
all holders of shares of Common Stock (including, without limitation, any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) cash or cash equivalents, then in each
case the holders of the Warrants shall be entitled to receive from the Company
the same amount of cash or cash equivalents that would have been distributed to
such holders if such Warrants had been exercised immediately prior to the record
date for such distribution. Such distribution to the holders of the Warrants
shall be made whenever any such distribution is made to the holders of shares of
Common Stock.
3.05. Exceptions to Antidilution Adjustments. Notwithstanding the
foregoing, no adjustments shall be made under Section 3.01 in respect of (a)
shares of Common Stock, or options exercisable therefor, issued or to be issued
under the Stock Option Plan, (b) Series A Preferred Stock issued upon any
subdivision or combination of shares of Series A Preferred Stock, (c) Series B
Preferred Stock issued upon any subdivision or combination of shares of Series B
Preferred Stock, (d) Series C Preferred Stock issued upon any subdivision or
combination of shares of Series C Preferred Stock, (e) Series D Preferred Stock
issued upon any subdivision or combination of shares of Series D Preferred
Stock, (f) Special Preferred Stock (Northern California Division) issued upon
any subdivision or combination of shares of Special Preferred Stock (Northern
California Division), (g) shares of Common Stock issuable upon
9
<PAGE>
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Special Preferred Stock (Northern
California Division), (h) 247,500 shares of Common Stock issuable upon exercise
of the warrants held by the former 14% Subordinated Debenture Holders and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock, (i) 500,000 shares of
Common Stock issuable upon exercise of the warrants held by Superior Bank,
F.S.B., and any additional shares required to be issued thereunder to adjust for
any stock split, stock dividend or combination of Common Stock, (j) 13,333
shares of Common Stock issuable upon the conversion of the 12% Subordinated
Debentures and any additional shares required to be issued thereunder to adjust
for any stock split, stock dividend or combination of Common Stock, (k)25,000
shares of Common Stock issuable upon the exercise of the Buscema Options and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock, (l) 100,000 shares of
Common Stock issuable to Jason Massey, John Tomko and Dennis Brunelle pursuant
to the Second Amendment to Agreement for the Operation of the First Realty
Network, Inc., among the Company, Realeads, U.S.A., Inc., First Realty Network,
Inc., Consumer Real Estate Research, Inc., and John Tomko, Jason Massey, and
Dennis Brunelle, dated on or about December 5, 1996, and any additional shares
required to be issued thereunder to adjust for any stock split, stock dividend
or combination of Common Stock, (m) 132,455 shares of Common Stock issuable upon
exercise of the warrants held by George A. Naddaff (other than as a former 14%
Subordinated Debenture Holder), and any additional shares required to be issued
thereunder to adjust for any stock split, stock dividend or combination of
Common Stock, (n) 92,436 shares of Common Stock issuable upon exercise of the
warrants held by Raymond James & Associates, Inc., and any additional shares
required to be issued thereunder to adjust for any stock split, stock dividend
or combination of Common Stock, (o) 50,000 shares of Common Stock issuable upon
exercise of the warrants held by former holders of 12% Senior Subordinated
Convertible Notes dated August 31, 1997, and any additional shares required to
be issued thereunder to adjust for any stock split, stock dividend or
combination of Common Stock, (p) 66,667 shares of Common Stock issuable upon
exercise of the warrants held by former holders of 12% Senior Subordinated
Convertible Notes dated January 30, 1998, and any additional shares required to
be issued thereunder to adjust for any stock split, stock dividend or
combination of Common Stock, (q) 100,000 shares of Common Stock issuable
pursuant to the exercise of warrants to be earned under the Option Agreement
dated January 28, 1998, among the Company, Kyle Meyer, Andrew Heller, John T.
Rodgers and RM Holdings, Inc., and any additional shares required to be issued
thereunder to adjust for any stock split, stock dividend or combination of
Common Stock, (r) 36,000 shares of Common Stock issuable upon exercise of
warrants held by FMN Associates, Ltd., and any additional shares required to be
issued thereunder to adjust for any stock split, stock dividend or combination
of
10
<PAGE>
Common Stock, (s) 100,000 shares of Common Stock issuable pursuant to the Domain
Name Assignment Agreement dated as of January 1, 1999, between the Company and
Credit.com, LLC, and any additional shares required to be issued thereunder to
adjust for any stock split, stock dividend or combination of Common Stock, (t)
50,000 shares of Common Stock issuable pursuant to the Technology Member
Correspondent Agreement dated on or about November 1, 1998, between the Company
and Mortgage Loan Specialists, Inc., and any additional shares required to be
issued thereunder to adjust for any stock split, stock dividend or combination
of Common Stock, (u) 50,000 shares of Common Stock issuable pursuant to the
Technology Member Correspondent Agreement dated on or about November 1, 1998,
between the Company and First Capital, Inc., and any additional shares required
to be issued thereunder to adjust for any stock split, stock dividend or
combination of Common Stock, and (v) 18,650 shares of Series D Preferred Stock
issuable upon the exercise of the warrants held by Dominion Fund III, any Common
Stock issuable in conversion of the Series D Preferred Stock issued thereunder,
and any additional shares required to be issued thereunder to adjust for any
stock split, stock dividend or combination of Series D Preferred Stock or Common
Stock.
4. DEFINITIONS AND ACCOUNTING TERMS
As used herein, the following terms shall have the following meanings:
"Aggregate Consideration Receivable" shall have the meaning
assigned to such term in Section 3.01.
"Common Stock" shall have the meaning assigned to such term in
the introductory sentence hereof.
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Exercise Price" shall have the meaning assigned to such term
in the introductory sentence hereof. Notwithstanding anything to the contrary
contained herein, in the event that the Company consummates an Initial Public
Offering of its Common Stock on or prior to February 9, 2000, the Exercise Price
shall be equal to the price per share of such Common Stock immediately prior to
the effectiveness of the registration statement filed under the Securities Act
of 1933, as amended, in connection with the Initial Public Offering.
"Expiration Date" shall mean February 9, 2009.
11
<PAGE>
"Fair Market Value" shall mean the fair market value of the
Company, determined in good faith by the Board of Directors, calculated on a per
share basis.
"Initial Public Offering" shall mean an initial public
offering of the Company's Common Stock pursuant to a registration statement
filed under the Securities Act of 1933, as amended.
"Purchase Agreement" shall mean the $2,000,000 Note Purchase
Agreement dated February 9, 1999, by and among the Company, the Purchaser and
certain other Persons named therein.
"Purchaser" shall have the meaning assigned to such term in
the introductory sentence hereof.
"Warrants" shall mean this Warrant and all other Warrants
issued by the Company pursuant to the Purchase Agreement, together with all
Warrants issued in exchange, transfer or replacement thereof.
"Warrant Shares" shall mean any shares of Common Stock that
are issuable upon the exercise of any Warrant.
5. MISCELLANEOUS
5.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of the holder of this Warrant in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
5.02. Amendments, Waivers and Consents. Any provision in this Warrant
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to the Warrants may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company (a) shall obtain consent thereto in writing from the
holders of at least a majority of the Warrant Shares, and (b) shall deliver
copies of such consent in writing to any holders who did not execute such
consent; provided that no consents shall be effective (i) to amend any of the
provisions of the Warrants pertaining to the Exercise Price or the number of
shares of Common Stock purchasable upon the exercise of any Warrant or (ii) to
reduce the percentage in interest of the Warrant Shares the consent of the
holders of which is required under this Section 5.02. Any waiver or consent may
be given subject to satisfaction of conditions stated therein and any waiver or
12
<PAGE>
consent shall be effective only in the specific instance and for the specific
purpose for which given.
5.03. Addresses for Notices. Any notice, demand, request, waiver or
other communication hereunder shall be in writing and shall be deemed to have
been duly given on the date of service if personally served, on the date of
transmission if sent by telecopier (with confirming copy sent by a nationally
recognized express overnight courier service) or on the first business day after
mailing if mailed to the party to whom notice is given, by a nationally
recognized courier service and addressed as follows:
To the Company: Mortgage.com, Inc.
8751 Broward Blvd., 5th Floor
Plantation, Florida 33324
Attention: Seth S. Werner
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luther F. Sadler, Esq.
To any holder: At its address set forth on the record books of the
Company
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attn: Edward A. Reilly, Jr., Esq.
5.04. Binding Effect; Assignment. This Warrant shall be binding upon
and inure to the benefit of each of the Company and the holder hereof and their
respective heirs, successors and assigns, except that the Company shall not have
the right to delegate its obligations hereunder or to assign its rights
hereunder or any interest herein.
5.05. Severability. The provisions of this Warrant are severable and,
in the event that any court of competent jurisdiction shall determine that any
one or more of the provisions or part of a provision contained in this Warrant
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Warrant; but the terms of this
Warrant shall be reformed and construed as if such invalid or illegal or
unenforceable provision, or part of a provision, had never been
13
<PAGE>
contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
5.06. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND WITHOUT
GIVING EFFECT TO CHOICE OF LAW PROVISIONS.
5.07. Headings. Article, section and subsection headings in this
Warrant are included herein for convenience of reference only and shall not
constitute a part of this Warrant for any other purpose.
5.08. Specific Enforcement. The Company acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the holder hereof shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Warrant and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which it may be entitled at law or
equity.
5.09. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company, or any transfer of all or substantially
all of the assets of the Company to any other Company, or any other entity or
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Company,
then and in each such event the Company shall mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be
14
<PAGE>
fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up. Such notice shall be sent by a
nationally recognized overnight courier, hand delivery or facsimile at least
twenty (20) days prior to the date specified in such notice on which such action
is to be taken.
15
<PAGE>
WITNESS the signature of the proper officer of the Company as of the
date first above written.
MORTGAGE.COM, INC.
By ________________________
Name:
Title:
ATTEST:
______________________
Secretary
<PAGE>
Exhibit A
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if
such holder desires to transfer the Warrant)
FOR VALUE RECEIVED,_____________________________ hereby sells,
assigns and transfers unto
________________________________________________________________________________
the accompanying Warrant, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint______________________________
attorney, to transfer the accompanying Warrant on the books of the Company of
such Warrant, with full power of substitution.
Dated: ______________,______.
TCV II, V.O.F.
By____________________________
NOTICE
The signature to the foregoing Assignment must correspond to
the name as written upon the face of the accompanying Warrant or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(To be executed by the registered holder if
such holder desires to exercise the Warrant)
To MORTGAGE.COM, INC.
The undersigned hereby irrevocably elects to exercise the accompanying
Warrant to purchase 26 shares of Common Stock issuable upon the exercise of such
Warrant and requests that certificates for such shares be issued in the name of:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security number or other identifying number)
If such number of shares of Common Stock shall not be all the shares of Common
Stock purchasable upon the exercise of the accompanying Warrant, a new Warrant
for the balance of such remaining shares of Common Stock shall be registered in
the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security number or other identifying number)
Dated:________________,_______.
TCV II, V.O.F.
By___________________________
NOTICE
The signature to the foregoing Election to Purchase must
correspond to the name as written upon the face of the accompanying Warrant or
any prior assignment thereof in every particular, without alteration or
enlargement or any change whatsoever.
Form of Warrant
WARRANT
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THAT ACT AND SUCH LAWS.
No. WR-[__] February 26, 1999
MORTGAGE.COM, INC.
COMMON STOCK PURCHASE WARRANT
6,668 shares of Common Stock, $.01 par value per share, subject to
adjustments as set forth herein.
This Common Stock Purchase Warrant certifies that
[______________________] (the "Purchaser") or registered assigns, is entitled at
any time on or after the date hereof and prior to 5:00 p.m. (New York, New York
time) on the Expiration Date, to purchase from Mortgage.com, Inc. (the
"Company"), up to an aggregate of 6,668 fully paid and nonassessable shares of
Common Stock, $.01 par value, of the Company (the "Common Stock"), at a purchase
price of $30.00 per share of Common Stock (the "Exercise Price"); provided that
the initial number of shares in the amount of 6,668 may be reduced by one-half
in accordance with the provisions of Section 3.06 below. The number of shares of
Common Stock that may be purchased upon exercise of this Warrant set forth
above, and the Exercise Price per share of Common Stock set forth above, are
subject to adjustment as hereinafter provided.
This Common Stock Purchase Warrant is issued pursuant to that certain
$8,000,000 Note Purchase Agreement, dated as of February 26, 1999, among the
Company and certain Persons named therein (the "Purchase Agreement"), and it is
subject to all of the terms, provisions and conditions thereof, which Purchase
Agreement is hereby incorporated herein by reference and made a part hereof and
to which Purchase Agreement reference is hereby made for a full description of
the rights, obligations, duties and immunities of the Company and the holder of
this Warrant. Capitalized terms used but not defined herein have the meanings
assigned to them in the Purchase Agreement. Copies of the Purchase Agreement are
on file at the office of the Company as set forth herein.
1
<PAGE>
1. EXERCISE OF WARRANTS; EXERCISE PRICE
1.01. Exercise of Warrants. At any time on or after the earlier of (x)
February 26, 2001, (y) the effectiveness of the Initial Public Offering (as
hereinafter defined) and (z) a merger of the Company with or into any other
corporation, the conveyance transfer or lease of substantially all of its assets
in a single transaction or series of transactions, or a sale, in one or more
transactions of more than 50% of the Common Stock of the Company on a fully
diluted basis; and prior to the Expiration Date, the holder of this Warrant may
exercise the rights evidenced hereby in whole or in part, by surrender of this
Warrant, with an election to purchase (a form of which is attached hereto in
Exhibit A) attached thereto duly executed, to the Company at its office referred
to in Section 5.03 hereof, together with payment of the Exercise Price (payable
as set forth below) for each share of Common Stock as to which this Warrants is
exercised. The Exercise Price shall be payable (a) in cash or by certified or
official bank check payable to the order of the Company or by wire transfer of
immediately available funds to the account of the Company, (b) by delivery of
Warrants to the Company for cancellation in accordance with the following
formula: in exchange for each share of Common Stock issuable upon exercise of
each Warrant any holder thereof so delivers for cancellation, such holder shall
receive such number of shares of Common Stock as is equal to the product of (i)
the number of shares of Common Stock issuable upon exercise of such Warrant at
such time multiplied by (ii) a fraction, the numerator of which is the Fair
Market Value per share of Common Stock at such time minus the Exercise Price per
share of Common Stock at such time, and the denominator of which is the Fair
Market Value per share of Common Stock at such time, or (c) by cancellation of
amounts outstanding (whether in respect of principal or interest) under the
Notes in an amount equal to the aggregate Exercise Price for the shares of
Common Stock to be purchased on such date upon delivery of such Notes to the
Company for cancellation and reissuance in the appropriate lesser principal
amounts.
1.02. Issuance of Common Stock. Upon timely receipt of this Warrant,
with the form of election to purchase duly executed, accompanied by payment of
the Exercise Price for each of the shares to be purchased in the manner provided
in Section 1.01 and an amount equal to any applicable transfer tax (if not
payable by the Company as provided in Section 2.03 hereof), the Company shall
thereupon promptly cause certificates for the number of shares of Common Stock
then being purchased to be delivered to or upon the order of the registered
holder of this Warrant.
1.03. Unexercised Warrants. In case the registered holder of this
Warrant shall purchase less than all the shares of Common Stock purchasable
thereunder, a new Warrant evidencing the right to purchase the remaining shares
of Common Stock
2
<PAGE>
thereunder shall be issued by the Company to the registered holder of this
Warrant or to its duly authorized assigns.
1.04. Common Stock Record Date. Each Person in whose name any
certificate for shares of Common Stock is issued upon the exercise of this
Warrant shall for all purposes be deemed to have become the holder of record of
the Common Stock represented thereby on, and such certificate shall be dated the
date upon which this Warrant was duly surrendered with an election to purchase
attached thereto duly executed and payment of the aggregate Exercise Price (and
any applicable transfer taxes, if payable by such Person) was made in accordance
with the terms hereof. Prior to exercise, the holder of this Warrant shall not
be entitled to any rights of a stockholder of the Company with respect to the
shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote or to receive dividends or other distributions
(except as otherwise provided in the Purchase Agreement) and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided herein or in any other applicable agreement between the Company and
such holder.
2. RESERVATION OF COMMON STOCK; TRANSFER OF WARRANTS; TRANSFER
TAXES
2.01. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the exercise of the Warrants, such
number of its shares of Common Stock as shall from time to time be the maximum
amount which may be required to effect the exercise of all outstanding Warrants,
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the exercise of all then outstanding Warrants,
the Company shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
2.02. Common Stock to be Duly Authorized and Issued, Fully Paid and
Nonassessable. The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock delivered
upon the exercise of any Warrants, at the time of delivery of the certificates
for such shares, shall be duly and validly authorized and issued and fully paid
and nonassessable and the issuance of such shares will not be subject to
preemptive or other similar contractual rights of any other stockholder of the
Company.
2.03. Transfer, Split Up, etc. This Warrant, with or without any
Warrants, may be transferred, split up, combined or exchanged for another
Warrant or Warrants, entitling the registered holder or transferee thereof to
purchase a like
3
<PAGE>
number of shares of Common Stock as the Warrant or Warrants surrendered then
entitled such registered holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange this Warrant shall make such request in
writing delivered to the Company, and shall surrender the Warrant or Warrants to
be transferred, split up, combined or exchanged at the office of the Company
referred to in Section 5.03 hereof. Thereupon the Company shall deliver promptly
to the Person entitled thereto (as set forth in the written notice) a Warrant or
Warrants, as the case may be, as so requested.
2.04. Transfer Taxes. The Company covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the initial issuance or delivery of (a) each
Warrant and (b) each share of Common Stock issued upon the exercise of any
Warrant. The Company shall not, however, be required to (y) pay any transfer tax
that may be payable in respect of the transfer or delivery of Warrants or the
issuance or delivery of certificates for shares of Common Stock in a name other
than that of the registered holder of any Warrant surrendered for exercise or
(z) issue or deliver any such certificates for shares of Common Stock upon the
exercise of any Warrant until any such tax shall have been paid (any such tax
being payable by the holder of such Warrant at the time of surrender).
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES;
FRACTIONAL SHARES
3.01. Mechanical Adjustments. The number of shares of Common Stock
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) Dividends, Subdivisions and Combinations. In the event
that the Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares or (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, then the Exercise Price
in effect at the time of the record date for such dividend or of the effective
date of such subdivision or combination shall be proportionately adjusted to the
price determined by multiplying the Exercise Price in effect immediately prior
to such event by a fraction, (y) the numerator of which shall be the total
number of outstanding shares of Common Stock immediately prior to such event and
(z) the denominator of which shall be the total number of outstanding shares of
Common Stock immediately after such event. An adjustment made pursuant to this
Section 3.01(a) shall become effective on the effective date of such event.
4
<PAGE>
(b) Distribution of Property. In the event that the Company
shall distribute to all holders of shares of Common Stock (including, without
limitation, any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) shares of stock
(other than Common Stock), evidences of its indebtedness, other assets
(excluding (i) any distribution or dividend resulting in a distribution pursuant
to Section 3.04 and (ii) dividends referred to in Section 3.01(a)(i) hereof), or
rights, options, warrants or convertible or exchangeable securities (excluding
those referred to in Section 3.01(c) hereof) then in each case, the Exercise
Price to be in effect after the record date in respect of which such stock,
indebtedness, other assets, rights, options, warrants or securities were issued
shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, (y) the numerator of which shall be the
Exercise Price in effect immediately prior to such record date minus the then
fair value (as determined in good faith and on a reasonable basis by the Board
of Directors) of the portion of the shares of stock or assets or evidences of
indebtedness so distributed or of such rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock
and (z) the denominator of which shall be the Exercise Price in effect
immediately prior to such record date. Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the date of such
distribution.
(c) Issuances of Common Stock and Other Securities.
(i) In the event that the Company shall issue or sell
shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock for no consideration or at a "price per share" of Common Stock
lower than the Exercise Price then in effect on the date of such issuance or
sale, then in each case, the Exercise Price to be in effect immediately after
such issuance or sale shall be determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, (y) the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus the number of additional shares
the Aggregate Consideration Receivable (as defined below) would purchase at the
Exercise Price in effect immediately prior to such issuance or sale and (z) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus the number of additional shares
of Common Stock so issued or sold (or initially issuable pursuant to such
rights, options, or warrants or into which such convertible or exchangeable
securities are initially convertible or exchangeable).
(ii) In the case of rights, options, warrants or
convertible or exchangeable securities, the "price per share" of Common Stock
referred to above
5
<PAGE>
shall be determined by dividing (A) the Aggregate Consideration Receivable in
respect of such rights, options, warrants or convertible or exchangeable
securities by (B) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities.
(iii) "Aggregate Consideration Receivable", in the
case of a sale of shares of Common Stock, means the aggregate amount paid to the
Company in connection therewith and, in the case of an issuance or sale of
rights, options, warrants, or convertible or exchangeable securities, means the
aggregate amount paid to the Company for such rights, options, warrants or
convertible or exchangeable securities, plus the aggregate consideration or
premiums stated in such rights, options, warrants or convertible or exchangeable
securities to be payable for the shares of Common Stock covered thereby.
(iv) In the event that the Company shall issue and
sell shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in part, of
property other than cash or its equivalent, then in determining the "price per
share" of Common Stock and the "Aggregate Consideration Receivable", the Board
of Directors shall determine, in good faith and on a reasonable basis, the fair
value of such property.
(d) Consolidation and Merger. In the event that there shall be
(i) any consolidation of the Company with, or merger of the Company with or
into, another corporation (other than a merger in which the Company is the
surviving corporation and that does not result in any reclassification or change
of shares of Common Stock outstanding immediately prior to such merger), (ii)
any sale or conveyance to another corporation of the property of the Company
substantially as an entirety, or (iii) any reclassification of the Common Stock
that results in the issuance of other securities of the Company, then, in
addition to and notwithstanding any other rights provided to the holder this
Warrant upon such occurrence, lawful provision shall be made as a part of the
terms of such transaction so that such holder shall thereafter have the right to
purchase the number and kind of shares of stock (and/or other securities, cash,
property or rights) receivable upon such consolidation, merger, sale, conveyance
or reclassification by a holder of such number of shares of Common Stock as such
holder would have had the right to acquire upon the exercise of this Warrant
immediately prior to such consolidation, merger, sale or conveyance at the
Exercise Price then in effect.
(e) De Minimis Changes in Exercise Price. No adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) of the Exercise Price,
provided, however, that
6
<PAGE>
any adjustments that, at the time of the calculation thereof, are less than one
percent (1%) of the Exercise Price, at such time and by reason of this Section
3.01(e) are not required to be made at such time shall be carried forward and
added to any subsequent adjustment or adjustments for purposes of determining
whether such subsequent adjustments, as so supplemented, exceed the one percent
(1%) amount set forth herein and, if any such subsequent adjustment, as so
supplemented or otherwise, should exceed such one percent (1%) amount, all
adjustments deferred prior thereto and not previously made shall then be made.
In any case, all such adjustments being carried forward pursuant to this Section
3.01(e) shall be given effect upon the exercise of this Warrant by the holder
hereof for purposes of determining the Exercise Price thereof and the number of
shares of Common Stock then issuable upon such exercise. All calculations shall
be made to the nearest one- millionth of a Dollar ($.000001).
(f) Adjustment of Number of Shares Issuable Pursuant to this
Warrant. Upon each adjustment of the Exercise Price as a result of the
calculations made in this Section 3.01 or as a result of the occurrence of the
Initial Public Offering, this Warrant shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of shares of Common Stock
(calculated to the nearest one-thousandth) obtained by (i) multiplying the
number of shares of Common Stock covered by this Warrant immediately prior to
such adjustment by the Exercise Price in effect immediately prior to such
adjustment and (ii) dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment. Subsequent to any adjustment made to
the Exercise Price hereunder, this Warrant shall evidence the right to purchase,
at the adjusted Exercise Price, the number of shares of Common Stock determined
to be purchasable from time to time hereunder upon exercise of this Warrant, all
subject to further adjustment as provided herein. Irrespective of any adjustment
or change in the Exercise Price or the number of shares of Common Stock issuable
upon the exercise of this Warrant, this Warrant and any Warrants theretofore or
thereafter issued in replacement hereof may continue to express the Exercise
Price per share of Common Stock and the number of shares of Common Stock that
were expressed upon the initial issuance of this Warrant under the Purchase
Agreement.
(g) Miscellaneous. Adjustments shall be made pursuant to this
Section 3.01 successively whenever any of the events referred to in Section
3.01(a) through Section 3.01(d) inclusive hereof shall occur. If this Warrant
shall be exercised subsequent to the record date for any of the events referred
to in this Section 3.01, but prior to the effective date thereof, appropriate
adjustments shall be made immediately after such effective date so that the
holder of this Warrant on such record date shall have received, in the
aggregate, the kind and number of shares of Common Stock or other securities or
assets that it would have owned or been entitled to receive on such effective
date had this Warrant been exercised prior to such record
7
<PAGE>
date. Shares of Common Stock owned by or held for the account of the Company
shall not, for purposes of the adjustments set forth in this Section 3.01 be
deemed outstanding.
(h) Expiration of Rights, Options, etc. Upon the expiration of
any rights, options, warrants or conversion or exchange privileges referred to
above in this Section 3.01, without the full exercise thereof, the Exercise
Price, and the number of shares of Common Stock purchasable upon the exercise of
this Warrant shall, upon such expiration, be readjusted and shall thereafter be
such as such Exercise Price and such number of shares of Common Stock would have
been had they been originally adjusted as if (i) the only shares of Common Stock
available to be purchased upon exercise of such rights, options, warrants or
conversion or exchange privileges were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange privileges and (ii) such shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company upon
such exercise plus the aggregate consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion or exchange privileges whether or not exercised; provided, however,
that no such readjustment shall have the effect of increasing the Exercise Price
by an amount in excess of the amount of the reduction initially made in respect
of the issuance, sale, or grant of such rights, options, warrants or conversion
of exchange privileges.
(i) Other Securities. In the event that at any time, as a
result of an adjustment made pursuant to Section 3.01, the holder of this
Warrant shall become entitled to purchase any securities of the Company other
than shares of Common Stock, the number or amount of such other securities so
purchasable and the purchase price of such securities shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained in Section 3.01(a) through Section
3.01(d), inclusive, and all other relevant provisions of this Section 3.01 that
are applicable to shares of Common Stock shall be applicable to such other
securities.
(j) Notice of Adjustment. Whenever the number of shares of
Common Stock issuable upon the exercise of this Warrant or the Exercise Price in
respect thereof is adjusted, as herein provided, the Company shall promptly give
to the holder of this Warrant, notice of such adjustment or adjustments and
shall promptly deliver to such holder a certificate of the Company's chief
financial officer setting forth (i) the number of shares of Common Stock
issuable upon the exercise of this Warrant and the Exercise Price of such shares
after such adjustment, (ii) a brief statement of the facts requiring such
adjustment, and (iii) the computation by which such adjustment was made. So long
as this Warrant is outstanding, within 90 days of the end of each
8
<PAGE>
fiscal year of the Company, the Company shall deliver to the holder a
certificate of a firm of independent public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) setting
forth (i) the number of shares of Common Stock issuable upon the exercise of
this Warrant and the Exercise Price of such shares as of the end of such fiscal
year, (ii) a brief statement of the facts requiring each such adjustment
required to be made in such fiscal year and (iii) the computation by which each
such adjustment was made.
3.02. Elimination of Fractional Interests. The Company shall not be
required upon the exercise of this Warrant to issue stock certificates
representing fractions of shares of Common Stock, but shall instead pay in cash,
in lieu of any fractional shares of Common Stock to which such holder would
otherwise be entitled if such fractional shares were issuable, an amount equal
to the Fair Market Value per share of Common Stock as of the date of such
exercise.
3.03. Right of Action. All rights of action in respect of the Warrants
are vested in the respective registered holders of the Warrants and any
registered holder of any Warrant, without the consent of the holder of any other
Warrant, may, in its own behalf and for its own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, its right to exercise the Warrants held
by it in the manner provided therein.
3.04. Distributions. In the event that the Company shall distribute to
all holders of shares of Common Stock (including, without limitation, any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) cash or cash equivalents, then in each
case the holders of the Warrants shall be entitled to receive from the Company
the same amount of cash or cash equivalents that would have been distributed to
such holders if such Warrants had been exercised immediately prior to the record
date for such distribution. Such distribution to the holders of the Warrants
shall be made whenever any such distribution is made to the holders of shares of
Common Stock.
3.05. Exceptions to Antidilution Adjustments. Notwithstanding the
foregoing, no adjustments shall be made under Section 3.01 in respect of (a)
shares of Common Stock, or options exercisable therefor, issued or to be issued
under the Stock Option Plan, (b) Series A Preferred Stock issued upon any
subdivision or combination of shares of Series A Preferred Stock, (c) Series B
Preferred Stock issued upon any subdivision or combination of shares of Series B
Preferred Stock, (d) Series C Preferred Stock issued upon any subdivision or
combination of shares of Series C Preferred Stock, (e) Series D Preferred Stock
issued upon any subdivision or combination of shares of Series D Preferred
Stock, (f) Special Preferred Stock (Northern California Division) issued upon
any subdivision or combination of shares
9
<PAGE>
of Special Preferred Stock (Northern California Division), (g) shares of Common
Stock issuable upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Special
Preferred Stock (Northern California Division), (h) 247,500 shares of Common
Stock issuable upon exercise of the warrants held by the former 14% Subordinated
Debenture Holders and any additional shares required to be issued thereunder to
adjust for any stock split, stock dividend or combination of Common Stock, (i)
500,000 shares of Common Stock issuable upon exercise of the warrants held by
Superior Bank, F.S.B., and any additional shares required to be issued
thereunder to adjust for any stock split, stock dividend or combination of
Common Stock, (j) 13,333 shares of Common Stock issuable upon the conversion of
the 12% Subordinated Debentures and any additional shares required to be issued
thereunder to adjust for any stock split, stock dividend or combination of
Common Stock, (k)25,000 shares of Common Stock issuable upon the exercise of the
Buscema Options and any additional shares required to be issued thereunder to
adjust for any stock split, stock dividend or combination of Common Stock, (l)
100,000 shares of Common Stock issuable to Jason Massey, John Tomko and Dennis
Brunelle pursuant to the Second Amendment to Agreement for the Operation of the
First Realty Network, Inc., among the Company, Realeads, U.S.A., Inc., First
Realty Network, Inc., Consumer Real Estate Research, Inc., and John Tomko, Jason
Massey, and Dennis Brunelle, dated on or about December 5, 1996, and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock, (m) 132,455 shares of
Common Stock issuable upon exercise of the warrants held by George A. Naddaff
(other than as a former 14% Subordinated Debenture Holder), and any additional
shares required to be issued thereunder to adjust for any stock split, stock
dividend or combination of Common Stock, (n) 92,436 shares of Common Stock
issuable upon exercise of the warrants held by Raymond James & Associates, Inc.,
and any additional shares required to be issued thereunder to adjust for any
stock split, stock dividend or combination of Common Stock, (o) 50,000 shares of
Common Stock issuable upon exercise of the warrants held by former holders of
12% Senior Subordinated Convertible Notes dated August 31, 1997, and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock, (p) 66,667 shares of
Common Stock issuable upon exercise of the warrants held by former holders of
12% Senior Subordinated Convertible Notes dated January 30, 1998, and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock, (q) 100,000 shares of
Common Stock issuable pursuant to the exercise of warrants to be earned under
the Option Agreement dated January 28, 1998, among the Company, Kyle Meyer,
Andrew Heller, John T. Rodgers and RM Holdings, Inc., and any additional shares
required to be issued thereunder to adjust for any stock split, stock dividend
or combination of Common Stock, (r) 36,000 shares of Common Stock issuable upon
exercise of warrants held by FMN Associates,
10
<PAGE>
Ltd., and any additional shares required to be issued thereunder to adjust for
any stock split, stock dividend or combination of Common Stock, (s) 100,000
shares of Common Stock issuable pursuant to the Domain Name Assignment Agreement
dated as of January 1, 1999, between the Company and Credit.com, LLC, and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock, (t) 50,000 shares of
Common Stock issuable pursuant to the Technology Member Correspondent Agreement
dated on or about November 1, 1998, between the Company and Mortgage Loan
Specialists, Inc., and any additional shares required to be issued thereunder to
adjust for any stock split, stock dividend or combination of Common Stock, (u)
50,000 shares of Common Stock issuable pursuant to the Technology Member
Correspondent Agreement dated on or about November 1, 1998, between the Company
and First Capital, Inc., and any additional shares required to be issued
thereunder to adjust for any stock split, stock dividend or combination of
Common Stock, (v) 18,650 shares of Series D Preferred Stock issuable upon the
exercise of the warrants held by Dominion Fund III, any Common Stock issuable in
conversion of the Series D Preferred Stock issued thereunder, and any additional
shares required to be issued thereunder to adjust for any stock split, stock
dividend or combination of Series D Preferred Stock or Common Stock, and (w)
6,668 shares of Common Stock issuable upon exercise of the warrants held by the
holders of 12% Senior Subordinated Notes dated February 9, 1999.
3.06. Reduction in Number of Initial Shares. In the event that the
Company shall have redeemed, in full, the Company's 12% Senior Subordinated
Notes, due February 26, 2001, issued to the Purchaser pursuant to the Purchase
Agreement, together with all interest due thereon, on or before February 26,
2000, the initial number of shares set forth in the introductory sentence hereof
shall automatically be reduced from 6,668 to 3,334 (such numbers being subject
to further adjustment in accordance with this Article 3). There shall not be any
adjustment in the Exercise Price in connection with any such reduction.
4. DEFINITIONS AND ACCOUNTING TERMS
As used herein, the following terms shall have the following meanings:
"Aggregate Consideration Receivable" shall have the meaning
assigned to such term in Section 3.01.
"Common Stock" shall have the meaning assigned to such term in
the introductory sentence hereof.
11
<PAGE>
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Exercise Price" shall have the meaning assigned to such term
in the introductory sentence hereof. Notwithstanding anything to the contrary
contained herein, in the event that the Company consummates an Initial Public
Offering of its Common Stock on or prior to February 26, 2001, the Exercise
Price shall be equal to the price per share of such Common Stock immediately
prior to the effectiveness of the registration statement filed under the
Securities Act of 1933, as amended, in connection with the Initial Public
Offering.
"Expiration Date" shall mean February 26, 2009.
"Fair Market Value" shall mean the fair market value of the
Company, determined in good faith by the Board of Directors, calculated on a per
share basis.
"Initial Public Offering" shall mean an initial public
offering of the Company's Common Stock pursuant to a registration statement
filed under the Securities Act of 1933, as amended.
"Purchase Agreement" shall mean the $8,000,000 Note Purchase
Agreement dated February 26 , 1999, by and among the Company, the Purchaser and
certain other Persons named therein.
"Purchaser" shall have the meaning assigned to such term in
the introductory sentence hereof.
"Warrants" shall mean this Warrant and all other Warrants
issued by the Company pursuant to the Purchase Agreement, together with all
Warrants issued in exchange, transfer or replacement thereof.
"Warrant Shares" shall mean any shares of Common Stock that
are issuable upon the exercise of any Warrant.
12
<PAGE>
5. MISCELLANEOUS
5.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of the holder of this Warrant in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
5.02. Amendments, Waivers and Consents. Any provision in this Warrant
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to the Warrants may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company (a) shall obtain consent thereto in writing from the
holders of at least a majority of the Warrant Shares, and (b) shall deliver
copies of such consent in writing to any holders who did not execute such
consent; provided that no consents shall be effective (i) to amend any of the
provisions of the Warrants pertaining to the Exercise Price or the number of
shares of Common Stock purchasable upon the exercise of any Warrant or (ii) to
reduce the percentage in interest of the Warrant Shares the consent of the
holders of which is required under this Section 5.02. Any waiver or consent may
be given subject to satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
5.03. Addresses for Notices. Any notice, demand, request, waiver or
other communication hereunder shall be in writing and shall be deemed to have
been duly given on the date of service if personally served, on the date of
transmission if sent by telecopier (with confirming copy sent by a nationally
recognized express overnight courier service) or on the first business day after
mailing if mailed to the party to whom notice is given, by a nationally
recognized courier service and addressed as follows:
To the Company: Mortgage.com, Inc.
8751 Broward Blvd., 5th Floor
Plantation, Florida 33324
Attention: Seth S. Werner
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luther F. Sadler, Esq.
13
<PAGE>
To any holder: At its address set forth on the
record books of the Company
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attn: Edward A. Reilly, Jr., Esq.
5.04. Binding Effect; Assignment. This Warrant shall be binding upon
and inure to the benefit of each of the Company and the holder hereof and their
respective heirs, successors and assigns, except that the Company shall not have
the right to delegate its obligations hereunder or to assign its rights
hereunder or any interest herein.
5.05. Severability. The provisions of this Warrant are severable and,
in the event that any court of competent jurisdiction shall determine that any
one or more of the provisions or part of a provision contained in this Warrant
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Warrant; but the terms of this
Warrant shall be reformed and construed as if such invalid or illegal or
unenforceable provision, or part of a provision, had never been contained
herein, and such provisions or part reformed so that it would be valid, legal
and enforceable to the maximum extent possible.
5.06. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND WITHOUT
GIVING EFFECT TO CHOICE OF LAW PROVISIONS.
5.07. Headings. Article, section and subsection headings in this
Warrant are included herein for convenience of reference only and shall not
constitute a part of this Warrant for any other purpose.
5.08. Specific Enforcement. The Company acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the holder hereof shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Warrant and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which it may be entitled at law or
equity.
14
<PAGE>
5.09. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company, or any transfer of all or substantially
all of the assets of the Company to any other Company, or any other entity or
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Company,
then and in each such event the Company shall mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be sent by a nationally recognized overnight
courier, hand delivery or facsimile at least twenty (20) days prior to the date
specified in such notice on which such action is to be taken.
15
<PAGE>
WITNESS the signature of the proper officer of the Company as of the
date first above written.
MORTGAGE.COM, INC.
By ____________________________
Name:
Title:
ATTEST:
___________________________
Secretary
<PAGE>
Exhibit A
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if
such holder desires to transfer the Warrant)
FOR VALUE RECEIVED,_____________________________ hereby sells,
assigns and transfers unto
________________________________________________________________________________
the accompanying Warrant, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint attorney, to transfer the
accompanying Warrant on the books of the Company of such Warrant, with full
power of substitution.
Dated:________________________,________.
[HOLDER OF WARRANT]
By ____________________________
NOTICE
The signature to the foregoing Assignment must correspond to
the name as written upon the face of the accompanying Warrant or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(To be executed by the registered holder if
such holder desires to exercise the Warrant)
To MORTGAGE.COM, INC.
The undersigned hereby irrevocably elects to exercise the accompanying
Warrant to purchase _____ shares of Common Stock issuable upon the exercise of
such Warrant and requests that certificates for such shares be issued in the
name of:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security number or other identifying number)
If such number of shares of Common Stock shall not be all the shares of Common
Stock purchasable upon the exercise of the accompanying Warrant, a new Warrant
for the balance of such remaining shares of Common Stock shall be registered in
the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security number or other identifying number)
Dated:_____________________,__________.
[HOLDER OF WARRANT]
By_____________________
<PAGE>
NOTICE
The signature to the foregoing Election to Purchase must
correspond to the name as written upon the face of the accompanying Warrant or
any prior assignment thereof in every particular, without alteration or
enlargement or any change whatsoever.
Ex-10.24
Form of Warrant
WARRANT
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THAT ACT AND SUCH LAWS.
No. WR-22 April __, 1999
MORTGAGE.COM, INC.
COMMON STOCK PURCHASE WARRANT
13,336 shares of Common Stock, $.01 par value per share, subject to
adjustments as set forth herein.
This Common Stock Purchase Warrant certifies that TeleBanc Capital
Markets, Inc. (the "Purchaser") or registered assigns, is entitled at any time
on or after the date hereof and prior to 5:00 p.m. (New York, New York time) on
the Expiration Date, to purchase from Mortgage.com, Inc. (the "Company"), up to
an aggregate of 13,336 fully paid and nonassessable shares of Common Stock, $.01
par value, of the Company (the "Common Stock"), at a purchase price of $30.00
per share of Common Stock (the "Exercise Price"); provided that the initial
number of shares in the amount of 13,336 may be reduced by one-half in
accordance with the provisions of Section 3.06 below. The number of shares of
Common Stock that may be purchased upon exercise of this Warrant set forth
above, and the Exercise Price per share of Common Stock set forth above, are
subject to adjustment as hereinafter provided.
This Common Stock Purchase Warrant is issued pursuant to that certain
$3,000,000 Note Purchase Agreement, dated as of April 5, 1999, between the
Company and the Purchaser (the "Purchase Agreement"), and it is subject to all
of the terms, provisions and conditions thereof, which Purchase Agreement is
hereby incorporated herein by reference and made a part hereof and to which
Purchase Agreement reference is hereby made for a full description of the
rights, obligations, duties and immunities of the Company and the holder of this
Warrant. Capitalized terms used but not defined herein have the meanings
assigned to them in the Purchase Agreement. Copies of the Purchase Agreement are
on file at the office of the Company as set forth herein.
1
<PAGE>
1. EXERCISE OF WARRANTS; EXERCISE PRICE
1.01. Exercise of Warrants. At any time on or after the earlier of (x)
April 5, 2001, (y) the effectiveness of the Initial Public Offering (as
hereinafter defined) and (z) a merger of the Company with or into any other
corporation, the conveyance transfer or lease of substantially all of its assets
in a single transaction or series of transactions, or a sale, in one or more
transactions of more than 50% of the Common Stock of the Company on a fully
diluted basis; and prior to the Expiration Date, the holder of this Warrant may
exercise the rights evidenced hereby in whole or in part, by surrender of this
Warrant, with an election to purchase (a form of which is attached hereto in
Exhibit A) attached thereto duly executed, to the Company at its office referred
to in Section 5.03 hereof, together with payment of the Exercise Price (payable
as set forth below) for each share of Common Stock as to which this Warrant is
exercised. The Exercise Price shall be payable (a) in cash or by certified or
official bank check payable to the order of the Company or by wire transfer of
immediately available funds to the account of the Company, (b) by delivery of
Warrants to the Company for cancellation in accordance with the following
formula: in exchange for each share of Common Stock issuable upon exercise of
each Warrant any holder thereof so delivers for cancellation, such holder shall
receive such number of shares of Common Stock as is equal to the product of (i)
the number of shares of Common Stock issuable upon exercise of such Warrant at
such time multiplied by (ii) a fraction, the numerator of which is the Fair
Market Value per share of Common Stock at such time minus the Exercise Price per
share of Common Stock at such time, and the denominator of which is the Fair
Market Value per share of Common Stock at such time, or (c) by cancellation of
amounts outstanding (whether in respect of principal or interest) under the
Notes in an amount equal to the aggregate Exercise Price for the shares of
Common Stock to be purchased on such date upon delivery of such Notes to the
Company for cancellation and reissuance in the appropriate lesser principal
amounts.
1.02. Issuance of Common Stock. Upon timely receipt of this Warrant,
with the form of election to purchase duly executed, accompanied by payment of
the Exercise Price for each of the shares to be purchased in the manner provided
in Section 1.01 and an amount equal to any applicable transfer tax (if not
payable by the Company as provided in Section 2.03 hereof), the Company shall
thereupon promptly cause certificates for the number of shares of Common Stock
then being purchased to be delivered to or upon the order of the registered
holder of this Warrant.
1.03. Unexercised Warrants. In case the registered holder of this
Warrant shall purchase less than all the shares of Common Stock purchasable
thereunder, a new Warrant evidencing the right to purchase the remaining shares
of Common Stock thereunder shall be issued by the Company to the registered
holder of this Warrant or to its duly authorized assigns.
2
<PAGE>
1.04. Common Stock Record Date. Each Person in whose name any
certificate for shares of Common Stock is issued upon the exercise of this
Warrant shall for all purposes be deemed to have become the holder of record of
the Common Stock represented thereby on, and such certificate shall be dated the
date upon which this Warrant was duly surrendered with an election to purchase
attached thereto duly executed and payment of the aggregate Exercise Price (and
any applicable transfer taxes, if payable by such Person) was made in accordance
with the terms hereof. Prior to exercise, the holder of this Warrant shall not
be entitled to any rights of a stockholder of the Company with respect to the
shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote or to receive dividends or other distributions
(except as otherwise provided in the Purchase Agreement) and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided herein or in any other applicable agreement between the Company and
such holder.
2. RESERVATION OF COMMON STOCK; TRANSFER OF WARRANTS; TRANSFER
TAXES
2.01. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the exercise of the Warrants, such
number of its shares of Common Stock as shall from time to time be the maximum
amount which may be required to effect the exercise of all outstanding Warrants,
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the exercise of all then outstanding Warrants,
the Company shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
2.02. Common Stock to be Duly Authorized and Issued, Fully Paid and
Nonassessable. The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock delivered
upon the exercise of any Warrants, at the time of delivery of the certificates
for such shares, shall be duly and validly authorized and issued and fully paid
and nonassessable and the issuance of such shares will not be subject to
preemptive or other similar contractual rights of any other stockholder of the
Company.
2.03. Transfer, Split Up, etc. This Warrant, with or without any
Warrants, may be transferred, split up, combined or exchanged for another
Warrant or Warrants, entitling the registered holder or transferee thereof to
purchase a like number of shares of Common Stock as the Warrant or Warrants
surrendered then entitled such registered holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange this Warrant shall
make such request in writing delivered to the
3
<PAGE>
Company, and shall surrender the Warrant or Warrants to be transferred, split
up, combined or exchanged at the office of the Company referred to in Section
5.03 hereof. Thereupon the Company shall deliver promptly to the Person entitled
thereto (as set forth in the written notice) a Warrant or Warrants, as the case
may be, as so requested.
2.04. Transfer Taxes. The Company covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the initial issuance or delivery of (a) each
Warrant and (b) each share of Common Stock issued upon the exercise of any
Warrant. The Company shall not, however, be required to (y) pay any transfer tax
that may be payable in respect of the transfer or delivery of Warrants or the
issuance or delivery of certificates for shares of Common Stock in a name other
than that of the registered holder of any Warrant surrendered for exercise or
(z) issue or deliver any such certificates for shares of Common Stock upon the
exercise of any Warrant until any such tax shall have been paid (any such tax
being payable by the holder of such Warrant at the time of surrender).
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES;
FRACTIONAL SHARES
3.01. Mechanical Adjustments. The number of shares of Common Stock
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) Dividends, Subdivisions and Combinations. In the event
that the Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares or (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, then the Exercise Price
in effect at the time of the record date for such dividend or of the effective
date of such subdivision or combination shall be proportionately adjusted to the
price determined by multiplying the Exercise Price in effect immediately prior
to such event by a fraction, (y) the numerator of which shall be the total
number of outstanding shares of Common Stock immediately prior to such event and
(z) the denominator of which shall be the total number of outstanding shares of
Common Stock immediately after such event. An adjustment made pursuant to this
Section 3.01(a) shall become effective on the effective date of such event.
(b) Distribution of Property. In the event that the Company
shall distribute to all holders of shares of Common Stock (including, without
limitation, any such distribution made in connection with a consolidation or
merger in which the
4
<PAGE>
Company is the continuing corporation) shares of stock (other than Common
Stock), evidences of its indebtedness, other assets (excluding (i) any
distribution or dividend resulting in a distribution pursuant to Section 3.04
and (ii) dividends referred to in Section 3.01(a)(i) hereof), or rights,
options, warrants or convertible or exchangeable securities (excluding those
referred to in Section 3.01(c) hereof) then in each case, the Exercise Price to
be in effect after the record date in respect of which such stock, indebtedness,
other assets, rights, options, warrants or securities were issued shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, (y) the numerator of which shall be the Exercise
Price in effect immediately prior to such record date minus the then fair value
(as determined in good faith and on a reasonable basis by the Board of
Directors) of the portion of the shares of stock or assets or evidences of
indebtedness so distributed or of such rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock
and (z) the denominator of which shall be the Exercise Price in effect
immediately prior to such record date. Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the date of such
distribution.
(c) Issuances of Common Stock and Other Securities.
(i) In the event that the Company shall issue or sell
shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock for no consideration or at a "price per share" of Common Stock
lower than the Exercise Price then in effect on the date of such issuance or
sale, then in each case, the Exercise Price to be in effect immediately after
such issuance or sale shall be determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, (y) the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus the number of additional shares
the Aggregate Consideration Receivable (as defined below) would purchase at the
Exercise Price in effect immediately prior to such issuance or sale and (z) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus the number of additional shares
of Common Stock so issued or sold (or initially issuable pursuant to such
rights, options, or warrants or into which such convertible or exchangeable
securities are initially convertible or exchangeable).
(ii) In the case of rights, options, warrants or
convertible or exchangeable securities, the "price per share" of Common Stock
referred to above shall be determined by dividing (A) the Aggregate
Consideration Receivable in respect of such rights, options, warrants or
convertible or exchangeable securities by (B) the
5
<PAGE>
total number of shares of Common Stock covered by such rights, options, warrants
or convertible or exchangeable securities.
(iii) "Aggregate Consideration Receivable", in the
case of a sale of shares of Common Stock, means the aggregate amount paid to the
Company in connection therewith and, in the case of an issuance or sale of
rights, options, warrants, or convertible or exchangeable securities, means the
aggregate amount paid to the Company for such rights, options, warrants or
convertible or exchangeable securities, plus the aggregate consideration or
premiums stated in such rights, options, warrants or convertible or exchangeable
securities to be payable for the shares of Common Stock covered thereby.
(iv) In the event that the Company shall issue and
sell shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in part, of
property other than cash or its equivalent, then in determining the "price per
share" of Common Stock and the "Aggregate Consideration Receivable", the Board
of Directors shall determine, in good faith and on a reasonable basis, the fair
value of such property.
(d) Consolidation and Merger. In the event that there shall be
(i) any consolidation of the Company with, or merger of the Company with or
into, another corporation (other than a merger in which the Company is the
surviving corporation and that does not result in any reclassification or change
of shares of Common Stock outstanding immediately prior to such merger), (ii)
any sale or conveyance to another corporation of the property of the Company
substantially as an entirety, or (iii) any reclassification of the Common Stock
that results in the issuance of other securities of the Company, then, in
addition to and notwithstanding any other rights provided to the holder this
Warrant upon such occurrence, lawful provision shall be made as a part of the
terms of such transaction so that such holder shall thereafter have the right to
purchase the number and kind of shares of stock (and/or other securities, cash,
property or rights) receivable upon such consolidation, merger, sale, conveyance
or reclassification by a holder of such number of shares of Common Stock as such
holder would have had the right to acquire upon the exercise of this Warrant
immediately prior to such consolidation, merger, sale or conveyance at the
Exercise Price then in effect.
(e) De Minimis Changes in Exercise Price. No adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) of the Exercise Price,
provided, however, that any adjustments that, at the time of the calculation
thereof, are less than one percent (1%) of the Exercise Price, at such time and
by reason of this Section 3.01(e) are not
6
<PAGE>
required to be made at such time shall be carried forward and added to any
subsequent adjustment or adjustments for purposes of determining whether such
subsequent adjustments, as so supplemented, exceed the one percent (1%) amount
set forth herein and, if any such subsequent adjustment, as so supplemented or
otherwise, should exceed such one percent (1%) amount, all adjustments deferred
prior thereto and not previously made shall then be made. In any case, all such
adjustments being carried forward pursuant to this Section 3.01(e) shall be
given effect upon the exercise of this Warrant by the holder hereof for purposes
of determining the Exercise Price thereof and the number of shares of Common
Stock then issuable upon such exercise. All calculations shall be made to the
nearest one-millionth of a Dollar ($.000001).
(f) Adjustment of Number of Shares Issuable Pursuant to this
Warrant. Upon each adjustment of the Exercise Price as a result of the
calculations made in this Section 3.01 or as a result of the occurrence of the
Initial Public Offering, this Warrant shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of shares of Common Stock
(calculated to the nearest one-thousandth) obtained by (i) multiplying the
number of shares of Common Stock covered by this Warrant immediately prior to
such adjustment by the Exercise Price in effect immediately prior to such
adjustment and (ii) dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment. Subsequent to any adjustment made to
the Exercise Price hereunder, this Warrant shall evidence the right to purchase,
at the adjusted Exercise Price, the number of shares of Common Stock determined
to be purchasable from time to time hereunder upon exercise of this Warrant, all
subject to further adjustment as provided herein. Irrespective of any adjustment
or change in the Exercise Price or the number of shares of Common Stock issuable
upon the exercise of this Warrant, this Warrant and any Warrants theretofore or
thereafter issued in replacement hereof may continue to express the Exercise
Price per share of Common Stock and the number of shares of Common Stock that
were expressed upon the initial issuance of this Warrant under the Purchase
Agreement.
(g) Miscellaneous. Adjustments shall be made pursuant to this
Section 3.01 successively whenever any of the events referred to in Section
3.01(a) through Section 3.01(d) inclusive hereof shall occur. If this Warrant
shall be exercised subsequent to the record date for any of the events referred
to in this Section 3.01, but prior to the effective date thereof, appropriate
adjustments shall be made immediately after such effective date so that the
holder of this Warrant on such record date shall have received, in the
aggregate, the kind and number of shares of Common Stock or other securities or
assets that it would have owned or been entitled to receive on such effective
date had this Warrant been exercised prior to such record date. Shares of Common
Stock owned by or held for the account of the Company shall not, for purposes of
the adjustments set forth in this Section 3.01 be deemed outstanding.
7
<PAGE>
(h) Expiration of Rights, Options, etc. Upon the expiration of
any rights, options, warrants or conversion or exchange privileges referred to
above in this Section 3.01, without the full exercise thereof, the Exercise
Price, and the number of shares of Common Stock purchasable upon the exercise of
this Warrant shall, upon such expiration, be readjusted and shall thereafter be
such as such Exercise Price and such number of shares of Common Stock would have
been had they been originally adjusted as if (i) the only shares of Common Stock
available to be purchased upon exercise of such rights, options, warrants or
conversion or exchange privileges were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange privileges and (ii) such shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company upon
such exercise plus the aggregate consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion or exchange privileges whether or not exercised; provided, however,
that no such readjustment shall have the effect of increasing the Exercise Price
by an amount in excess of the amount of the reduction initially made in respect
of the issuance, sale, or grant of such rights, options, warrants or conversion
of exchange privileges.
(i) Other Securities. In the event that at any time, as a result of an
adjustment made pursuant to Section 3.01, the holder of this Warrant shall
become entitled to purchase any securities of the Company other than shares of
Common Stock, the number or amount of such other securities so purchasable and
the purchase price of such securities shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions contained in Section 3.01(a) through Section 3.01(d), inclusive, and
all other relevant provisions of this Section 3.01 that are applicable to shares
of Common Stock shall be applicable to such other securities.
(j) Notice of Adjustment. Whenever the number of shares of Common Stock
issuable upon the exercise of this Warrant or the Exercise Price in respect
thereof is adjusted, as herein provided, the Company shall promptly give to the
holder of this Warrant, notice of such adjustment or adjustments and shall
promptly deliver to such holder a certificate of the Company's chief financial
officer setting forth (i) the number of shares of Common Stock issuable upon the
exercise of this Warrant and the Exercise Price of such shares after such
adjustment, (ii) a brief statement of the facts requiring such adjustment, and
(iii) the computation by which such adjustment was made. So long as this Warrant
is outstanding, within 90 days of the end of each fiscal year of the Company,
the Company shall deliver to the holder a certificate of a firm of independent
public accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) setting forth (i) the number of shares of
Common Stock issuable upon the exercise of this Warrant and the Exercise Price
8
<PAGE>
of such shares as of the end of such fiscal year, (ii) a brief statement of the
facts requiring each such adjustment required to be made in such fiscal year and
(iii) the computation by which each such adjustment was made.
3.02. Elimination of Fractional Interests. The Company shall not be
required upon the exercise of this Warrant to issue stock certificates
representing fractions of shares of Common Stock, but shall instead pay in cash,
in lieu of any fractional shares of Common Stock to which such holder would
otherwise be entitled if such fractional shares were issuable, an amount equal
to the Fair Market Value per share of Common Stock as of the date of such
exercise.
3.03. Right of Action. All rights of action in respect of the Warrants
are vested in the respective registered holders of the Warrants and any
registered holder of any Warrant, without the consent of the holder of any other
Warrant, may, in its own behalf and for its own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, its right to exercise the Warrants held
by it in the manner provided therein.
3.04. Distributions. In the event that the Company shall distribute to
all holders of shares of Common Stock (including, without limitation, any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) cash or cash equivalents, then in each
case the holders of the Warrants shall be entitled to receive from the Company
the same amount of cash or cash equivalents that would have been distributed to
such holders if such Warrants had been exercised immediately prior to the record
date for such distribution. Such distribution to the holders of the Warrants
shall be made whenever any such distribution is made to the holders of shares of
Common Stock.
3.05. Exceptions to Antidilution Adjustments. Notwithstanding the
foregoing, no adjustments shall be made under Section 3.01 in respect of (a)
shares of Common Stock, or options exercisable therefor, issued or to be issued
under the Stock Option Plan, (b) Series A Preferred Stock issued upon any
subdivision or combination of shares of Series A Preferred Stock, (c) Series B
Preferred Stock issued upon any subdivision or combination of shares of Series B
Preferred Stock, (d) Series C Preferred Stock issued upon any subdivision or
combination of shares of Series C Preferred Stock, (e) Series D Preferred Stock
issued upon any subdivision or combination of shares of Series D Preferred
Stock, (f) Special Preferred Stock (Northern California Division) issued upon
any subdivision or combination of shares of Special Preferred Stock (Northern
California Division), (g) shares of Common Stock issuable upon conversion of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Special Preferred Stock (Northern California
Division), (h) 247,500 shares of Common Stock issuable upon exercise of
9
<PAGE>
the warrants held by the former 14% Subordinated Debenture Holders and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock, (i) 500,000 shares of
Common Stock issuable upon exercise of the warrants held by Superior Bank,
F.S.B., and any additional shares required to be issued thereunder to adjust for
any stock split, stock dividend or combination of Common Stock, (j) 13,333
shares of Common Stock issuable upon the conversion of the 12% Subordinated
Debentures and any additional shares required to be issued thereunder to adjust
for any stock split, stock dividend or combination of Common Stock, (k)25,000
shares of Common Stock issuable upon the exercise of the Buscema Options and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock, (l) 100,000 shares of
Common Stock issuable to Jason Massey, John Tomko and Dennis Brunelle pursuant
to the Second Amendment to Agreement for the Operation of the First Realty
Network, Inc., among the Company, Realeads, U.S.A., Inc., First Realty Network,
Inc., Consumer Real Estate Research, Inc., and John Tomko, Jason Massey, and
Dennis Brunelle, dated on or about December 5, 1996, and any additional shares
required to be issued thereunder to adjust for any stock split, stock dividend
or combination of Common Stock, (m) 132,455 shares of Common Stock issuable upon
exercise of the warrants held by George A. Naddaff (other than as a former 14%
Subordinated Debenture Holder), and any additional shares required to be issued
thereunder to adjust for any stock split, stock dividend or combination of
Common Stock, (n) 92,436 shares of Common Stock issuable upon exercise of the
warrants held by Raymond James & Associates, Inc., and any additional shares
required to be issued thereunder to adjust for any stock split, stock dividend
or combination of Common Stock, (o) 50,000 shares of Common Stock issuable upon
exercise of the warrants held by former holders of 12% Senior Subordinated
Convertible Notes dated August 31, 1997, and any additional shares required to
be issued thereunder to adjust for any stock split, stock dividend or
combination of Common Stock, (p) 66,667 shares of Common Stock issuable upon
exercise of the warrants held by former holders of 12% Senior Subordinated
Convertible Notes dated January 30, 1998, and any additional shares required to
be issued thereunder to adjust for any stock split, stock dividend or
combination of Common Stock, (q) 100,000 shares of Common Stock issuable
pursuant to the exercise of warrants to be earned under the Option Agreement
dated January 28, 1998, among the Company, Kyle Meyer, Andrew Heller, John T.
Rodgers and RM Holdings, Inc., and any additional shares required to be issued
thereunder to adjust for any stock split, stock dividend or combination of
Common Stock, (r) 36,000 shares of Common Stock issuable upon exercise of
warrants held by FMN Associates, Ltd., and any additional shares required to be
issued thereunder to adjust for any stock split, stock dividend or combination
of Common Stock, (s) 100,000 shares of Common Stock issuable pursuant to the
Domain Name Assignment Agreement dated as of January 1, 1999, between the
Company and Credit.com, LLC, and any additional shares required to be issued
10
<PAGE>
thereunder to adjust for any stock split, stock dividend or combination of
Common Stock, (t) 50,000 shares of Common Stock issuable pursuant to the
Technology Member Correspondent Agreement dated on or about November 1, 1998,
between the Company and Mortgage Loan Specialists, Inc., and any additional
shares required to be issued thereunder to adjust for any stock split, stock
dividend or combination of Common Stock, (u) 50,000 shares of Common Stock
issuable pursuant to the Technology Member Correspondent Agreement dated on or
about November 1, 1998, between the Company and First Capital, Inc., and any
additional shares required to be issued thereunder to adjust for any stock
split, stock dividend or combination of Common Stock, (v) 18,650 shares of
Series D Preferred Stock issuable upon the exercise of the warrants held by
Dominion Fund III, any Common Stock issuable in conversion of the Series D
Preferred Stock issued thereunder, and any additional shares required to be
issued thereunder to adjust for any stock split, stock dividend or combination
of Series D Preferred Stock or Common Stock, (w) 6,668 shares of Common Stock
issuable upon exercise of the warrants held by the holders of 12% Senior
Subordinated Notes dated February 9, 1999, and (x) 53,344 shares of Common Stock
issuable upon exercise of the warrants held by the holders of 12% Senior
Subordinated Notes dated February 26, 1999.
3.06. Reduction in Number of Initial Shares. In the event that the
Company shall have redeemed, in full, the Company's 12% Senior Subordinated
Notes, due April 5, 2001, issued to the Purchaser pursuant to the Purchase
Agreement, together with all interest due thereon, on or before April 5, 2000,
the initial number of shares set forth in the introductory sentence hereof shall
automatically be reduced from 13,336 to 6,668 (such numbers being subject to
further adjustment in accordance with this Article 3). There shall not be any
adjustment in the Exercise Price in connection with any such reduction.
4. DEFINITIONS AND ACCOUNTING TERMS
As used herein, the following terms shall have the following meanings:
"Aggregate Consideration Receivable" shall have the meaning
assigned to such term in Section 3.01.
"Common Stock" shall have the meaning assigned to such term in
the introductory sentence hereof.
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
11
<PAGE>
"Exercise Price" shall have the meaning assigned to such term
in the introductory sentence hereof. Notwithstanding anything to the contrary
contained herein, in the event that the Company consummates an Initial Public
Offering of its Common Stock on or prior to April 5, 2001, the Exercise Price
shall be equal to the price per share of such Common Stock immediately prior to
the effectiveness of the registration statement filed under the Securities Act
of 1933, as amended, in connection with the Initial Public Offering.
"Expiration Date" shall mean April 5, 2009.
"Fair Market Value" shall mean the fair market value of the
Company, determined in good faith by the Board of Directors, calculated on a per
share basis.
"Initial Public Offering" shall mean an initial public
offering of the Company's Common Stock pursuant to a registration statement
filed under the Securities Act of 1933, as amended.
"Purchase Agreement" shall mean the $3,000,000 Note Purchase
Agreement dated April 5, 1999, by and among the Company, the Purchaser and
certain other Persons named therein.
"Purchaser" shall have the meaning assigned to such term in
the introductory sentence hereof.
"Warrants" shall mean this Warrant and all other Warrants
issued by the Company pursuant to the Purchase Agreement, together with all
Warrants issued in exchange, transfer or replacement thereof.
"Warrant Shares" shall mean any shares of Common Stock that
are issuable upon the exercise of any Warrant.
5. MISCELLANEOUS
5.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of the holder of this Warrant in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
5.02. Amendments, Waivers and Consents. Any provision in this Warrant
to the contrary notwithstanding, and except as hereinafter provided, changes in,
12
<PAGE>
termination or amendments of or additions to the Warrants may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company (a) shall obtain consent thereto in writing from the
holders of at least a majority of the Warrant Shares, and (b) shall deliver
copies of such consent in writing to any holders who did not execute such
consent; provided that no consents shall be effective (i) to amend any of the
provisions of the Warrants pertaining to the Exercise Price or the number of
shares of Common Stock purchasable upon the exercise of any Warrant or (ii) to
reduce the percentage in interest of the Warrant Shares the consent of the
holders of which is required under this Section 5.02. Any waiver or consent may
be given subject to satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
5.03. Addresses for Notices. Any notice, demand, request, waiver or
other communication hereunder shall be in writing and shall be deemed to have
been duly given on the date of service if personally served, on the date of
transmission if sent by telecopier (with confirming copy sent by a nationally
recognized express overnight courier service) or on the first business day after
mailing if mailed to the party to whom notice is given, by a nationally
recognized courier service and addressed as follows:
To the Company: Mortgage.com, Inc.
8751 Broward Blvd., 5th Floor
Plantation, Florida 33324
Attention: Seth S. Werner
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luther F. Sadler, Esq.
To any holder: At its address set forth on the record books of the
Company
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attn: Edward A. Reilly, Jr., Esq.
5.04. Binding Effect; Assignment. This Warrant shall be binding upon
and inure to the benefit of each of the Company and the holder hereof and their
respective heirs,
13
<PAGE>
successors and assigns, except that the Company shall not have the right to
delegate its obligations hereunder or to assign its rights hereunder or any
interest herein.
5.05. Severability. The provisions of this Warrant are severable and,
in the event that any court of competent jurisdiction shall determine that any
one or more of the provisions or part of a provision contained in this Warrant
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Warrant; but the terms of this
Warrant shall be reformed and construed as if such invalid or illegal or
unenforceable provision, or part of a provision, had never been contained
herein, and such provisions or part reformed so that it would be valid, legal
and enforceable to the maximum extent possible.
5.06. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND WITHOUT
GIVING EFFECT TO CHOICE OF LAW PROVISIONS.
5.07. Headings. Article, section and subsection headings in this
Warrant are included herein for convenience of reference only and shall not
constitute a part of this Warrant for any other purpose.
5.08. Specific Enforcement. The Company acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the holder hereof shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Warrant and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which it may be entitled at law or
equity.
5.09. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company, or any transfer of all or substantially
all of the assets of the Company to any other Company, or any other entity or
person, or
14
<PAGE>
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Company,
then and in each such event the Company shall mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be sent by a nationally recognized overnight
courier, hand delivery or facsimile at least twenty (20) days prior to the date
specified in such notice on which such action is to be taken.
15
<PAGE>
WITNESS the signature of the proper officer of the Company as of the
date first above written.
MORTGAGE.COM, INC.
By _________________________________
Name:
Title:
ATTEST:
___________________
Secretary
<PAGE>
Exhibit A
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if
such holder desires to transfer the Warrant)
FOR VALUE RECEIVED,________________________________hereby
sells, assigns and transfers unto
________________________________________________________________________________
the accompanying Warrant, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint attorney, to transfer the
accompanying Warrant on the books of the Company of such Warrant, with full
power of substitution.
Dated:__________________,___________.
[HOLDER OF WARRANT]
By______________________________
NOTICE
The signature to the foregoing Assignment must correspond to
the name as written upon the face of the accompanying Warrant or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(To be executed by the registered holder if
such holder desires to exercise the Warrant)
To MORTGAGE.COM, INC.
The undersigned hereby irrevocably elects to exercise the accompanying
Warrant to purchase_______shares of Common Stock issuable upon the exercise of
such Warrant and requests that certificates for such shares be issued in the
name of:
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
(Please insert social security number or other identifying number)
If such number of shares of Common Stock shall not be all the shares of Common
Stock purchasable upon the exercise of the accompanying Warrant, a new Warrant
for the balance of such remaining shares of Common Stock shall be registered in
the name of and delivered to:
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
(Please insert social security number or other identifying number)
Dated:______________________,______.
[HOLDER OF WARRANT]
By________________________
NOTICE
The signature to the foregoing Election to Purchase must
correspond to the name as written upon the face of the accompanying Warrant or
any prior assignment thereof in every particular, without alteration or
enlargement or any change whatsoever.
================================================================================
WAREHOUSING CREDIT AND SECURITY AGREEMENT
(SINGLE-FAMILY MORTGAGE LOANS)
BETWEEN
FIRST MORTGAGE NETWORK, INC.,
a Florida corporation
AND
BANK UNITED,
a federal savings bank.
Dated as of July 1, 1998
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
1. DEFINITIONS.....................................................................................Page 1
1.1 Defined Terms............................................................................Page 1
1.2 Other Definitional Provisions............................................................Page 12
2. THE CREDIT......................................................................................Page 12
2.1 The Commitment...........................................................................Page 12
2.2 Procedures for Obtaining Advances........................................................Page 13
2.3 Note.....................................................................................Page 14
2.4 Interest.................................................................................Page 14
2.5 Principal Payments.......................................................................Page 15
2.6 Expiration of Commitment.................................................................Page 17
2.7 Method of Making Payments................................................................Page 17
2.8 Non-Usage Fee............................................................................Page 17
2.9 Miscellaneous Charges....................................................................Page 17
2.10 Bailee...................................................................................Page 18
3. COLLATERAL......................................................................................Page 18
3.1 Grant of Security Interest...............................................................Page 18
3.2 Security Interest in Mortgage-backed Securities..........................................Page 19
3.3 Delivery of Collateral Documents.........................................................Page 20
3.4 Delivery of Additional Collateral or Mandatory Prepayment................................Page 20
3.5 Right of Redemption from Pledge..........................................................Page 20
3.6 Collection and Servicing Rights..........................................................Page 21
3.7 Return or Release of Collateral at End of Commitment.....................................Page 21
3.8 Master Repurchase Agreement..............................................................Page 21
4. CONDITIONS PRECEDENT............................................................................Page 21
4.1 Initial Advance .........................................................................Page 21
4.2 Each Advance.............................................................................Page 23
5. REPRESENTATIONS AND WARRANTIES..................................................................Page 24
5.1 Organization; Good Standing; Subsidiaries................................................Page 24
5.2 Authorization and Enforceability.........................................................Page 24
5.3 Financial Condition......................................................................Page 24
5.4 Litigation...............................................................................Page 25
5.5 Compliance with Laws.....................................................................Page 25
5.6 Regulations G and U......................................................................Page 25
5.7 Investment Company Act and Public Utility Holding Company Act............................Page 25
5.8 Agreements...............................................................................Page 25
5.9 Title to Properties......................................................................Page 26
5.10 ERISA....................................................................................Page 26
5.11 Eligibility..............................................................................Page 26
5.12 Special Representations Concerning Collateral............................................Page 27
5.13 RICO.....................................................................................Page 28
<PAGE>
5.14 Proper Names............................................................................Page 28
5.15 Direct Benefit From Loans...............................................................Page 29
5.16 Loan Documents Do Not Violate Other Documents...........................................Page 29
5.17 Consents Not Required...................................................................Page 29
5.18 Material Fact Representations...........................................................Page 29
5.19 Place of Business.......................................................................Page 29
5.20 Use of Proceeds; Business Loans.........................................................Page 30
5.21 No Undisclosed Liabilities..............................................................Page 30
5.22 Tax Returns and Payments................................................................Page 30
5.23 Subsidiaries............................................................................Page 30
5.24 Holding Company.........................................................................Page 30
6. AFFIRMATIVE COVENANTS...........................................................................Page 31
6.1 Payment of Note.........................................................................Page 31
6.2 Financial Statements and Other Reports..................................................Page 31
6.3 Maintenance of Existence; Conduct of Business...........................................Page 32
6.4 Compliance with Applicable Laws.........................................................Page 32
6.5 Inspection of Properties and Books......................................................Page 32
6.6 Notice..................................................................................Page 32
6.7 Payment of Debt, Taxes, etc.............................................................Page 33
6.8 Insurance...............................................................................Page 33
6.9 Closing Instructions....................................................................Page 33
6.10 Other Loan Obligations..................................................................Page 33
6.11 Use of Proceeds of Advances.............................................................Page 34
6.12 Special Affirmative Covenants Concerning Collateral.....................................Page 34
6.13 Cure of Defects in Loan Documents.......................................................Page 35
7. NEGATIVE COVENANTS..............................................................................Page 35
7.1 Contingent Liabilities..................................................................Page 35
7.2 Pledge of Mortgage Loans................................................................Page 35
7.3 Merger; Acquisitions....................................................................Page 35
7.4 Loss of Eligibility.....................................................................Page 35
7.5 Debt to Adjusted Tangible Net Worth Ratio...............................................Page 35
7.6 Minimum Adjusted Tangible Net Worth.....................................................Page 36
7.7 Transactions with Affiliates............................................................Page 36
7.8 Limits on Corporate Distributions.......................................................Page 36
7.9 RICO....................................................................................Page 36
7.10 No Loans or Investments Except Approved Investments.....................................Page 36
7.11 Charter Documents and Business Termination..............................................Page 37
7.12 Changes in Accounting Methods...........................................................Page 37
7.13 No Sales, Leases or Dispositions of Property............................................Page 37
7.14 Changes in Business or Assets...........................................................Page 37
7.15 Changes in Office or Inventory Location.................................................Page 37
7.16 Special Negative Covenants Concerning Collateral .......................................Page 37
7.17 No Indebtedness.........................................................................Page 38
7.18 Ownership of the Company................................................................Page 38
<PAGE>
8. DEFAULTS; REMEDIES..............................................................................Page 38
8.1 Events of Default.......................................................................Page 38
8.2 Remedies................................................................................Page 41
8.3 Application of Proceeds.................................................................Page 44
8.4 Lender Appointed Attorney-in-Fact.......................................................Page 44
8.5 Right of Set-Off........................................................................Page 44
9. NOTICES.........................................................................................Page 45
10. REIMBURSEMENT OF EXPENSES; INDEMNITY............................................................Page 46
11. MISCELLANEOUS...................................................................................Page 47
11.1 Terms Binding Upon Successors; Survival of Representations..............................Page 47
11.2 Assignment..............................................................................Page 47
11.3 Amendments..............................................................................Page 47
11.4 Governing Law...........................................................................Page 47
11.5 Participations..........................................................................Page 47
11.6 Relationship of the Parties.............................................................Page 47
11.7 Severability............................................................................Page 48
11.8 Usury...................................................................................Page 48
11.9 Consent to Jurisdiction.................................................................Page 49
11.10 Arbitration.............................................................................Page 49
11.11 ADDITIONAL INDEMNITY....................................................................Page 50
11.12 No Waivers Except in Writing............................................................Page 51
11.13 Waiver of Jury Trial....................................................................Page 51
11.14 Multiple Counterparts...................................................................Page 51
11.15 No Third Party Beneficiaries............................................................Page 51
11.16 RELEASE OF LENDER LIABILITY.............................................................Page 51
11.17 Entire Agreement; Amendment.............................................................Page 52
11.18 NO OPAL AGREEMENTS......................................................................Page 52
EXHIBIT "A"................................................................................................Page 55
EXHIBIT "B"................................................................................................Page 58
EXHIBIT "C"................................................................................................Page 59
EXHIBIT "D"................................................................................................Page 63
EXHIBIT "E"................................................................................................Page 64
EXHIBIT "F"................................................................................................Page 65
EXHIBIT "G"................................................................................................Page 68
<PAGE>
EXHIBIT "H"................................................................................................Page 69
EXHIBIT "I"................................................................................................Page 70
EXHIBIT "J"................................................................................................Page 71
EXHIBIT "K"................................................................................................Page 75
EXHIBIT "L"................................................................................................Page 77
EXHIBIT "M"................................................................................................Page 80
EXHIBIT "N"................................................................................................Page 83
</TABLE>
<PAGE>
WAREHOUSING CREDIT AND SECURITY AGREEMENT
-----------------------------------------
THIS WAREHOUSING CREDIT AND SECURITY AGREEMENT (this "Agreement"), is
dated as of July 1, 1998, by and between FIRST MORTGAGE NETWORK, INC., a Florida
corporation (the "Company"), having its principal office at 8751 Broward
Boulevard, 5th Floor, Plantation, Florida 33324, and BANK UNITED, a federal
savings bank (the "Lender"), having its principal office at 3200 Southwest
Freeway, Suite 1300, Houston, Texas 77027.
WHEREAS, the Company has requested the Lender to make certain loans to
the Company to finance the origination or purchase of Mortgage Loans (as that
term is herein defined) which loans are for the benefit of the Company;
WHEREAS, the Lender is willing to make such loans as herein provided,
upon the terms, agreements and covenants and subject to the conditions
hereinafter set forth and in reliance on the representations and warranties
herein made and referred to; and
WHEREAS, the Company and the Lender desire to set forth herein the
terms and conditions upon which the Lender shall provide warehouse financing to
the Company;
NOW, THEREFORE, for good and valuable consideration, the amount and
sufficiency of which are hereby acknowledged by the parties hereto, to induce
the Lender to provide the warehouse financing facility to the Company and in
reliance of the representations and warranties made herein, the parties hereto
hereby agree as follows:
1. DEFINITIONS.
-----------
1.1 Defined Terms. Capitalized terms defined below or elsewhere in this
Agreement (including the exhibits hereto) shall have the following meanings:
"Adjusted Tangible Net Worth" means, with respect to Company, at
any date, the Tangible Net Worth of Company at such date plus 1.0% of
the sum of the outstanding principal balances of all Mortgage Loans for
which Company owns the Servicing Rights less 1.0% of the sum of the
outstanding principal balances of all Mortgage Loans owned by the
Company that will be sold in the secondary market or held by the
Company for investment.
"Advance" means a disbursement by the Lender under the Commitment
pursuant to Article 2 of this Agreement in respect of the closing or
settlement of a Single-family Mortgage Loan, whether or not such
disbursement is a Wet Settlement Advance.
"Advance Request" has the meaning set forth in Section 2.2(a)
hereof.
"Affiliate" means any Person controlling, controlled by or under
common control with any other Person. For purposes of this definition
"control" (including "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person,
whether
1
<PAGE>
through the ownership of voting securities, by contract, or otherwise
or owning or possessing the power to vote 10% or more of any class of
voting securities of any Person. Without limiting the generality of the
foregoing, for purposes of this Agreement, Company and each of its
respective Subsidiaries shall be deemed to be Affiliates of one
another.
"Aged Mortgage Loans" means an Eligible Mortgage Loan that has been
included in Collateral for a period of more than ninety (90) days.
"Agreement" means this Warehousing Credit and Security Agreement
(Single Family Mortgage Loans), either as originally executed or as
it may from time to time be supplemented, modified or amended.
"Applicable Law" means the laws of the State of Texas and the
United States of America in effect from time to time and applicable to
the transactions between the Lender and the Company pursuant to this
Agreement and the other Loan Documents whichever permits the charging
and collection of the highest nonusurious rate of interest on such
transactions. For purposes of determining Texas law with respect to
the highest nonusurious rate of interest, the weekly rate ceiling
permitted under Texas Credit Title, as amended, shall be controlling.
"Approved Custodian" means a Person acceptable to the Lender from
time to time in its sole discretion, who possesses Mortgage Loans that
secure Mortgaged-backed Securities.
"Bailee Letter" has the meaning set forth in Section 3.3 hereof.
"Business Day" means any day excluding Saturday, Sunday and any day
on which Lender is closed for business.
"Capitalized Lease" means any lease under which rental payments are
required to be capitalized on a balance sheet of the lessee in
accordance with GAAP.
"Capitalized Rentals" means the amount of aggregate rentals due
and to become due under all Capitalized Leases under which the Company
is a lessee that would be reflected as a liability on a balance sheet
of the Company.
"Collateral" has the meaning set forth in Section 3.1 hereof.
"Collateral Documents" means all of the documents and other items
described on Exhibit "C" hereto and required to be delivered to the
Lender in connection with an Advance.
"Collateral Value" means
(a) with respect to any Eligible Mortgage Loan, an amount
equal to the least of (i) the Par Value thereof, (ii) the amount
which the Investor has committed
2
<PAGE>
to pay for such Mortgage Loan pursuant to a Purchase Commitment, or
(iii) the Fair Market Value of such Mortgage Loan;
(b) with respect to Mortgage-backed Securities, an amount
equal to the least of (i) the sum of the principal balances of
the Mortgage Loans from which such Mortgage-backed Securities were
created, (ii) the amount which the Investor has committed to pay
for such Mortgage-backed Securities pursuant to a Purchase
Commitment, or (iii) the Fair Market Value of such
Mortgage-backed Securities;
(c) with respect to Collateral that is not described within
(a) or (b) and that is pledged pursuant to Section 3.4 hereof,
Collateral Value shall equal an amount established by Lender in its
sole discretion;
(d) with respect to Collateral that is not described in
(a), (b), or (c) the Collateral Value shall be equal to $0.00;
(e) with respect to any Mortgage Loan that is not or ceases
to be an Eligible Mortgage Loan, the Collateral Value thereof shall
equal $0.00.
"Commitment" has the meaning set forth in Section 2.1 (a) hereof.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Conventional Mortgage Loan" means a Single-family Mortgage Loan,
other than an FHA Loan or VA Loan, that complies with all applicable
requirements for purchase under the FNMA or FHLMC standard form of
conventional mortgage purchase contract.
"Debt" means, with respect to any Person, at any date (a) all
indebtedness or other obligations of such Person which, in accordance
with GAAP, would be included in determining total liabilities as shown
on the liabilities side of a balance sheet of such Person at such date;
and (b) all indebtedness or other obligations of such Person for
borrowed money or for the deferred purchase price of property or
services; provided that for purposes of this Agreement, there shall be
excluded from Debt at any date loan loss reserves, deferred taxes
arising from capitalized excess service fees, and operating leases.
"Default" means the occurrence of any event or existence of any
condition which, but for the giving of notice, the lapse of time, or
both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.4(c)
hereof.
"Electronic Request" has the meaning set forth in Section 2.2(a)
hereof.
"Eligible Mortgage Loan" means a Mortgage Loan that, at all times
during the term of this Agreement, (a) is evidenced by loan documents
that are the standard forms approved by FNMA or FHLMC or forms
previously approved, in writing, by the Lender in its sole discretion;
(b) is validly pledged to the Lender, subject to no other Liens; (c) is
not in default
3
<PAGE>
in the payment of principal and interest or in the performance of any
obligation under the Mortgage Note or the Mortgage evidencing or
securing such Eligible Mortgage Loan for a period of 60 days or more;
(d) if such Mortgage Loan is a Subprime Mortgage Loan, compiles with
all applicable underwriting guidelines and other requirements of an
Investor relating to the purchase of such Mortgage Loan; (e) has closed
less than 25 days prior to the date of the Advance made in connection
with such Eligible Mortgage Loan; (f) has a combined loan-to-collateral
value ratio not to exceed 100% (ratio to be based on the aggregate
amount of all loans secured by the Mortgaged Property securing such
Mortgage Loan), except for High LTV Mortgage Loans for which
loan-to-collateral value shall not exceed 125%; and (g) is covered by a
Purchase Commitment.
"Eligible Mortgage Pool" means a pool of Mortgage Loans that will
secure a "mortgage related security", as defined in Section 3(a)(41)
of the Exchange Act administered or to be administered by a trustee
acceptable to Lender in its sole discretion where the Mortgage,
Mortgage Note and other documents relating to such Mortgage Loans are
held or to be held by an Approved Custodian.
"ERISA" means the Employee Retirement Income Security Act of 1974
and all rules and regulations promulgated thereunder, as amended from
time to time and any successor statute.
"Event of Default" means any of the conditions or events set forth
in Section 8.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time and any successor statute.
"Fair Market Value" means, at any date, with respect to:
(a) any Mortgage-backed Security, the bid rate reflected on
the Telerate screen for a Mortgage-backed Security with the closest
coupon rate that does not exceed that of the Mortgage-backed
Security in question multiplied by the original face amount of such
Mortgage-backed Security, and multiplied by the current pool factor
for such Mortgage-backed Security.
(b) any Mortgage Loan, the market rate reflected on the
Telerate screen for thirty (30) day mandatory future delivery of
such Mortgage Loan multiplied by the outstanding principal balance
thereof.
In the event Telerate ceases to publish either the market or bid
price referenced in (a) and (b) above, the average bid rate quoted in
writing to the Lender as of the date of determination by any two
nationally recognized dealers selected by Lender that are making a
market in similar Mortgage Loans or Mortgaged-backed Securities shall
be utilized in lieu of the market or bid rate, as the case may be.
"FHA" means the Federal Housing Administration and any successor
thereto.
4
<PAGE>
"FHA Loan" means a Single-family Mortgage Loan, payment of which is
partially or completely insured by the FHA under the National Housing
Act or Title V of the Housing Act of 1949 or with respect to which
there is a current, binding and enforceable commitment for such
insurance issued by the FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation and any
successor thereto.
"FHLMC Guide" means the Freddie Mac Sellers' and Servicers'
Guide, dated September 17, 1984, applicable bulletins, the applicable
MIDANET Users Guide (or the MIDAPHONE User's Guide) and any particular
purchase documents as defined in the Sellers' and Servicers' Guide, as
revised prior to the date hereof.
"FHLMC Pool" means a "group" or "grouping" of Mortgage Loans
assembled in accordance with (and as such term is used in) the FHLMC
Guide.
"FICA" means the Federal Insurance Contributions Act.
"First Mortgage" means a mortgage or deed of trust which
constitutes a first Lien on the property covered thereby.
"First Mortgage Loan" means a Mortgage Loan secured by a First
Mortgage.
"Floating Rate" has the meaning set forth in Section 2.4(a)
hereof.
"FNMA" means the Federal National Mortgage Association and any
successor thereto.
"FNMA Guide" means the FNMA Servicing Guide dated June 30, 1990, as
revised prior to the date hereof.
"FNMA Pool" means a "group" or "grouping" of Mortgage Loans
assembled in accordance with (and as such term is used in) the FNMA
Guide.
"Funding Account" means the non-interest bearing demand checking
account established with, maintained by, and pledged to Lender into
which shall be deposited the proceeds of Advances, the proceeds from
any sale of Collateral, and from which funds shall be disbursed for the
acquisition of Mortgage Loans.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a
significant segment of the accounting profession, which are applicable
to the circumstances as of the date of determination.
5
<PAGE>
"GNMA" means the Government National Mortgage Association and any
successor thereto.
"GNMA Guide" means the GNMA I Mortgage-Backed Securities Guide,
Handbook GNMA 5500.1 REV. 6, as revised prior to the date hereof, and
as may be revised from time to time, and GNMA II Mortgage-Backed
Securities Guide Handbook GNMA 5500.2, as revised prior to the date
hereof
"GNMA Pool" means, as applicable under the circumstances, a "pool"
of Mortgage Loans assembled in accordance with (and as such term is
used in) the GNMA Guide.
"Governmental Authority" means any foreign governmental authority,
the United States of America, any state of the United States of
America, and any political subdivision of any of them and any agency,
department, commission, board, bureau, court or other tribunal.
"High LTV Mortgage Loan" means a Single-family Mortgage Loan that
(a) is not a Subprime Mortgage Loan; (b) complies with all applicable
underwriting guidelines and other requirements of an Investor relating
to its purchase of such Mortgage Loan; (c) has a combined
loan-to-collateral value ratio not less than 100% (ratio to be based
upon all loans, including such Mortgage Loan and all loans secured by
the Mortgaged Property securing such Mortgage Loan) but not more than
125%; (d) is secured by a Second Mortgage; and (e) is covered by a
specific Purchase Commitment with respect to which there is no
condition which cannot be reasonably anticipated to be satisfied or
complied with before its expiration and has been prior approved by the
Investor for purchase.
"HUD" means the Department of Housing and Urban Development and any
successor thereto.
"Indebtedness" means and include, without duplication, (1) all
items which in accordance with GAAP, consistently applied, would be
included on the liability side of a balance sheet on the date as of
which Indebtedness is to be determined (excluding shareholders'
equity), (2) Capitalized Rentals under any Capitalized Lease, (3)
guaranties, endorsements and other contingent obligations in respect
of, or any obligations to purchase or otherwise acquire, Indebtedness
of others, and (4) indebtedness secured by any mortgage, pledge,
security interest or other Lien existing on any property owned by the
Person with respect to which indebtedness is being determined, whether
or not the indebtedness secured thereby shall have been assumed.
"Indemnified Liabilities" has the meaning set forth in Article 10
hereof.
"Interim Date" has the meaning set forth in Section 4.1 (a)(4)
hereof
"Internal Revenue Code" means the Internal Revenue Code of 1986, or
any subsequent federal income tax law or laws, as any of the foregoing
have been or may from time to time be amended.
6
<PAGE>
"Investor" means FNMA, FHLMC, GNMA, any of the Persons listed in
Exhibit "L" hereto, or a financially responsible institution which is
acceptable to Lender, in its sole discretion; provided that at any time
by written notice to Company Lender may disapprove any Investor in its
sole discretion, whether or not that Person is named as an Investor in
this definition or in Exhibit "L" or has been previously approved as an
Investor by Lender. Upon receipt of such notice, the Persons named in
Lender's notice shall no longer be Investors from and after the date of
the receipt of such notice.
"Jumbo Loan" means a Single-family Mortgage Loan (other than a FHA
Loan or VA Loan) that complies with all applicable requirements for
purchase under the FNMA or FHLMC standard form of conventional mortgage
purchase contract then in effect except that the amount of such
Mortgage Loan exceeds the maximum amount under those requirements, but
in no event shall the amount of such Single-family Mortgage Loan exceed
$1,000,000.00.
"Lender" has the meaning set forth in the first paragraph of this
Agreement.
"LIBOR Rate" means a rate of interest equal to the London Interbank
Offered Rate for U.S. dollar deposits as quoted by Telerate, Bloomberg
or any other rate quoting service, selected by Lender in its sole
discretion for an interest period of one month, effective two (2)
Business Days from the date of quotation. In the event such rate ceases
to be published, LIBOR Rate shall mean a comparable rate of interest
reasonably selected by Lender.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan Documents" means this Agreement, the Note, and each other
document, instrument or agreement executed by the Company or any other
Person in connection herewith or therewith, as any of the same may be
amended, restated, renewed or replaced from time to time.
"Margin Stock" has the meaning assigned to that term in Regulations
G and U of the Board of Governors of the Federal Reserve System as in
effect from time to time.
"Master Repurchase Agreement" means that certain Master Repurchase
Agreement dated of even date herewith by and between Company and
Lender.
"Maximum Rate" means the maximum lawful non-usurious rate of
interest (if any) that, under Applicable Law, the Lender may charge the
Company on the Advances from time to time. To the extent that the
interest rate laws of the State of Texas are applicable and unless
changed in accordance with law, the applicable rate ceiling shall be
the weekly ceiling determined in accordance with Texas Credit Title, as
amended.
"Monthly Average LIBOR Rate" means the average of all LIBOR Rates
quoted during a given month. In the event (i) the Note is paid in full
and the Commitment is
7
<PAGE>
terminated prior to a month end; or (ii) the initial Advance hereunder
occurs on a date other than the first day of that month on which LIBOR
Rates are quoted, the Monthly Average LIBOR Rate shall mean, in the
case of clause (i), the average of all LIBOR Rates quoted that month up
to and including the last Business Day prior to such payment in full;
or, in the case of clause (ii), the LIBOR Rates quoted on the date of
the initial Advance through the end of that month.
"Mortgage" means a First Mortgage or Second Mortgage on improved
real property containing one to four family residences.
"Mortgage-backed Securities" means FHLMC, GNMA or FNMA securities
that are backed by Mortgage Loans.
"Mortgage Loan" means any loan evidenced by a Mortgage Note. A
Mortgage Loan, may be a Subprime Mortgage Loan, High LTV Mortgage Loan,
Conventional Mortgage Loan, FHA Loan, Jumbo Loan, or VA Loan, but may
not include any other mortgage loan without the prior written consent
of the Lender.
"Mortgage Note" means a note secured by a Mortgage.
"Mortgage Note Amount" means, as of the date of determination, the
then outstanding unpaid principal amount of a Mortgage Note.
"Mortgage Pool" means (a) a FHLMC Pool, (b) a FNMA Pool, or (c) a
GNMA Pool.
"Mortgaged Property" means the property, real, personal, tangible
or intangible, securing a Mortgage Note.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA that is maintained for employees of the
Company or a Subsidiary of the Company.
"Net Investable Balances" means the average collected balances in
non-interest bearing deposit accounts controlled or maintained by the
Company and its Subsidiaries in accounts at the Lender, less balances
to support float, activity charges, reserve requirements, Federal
Deposit Insurance Corporation insurance premiums and such other
assessments as may be imposed by governmental authorities from time to
time.
"Note" has the meaning set forth in Section 2.3 hereof
"Notices" has the meaning set forth in Article 9 hereof
"Obligations" means any and all indebtedness, obligations and
liabilities of the Company to the Lender (whether now existing or
hereafter arising, voluntary or involuntary, whether or not jointly
owed with others, direct or indirect, absolute or contingent,
liquidated or unliquidated, and whether or not from time to time
decreased or extinguished and later
8
<PAGE>
increased, created or incurred), arising out of or related to the Loan
Documents, or any of them.
"Officer's Certificate" means a certificate executed on behalf of
the Company by its chief financial officer or its treasurer or by such
other officer as may be designated herein, in the form of Exhibit "F"
hereto.
"OTS" means the Office of Thrift Supervision.
"Par Value" means, with respect to any Mortgage Loan the unpaid
principal balance of such Mortgage Loan on the date of the Advance made
against such Mortgage Loan.
"Participant" has the meaning set forth in Section 11.5 hereof.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts or other organizations, whether or not legal
entities, and federal and state governments and agencies or regulatory
authorities and political subdivisions thereof.
"Plans" has the meaning set forth in Section 5.10 hereof
"Pledged Mortgages" has the meaning set forth in Section 3.1 (a)
hereof
"Pledged Securities" has the meaning set forth in Section 3.1 (b)
hereof
"PMI" means any private mortgage insurance company which is
acceptable to Lender, in its sole discretion; provided that at any time
by written notice to Company, Lender may disapprove any PMI because it
has determined in its sole discretion and for any reason that it is no
longer comfortable with that Person being a PMI, whether or not that
Person has been previously approved as a PMI by Lender. Upon receipt of
such notice, the Persons named in Lender's notice shall no longer be
PMIs from and after the date of receipt of such notice.
"Purchase Agreement" means a written agreement, in form and
substance satisfactory to the Lender, issued in favor of the Company by
an Investor pursuant to which Investor agrees to purchase Mortgage
Loans that satisfy such Investor's current underwriting guidelines,
subject to Investor's approval of each Mortgage Loan submitted by
Company for purchase thereunder.
"Purchase Commitment" means a written commitment, in form and
substance satisfactory to the Lender, issued in favor of the Company by
an Investor pursuant to which that Investor commits to purchase
specific Mortgage Loans or Mortgage-backed Securities at a specific
price and with respect to such commitment there is no condition which
cannot be reasonably anticipated to be satisfied or complied with
before its expiration.
9
<PAGE>
"Purchase Price" shall have the meaning set forth in the Master
Repurchase Agreement.
"Redemption Amount" has the meaning set forth in Section 3.5
hereof.
"RICO" means the Racketeer Influenced and Corrupt Organizations Act
of 1970, as amended.
"Second Mortgage" means a mortgage or deed of trust which
constitutes a second Lien on improved real property containing one to
four family residences.
"Second Mortgage Loan" means a Mortgage Loan secured by a Second
Mortgage.
"Securities" means the Mortgage Notes, securities, and financial
instruments sold by Company to the Lender under the Master Repurchase
Agreement at any time and from time to time.
"Servicing Contract" means, with respect to any Person, the
arrangement, whether or not in writing, pursuant to which such Person
has the right to service Mortgage Loans.
"Servicing Rights" means (a) the rights, obligations, remedies,
powers, and responsibilities of a Person to service Mortgage Loans
owned by that Person, including without limitation the right to collect
principal and interest payments, administer escrow accounts, and the
right to own and possess loan files and all records, documents, and
data relating to such Mortgage Loans, and (b) the obligations, rights,
remedies, powers, privileges, benefits and responsibilities of a
Person to service Mortgage Notes for GNMA, FNMA or FHLMC under and in
accordance with the GNMA Guide, the FNMA Guide and the FHLMC Guide,
respectively or for any Investor under any Servicing Contract,
including, without limitation, (i) the right to receive servicing fees,
termination fees, net sales proceeds, late charges, insufficient fund
fees, and other ancillary income relating to the Mortgage Notes (ii)
the right to hold and administer the escrow accounts, and (iii) the
right to all loan files, insurance files, tax records, collection
records, documents, ledgers, computer printouts, computer tapes and
other records, data or information relating to the Mortgage Notes, the
escrow accounts or the servicing or otherwise necessary or proper to
perform the obligations of servicer.
"Single-family Mortgage Loan" means a Mortgage Loan secured by a
Mortgage covering improved real property containing one to four family
residences.
"Statement Date" has the meaning set forth in Section 4.1 (a)(4)
hereof.
"Subprime Mortgage Loan" means a Single-family Mortgage Loan that
(a) is, in the reasonable judgment of the Lender, consistent in all
respects with traditional standards imposed by whole loan purchasers,
relevant rating agencies and pool insurers for classification as "B" or
"C" or "D" Mortgage Loans; (b) has a maximum loan amount that
10
<PAGE>
does not exceed $350,000.00; (c) is secured by a First Mortgage or
Second Mortgage; and (d) has a loan-to-collateral value ratio not
greater than 100%.
"Subsidiary" means any corporation, association or other business
entity in which more than fifty percent (50%) of the total voting power
or shares of stock entitled to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Tangible Net Worth" means, with respect to any Person at any
date, the sum of the total shareholders' equity in such Person
(including capital stock, additional paid-in capital, and retained
earnings, but excluding treasury stock, if any), on a consolidated
basis; less the aggregate book value of all intangible assets of such
Person (as determined in accordance with GAAP), including without
limitation, goodwill, trademarks, trade names, service marks,
copyrights, patents, licenses, franchises, and Servicing Rights, each
to be determined in accordance with GAAP consistent with those applied
in the preparation of the financial statements referred to in Section
5.3 hereof, provided that, for purposes of this Agreement, there shall
be excluded from total assets, advances or loans to shareholders,
officers or Affiliates, investments in Affiliates, assets pledged to
secure any liabilities not included in the Debt of such Person and
those other assets which would be deemed by HUD to be non-acceptable in
calculating adjusted net worth in accordance with its requirements in
the Audit Guide for Audit of Approved Non-Supervised Mortgagees", as in
effect as of such date.
"Termination Date" means June 30, 1999, or such earlier date upon
which Lender's obligation to fund shall be terminated pursuant to the
terms of this Agreement.
"Tribunal" means any court or governmental department, commission,
board, bureau, agency, or instrumentality of any state, commonwealth,
nation, territory, possession, county, parish, or municipality, whether
now or hereafter constituted and/or existing.
"VA" means the Veterans Administration and any successor thereto.
"VA Loan" means a Single-family Mortgage Loan, payment of which is
partially or completely guaranteed by the VA under the Servicemen's
Readjustment Act of 1944 or Chapter 37 of Title 38 of the United States
Code or with respect to which there is a current binding and
enforceable commitment for such a guaranty issued by the VA.
"Wet Settlement Advance" means a disbursement by the Lender under
the Commitment and pursuant to Section 2.2(a) of this Agreement, in
respect of the closing or settlement of a Single-family Mortgage Loan,
in anticipation of and pending subsequent delivery and examination of
the Collateral Documents as provided in Section 11 of Exhibit C.
11
<PAGE>
1.2 Other Definitional Provisions.
(a) Accounting terms not otherwise defined herein shall have the
meanings given the terms under GAAP.
(b) Defined terms may be used in the singular or the plural, as the
context requires.
2. THE CREDIT.
2.1 The Commitment.
(a) Subject to the terms and conditions of this Agreement and
provided no Default or Event of Default has occurred and is continuing,
the Lender agrees, from time to time during the period from the date
hereof to and including the Termination Date, to make Advances to the
Company, provided the sum of the total aggregate principal amount
outstanding at any one time of all such Advances plus the aggregate
Purchase Prices of all Securities which have not been repurchased by
the Company under the Master Repurchase Agreement shall not exceed
SIXTY MILLION DOLLARS ($60,000,000.00). The obligation of the Lender to
make Advances hereunder up to such limit is hereinafter referred to as
the "Commitment." Within the Commitment, the Company may borrow, repay
and reborrow. All Advances under this Agreement shall constitute a
single indebtedness, and all of the Collateral shall be security for
the Note and for the performance of all the Obligations of the Company
to the Lender. Notwithstanding anything contained herein to the
contrary or otherwise, each purchase of Securities by the Lender under
the Master Repurchase Agreement will automatically reduce by the amount
of the purchase price for such Securities, dollar for dollar, the
principal amount available to be borrowed within the Commitment for
so long as that purchase is outstanding under the Master Repurchase
Agreement.
(b) Advances shall be used by the Company solely for the
purpose of funding the acquisition or origination of Mortgage Loans, as
specified in the Advance Request and none other, and shall be made at
the request of the Company in the manner hereinafter provided in
Section 2.2, against the pledge of such Mortgage Loans and such other
collateral as is set forth in Section 3.1 hereof as Collateral
therefor. Advances shall also be subject to the following restrictions:
(1) No Advance shall be made against a Mortgage Loan
which is not an Eligible Mortgage Loan.
(2) The aggregate amount of Wet Settlement Advances
outstanding at any one time shall not exceed Fifteen Million
and No/100 Dollars ($15,000,000.00).
(3) The aggregate amount of Advances outstanding at any
one time against Aged Mortgage Loans shall not exceed One
Million Five Hundred Thousand and No/100 Dollars
($1,500,000.00).
12
<PAGE>
(4) The aggregate amount of Advances outstanding at any
one time against High LTV Mortgage Loans shall not exceed Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00).
(c) No Advance against a Mortgage Loan shall exceed an amount
equal to 99% of the Collateral Value of such Mortgage Loan to be
determined as of the date such Mortgage Loan is pledged to Lender.
2.2 Procedures for Obtaining Advances.
(a) The Company may obtain an Advance hereunder subject to the
following:
(1) The Company may obtain an Advance hereunder, subject to
the satisfaction of the conditions set forth in Sections 4.1 and 4.2
hereof, upon compliance with the procedures set forth in this Section
2.2 and in Exhibit "C" attached hereto and made a part hereof Requests
for Advances shall be initiated by the Company (i) by delivering to
the Lender and its designee, by telecopy (with original to be sent
immediately thereafter by overnight mail) a completed and signed
request for an Advance (an "Advance Request") in the form of Exhibit
"A" attached hereto and made a part hereof, or (ii) by using the
electronic data transmission service provided by the Lender and its
licensor, MBMS Incorporated, to transmit to the Lender a request for
Advance ("Electronic Request"), which shall include all information
required by Exhibit "A" through the Warehouse Management System
software provided by the Lender and its licensor, MBMS Incorporated.
The Lender shall have the right, on not less than three (3) Business
Days' prior notice to the Company, to modify the Advance Request,
Electronic Request, or any exhibits hereto to conform to current legal
requirements or Lender practices, and, as so modified, said Advance
Request, Electronic Request or exhibits shall be deemed a part hereof.
In consideration of the Lender permitting the Company to make
Electronic Requests for Advances utilizing the Warehouse Management
System software or Advance Requests by telecopy, the Company covenants
and agrees to assume liability for and to protect, indemnify and save
the Lender harmless from, any and all liabilities, obligations,
damages, penalties, claims, causes of action, costs, charges and
expenses, including attorneys' fees and expenses of employees, which
may be imposed, incurred by or asserted against the Lender by reason of
any loss, damage or claim howsoever arising or incurred because of, out
of or in connection with (i) any action of the Lender pursuant to
Electronic Requests or Advance Requests by telecopy, (ii) the breach of
any provisions of this Agreement by the Company, (iii) the transfer of
funds pursuant to such Electronic Requests or Advance Requests by
telecopy, or (iv) the Lender's honoring or failing to honor any
Electronic Request or Advance Request by telecopy for any reason or no
reason whatsoever. The Lender is entitled to rely upon and act upon
Electronic Requests or Advance Requests by telecopy, and the Company
shall be unconditionally and absolutely estopped from denying (x) the
authenticity and validity of any such transaction so acted upon by the
Lender once the Lender has advanced funds and has deposited or
13
<PAGE>
transferred such funds as requested in any such Electronic Request or
Advance Request by telecopy, and (y) the Company's liability and
responsibility therefor.
(2) In the case of any Wet Settlement Advances, the Company
shall follow the procedures and, at or prior to the Lender's making of
such Wet Settlement Advance, shall deliver to the Lender or its
designee the documents set forth in Section 11 of Exhibit "C" hereto.
In case of Collateral financed through a Wet Settlement Advance, the
Company shall cause all Collateral Documents to be delivered to the
Lender or its designee within three (3) calendar days after the date
of the Wet Settlement Advance relating thereto.
(3) Before funding, the Lender and its designee shall have a
reasonable time to examine such Advance Request and the Collateral
Documents to be delivered prior to such requested Advance, as set
forth in the applicable Exhibit hereto, and may reject such of them as
do not meet the requirements of this Agreement or of the related
Purchase Commitment. The Advance Request and the Collateral Documents
must be received by Lender no later than 2:00 p.m. Houston, Texas time
in order for funding to occur the same day.
(b) To make an Advance, the Lender shall credit the Funding Account
upon compliance by the Company with the terms of this Agreement.
2.3 Note. The Company's obligation to pay the principal of, and
interest on, all Advances made by the Lender shall be evidenced by a promissory
note (the "Note") of the Company dated as of the date hereof, in form of Exhibit
"N" hereto. The term "Note" shall include all extensions, renewals and
modifications of the Note and all substitutions therefor. All terms and
provisions of the Note are hereby incorporated herein.
2.4 Interest.
(a) (1) [REDACTED]
(2) [REDACTED]
(3) [REDACTED]
14
<PAGE>
(b) Interest shall be computed on the basis of a 360-day year and
applied to the actual number of days elapsed in each interest calculation period
and shall be payable monthly in arrears, on the first day of each month,
commencing with the first month following the date of this Agreement, and ending
on Termination Date.
(c) Obligations not paid when due (whether at stated maturity, upon
acceleration following the occurrence of an Event of Default or otherwise) shall
bear interest, from the date due until paid in full, at a rate of interest
("Default Rate") at all times equal to the lesser of (i) four percent (4%) per
annum over the Floating Rate; or (ii) the Maximum Rate, said interest to be
payable on demand by Lender.
2.5 Principal Payments.
(a) The outstanding unpaid principal amount of all Advances shall be
payable in full upon June 30, 1999.
(b) The Company shall have the right to prepay the outstanding Advances
in whole or in part, from time to time, without premium or penalty.
(c) The Company shall be obligated to pay to the Lender, without the
necessity of prior demand or notice from the Lender, and the Company authorizes
the Lender to charge the Funding Account or any other accounts of the Company
(excluding any monies held by Company in trust for third parties) in Lender's
possession for the amount of any outstanding Advance against a specific Mortgage
Loan upon the earliest occurrence of any of the following events:
(1) The expiration of ninety (90) days from the date of any Advance
for any Mortgage Loan (excluding Aged Mortgage Loans).
(2) The expiration of thirty (30) days from the date the Mortgage
Loan was delivered to an Investor for examination and purchase, without
the purchase being made, or upon rejection of the Mortgage Loan as
unsatisfactory by an Investor;
(3) The expiration of forty-five (45) days from the date Mortgage
Loan is delivered to the certificating custodian acceptable to the
Lender for the issuance of a Mortgage-backed Security;
(4) The expiration of three (3) calendar days from the date a Wet
Settlement Advance was made without receipt of all Collateral Documents
relating to such Mortgage Loan, or such Collateral Documents, upon
examination by the
15
<PAGE>
Lender, are found not to be in compliance with the requirements of this
Agreement or the related Purchase Commitment;
(5) The expiration of ten (10) Business Days from the date a
Collateral Document in connection with such Mortgage Loan was delivered
to the Company for correction or completion, without being returned
to the Lender, corrected or completed;
(6) The Mortgage Loan is in default and such default continues for
a period of sixty (60) days or more;
(7) The expiration of three (3) Business Days after the date on
which the related Purchase Commitment, if any, expires, is terminated
or otherwise canceled or no longer in full force and effect and the
specific Mortgage Loan was not delivered under the Purchase Commitment
prior to such termination, expiration or cancellation;
(8) The Mortgage Loan is not or ceases to be an Eligible Mortgage
Loan;
(9) Upon sale of the Mortgage Loan.
Upon receipt of such payment by the Lender, such Mortgage Loans or
Mortgage-backed Securities shall be considered to have been redeemed from
pledge, and the Collateral Documents relating thereto which have not been
delivered to the Investor or the pool custodian or pool trustee shall be
released by the Lender to the Company.
(d) With respect to Aged Mortgage Loans, the Company shall be obligated
to pay to the Lender (and the Company authorizes the Lender to charge the
Funding Account or any other accounts of the Company [excluding monies held by
the Company in trust for third parties] in Lender's possession for the payment
thereof) the principal payments in the amounts and on the dates specified below:
(1) On the date a Pledged Mortgage becomes an Aged Mortgage Loan, a
principal payment in an amount necessary to reduce the outstanding
unpaid Advances made against such Aged Mortgage Loan to an amount equal
to 90% of the Collateral Value of such Aged Mortgage Loan;
(2) On the date an Aged Mortgage Loan has been included in the
Collateral for 120 days, a principal payment in an amount necessary
to reduce the outstanding unpaid Advances made against such Aged
Mortgage Loan to an amount equal to 80% of the Collateral Value of such
Aged Mortgage Loan;
(3) On the date an Aged Mortgage Loan has been included in the
Collateral for 150 days, a principal payment in an amount necessary to
reduce the outstanding unpaid Advances made against such Aged Mortgage
Loan to an amount equal to 70% of the Collateral Value of such Aged
Mortgage Loan;
16
<PAGE>
(4) On the date an Aged Mortgage Loan has been included in the
Collateral for 180 days, an amount equal to the balance of the
aggregate outstanding unpaid Advances against such Aged Mortgage Loan.
2.6 Expiration of Commitment. Unless extended or terminated earlier as
permitted hereunder, the Commitment shall expire of its own term, and without
the necessity of action by the Lender, at the close of business on the Business
Day immediately preceding the Termination Date. However, the remainder of this
Agreement shall remain in full force and effect until all amounts due on the
Obligations have been paid in full. The Lender has not made, and does not hereby
make, any commitment to renew, extend, rearrange or otherwise refinance the
outstanding and unpaid principal of the Note or accrued interest thereon. In the
event, however, the Lender from time to time renews, extends, rearranges,
increases and/or otherwise refinances any portion or all of any Obligation and
any accrued interest thereon at any time, such refinancing shall be evidenced by
an appropriate promissory note in form and substance satisfactory to the Lender
and, unless otherwise noted or modified at such time or times by the terms of
such promissory note or any agreements executed in connection therewith, any
such promissory note or notes and refinancing evidenced thereby shall be
governed in all respects by the terms of this Agreement.
2.7 Method of Making Payments. Except as otherwise specifically
provided herein, all payments hereunder shall be made to the Lender not later
than the close of business (Houston time) on the date when due unless such date
is a non-Business Day, in which case, such payment shall be due on the first
Business Day thereafter, and shall be made in lawful money of the United States
of America in immediately available funds.
2.8 Non-Usage Fee. At the end of each month during the term of this
Agreement (i.e., from its effective date through the Termination Date), the
Lender shall determine average usage of the Commitment by calculating the
arithmetic daily average of the outstanding balance of Advances in the preceding
month. The Lender shall then subtract the average usage (the "Used Portion")
from the Commitment (the result being called the "Unused Portion") and the
Company shall pay in arrears the Commitment (the result being called the
"Unused Portion") and the Company shall pay in arrears (without duplication of
payment), on or before five (5) days after the later of (a) the end of each
month or (b) the Company's receipt of the Lender's bill for such monthly period,
a Non-Usage Fee equal to 0.125% per annum of the total amount of the unused
Portion of the Commitment, as compensation to the Lender for its agreement to
make the Commitment available to the Company during that month and not as
compensation for the use, forbearance or detention of money (i.e., as a "true
commitment fee" under Texas law); provided that such fee shall be waived for
any month thereafter if the Unused Portion for such month is equal to or less
than fifty percent (50%) of the Commitment. Each calculation by the Lender of
the amount of any Non-Usage Fee shall be conclusive and binding on the Company,
absent manifest error.
2.9 Miscellaneous Charges. At the end of each month during the term
of this Agreement, the Company shall pay to the Lender in arrears on or before
five (5) days after the later of (a) the end of each calendar month or (b) the
Company's receipt of the Lender's bill for such monthly period, a transaction
fee equal to $15.00 per Pledged Mortgage held by Lender during such month and
for which Lender has not previously received a transaction fee, for the handling
and administration of Advances and Collateral. For the purposes hereof, Company
shall, at its sole cost and expense, pay
17
<PAGE>
all miscellaneous charges and expenses incurred by the Lender in connection with
the handling and administration of Advances and Collateral, including,
without limitation, all charges for security delivery fees and charges for
overnight delivery of Collateral to Investors. Miscellaneous charges are due
when incurred, but shall not be delinquent if paid within ten (10) days after
receipt of an invoice or an account analysis statement from the Lender.
2.10 Bailee. Lender appoints Company and Company shall act as its
bailee to (i) hold in trust for Lender (A) the original recorded copy of the
mortgage, deed of trust, or trust deed securing each Pledged Mortgage, (B) a
mortgagee policy of title insurance (or binding unexpired and unconditional
commitment to issue such insurance if the policy has not yet been delivered to
Company) insuring the Company's perfected Lien created by that mortgage, deed of
trust, or trust deed, (C) the original insurance policies for each Pledged
Mortgage, and (D) all other original documents relating to each Pledged
Mortgage, including any promissory notes, any other loan documents, and
supporting documentation, surveys, settlement statements, closing instructions,
and Mortgage-backed Securities, and (ii) deliver to Lender any of the foregoing
items as soon as reasonably practicable upon Lender's request.
3. COLLATERAL.
3.1 Grant of Security Interest. As security for the payment of the Note
and for the performance of all of the Company's Obligations hereunder, the
Company hereby assigns and transfers all right, title and interest in and to and
grants a security interest to the Lender in the following described property,
whether now owned or hereafter acquired (the "Collateral"):
(a) All Mortgage Loans including all Mortgage Notes and Mortgages
evidencing such Mortgage Loans including without limitation all
Mortgage Loans in respect of which Wet Settlement Advances have been
made by the Lender, which from time to time are delivered or caused to
be delivered to the Lender or its designee, come into the possession,
custody or control of the Lender for the purpose of assignment or
pledge or in respect of which an Advance has been made by the Lender
hereunder (the "Pledged Mortgages").
(b) All Mortgage-backed Securities which are from time to time
delivered or caused to be delivered to, or are otherwise in the
possession of the Lender, or its designee, its agent, bailee or
custodian as assignee or pledged to the Lender, or for such purpose are
registered by book-entry in the name of the Lender (the "Pledged
Securities").
(c) All private mortgage insurance and all commitments issued by
the FHA or VA to insure or guarantee any Mortgage Loans included in the
Pledged Mortgages; all guaranties related to Pledged Securities; all
Purchase Commitments held by the Company covering the Pledged Mortgages
or the Pledged Securities and all proceeds resulting from the sale
thereof to Investors pursuant thereto; all personal property, contract
rights, servicing and servicing fees and income or other proceeds,
amounts and payments payable to the Company as compensation or
reimbursement, accounts and general intangibles of whatsoever kind
relating to the Pledged Mortgages, the Pledged Securities and all other
documents or instruments relating to the Pledged Mortgages and the
Pledged Securities, including, without limitation, any interest of the
Company in any fire, casualty or hazard
18
<PAGE>
insurance policies and any awards made by any public body or decreed by
any court of competent jurisdiction for a taking or for degradation of
value in any eminent domain proceeding as the same relate to the
Pledged Mortgages.
(d) All right, title and interest of the Company in and to all
escrow accounts, documents, instruments, files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs, cards,
accounting records (including all information, records, tapes, data,
programs, discs and cards necessary or helpful in the administration or
servicing of the foregoing Collateral) and other information and data
of the Company relating to the foregoing Collateral.
(e) All now existing or hereafter acquired cash delivered to or
otherwise in the possession of the Lender or its agent, bailee or
custodian or designated on the books and records of the Company as
assigned and pledged to the Lender.
(f) All cash and non-cash proceeds of the foregoing Collateral,
including all dividends, distributions and other rights in connection
with, and all additions to, modifications of and replacements for, the
foregoing Collateral, and all products and proceeds of the foregoing
Collateral, together with whatever is receivable or received when the
foregoing Collateral or proceeds thereof are sold, collected, exchanged
or otherwise disposed of, whether such disposition is voluntary or
involuntary, including, without limitation, all rights to payment with
respect to any cause of action affecting or relating to the foregoing
Collateral or proceeds thereof.
3.2 Security Interest in Mortgage-backed Securities. The Company's
ability to convert Mortgage Loans that are within the Collateral to
Mortgage-backed Securities are subject to the following conditions:
(a) Pledged Mortgages that are to be transferred to a pool
custodian in connection with the issuance of Mortgage-backed
Securities, shall be released from the Lender's security interest only
against payment to the Lender of the amount due the Lender in
connection with such Pledged Mortgages as determined in accordance
with Section 3.5 of this Agreement or against the issuance of such
Mortgage-backed Securities and the continuation of the Lender's first
priority, perfected security interest in such Mortgage-backed
Securities and the proceeds thereof until payment due the Lender in
respect of said Pledged Mortgages is made to the Lender.
(b) In the case of Mortgage-backed Securities created from Pledged
Mortgages, the Lender shall have the exclusive right to the possession
of the Mortgage-backed Securities if the Mortgage-backed Securities are
not to be issued in certificated form, shall have the right to
have the book entries for the Mortgage-backed Securities issued in the
Lender's name or the name or names of its designees. Lender shall cause
delivery of the Mortgage-backed Securities to be made to the Investor
or the book entries registered in the name of the Investor or the
Investor's designee only against payment therefor. The Company
acknowledges that the Lender may enter into one or more standing
arrangements with other financial institutions for the issuance of
Mortgage-backed Securities in book entry form in
19
<PAGE>
the name of such other financial institutions, as agent for the
Lender, and the Company agrees upon request of the Lender, to execute
and deliver to such other financial institutions the Company's written
concurrence in any such standing arrangements.
3.3 Delivery of Collateral Documents. The Lender or its designee
exclusively shall deliver Pledged Mortgages or Pledged Securities to (a) an
Investor that has issued a Purchase Commitment with respect thereto for its
examination and purchase, or (b) an Approved Custodian for purposes of
examination or delivery in connection with the issuance of Mortgage-backed
Securities. In such cases where the Lender must deliver documents to an Investor
or Approved Custodian, the Lender must receive signed shipping instructions (in
the form of Exhibit "D" attached hereto), no later than 2:00 p.m. Houston, Texas
time one (1) Business Day prior to the expiration of the appended Purchase
Commitment, in addition to any other documents listed in Section III of Exhibit
"C" in respect of the issuance of Mortgage-backed Securities. If shipping
instructions are received by Lender before 2:00 p.m. Houston, Texas time of any
Business Day, Lender will ship the documents together with the Bailee Letter (in
form of Exhibit "K") to the Investor or Approved Custodian on the same Business
Day, otherwise Lender will ship the documents the next Business Day following
receipt of shipping instructions. In any case in which an Advance has been made
hereunder against Pledged Mortgages, based on the existence of a Purchase
Commitment covering such Pledged Mortgages, the Company agrees that such Pledged
Mortgages will not be placed in any mortgage pool other than an Eligible
Mortgage Pool, unless such Pledged Mortgages have been redeemed from pledge as
permitted hereunder or other arrangements, satisfactory to the Lender in its
sole discretion, have been made for the redemption of such Pledged Mortgages
from pledge hereunder. The Lender may deliver any document relating to the
Collateral to the Company for correction or completion against a trust receipt
in the form of Exhibit "E" attached hereto executed by the Company. The Company
hereby represents and warrants to and agrees with the Lender that any request by
the Company for release of the Collateral consisting of or relating to Mortgage
Loans to the Company shall be solely for the purposes of correcting clerical or
non-substantial documentation problems in preparation for returning such
Collateral to the Lender for ultimate sale or exchange and the aggregate
Collateral Value of the Collateral released to the Company pursuant to this
Section 3.3 will not exceed $500,000.00; the Company shall request such release
in compliance with all of the terms and conditions of such release set forth
herein; and the Company will return to the Lender such documentation released to
the Company pursuant to this Section 3.3 within ten (10) calendar days after
such delivery.
3.4 Delivery of Additional Collateral or Mandatory Prepayment. At any
time that the aggregate Collateral Value of the Collateral then pledged
hereunder is less than the aggregate amount of the Advances then outstanding
hereunder, the Lender may request, and the Company shall within two (2) Business
Days after Notice by the Lender (a) deliver to the Lender or its designee for
pledge hereunder additional Mortgage Loans and/or cash, in aggregate amounts
sufficient to cover the difference between the Collateral Value of the
Collateral pledged and the aggregate amount of Advances outstanding hereunder,
or (b) repay the Advances in an amount sufficient to reduce the aggregate
balance thereof outstanding to an amount equal to or below the Collateral Value
of the Collateral pledged hereunder.
3.5 Right of Redemption from Pledge. So long as no Event of Default has
occurred, the Company may redeem a Mortgage Loan or Mortgage-backed Security by
notifying the Lender of
20
<PAGE>
its intention to redeem such Mortgage Loan or Mortgage-backed Security from
pledge and by paying, or causing an Investor to pay, to the Lender, for
application to prepayment of the principal balance of the Note, an amount (the
"Redemption Amount") equal to the amount of the Advance made with respect to or
relating to such Mortgage Loan or Mortgage-backed Security.
3.6 Collection and Servicing Rights. So long as no Event of Default
shall have occurred, the Company shall be entitled to service and receive and
collect directly all sums payable to the Company in respect of the Collateral
other than proceeds of any Purchase Commitment or proceeds of the sale of any
Collateral. Following the occurrence of any Event of Default, the Lender or its
designee shall thereafter be entitled to service and receive and collect all
sums payable to the Company in respect of the Collateral, and in such case (a)
the Lender or its designee in its discretion may, in its own name or in the name
of the Company or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange for any
of the Collateral, but shall be under no obligation to do so, (b) the Company
shall, if the Lender so requests, forthwith pay to the Lender at its principal
office all amounts thereafter received by the Company upon or in respect of any
of the Collateral, advising the Lender as to the source of such funds, and (c)
all amounts so received and collected by the Lender shall be held by it as part
of the Collateral.
3.7 Return or Release of Collateral at End of Commitment. If (a) the
Commitment shall have expired or been terminated, and (b) no Advances, interest
or other Obligations evidenced by the Loan Documents or due under this Agreement
shall be outstanding and unpaid, the Lender shall deliver or release all
Collateral in its possession to the Company. The receipt of the Company for any
Collateral released or delivered to the Company pursuant to any provision of
this Agreement shall be a complete and full acquittance for the Collateral so
returned, and the Lender shall thereafter be discharged from any liability or
responsibility therefor.
3.8 Master Repurchase Agreement. If the Lender purchases any Pledged
Mortgages under the Master Repurchase Agreement, the Purchase Price to be paid
by the Lender for such Pledged Mortgage under the Master Repurchase Agreement
shall be credited against the Note in an amount equal to the outstanding Advance
made against such Pledged Mortgage and the balance of the Purchase Price after
such application, if any, shall be paid to the Company. Any Pledged Mortgage
shall be eligible for purchase by Lender under the Master Repurchase Agreement
following delivery of such Pledged Mortgage to the Investor.
4. CONDITIONS PRECEDENT.
4.1 Initial Advance. The obligation of the Lender to make the initial
Advance under this Agreement is subject to the satisfaction, in the sole
discretion of the Lender, on or before the date thereof, of the following
conditions precedent:
(a) The Lender shall have received the following, all of which must be
satisfactory in form and content to the Lender, in its sole discretion:
(1) The Loan Documents dated as of the date hereof duly executed by
the Company;
21
<PAGE>
(2) Certified copies of the Company's articles of incorporation and
bylaws and certificates of good standing dated no less recently than
ninety (90) days prior to the date of this Agreement and a
certification from the taxing authority of the state of incorporation
stating that the Company is in good standing with said taxing
authority:
(3) A certificate (in the form of Exhibit "J") of the Company's
corporate secretary as to the resolution of the board of directors of
the Company authorizing the execution, delivery and performance of
this Agreement and the other Loan Documents and the incumbency and
authenticity of the signatures of the officers of the Company executing
this Agreement and the other Loan Documents and each Advance Request
and all other instruments or documents to be delivered pursuant hereto
(the Lender being entitled to rely thereon until a new such certificate
has been furnished to the Lender);
(4) Financial statements of the Company (and its Subsidiaries, on a
consolidated basis) containing a balance sheet as of December 31, 1997
(the "Statement Date") and related statements of income, changes in
stockholders' equity and cash flows for the period ended on the
Statement Date and a balance sheet as of April 30, 1998 ("Interim
Date") and related statement of income for the period ended on the
Interim Date, all prepared in accordance with GAAP applied on a basis
consistent with prior periods and in the case of the statements as of
the Statement Date, audited by independent certified public accountants
of recognized standing acceptable to the Lender;
(5) A favorable written opinion of counsel to the Company, dated as
of the date of this Agreement, to be in substantially the form of
Exhibit "M" hereto, and addressed to the Lender;
(6) A tax, lien and judgment search of the appropriate public
records for the Company, including a search of Uniform Commercial Code
financing statements, which search shall not have disclosed the
existence of any prior Lien on the Collateral other than in favor of
the Lender or as permitted hereunder;
(7) Copies of the certificates, documents or other written
instruments which evidence the Company's eligibility described in
Section 5.11 hereof, all in form and substance satisfactory to the
Lender;
(8) Copies of the Company's errors and omissions insurance policy
or mortgage impairment insurance policy and blanket bond coverage
policy, all in form and content satisfactory to the Lender, showing
compliance by the Company as of the date of this Agreement with the
related provisions of Section 6.9 hereof and showing Lender as an
additional loss payee on such policies;
(9) Executed financing statements in recordable form covering the
Collateral and ready for filing in all jurisdictions required by the
Lender;
22
<PAGE>
(10) Evidence that the Funding Account has been established with
the Lender;
(11) Evidence that Intuit, Inc. has acquired preferred capital
stock of the Company for a purchase price of $6,000,000.00, the form
and substance of such preferred stock being acceptable to the Lender in
its sole discretion;
(12) Evidence that $2,000,000.00 of subordinated debt of the
Company has been converted to preferred stock of the Company.
4.2 Each Advance. The obligation of the Lender to make the initial and
each subsequent Advance under this Agreement is subject to the satisfaction, in
the sole discretion of the Lender, as of the date of each such Advance, of the
following additional conditions precedent:
(a) In connection with an Advance, the Company shall have delivered
to the Lender the Advance Request or the Electronic Request, Collateral
Documents, and documents required under and shall have satisfied the
procedures set forth in Section 2.2 and Exhibit "C". All items
delivered to the Lender or its designee shall be satisfactory to the
Lender in form and content, and the Lender may reject such of them as do
not meet the requirements of this Agreement or of the related Purchase
Commitment.
(b) The Lender shall have received evidence satisfactory to it as to
the making and/or continuation of any book entry or the due filing and
recording in all appropriate offices of all financing statements and
other instruments as may be necessary to perfect the security interest
of the Lender in the Collateral under the Uniform Commercial Code of
Texas or other applicable law.
(c) The representations and warranties of the Company contained in
Article 5 hereof shall be accurate and complete in all material respects
as if made on and as of the date of each Advance.
(d) The Company shall have performed all agreements to be performed
by it hereunder and, as of the date of the Advance Request, and after
giving effect to the requested Advance, there shall exist no Default or
Event of Default hereunder.
(e) The Company shall not have incurred any material liabilities,
direct or contingent, except as approved by Lender pursuant to Section
7.17, since the dates of the Company's most recent financial statements
theretofore delivered to the Lender.
(f) The Lender shall have received from counsel for the Company, if
requested by the Lender in its sole discretion, an updated opinion, in
form and substance satisfactory to the Lender, addressed to the Lender
and dated as of the date of such Advance, covering such of the matters
as the Lender may reasonably request.
(g) Such additional documents, instruments, and information as
Lender or its legal counsel may require.
23
<PAGE>
Acceptance of the proceeds of the requested Advance by the Company
shall be deemed a representation by the Company that all conditions set forth in
this Article 4 shall have been satisfied as of the date of such Advance.
5. REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to the Lender, as of the
date of this Agreement and (unless otherwise notified in writing by the Company
and Lender, in its sole discretion, approves in writing) as of the date of each
Advance Request and the making of each Advance, that:
5.1 Organization, Good Standing, Subsidiaries. The Company and each
Subsidiary of the Company is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
has the full legal power and authority to own its property and to carry on its
business as currently conducted and is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction in which the
transaction of its business makes such qualification necessary, except in
jurisdictions, if any, where a failure to be in good standing has no material
adverse effect on the business, operations, assets or financial condition of the
Company or any such Subsidiary. For the purposes hereof, good standing shall
include qualification for any and all licenses and payment of any and all taxes
required in the jurisdiction of its incorporation and in each jurisdiction in
which the Company transacts business. The Company has no Subsidiaries except as
set forth on Exhibit "G" hereto. Exhibit "G" sets forth with respect to each
such Subsidiary, its name, address, place of incorporation, each state in which
it is qualified as a foreign corporation, and the percentage ownership of the
Company in such Subsidiary.
5.2 Authorization and Enforceability. The Company has all requisite
corporate power and authority to execute, deliver, create, issue, comply and
perform this Agreement, the Note and all other Loan Documents to which the
Company is party and to make the borrowings hereunder. The execution, delivery
and perfomance by the Company of this Agreement, the Note and all other Loan
Documents to which the Company is party and the making of the borrowings
hereunder and thereunder, have been duly and validly authorized by all necessary
corporate action on the part of the Company (none of which actions has been
modified or rescinded, and all of which actions are in full force and effect)
and do not and will not conflict with or violate any provision of law or of the
articles of incorporation or by-laws of the Company, conflict with or result in
a breach of or constitute a default or require any consent under any contracts
to which Company is a party, or result in the creation of any Lien upon any
property or assets of the Company other than the Lien on the Collateral granted
hereunder, or result in or require the acceleration of any Indebtedness of the
Company pursuant to any agreement, instrument or indenture to which the Company
is a party or by which the Company or its property may be bound or affected.
This Agreement, the Note and all other Loan Documents contemplated hereby or
thereby constitute legal, valid, and binding obligations of the Company,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency or other such laws affecting the enforcement of creditors
rights generally.
5.3 Financial Condition. The balance sheet of the Company provided to
Lender pursuant to Section 4.1 (a)(4) hereof (and if applicable, its
Subsidiaries, on a consolidating and consolidated basis) as at the Statement
Date, and the related statements of income, changes in stockholders' equity, and
cash flows for the fiscal year ended on the Statement Date, heretofore furnished
to the
24
<PAGE>
Lender, fairly present the financial condition of the Company and its
Subsidiaries as at the Statement Date and the Interim Date and the results of
its and their operations for the fiscal period ended on the Statement Date and
the Interim Date. The Company had, on the Statement Date and the Interim Date,
no known material liabilities, direct or indirect, fixed or contingent, matured
or unmatured, or liabilities for taxes, long-term leases or unusual forward or
long-term commitments not disclosed by, or reserved against in, said balance
sheet and related statements, and at the present time there are no material
unrealized or anticipated losses from any loans, advances or other commitments
of the Company except as heretofore disclosed to the Lender in writing. Said
financial statements were prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved. Since the Statement Date,
there has been no material adverse change in the business, operations, assets or
financial condition of the Company or its Subsidiaries, nor is the Company aware
of any state of facts particular to the Company which (with or without notice or
lapse of time or both) would or could result in any such material adverse
change.
5.4 Litigation. Except as disclosed on Exhibit "H", there are no
actions, claims, suits or proceedings pending, or to the knowledge of the
Company, threatened or reasonably anticipated against or affecting the Company
or any Subsidiary of the Company in any court or before any arbitrator or before
any government commission, board, bureau or other administrative agency which,
if adversely determined, may reasonably be expected to result in any material
and adverse change in the business, operations, assets or financial condition of
the Company or any of Company's Subsidiaries, as a whole.
5.5 Compliance with Laws. To the knowledge of Company, neither the
Company nor any Subsidiary of the Company is in violation of any provision of
any law, or of any judgment, award, rule, regulation, order, decree, writ or
injunction of any court or public regulatory body or authority which might have
a material adverse effect on the business, operations, assets or financial
condition of the Company or any of Company's Subsidiaries, as a whole.
5.6 Regulations G and U. The Company is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying Margin Stock, and no part of the proceeds of
any Advances made hereunder will be used to purchase or carry any Margin Stock
or to extend credit to others for the purpose of purchasing or carrying any
Margin Stock.
5.7 Investment Company Act and Public Utility Holding Company Act.
Neither the Company nor any of its Subsidiaries is an "investment company" or
controlled by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. Neither the Company nor any of its Subsidiaries
is subject to regulation under the Public Utility Holding Company Act of 1935,
as amended.
5.8 Agreements. Neither the Company nor any Subsidiary of the Company
is a party to any agreement, instrument or indenture, or subject to any
restriction, materially and adversely affecting its business, operations,
assets or financial condition, except as disclosed in the financial statements
described in Section 5.3 hereof. The Company and each Subsidiary of the Company
are not in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement, instrument, or
indenture which default could have a material
25
<PAGE>
adverse effect on the business, operations, properties or financial condition of
the Company as a whole. No holder of any Indebtedness of the Company or of any
of its Subsidiaries has given notice of any alleged default thereunder or, if
given, the same has been cured or will be cured by Company within the cure
period provided therein, and no liquidation or dissolution of the Company or
any of its Subsidiaries and no receivership, insolvency, bankruptcy,
reorganization or other similar proceedings relative to the Company or any of
its Subsidiaries or any of their respective properties is pending, or to the
knowledge of the Company, threatened.
5.9 Title to Properties. The Company and each Subsidiary of the Company
has good, valid, insurable (in the case of real property) and marketable title
to all of its properties and assets (whether real or personal, tangible or
intangible) reflected on the financial statements described in Section 5.3
hereof, and all such properties and assets are free and clear of all Liens
except as disclosed in such financial statements and not prohibited under this
Agreement.
5.10 ERISA. All plans ("Plans") of a type described in Section 3(3) of
ERISA in respect of which the Company or any Subsidiary of the Company is an
"Employer," as defined in Section 3(5) of ERISA, are in substantial compliance
with ERISA, and none of such Plans is insolvent or in reorganization, has an
accumulated or waived funding deficiency within the meaning of Section 412 of
the Internal Revenue Code, and neither the Company nor any Subsidiary of the
Company has incurred any material liability (including any material contingent
liability) to or on account of any such Plan pursuant to Sections 4062, 4063,
4064, 4201 or 4204 of ERISA; and no proceedings have been instituted to
terminate any such Plan, and no condition exists which presents a material risk
to the Company or a Subsidiary of the Company of incurring a liability to or on
account of any such Plan pursuant to any of the foregoing Sections of ERISA. No
Plan or trust forming a part thereof has been terminated since December 1, 1974.
5.11 Eligibility. The Company has all requisite corporate power and
authority and all necessary licenses, permits, franchises and other
authorizations to own and operate its property and to carry on its business as
now conducted. If approved now or hereafter as a lender or seller/servicer for
any one or more of the governmental agencies as set forth below, the Company
will remain at all times approved and qualified and in good standing and meet
all requirements applicable to such status:
(a) FNMA approved seller/servicer of Mortgage Loans, eligible to
originate, purchase, hold, sell, and service Mortgage Loans to be sold
to FNMA.
(b) FHLMC approved seller/servicer of Mortgage Loans, eligible to
originate, purchase, hold, sell, and service Mortgage Loans to be sold
to FHLMC.
(c) GNMA approved seller/servicer of Mortgage Loans, eligible to
originate, purchase, hold, sell, and service Mortgage Loans to be
sold to GNMA.
(d) HUD approved lender, eligible to originate, purchase, hold,
sell and service FHA-insured Mortgage Loans.
26
<PAGE>
(e) VA lender in good standing under the VA loan guarantee
program eligible to originate, purchase, hold, sell, and service
VA-guaranteed Mortgage Loans.
(f) All licenses, permits, and other authorizations required by any
Governmental Authority to carry on its business as now conducted in any
jurisdiction.
5.12 Special Representations Concerning Collateral. The Company hereby
represents and warrants to the Lender, as of the date of this Agreement and as
of the date of each Advance, that:
(a) The Company is the legal and equitable owner and holder, free
and clear of all Liens (other than Liens granted hereunder), of the
Pledged Mortgages and the Pledged Securities. All Pledged Mortgages,
Pledged Securities, and Purchase Commitments have been duly authorized
and validly granted or issued to the Company, and all of the foregoing
items of Collateral comply with all of the requirements of this
Agreement, and have been validly pledged or assigned to the Lender,
subject to no other Liens.
(b) The Company has, and will continue to have, the full right,
power and authority to pledge the Collateral pledged and to be pledged
by it hereunder.
(c) Any Mortgage Loan and related documents included in the Pledged
Mortgages (1) as of the date of the Advance Request for such Mortgage
Loan, has been duly executed and delivered by the parties thereto; (2)
has been made in compliance with all requirements of the Real Estate
Settlement Procedures Act, Equal Credit Opportunity Act, the federal
Truth-In-Lending Act and all other applicable laws and regulations; (3)
is valid and enforceable in accordance with its terms, without defense
or offset; (4) has not been modified or amended except in writing,
which writing is part of the Collateral Documents, nor any requirements
thereof waived; and (5) complies with the terms of this Agreement and,
if applicable, with the related Purchase Commitment held by the
Company. Each Mortgage Loan has been fully advanced in the face amount
thereof and each Mortgage creates a Lien on the premises described
therein.
(d) No monetary default, nor, to the knowledge of the Company, any
event which, with notice or lapse of time or both, would become a
default, has occurred and is continuing under any Mortgage Loan
included in the Pledged Mortgages; provided, however, that, with
respect to Pledged Mortgages which have already been pledged as
Collateral hereunder, if any such default or event has occurred, the
Company will promptly notify the Lender and the same shall not have
continued for more than sixty (60) days.
(e) The Company has complied with all laws, rules and regulations
in respect of the FHA insurance or VA guarantee of each Mortgage Loan
included in the Pledged Mortgages designated by the Company as an FHA
insured or VA guaranteed Mortgage Loans, and such insurance or
guarantee is in full force and effect. All such FHA insured and VA
guaranteed Mortgage Loans comply in all respects with all applicable
requirements for purchase under the FNMA standard form of selling
contract for FHA insured and VA guaranteed loans and any supplement
thereto then in effect.
27
<PAGE>
(f) All fire and casualty policies covering Mortgaged Property
encumbered by a Pledged Mortgage (1) name the Company and its
successors and assigns as the insured under a standard mortgagee
clause, (2) are and will continue to be in full force and effect, and
(3) afford and will continue to afford insurance against fire and such
other risks as are usually insured against in the broad form of
extended coverage insurance from time to time available, as well as
insurance against flood hazards if the same is required by FHA or VA.
(g) Pledged Mortgages encumbering Mortgaged Property located in a
special flood hazard area designated as such by the Secretary of HUD
are and shall continue to be covered by special flood insurance under
the National Flood Insurance Program.
(h) Each FHA insured Mortgage Loan pledged hereunder meets all
applicable governmental requirements for such insurance. Each Mortgage
Loan, against which an Advance is made on the basis of a Purchase
Commitment meets all requirements of such Purchase Commitment. The
Company shall assure that Mortgage Loans pledged pursuant to this
Agreement and intended to be used in the formation of Mortgage-backed
Securities shall comply, or prior to the formation of any such
Mortgage-backed Security, shall comply with the requirements of the
governmental instrumentality, department or agency guaranteeing such
Mortgage-backed Security.
(i) For Pledged Mortgages which will be used to secure GNMA
Mortgage-backed Securities, the Company has received from GNMA a
Confirmation Notice or Confirmation Notices for Request Additional
Commitment Authority and for Request Pool Numbers, and there remains
available thereunder a commitment on the part of GNMA sufficient to
permit the issuance of GNMA Mortgage-backed Securities in an amount at
least equal to the amount of such Pledged Mortgages designated by the
Company as the Mortgage Loans to be used to secure such GNMA
Mortgage-backed Securities; each such Confirmation Notice is in full
force and effect; each of such Pledged Mortgages has been assigned by
the Company to one of such Pool Numbers and a portion of the available
GNMA Commitment has been allocated thereto by the Company, in an amount
at least equal to the principal amount of each Mortgage Note secured by
such Pledged Mortgages; and each such assignment and allocation has
been reflected in the books and records of the Company.
(j) Each Pledged Mortgage in excess of $250,000.00 is Supported by
an appraisal that meets the appraisal requirements of FNMA or FHLMC (in
the case of residential Mortgaged Property), or the Office of Thrift
Supervision for the type of Mortgaged Property securing that Pledged
Mortgage; or, alternatively, such Pledged Mortgage is eligible for
purchase or is guaranteed or insured by a U.S. Government agency or a
U.S. Government sponsored enterprise.
5.13 RICO. The Company is not in violation of any laws, statutes or
regulations, including, without limitations, RICO, which contain provisions
which could potentially override Lender's security interest in the Collateral.
5.14 Proper Names. The Company does not operate in any Jurisdiction
under a trade name, division, division name or name other than those names
set forth on Exhibit "I" attached
28
<PAGE>
hereto and all such names included on Exhibit "I" are utilized by the Company
only in the jurisdictions listed therein.
5.15 Direct Benefit From Loans. The Company has received, or, upon the
execution and funding thereof, will receive (a) direct benefit from the making
and execution of this Agreement and the other Loan Documents to which it is a
party, and (b) fair and independent consideration for the entry into, and
performance of, this Agreement and the other Loan Documents to which it is a
party. Contemporaneously with the disbursements of each Advance by the Lender to
the Company, all such proceeds will be used to finance the origination or
purchase of Mortgage Loans.
5.16 Loan Documents Do Not Violate Other Documents. Neither the
execution and delivery by the Company of this Agreement or any other Loan
Document to which it is a party nor the consummation of the transactions herein
and therein contemplated, nor the performance of, or compliance with, the terms
and provisions hereof and thereof, does or will contravene, breach or conflict
with any provision of either of its articles of incorporation or by-laws, or
any applicable law, statute, rule or regulation or any judgment, decree, writ,
injunction, franchise, order or permit applicable to the Company or its assets
or properties, or does or will conflict or be inconsistent with, or does or will
result in any breach or default of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of any Lien upon any of the property or assets of the Company
pursuant to the terms of any indenture, mortgage, deed of trust, loan
agreement, or other instrument to which the Company is a party or by which the
Company or any of its property may be bound, the contravention, conflict,
inconsistency, breach or default of which will have a materially adverse effect
on the Company's condition, financial or otherwise, or affect its ability to
perform, promptly and fully, its obligations hereunder or under any of the other
Loan Documents.
5.17 Consents Not Required. Except for those consents that have already
been obtained and delivered to Lender or required as a condition to any Advance
hereunder, no consent of any Person and no consent, license, permit, approval,
or authorization of, exemption by, or registration or declaration with, any
Tribunal is required in connection with the execution, delivery, performance,
validity, or enforceability of this Agreement or any of the Loan Documents by
the Company.
5.18 Material Fact Representations. Neither the Loan Documents nor any
other agreement, document, certificate, or written statement furnished to the
Lender by or on behalf of the Company in connection with the transactions
contemplated in any of the Loan Documents contains any untrue statement of a
material adverse fact. There are no material adverse facts or conditions
relating to the making of the Commitment, any of the Collateral, and/or the
financial condition and business of the Company known to the Company which have
not been fully disclosed, in writing, to the Lender, it being understood that
this representation is made as of, and shall be limited to the date of this
Agreement. All writings heretofore or hereafter exhibited or delivered to the
Lender by or on behalf of the Company are and will be genuine and what they
purport to be.
5.19 Place of Business. The principal place of business of the Company
is 8751 Broward Boulevard, 5th Floor, Plantation, Florida 33324, and the chief
executive office of the Company and the office where it keeps its financial
books and records relating to its property and all contracts
29
<PAGE>
relating thereto and all accounts arising therefrom is located at the address
set forth for the Company in Section 9 hereof.
5.20 Use of Proceeds; Business Loans. The Company will use the
proceeds of the Advances made pursuant to the Commitment solely as follows, and
for no other purpose: finance the origination and purchase of Mortgage Loans.
All loans evidenced by the Note are and shall be "business loans", as such term
is used in the Depository Institutions Deregulation and Monetary Control Act of
1980, as amended, and such loans are for business or commercial purposes and not
primarily for personal, family, household or agricultural use, as such terms are
used or defined in Texas Credit Title, Regulation Z promulgated by the Board of
Governors of the Federal Reserve System, and Titles I and V of the Consumer
Credit Protection Act. Article 5069, Chapter 15, Texas Revised Civil Statues and
Section 346.003 of the Texas Finance Code (which regulates revolving loans and
revolving triparty accounts) shall not apply to this Agreement.
5.21 No Undisclosed Liabilities. Other than as permitted in Section
7.17 hereof, the Company does not have any liabilities or Indebtedness, direct
or contingent, except for liabilities or Indebtedness which, in the aggregate,
do not exceed $25,000.00.
5.22 Tax Returns and Payments. All federal, state and local income,
excise, property and other tax returns required to be filed with respect to
Company's operations and those of its Subsidiaries in any jurisdiction have been
filed on or before the due date thereof (plus any applicable extensions); all
such returns are true and correct; all taxes, assessments, fees and other
governmental charges upon the Company, and Company's Subsidiaries and upon its
property, income or franchises, which are due and payable have been paid,
including, without limitation, all FICA payments and withholding taxes, if
appropriate, other than those which are being contested in good faith by
appropriate proceedings, diligently pursued and as to which the Company has
established adequate reserves determined in accordance with GAAP, consistently
applied. The amounts reserved, as a liability for income and other taxes
payable, in the financial statements described in Section 5.3 hereof are
sufficient for payment of all unpaid federal, state and local income, excise,
property and other taxes, whether or not disputed, of the Company and its
Subsidiaries, accrued for or applicable to the period and on the dates of such
financial statements and all years and periods prior thereto and for which the
Company, and Company's Subsidiaries may be liable in their own right or as
transferee of the assets of, or as successor to, any other Person.
5.23 Subsidiaries. The Company has not issued, and does not have
outstanding, any warrants, options, rights or other obligations to issue or
purchase any shares of its capital stock or other securities, except as shown on
Exhibit "G" attached hereto. The outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. All of Company's Subsidiaries are listed on Exhibit "G" attached
hereto.
5.24 Holding Company. The Company is not a "holding company" or a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
30
<PAGE>
6. AFFIRMATIVE COVENANTS.
The Company hereby covenants and agrees that, so long as the Commitment
is outstanding or there remain any Obligations of the Company to be paid or
performed under this Agreement or under any other Loan Document, the Company
shall:
6.1 Payment of Note. Punctually pay or cause to be paid the principal
of, interest on and all other amounts payable hereunder and under the Note in
accordance with the terms thereof.
6.2 Financial Statements and Other Reports. Deliver to the Lender:
(a) As soon as available and in any event within thirty (30) days
after the end of each calendar month, statements of income, changes in
stockholders' equity, and cash flows of the Company and, if applicable,
Company's Subsidiaries, on a consolidated and consolidating basis for
the immediately preceding month, and related balance sheet as at the
end of the immediately preceding month, all in reasonable detail,
prepared in accordance with GAAP applied on a consistent basis, and
certified as to the fairness of presentation by the president and chief
financial officer of the Company, subject, however, to year-end audit
adjustments.
(b) As soon as available and in any event within ninety (90) days
after the close of each fiscal year: statements of income, changes in
stockholders' equity and cash flows of the Company, and, if applicable,
Company's Subsidiaries, on a consolidated and consolidating basis for
such year, the related balance sheet as at the end of such year
(setting forth in comparative form the corresponding figures for the
preceding fiscal year), all in reasonable detail, prepared in
accordance with GAAP applied on a consistent basis throughout the
periods involved, and accompanied by an opinion in form and substance
satisfactory to the Lender and prepared by an accounting firm
reasonably satisfactory to the Lender, or other independent certified
public accountants of recognized standing selected by the Company and
acceptable to the Lender, as to said financial statements and a
certificate signed by the president and chief financial officer of the
Company stating that said financial statements fairly present the
financial condition and results of operations of the Company and, if
applicable, Company's Subsidiaries as at the end of, and for, such
year.
(c) Together with each delivery of financial statements required in
this Section 6.2, an Officer's Certificate.
(d) Reports in respect of the Pledged Mortgages and Pledged
Securities, in such detail and at such times as the Lender in its
discretion may request at any time or from time to time to be delivered
with the monthly financial statements required in Section 6.2(a).
(e) Copies of all regular or periodic financial and other reports,
if any, which the Company shall file with the Securities and Exchange
Commission or any governmental agency successor thereto and copies of
any audits completed by GNMA, FHLMC, or FNMA. Copies of the Mortgage
Bankers' Financial Reporting Forms (FNMA Form 1002) which the Company
shall have filed with FNMA.
31
<PAGE>
(f) From time to time, with reasonable promptness, such further
information regarding the business, operations, properties or financial
condition of the Company as the Lender may reasonably request.
6.3 Maintenance of Existence, Conduct of Business. Preserve and
maintain its corporate existence in good standing and all of its rights,
privileges, licenses and franchises necessary in the normal conduct of its
business, including, without limitation, its eligibility as lender,
seller/servicer and issuer described under Section 5.11 hereof, conduct its
business in an orderly and efficient manner; maintain a net worth of acceptable
assets as required by HUD at any and all times for maintaining the Company's
status as a FHA approved mortgagee; and make no material change in the nature
or character of its business or engage in any business in which it was not
engaged on the date of this Agreement.
6.4 Compliance with Applicable Laws. Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority, a
breach of which could materially adversely affect its business, operations,
assets, or financial condition, except where contested in good faith and by
appropriate proceedings, and with sufficient reserves established therefor.
6.5 Inspection of Properties and Books. Permit authorized
representatives of the Lender to (a) discuss the business, operations, assets
and financial condition of the Company and Company's Subsidiaries with their
officers and employees and to examine their books of account, records, reports
and other papers and make copies or extracts thereof, and (b) inspect all of the
Company's property and all related information and reports at Lender's expense,
all at such reasonable times as the Lender may request. The Company will provide
its accountants with a copy of this Agreement promptly after the execution
hereof and will instruct its accountants to answer candidly any and all
questions that the officers of the Lender or any authorized representatives of
the Lender may address to them in reference to the financial condition or
affairs of the Company and Company's Subsidiaries. The Company may have its
representatives in attendance at any meetings between the officers or other
representatives of the Lender and the Company accountants held in accordance
with this authorization.
6.6 Notice. Give prompt written notice to the Lender of (a) any action,
suit or proceeding instituted by or against the Company or any of its
Subsidiaries in any federal or state court or before any commission or other
regulatory body (federal, state or local, domestic or foreign) which action,
suit or proceeding has at issue in excess of Twenty-Five Thousand Dollars
($25,000.00) (except for normal collection and foreclosure proceedings initiated
by the Company in connection with a Mortgage Loan or any other mortgage loan),
or any such proceedings threatened against the Company, or any of Company's
Subsidiaries in writing containing the details thereof, (b) the filing,
recording or assessment of any federal, state or local tax Lien against it, or
any of its assets or any of its Subsidiaries, (c) the occurrence of any Event of
Default hereunder or the occurrence of any Default and continuation thereof for
five (5) days, (d) the suspension, revocation or termination of the Company's
eligibility, in any respect, as approved lender, seller/servicer or issuer as
described under Section 5.11 hereof, (e) the transfer, loss or termination
of any Servicing Contract to which the Company is a party, or which is held for
the benefit of the Company, and the reason for such transfer, loss or
termination, if known to the Company, and (f) any other action, event or
condition of any nature which may lead to or result in a material adverse effect
upon the business, operations,
32
<PAGE>
assets, or financial condition of the Company or Company's Subsidiaries or
which, with or without notice or lapse of time or both, would constitute a
default under any other agreement instrument or indenture to which the Company
is a party or to which the Company its properties or assets may be subject.
6.7 Payment of Debt, Taxes, etc. Pay and perform all obligations and
Indebtedness of the Company, and cause to be paid and performed all obligations
and Indebtedness of its Subsidiaries in accordance with the terms thereof and
pay and discharge or cause to be paid and discharged all taxes, assessments and
governmental charges or levies imposed upon the Company or its Subsidiaries, or
upon their respective income, receipts or properties before the same shall
become past due, as well as all lawful claims for labor, materials and supplies
or otherwise which, if unpaid, might become a Lien or charge upon such
properties or any part thereof, provided, however, that the Company and its
Subsidiaries shall not be required to pay obligation, Indebtedness, taxes,
assessments or governmental charges or levies or claims for labor, materials or
supplies for which the Company or its Subsidiaries shall have obtained an
adequate bond or adequate insurance or which are being contested in good faith
and by proper proceedings which are being reasonably and diligently pursued if
such proceedings do not involve any likelihood of the sale, forfeiture or loss
of any such property or any interest therein while such proceedings are pending,
and provided further that book reserves adequate under generally accepted
accounting principles shall have been established with respect thereto and
provided further that the owing Person's title to, and its right to use, its
property is not materially adversely affected thereby.
6.8 Insurance. Maintain (a) errors and omissions insurance or
mortgage impairment insurance and blanket bond coverage, with such companies and
in such amounts as satisfy prevailing FNMA and FHLMC requirements applicable to
a qualified mortgage originating institution, and (b) liability insurance and
fire and other hazard insurance on its properties, with responsible insurance
companies approved by the Lender, in such amounts and against such risks as is
customarily carried by similar businesses operating in the same vicinity; and
(c) within thirty (30) days after notice from the Lender, obtain such additional
insurance as the Lender shall reasonably require, all at the sole expense of the
Company. Copies of such policies shall be furnished to the Lender without charge
upon obtaining such coverage or any renewal of or modification to such coverage.
6.9 Closing Instructions. The Company agrees to indemnify and hold the
Lender harmless from and against any loss, including reasonable attorneys' fees
and costs, attributable to the failure of a title insurance company, agent or
attorney to comply with the disbursement or instruction letter or letters of the
Company or of the Lender relating to any Mortgage Loan. The Lender shall have
the right to pre-approve the closing instructions of the Company to the title
insurance company, agent or attorney in any case where the Mortgage Loan to be
created at settlement is intended to be warehoused by the Company pursuant
hereto.
6.10 Other Loan Obligations. Perform all obligations under the terms of
each loan agreement, note, mortgage, security agreement or debt instrument by
which the Company is bound or to which any of its property is subject, and
promptly notify the Lender in writing of a declared default under or the
termination, cancellation, reduction or non-renewal of any of its other lines of
credit or financing agreements with any other lenders Exhibit "B" hereto is a
true and complete list of all such lines of credit or financing agreements as of
the date hereof.
33
<PAGE>
6.11 Use of Proceeds of Advances. Use the proceeds of each Advance
solely for the purpose of financing or purchasing Pledged Mortgages, including
the issuance of Mortgage-backed Securities based thereon.
6.12 Special Affirmative Covenants Concerning Collateral.
(a) Warrant and defend the right, title and interest of the Lender
in and to the Collateral against the claims and demands of all Persons
whomsoever.
(b) Service or cause to be serviced all Pledged Mortgages in
accordance with the standard requirements of the issuers of Purchase
Commitments covering the same and all applicable FHA and VA
requirements, including without limitation taking all actions necessary
to enforce the obligations of the obligors under such Mortgage Loans.
The Company shall service or cause to be serviced all Mortgage Loans
backing Pledged Securities in accordance with applicable governmental
requirements and issuers of Purchase Commitments covering the same. The
Company shall hold all escrow funds collected in respect of Pledged
Mortgages and Mortgage Loans backing Pledged Securities in trust,
without commingling the same with non-custodial funds, and apply the
same for the purposes for which such funds were collected.
(c) Execute and deliver to the Lender such Uniform Commercial Code
financing statements with respect to the Collateral as the Lender may
request. The Company shall also execute and deliver to the Lender such
further instruments of sale, pledge or assignment or transfer, and such
powers of attorney, as required by the Lender to secure the Collateral,
and shall do and perform all matters and things necessary or desirable
to be done or observed, for the purpose of effectively creating,
maintaining and preserving the security and benefits intended to be
afforded the Lender under this Agreement. The Lender shall have all the
rights and remedies of a secured party under the Uniform Commercial
Code of Texas, or any other applicable law, in addition to all rights
provided for herein.
(d) Notify the Lender within two (2) Business Days after receipt of
notice from an Investor of any default under, or of the termination of,
any Purchase Commitment relating to any Pledged Mortgage, Eligible
Mortgage Pool or Pledged Security.
(e) Promptly comply in all respects with the terms and conditions
of all Purchase Commitments, and all extensions, renewals and
modifications or substitutions thereof or thereto. The Company will
cause to be delivered to the Investor the Pledged Mortgages and
Pledged Securities to be sold under each Purchase Commitment not later
than the expiration thereof.
(f) Maintain, at its principal office or in a regional office
approved by the Lender, or in the office of a computer service bureau
engaged by the Company and approved by the lenders and, upon request,
shall make available to the Lender the originals, or copies in any case
where the originals have been delivered to the Lender or to an
Investor, of its Mortgage Notes and Mortgages included in Pledged
Mortgages, Mortgage-backed Securities delivered to the Lender as
Pledged Securities, Purchase Commitments, and all related Mortgage Loan
34
<PAGE>
documents and instruments, and all files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs, cards,
accounting records and other information and data relating to the
Collateral.
6.13 Cure of Defects in Loan Documents. The Company will promptly cure
and cause to be promptly cured any defects in the creation, issuance, execution
and delivery of this Agreement and the other Loan Documents; and upon request of
the Lender and at the Company's expense, the Company will promptly execute and
deliver, and cause to be executed and delivered, to the Lender or its designee,
all such additional documents, agreements and/or instruments in compliance with
or in accomplishment of the covenants and agreements of this Agreement and the
other Loan Documents, and/or to create, perfect, preserve, extend and/or
maintain any and all Liens created pursuant hereto or pursuant to any other Loan
Document as valid and perfected Liens (of a priority as set forth in this
Agreement) in favor of the Lender to secure the Obligations, all as reasonably
requested from time to time by the Lender.
7. NEGATIVE COVENANTS.
The Company hereby covenants and agrees that, so long as the Commitment
is outstanding or there remain any Obligations of the Company to be paid or
performed under this Agreement or any other Loan Document, the Company shall
not, either directly or indirectly, without the prior written consent of the
Lender:
7.1 Contingent Liabilities. Assume, incur, create, guarantee, endorse,
or otherwise become or be liable for the obligation of any Person other than the
Company except by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business and excluding the sale of Mortgage
Loans with recourse in the ordinary course of the company's business.
7.2 Pledge of Mortgage Loans. Except for Mortgage Loans pledged to the
lenders described in Exhibit "B", pledge or grant a security interest in any
existing or future Mortgage Loans acquired by the Company other than to the
Lender except as otherwise expressly permitted in this Agreement; provided,
however, that if no Default or Event of Default has occurred and is continuing,
servicing on individual Mortgage Loans may be sold concurrently with and
incidental to the sale of such Mortgage Loans (with servicing released) in the
ordinary course of the Company's business.
7.3 Merger, Acquisitions. Liquidate, dissolve or consolidate, except
for transactions involving not more than $50,000.00 each. Merge or acquire any
substantial part of the assets of another, except for transactions involving
companies in similar lines of business as the Company and so as long as the
Company is the surviving entity of any such merger.
7.4 Loss of Eligibility. Take any action that would cause the Company
to lose all or any part of its status as an eligible lender, seller/servicer and
issuer as described under Section 5.11 hereof.
7.5 Debt to Adjusted Tangible Net Worth Ratio. Permit the Ratio of Debt
to Adjusted Tangible Net Worth of the Company (and its Subsidiaries, on a
consolidated basis) to exceed 20:1 computed as of the end of each calendar
month.
35
<PAGE>
7.6 Minimum Adjusted Tangible Net Worth, Permit Adjusted Tangible
Net Worth of the Company (and its Subsidiaries, on a consolidated basis) to be
less than the sum of Eight Million and No/100 Dollars ($8,000,000.00) plus fifty
(50%) of the net proceeds of any sale, transfer or assignment of capital stock
of any class, subordinated debentures or other equity or investment security, or
additional paid in capital, computed as of the end of each calendar month.
7.7 Transactions with Affiliates. Directly or indirectly (a) make any
loan, advance, extension of credit or capital contribution to any of its
Affiliates, (b) transfer, sell, pledge, assign or otherwise dispose of any of
its assets to or on behalf of such Affiliates, (c) merge or consolidate with or
purchase or acquire assets from such Affiliates, or (d) transfer, pledge, or
assign or otherwise pay management fees in excess of Fifty Thousand Dollars
($50,000.00) per annum to or on behalf of such Affiliates, except for
transactions described in clauses (a) through (c) of this Section 7.7 involving
not more than $25,000.00 each.
7.8 Limits on Corporate Distributions. Pay, make or declare or incur
any liability to pay, make or declare any dividend (excluding stock dividends)or
other distribution, direct or indirect, on or on account of any shares of its
stock or any redemption or other acquisition, direct or indirect, of any shares
of its stock or of any warrants, rights or other options to purchase any shares
of its stock nor purchase, acquire, redeem or retire any stock or ownership
interest in itself whether now or hereafter outstanding except that so long as
no Default, Event of Default or violation of Sections 7.5 and 7.6 hereof exists
at such time, or would exist immediately thereafter, the Company may declare and
pay cash dividends to its shareholders; provided, however, that such cash
dividends must be declared and paid within 20 days after delivery to Lender of
the financial statements described in Section 6.2(a) hereof.
7.9 RICO. Violate any laws, statutes or regulations, whether federal or
state, for which forfeiture of its properties is a potential penalty, including,
without limitations, RICO.
7.10 No Loans or Investments Except Approved Investments. Without the
prior written consent of Lender, make or permit to remain outstanding any loans
or advances to, or investments in, any Person, except that the foregoing
restriction shall not apply to:
(a) investments in marketable obligations maturing no later than
180 days from the date of acquisition thereof by the Company and issued
and fully guaranteed, directly, by the full faith and credit of the
Government of the United States of America or any agency thereof, and
(b) investments in certificates of deposit maturing no later than
180 days from the date of issuance thereof and issued by commercial
banks in the United States and such banks rated by Moody's Investor
Service, Inc. and receiving a rating of Prime-2 or higher on Moody's
short term debt rating or rated by Standard & Poor's Corporation and
receiving a rating of AA-/A1+ or higher on S&P's short term debt
rating, or issued by Lender, it being acknowledged and agreed that the
foregoing requirements shall pertain to certificates of deposit issued
and/or received on a date on or after the date of this Agreement); and
(c) investments not to exceed $50,000.00 in the aggregate.
36
<PAGE>
7.11 Charter Documents and Business Termination.
(a) Amend or otherwise modify its corporate charter or otherwise
change its corporate structure in any manner which will have a
materially adverse effect on the Company's condition, financial or
otherwise, or which will have a material adverse effect upon the
Company's ability to perform, promptly and fully, its obligations
hereunder or under any of the other Loan Documents, or
(b) Take any action with a view toward its dissolution, liquidation
or termination, or, in fact, dissolve, liquidate or terminate its
existence.
7.12 Changes in Accounting Methods. Make any change in its accounting
method as in effect on the date of this Agreement or change its fiscal year
ending date from December 31, unless such changes (a) are required for
conformity with generally accepted accounting principles and, in such event, the
Company will give prior written notice of each such change to the Lender or (b)
or if not so required, are in conformity with generally accepted accounting
principles and have the prior written approval of the Lender which approval
shall not be unreasonably withheld.
7.13 No Sales, Leases or Dispositions of Property. Except in the
ordinary course of its business, sell, lease, transfer or otherwise dispose of
all or any material portion or portions or integral part of its properties or
assets, whether now owned or hereafter acquired (whether in a single transaction
or in a series of transactions), or enter into any arrangement, directly or
indirectly, with any person, whereby it shall sell or transfer any of its
properties or assets, whether now owned or hereafter acquired, and thereafter
rent or lease as lessee such property or any part thereof which it intends to
use for substantially the same purpose or purposes as the property sold or
transferred.
7.14 Changes in Business or Assets. Make any substantial change (a) in
the nature of its business as now conducted, or (b) in the use of its property
as now used and proposed to be used.
7.15 Changes in Office or Inventory Location. Change the address and/or
location of its chief executive office or principal place of business or the
place where it keeps its books and records or its inventory to a location
outside the State of Florida unless, prior to any such change, the Company shall
execute and cause to be executed such additional agreements and/or lien
instruments as the Lender may reasonably request to conform with the provisions
hereof and the transactions and perfected Liens in the Collateral contemplated
under this Agreement and the other Loan Documents.
7.16 Special Negative Covenants Concerning Collateral.
(a) Amend or modify, or waive any of the terms and conditions of,
or settle or compromise any claim in respect of, any Pledged Mortgages
or Pledged Securities.
(b) Sell, assign, transfer or otherwise dispose of, or grant any
option with respect to, or pledge or otherwise encumber (except
pursuant to this Agreement or as permitted herein) any of the
Collateral or any interest therein.
37
<PAGE>
(c) Make any compromise, adjustment or settlement in respect of
any of the Collateral or accept other than cash in payment or
liquidation of the Collateral.
7.17 No Indebtedness. Except for the Indebtedness described in Exhibit
"B" hereto, without the prior written consent of Lender, incur, create, assume
or guarantee or in any manner become or be liable or permit to be outstanding
any Indebtedness (including obligations for the payment of rentals other than
provided for herein) nor guarantee any contract or other obligation, and will
not in any way become or be responsible for obligations of any Person, whether
by agreement to purchase the Indebtedness of any other Person or agreement for
the furnishing of funds to any other Person through the purchase of goods,
supplies or services (or by way of stock purchase, capital contribution, advance
or loan) for the purpose of paying or discharging the Indebtedness of any other
Person or otherwise, except that the foregoing restrictions shall not apply to:
(a) the Obligations.
(b) liabilities for taxes, assessments, governmental charges or
levies which are not yet due and payable or which are being contested
in good faith by appropriate proceedings diligently conducted if
reserves adequate under generally accepted accounting principles have
been established therefor.
(c) endorsements of negotiable instruments for collection in the
ordinary course of business.
(d) Indebtedness incurred in the ordinary course of business in
connection with normal trade or business obligations which are payable
within 90 days of the occurrence thereof, provided, however, that no
Indebtedness shall be incurred by the Company to any Affiliate other
than in the ordinary course of business and upon substantially the same
or better terms as it could obtain in an arm's length transaction with
a Person who is not an Affiliate.
(e) Indebtedness of less than $50,000.00, in the aggregate,
incurred in the ordinary course of business.
(f) Indebtedness incurred in the ordinary course of business for
the purpose of leasing office space or equipment to be used in the
conduct of the business of the Company.
7.18 Management of the Company. Permit any change in the executive
officers of the Company. For the purposes of the foregoing negative covenant,
executive officers of the Company shall include Seth Werner, David Larson, Debra
C. Otto, Harris C. Friedman, John J. Hogan, and Jack Levine.
8. DEFAULTS; REMEDIES.
8.1 Events of Default. The occurrence of any of the following
conditions or events shall be an event of default ("Event of Default"):
38
<PAGE>
(a) Failure to pay the principal of any Advance when due, whether
at stated maturity, by acceleration, or otherwise; or failure to pay
any installment of interest on any Advance or any other amount due
under this Agreement within ten (10) days after the due date; or
failure to pay, beyond any applicable grace period, the principal or
interest on any other indebtedness due the Lender; or
(b) Failure of the Company to pay any sums due and payable under
the Master Repurchase Agreement or Company's breach or default of any
term, condition, covenant, or agreement of the Master Repurchase
Agreement; or
(c) Failure of the Company or any of its Subsidiaries to pay, or
any default in the payment of any principal or interest on, any other
Indebtedness or in the payment of any contingent obligation beyond any
period of grace provided; or breach or default with respect to any
other material term of any other Indebtedness of any loan agreement,
mortgage, indenture or other agreement relating thereto, if the effect
of such failure, default or breach is to cause, or to permit the holder
or holders thereof (or a trustee on behalf of such holder or holders)
to cause, Indebtedness of the Company or its Subsidiaries iv the
aggregate amount of Fifty Thousand Dollars ($50,000.00) or more to
become or be declared due prior to its stated maturity (upon the giving
or receiving of notice, lapse of time, both, or otherwise) or failure
of the Company to comply with Section 6.11 hereof, or
(d) Any of the Company's representations or warranties made or
deemed made herein or in any other Loan Document, or in any statement
or certificate at any time given by the Company in writing pursuant
hereto or thereto shall be inaccurate or incomplete in any materially
adverse respect on the date as of which made or deemed made; or
(e) The Company shall default in the performance of or compliance
with any term or covenant contained in this Agreement and such default
shall not have been remedied or waived within thirty (30) days after
receipt of notice from the Lender of such default other than those
referred to above in Subsections 8.1 (a), 8.1 (b) or 8.1 (c); or
(f) (1) A court having jurisdiction shall enter a decree or order
for relief in respect of the Company or any of Company's Subsidiaries
in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect in respect of the Company
or any of Company's Subsidiaries, which decree or order is not stayed;
or a filing of an involuntary case under any applicable bankruptcy,
insolvency or other similar law in respect of the Company or any of
Company's Subsidiaries has occurred; or (2) any other similar relief
shall be granted under any applicable federal or state law; or a decree
or order of a court having jurisdiction for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over the Company or any of Company's
Subsidiaries, or over all or a substantial part of their respective
property, shall have been entered; or the involuntary appointment of an
interim receiver, trustee or other custodian of the Company or any of
Company's Subsidiaries, for all or a substantial part of their
respective property; or the issuance of a warrant of attachment,
execution or similar process against any substantial part of the
property of the Company or any of Company's Subsidiaries, and the
continuance of any such events in Subsections (1) and (2) above for
39
<PAGE>
sixty (60) days unless dismissed or discharged (provided, however, that
Lender shall have no obligation to make Advances during said sixty
(60) day period); or
(g) The Company or any of Company's Subsidiaries shall have an
order for relief entered with respect to it or commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or shall consent to the entry of an order
for relief in an involuntary case, or to the conversion to an
involuntary case, under any such law, or shall consent to the
appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its property; the making by
the Company or any of Company's Subsidiaries of any assignment for the
benefit of creditors; or the failure of the Company or any of Company's
Subsidiaries, or the admission, by any of them of its inability, to pay
its debts as such debts become due; or
(h) Any money judgment, writ or warrant of attachment, or similar
process involving in any case an amount in excess of Fifty Thousand
Dollars ($50,000.00) shall be entered or filed against the Company or
any of its Subsidiaries or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period of
thirty (30) days or in any event no later than five (5) days prior to
the date of any proposed sale thereunder; or
(i) Any order, judgment or decree shall be entered against the
Company decreeing the dissolution or split up of the Company and such
order shall remain undischarged or unstayed for a period in excess of
twenty (20) days (provided, however, Lender shall not be obligated to
make Advances during said 20 day period); or
(j) Any Plan maintained by the Company or any of Company's
Subsidiaries shall be terminated within the meaning of Title IV of
ERISA or a trustee shall be appointed by ail appropriate United States
district court to administer any Plan, or the Pension Benefit Guaranty
Corporation (or any successor thereto) shall institute proceedings to
terminate any Plan or to appoint a trustee to administer any Plan if as
of the date thereof the Company's or any Subsidiary's liability (after
giving effect to the tax consequences thereof) to the Pension Benefit
Guaranty Corporation (or any successor thereto) for unfunded guaranteed
vested benefits under the Plan exceeds the then current value of assets
accumulated in such Plan by more than Fifty Thousand Dollars
($50,000.00) (or in the case of a termination involving the Company or
any of Company's Subsidiaries as a "substantial employer" (as defined
in Section 4001(a)(2) of ERISA) the withdrawing employer's
proportionate share of such excess shall exceed such amount); or
(k) The Company or any of Company's Subsidiaries as employer under
a Multiemployer Plan shall have made a complete or partial withdrawal
from such Multiemployer Plan and the plan sponsor of such Multiemployer
Plan shall have notified such withdrawing employer that such employer
has incurred a withdrawal liability in all annual amount exceeding
Fifty thousand Dollars ($50,000.00); or
(1) The Company shall purport to disavow its obligations hereunder
or shall contest the validity or enforceability hereof, or the Lender's
security interest on any portion
40
<PAGE>
of the Collateral shall become unenforceable or otherwise impaired;
provided that, subject to the Lender's approval, no Event of Default
shall occur as a result of such impairment if all Advances made against
any such Collateral shall be paid in full within ten (10) days of the
date of such impairment; or
(m) The Company dissolves or terminates its existence, or
discontinues its usual business; or
(n) Any court shall find or rule, or the Company shall assert or
claim, (1) that the Lender does not have a valid, perfected,
enforceable Lien and security interest in the Collateral of the
priority as represented in this Agreement or in any other Loan
Document, or (ii) that this Agreement or any of the Loan Documents does
not or will not constitute the legal, valid, binding and enforceable
obligations of the party or parties (as applicable) thereto, or (iii)
that any Person has a conflicting or adverse Lien, claim or right in,
or with respect to, the Collateral and the Company is unable within 10
days to have such finding or ruling reversed or to have such adverse
Lien, claim or right removed; or
(o) The Company shall have concealed, removed, or permitted to be
concealed or removed, any part of its property, with intent to hinder,
delay or defraud its creditors or any of them, or made or suffered a
transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or shall have made
any transfer of its property to or for the benefit of a creditor at a
time when other creditors similarly situated have not been paid; or
shall have suffered or permitted, while insolvent, any creditor to
obtain a Lien upon any of its property through legal proceedings or
distraint or other process which is not vacated within 60 days from the
date thereof, or
(p) There shall be a material adverse change in the financial
condition, business or operations of the Company.
8.2 Remedies.
(a) Upon the occurrence of any Event of Default described in
Sections 8.1 (f) or 8.1 (g), the Commitment shall be terminated and
all Obligations of the Company shall automatically become due and
payable, without presentment for payment, demand, notice of
non-payment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration, maturity, or any other notices or
requirements of any kind of Lender to the Company or any other Person
liable thereon or with respect thereto, all of which are hereby
expressly waived by the Company.
(b) Upon the occurrence of any Event of Default, other than those
described in Sections 8.1 (f) or 8.1 (g), the Lender may, by written
notice to the Company, terminate the Commitment and/or declare all
Obligations of the Company to be immediately due and payable, whereupon
the same shall forthwith become due and payable, together with all
accrued and unpaid interest thereon, and the obligation of the Lender
to make any Advances shall thereupon terminate.
41
<PAGE>
(c) Upon the occurrence of any Event of Default, the Lender may
also do any of the following:
(1) Foreclose upon or otherwise enforce its security interest
in and Lien on the Collateral to secure all payments and
performance of Obligations of the Company in any manner permitted
by law or provided for hereunder.
(2) Notify all obligors in respect of the Collateral that the
Collateral has been assigned to the Lender and that all payments
thereon are to be made directly to the Lender or such other party
as may be designated by the Lender; settle, compromise, or release,
in whole or in part, any amounts owing on the Collateral, any such
obligor or any Investor or any portion of the Collateral, on terms
acceptable to the Lender; enforce payment and prosecute any action
or proceeding with respect to any and all Collateral; and where any
such Collateral is in default, foreclose on and enforce security
interests in, such Collateral by any available judicial procedure
or without judicial process and sell property acquired as a result
of any such foreclosure.
(3) Act, or contract with a third party to act, as servicer or
subservicer of each item of Collateral requiring servicing and
perform all obligations required in connection with Purchase
Commitments, such third party's fees to be paid by the Company.
(4) Require the Company to assemble the Collateral and/or books
and records relating thereto and make such available to the Lender
at a place to be designated by the Lender.
(5) Enter onto property where any Collateral or books and
records relating thereto are located and take possession thereof
with or without judicial process.
(6) Prior to the disposition of the Collateral, prepare it for
disposition in any manner and to the extent the Lender deems
appropriate.
(7) Exercise all rights and remedies of a secured creditor
under the Uniform Commercial Code of Texas or other applicable law,
including, but not limited to, selling or otherwise disposing of
the Collateral, or any part thereof, at one or more public or
private sales, whether or not such Collateral is present at the
place of sale, for cash or credit or future delivery, on such terms
and in such manner as the Lender may determine, including, without
limitation, sale pursuant to any applicable Purchase Commitment. If
notice is required under such applicable law, the Lender will give
the Company not less than ten (10) days' notice of any such public
sale or of the date after which private sale may be held. The
Company agrees that ten (10) days' notice shall be reasonable
notice. The Lender may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale,
and such sale may be made at any time or place to which the same
may be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the
42
<PAGE>
Collateral so sold may be retained by the Lender until the selling
price is paid by the purchaser thereof, but the Lender shall not
incur any liability in case of the failure of such purchaser to
take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice. The
Lender may, however, instead of exercising the power of sale herein
conferred upon it, proceed by a suit or suits at law or in equity
to collect all amounts due upon the Collateral or to foreclose the
pledge and sell the Collateral or any portion thereof under a
judgment or decree of a court or courts of competent jurisdiction,
or both.
(8) Proceed against the Company on the Note.
(d) The Lender shall incur no liability as a result of the sale
or other disposition of the Collateral, or any part thereof, at any
public or private sale or disposition. The Company hereby waives (to
the extent permitted by law) any claims it may have against the Lender
arising by reason of the fact that the price at which the Collateral
may have been sold at such private sale was less than the price which
might have been obtained at a public sale or was less than the
aggregate amount of the outstanding Advances and the unpaid interest
accrued thereon, even if the Lender accepts the first offer received
and does not offer the Collateral to more than one offeree and none of
the actions described herein shall render Lender's disposition of the
Collateral in such a manner as commercially unreasonable.
(e) The Company specifically waives (to the extent permitted by
law) any equity or right of redemption, all rights of redemption, stay
or appraisal which the Company has or may have under any rule of law or
statute now existing or hereafter adopted, and any right to require the
Lender to (1) proceed against any Person, (2) proceed against or
exhaust any of the Collateral or pursue its rights and remedies as
against the Collateral in any particular order, or (3) pursue any
other remedy in its power. The Lender shall not be required to take
any steps necessary to preserve any rights of the Company against
holders of mortgages prior in lien to the Lien of any Mortgage included
in the Collateral or to preserve rights against prior parties.
(f) The Lender may, but shall not be obligated to, advance any sums
or do any act or thing necessary to uphold and enforce the Lien and
priority of, or the security intended to be afforded by, any Mortgage
included in the Collateral, including, without limitation, payment of
delinquent taxes or assessments and insurance premiums. All advances,
charges, costs and expenses, including reasonable attorneys' fees and
disbursements, incurred or paid by the Lender in exercising any right,
power or remedy conferred by this Agreement, or in the enforcement
hereof, together with interest thereon, at the Default Rate, from the
time of payment until repaid, shall become a part of the principal
balance outstanding hereunder and under the Note.
(g) No failure on the part of the Lender to exercise, and no delay
in exercising, any right, power or remedy provided hereunder, at law
or in equity shall operate as a waiver thereof, nor shall any single or
partial exercise by the Lender of any right, power or remedy provided
hereunder, at law or in equity preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. Without
intending to limit the foregoing, all
43
<PAGE>
defenses based on the statute of limitations are hereby waived by
the Company to the extent permitted by law. The remedies herein
provided are cumulative and are not exclusive of any remedies provided
at law or in equity.
8.3 Application of Proceeds. The proceeds of any sale, disposition or
other enforcement of the Lender's security interest in all or any part of the
Collateral shall be applied by the Lender:
First, to the payment of the costs and expenses of such sale or
enforcement, including reasonable compensation to the Lender's agents
and counsel, and all expenses, liabilities and advances made or
incurred by or on behalf of the Lender in connection therewith;
Second, to the payment of any other amounts due (other than
principal and interest) under the Note or this Agreement;
Third, to the payment of interest accrued and unpaid on the Note;
Fourth, to the payment of the outstanding principal balance of the
Note; and
Finally, to the payment to the Company, or to its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
If the proceeds of any such sale, disposition or other enforcement are
insufficient to cover the costs and expenses of such sale, as aforesaid, and the
payment in full of all Obligations of the Company, the Company shall remain
liable for any deficiency.
8.4 Lender Appointed Attorney-in-Fact. The Lender is hereby appointed
the attorney-in-fact of the Company, with full power of substitution, for the
purpose of carrying out the provisions hereof and taking any action and
executing any instruments which the Lender may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, the Lender shall have the right and power to give notices of its
security interest in the Collateral to any Person, either in the name of the
Company or in its own name, to endorse all Pledged Mortgages or Pledged
Securities payable to the order of the Company, to change or cause to be changed
the book-entry registration or name of subscriber or Investor on any Pledged
Security, or to receive, endorse and collect all checks made payable to the
order of the Company representing any payment on account of the principal of or
interest on, or the proceeds of sale of, any of the Pledged Mortgages or Pledged
Securities and to give full discharge for the same.
8.5 Right of Set-Off. If the Company shall default in the payment of
the Note, any interest accrued thereon, or any other sums which may become
payable hereunder when due, or in the performance of any of its other
Obligations under this Agreement, the Lender, shall have the right, at any time
and from time to time, without notice, to set-off and to appropriate or apply
any and all property or indebtedness of any kind at any time held or owing by
the Lender to or for the credit of the account of the Company (excluding any
monies held by the Company in trust for third parties) against and on account
of the Obligations, irrespective of whether or not the Lender shall have made
any demand hereunder and whether or not said Obligations shall have matured;
provided,
44
<PAGE>
however, that the Lender shall not be allowed to set-off against funds in
accounts with respect to which (i) the Company is a trustee or an escrow agent
in respect of bona fide third parties other than Affiliates, and (ii) such trust
or escrow arrangement was so denominated at the time of the creation of such
account.
9. NOTICES.
All notices, demands, consents, requests and other communications
required or permitted to be given or made hereunder (collectively, "Notices")
shall, except as otherwise expressly provided hereunder, be in writing and shall
be delivered in person or mailed, first class, return receipt requested, postage
prepaid, or delivered by overnight courier, addressed to the respective parties
hereto at their respective addresses hereinafter set forth or, as to any such
party, at such other address as may be designated by it in a Notice to the
other. All Notices shall be conclusively deemed to have been properly given or
made when duly delivered, in person or by overnight courier, or if mailed on the
third Business Day after being deposited in the mails, addressed as follows:
If to the Company: First Mortgage Network, Inc.
Attn: Seth Werner
8751 Broward Boulevard, 5th
Floor Plantation, Florida 33324
Fax No: (954) 452-0800
with a copy to: Foley & Larner
Attn: Luther F. Sadler, Jr.
The Greenleaf Building
200 Laura Street
Jacksonville, Florida 32202-3510
Fax No: (904) 359-8700
If to the Lender: Bank United
Attn: John D. West
Regional Director, Mortgage Banker Financing
400 Colony Square, Suite 200
Atlanta, Georgia 30361
Fax No: (404) 877-9195
with a copy to: Bank United
Attn: Frank Hattemer
Managing Director, Mortgage Banker Financing
3200 Southwest Freeway, Suite 1300
Houston, Texas 77027
Fax No: (713) 543-6022
45
<PAGE>
and: Bank United
Attn: Jonathon K. Heffron
General Counsel
3200 Southwest Freeway, Suite 1600
Houston, Texas 77027
Fax No: (713) 543-6469
10. REIMBURSEMENT OF EXPENSES; INDEMNITY.
The Company shall: (a) pay all out-of-pocket costs and expenses of the Lender,
including, without limitation, reasonable attorneys' fees not to exceed
$3,000.00 plus costs and expenses of counsel, in connection with the
preparation, negotiation, documentation, enforcement and administration of this
Agreement, the Note, and other Loan Documents and the making and repayment of
the Advances and the payment of interest thereon; provided, however, costs and
expenses of Lender for attorneys fees in connection with the preparation,
negotiation and documentation of the lending transaction evidenced by this
Agreement shall not exceed $3,000.00 plus the reasonable expenses of Lender's
counsel; (b) pay, and hold the Lender and any holder of the Note harmless from
and against, any and all present and future stamp, documentary and other similar
taxes with respect to the foregoing matters and save the Lender and the holder
or holders of the Note harmless from and against any and all liabilities with
respect to or resulting from any delay or omission to pay such taxes; (c)
INDEMNIFY, PAY AND HOLD HARMLESS THE LENDER AND ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES OR AGENTS AND ANY SUBSEQUENT HOLDER OF THE NOTE FROM AND AGAINST ANY
AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, JUDGMENTS, SUITS,
COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND WHATSOEVER (THE "INDEMNIFIED
LIABILITIES") (INCLUDING, WITHOUT LIMITATION, INDEMNIFIED LIABILITIES
RESULTING, IN WHOLE OR IN PART, FROM LENDER'S OWN NEGLIGENCE OR STRICT
LIABILITY) WHICH MAY BE IMPOSED UPON, INCURRED BY OR ASSERTED AGAINST THE LENDER
OR SUCH HOLDER IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE
NOTE, OR ANY OTHER LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY TO THE EXTENT THAT ANY SUCH INDEMNIFIED LIABILITIES RESULT (DIRECTLY
OR INDIRECTLY) FROM ANY CLAIMS MADE, OR ANY ACTIONS, SUITS OR PROCEEDINGS
COMMENCED OR THREATENED, BY OR ON BEHALF OF ANY CREDITOR (EXCLUDING THE LENDER
AND THE HOLDER OR HOLDERS OF THE NOTE), SECURITY HOLDER, SHAREHOLDER, CUSTOMER
(INCLUDING, WITHOUT LIMITATION, ANY PERSON HAVING ANY DEALINGS OF ANY KIND WITH
THE COMPANY), TRUSTEE, DIRECTOR, OFFICER, EMPLOYEE AND/OR AGENT OF THE COMPANY
ACTING IN SUCH CAPACITY, THE COMPANY OR ANY GOVERNMENTAL REGULATORY BODY OR
AUTHORITY. THE FOREGOING INDEMNITY SHALL NOT APPLY TO THE EXTENT THE INDEMNIFIED
LIABILITIES RESULT FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
LENDER OR LENDER'S OWN VIOLATIONS OF REGULATIONS APPLICABLE TO IT. THE
AGREEMENT OF THE COMPANY CONTAINED IN THIS SUBSECTION (C) SHALL SURVIVE THE
EXPIRATION OR
46
<PAGE>
TERMINATION OF THIS AGREEMENT AND THE PAYMENT IN FULL OF THE NOTE. ATTORNEYS'
FEES AND DISBURSEMENTS INCURRED IN ENFORCING, OR ON APPEAL FROM, A JUDGMENT
PURSUANT HERETO SHALL BE RECOVERABLE SEPARATELY FROM AND IN ADDITION TO ANY
OTHER AMOUNT INCLUDED IN SUCH JUDGMENT, AND THIS CLAUSE IS INTENDED TO BE
SEVERABLE FROM THE OTHER PROVISIONS OF THIS AGREEMENT AND TO SURVIVE AND NOT BE
MERGED INTO SUCH JUDGMENT.
11. MISCELLANEOUS.
11.1 Terms Binding Upon Successors, Survival of Representations. The
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of" the parties hereto and their respective successors and assigns. All
representations, warranties, covenants and agreements herein contained on the
part of the Company shall survive the making of any Advance and the execution of
the Note, and shall be effective so long as the Commitment is outstanding
hereunder or there remain any Obligations of the Company hereunder or under the
Note to be paid or performed.
11.2 Assignment. This Agreement may not be assigned by the Company.
The Lender may assign, at any time, in whole or in part, its rights and delegate
its obligations under this Agreement and the other Loan Documents, along with
the Lender's security interest in any or all of the Collateral, and any assignee
thereof may enforce this Agreement and the other Loan Documents, and such
security interest.
11.3 Amendments. Except as otherwise provided in this Agreement, this
Agreement may not be amended, modified or supplemented unless such amendment,
modification or supplement is set forth in a writing signed by the parties
hereto.
11.4 Governing-Law. This Agreement and the other Loan Documents shall
be governed by the laws of the State of Texas, without reference to its
principles of conflicts of laws.
11.5 Participations. The Lender may at any time sell, assign or grant
participations in, or otherwise transfer to any other Person (a "Participant"),
all or part of the Obligations of the Company under this Agreement. Without
limitation of the exclusive right of the Lender to collect and enforce such
Obligations, the Company agrees that each disposition will give rise to a
debtor-creditor relationship of the Company to the Participant, and the Company
authorizes each Participant, upon the occurrence of an Event of Default, to
proceed directly by right of setoff, banker's lien, or otherwise, against any
assets of the Company which may be in the hands of such Participant. The Company
authorizes the Lender to disclose to any prospective Participant and any
Participant any and all information in the Lender's possession concerning the
Company, this Agreement and the Collateral.
11.6 Relationship of the Parties. This Agreement provides for the
making of Advances by the Lender, in its capacity as a lender, to the Company,
in its capacity as a borrower, and for the payment of interest, repayment of
principal by the Company to the Lender, and for the payment of certain fees by
the Company to the Lender. The relationship between the Lender and the Company
47
<PAGE>
is limited to that of creditor/secured party, on the one hand, and debtor, on
the other hand. The provisions herein for compliance with financial covenants
and delivery of financial statements are intended solely for the benefit of the
Lender to protect its interests as lender in assuring payments of interest and
repayment of principal and payment of certain fees, and nothing contained in
this Agreement shall be construed as permitting or obligating the Lender to act
as a financial or business advisor or consultant to the Company, as permitting
or obligating the Lender to control the Company or to conduct the Company's
operations, as creating any fiduciary obligation on the part of the Lender to
the Company, or as creating any joint venture, agency, or other relationship
between the parties hereto other than as explicitly and specifically stated in
this Agreement. The Company acknowledges that it has had the opportunity to
obtain the advice of experienced counsel of its own choosing in connection with
the negotiation and execution of this Agreement and to obtain the advice of such
counsel with respect to all matters contained herein, including, without
limitation, the provision for waiver of trial by jury. The Company further
acknowledges that it is experienced with respect to financial and credit matters
and has made its own independent decisions to apply to the Lender for credit and
to execute and deliver this Agreement.
11.7 Severability. If any provision of this Agreement shall be declared
to be illegal or unenforceable in any respect, such illegal or unenforceable
provision shall be and become absolutely null and void and of no force and
effect as though such provision were not in fact set forth herein, but all other
covenants, terms, conditions and provisions hereof shall nevertheless continue
to be valid and enforceable.
11.8 Usury. It is the intent of Lender and the Company in the
execution and performance of this Agreement and the Note or any Loan Document to
remain in strict compliance with Applicable Law from time to time in effect. In
furtherance thereof, Lender and the Company stipulate and agree that none of the
terms and provisions contained in the Note, this Agreement or any Loan Document
shall ever be construed to create a contract to pay for the use, forbearance or
detention of money with interest at a rate or in an amount in excess of the
Maximum Rate or amount of interest permitted to be charged under Applicable Law.
For purposes of this Agreement, the Note and any other Loan Document, "interest"
shall include the aggregate of all charges which constitute interest under
Applicable Law that are contracted for, taken, charged, reserved, or received
under this Agreement, the Note or any other Loan Document. The Company shall
never be required to pay unearned interest or interest at a rate or in an
amount in excess of the Maximum Rate or amount of interest that may be lawfully
charged under Applicable Law, and the provisions of this paragraph shall control
over all other provisions of this Agreement and the Note or any Loan Document,
which may be in actual or apparent conflict herewith. If the Note is prepaid, or
if the maturity of the Note is accelerated for any reason, or if under any other
contingency the effective rate or amount of interest which would otherwise be
payable under the Note would exceed the Maximum Rate or amount of interest
Lender or any other holder of the Note is allowed by Applicable Law to charge,
contract for, take, reserve or receive, or in the event Lender or any holder of
the Note shall charge, contract for, take, reserve or receive monies that are
deemed to constitute interest which would, in the absence of this provision,
increase the effective rate or amount of interest payable under the Note to a
rate or amount in excess of that permitted to be charged, contracted for, taken,
reserved or received under Applicable Law then in effect, then the principal
amount of the Note or the amount of interest which would otherwise be payable
under the Note or both shall be reduced to the amount allowed under Applicable
Law as now or hereinafter construed by the courts having jurisdiction, and
48
<PAGE>
all such moneys so charged, contracted for, taken, reserved or received that are
deemed to constitute interest in excess of the Maximum Rate or amount of
interest permitted by Applicable Law shall immediately be returned to or
credited to the account of the Company upon such determination. Lender and the
Company further stipulate and agree that, without limitation of the foregoing,
all calculations of the rate or amount of interest contracted for, charged,
taken, reserved or received under the Note which are made for the purpose of
determining whether such rate or amount exceeds the Maximum Rate, shall be made
to the extent not prohibited by Applicable Law, by amortizing, prorating,
allocating and spreading during the period of the full stated term of the Note,
all interest at any time contracted for, charged, taken, reserved or received
from the Company or otherwise by Lender or any other holder of the Note.
11.9 Consent to Jurisdiction. Subject to the provisions of Section
11.10 of this Agreement, the Company hereby agrees that any action or proceeding
under this Agreement, the Note or any document delivered pursuant hereto may be
commenced against it in any court of competent jurisdiction within the State of
Texas, by service of process upon the Company by first class registered or
certified mail, return receipt requested, addressed to the Company at its
address last known to the Lender. The Company agrees that any such suit, action
or proceeding arising out of or relating to this Agreement or any other such
document may be instituted in Harris County, State District Court or in the
United States District Court for the District of Texas at the option of the
Lender; and the Company hereby waives any objection to the venue, or any claim
as to inconvenient forum, of any such suit, action or proceeding. Nothing herein
shall affect the right of the Lender to accomplish service of process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Company in any other jurisdiction or court.
11.10 Arbitration. To the maximum extent not prohibited by law, any
controversy, dispute or claim arising out of, in connection with, or relating to
the Commitment or the Loan Documents or any transaction provided for therein,
including but not limited to any claim based on or arising from an alleged tort
or an alleged breach of any agreement contained in any of the Loan Documents,
shall, at the request of any party to the Loan Documents (either before or after
the commencement of judicial proceedings), be settled by arbitration pursuant to
Title 9 of the United States Code, which the parties hereto acknowledge and
agree applies to the transaction involved herein, and in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). If Title 9 of the United States Code is inapplicable to any such claim,
dispute or controversy for any reason, such arbitration shall be conducted
pursuant to the Texas General Arbitration Act and in accordance with the
Commercial Arbitration Rules of the AAA. In any such arbitration proceeding: (i)
all statutes of limitations which would otherwise be applicable shall apply; and
(ii) the proceeding shall be conducted in Houston, Texas, by a single
arbitrator, if the amount in controversy is $1,000,000.00 or less, or by a
panel of three arbitrators if the amount in controversy is over $1,000,000.00.
All arbitrators shall be selected by the process of appointment from a panel
pursuant to Section 13 of the AAA Commercial Arbitration Rules and each
arbitrator shall be either an active attorney, a mortgage banker or retired
judge with an AAA acknowledged expertise in the subject matter of the
controversy, dispute or claim. Any award rendered in any such arbitration
proceeding shall be final and binding, and judgment upon any such award may be
entered in any court having jurisdiction,
49
<PAGE>
If any party to any Loan Document files a proceeding in any court to
resolve any such controversy, dispute or claim, such action shall not constitute
a waiver of the right of such party or a bar to the right of any other party to
seek arbitration under the provisions of this Section of that or any other
claim, dispute or controversy, and the court shall, upon motion of any party to
the proceeding, direct that such controversy, dispute or claim be arbitrated in
accordance with this Section.
Notwithstanding any of the foregoing, the parties hereto agree that no
arbitrator or panel of arbitrators shall possess or have the power to (i) assess
punitive damages, (ii) dissolve, rescind or reform (except that the arbitrator
may construe ambiguous terms) any Loan Document, (iii) enter judgment on the
debt, (iv) exercise equitable powers or issue or enter any equitable remedies
with respect to matters submitted to arbitration, or (v) allow discovery of
attorney/client privileged information. The Commercial Arbitration Rules of the
AAA are hereby modified to this extent for the purpose of arbitration of any
dispute, controversy or claim arising out of, in connection with, or relating to
the Loan or any Loan Document. The parties hereby further agree to waive, each
to the other, any claims for punitive damages and agree neither an arbitrator
nor any court shall have the power to assess such damages.
No provision of, or the exercise of any rights under, this Section
shall limit or impair the right of any party to any Loan Document before, during
or after any arbitration proceeding to: (i) exercise self-help remedies such as
setoff or repossession; (ii) foreclose judicially or otherwise) any Lien on or
security interest in any real or personal Collateral; or (iii) obtain emergency
relief from a court of competent jurisdiction to prevent the dissipation,
damage, destruction, transfer, hypothecation, pledging or concealment of assets
or of Collateral securing any Indebtedness, obligation or guaranty referenced in
any Loan Document. Such emergency relief may be in the nature of, but is not
limited to: pre-judgment attachments, garnishments, sequestrations, appointments
of receivers, or other emergency injunctive relief to preserve the status quo,
11.11 ADDITIONAL INDEMNITY. IN ADDITION TO THE INDEMNITY PROVIDED IN
SECTION 10, THE COMPANY SHALL INDEMNIFY AND HOLD THE LENDER, ITS SUCCESSORS,
ASSIGNS, AGENTS, AND EMPLOYEES, HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
ACTIONS, SUITS, PROCEEDINGS, COSTS, EXPENSES, DAMAGES, FINES, PENALTIES, AND
LIABILITIES, INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND COSTS, ARISING
OUT OF, CONNECTED WITH, OR RESULTING FROM (A) THE OPERATION OF THE COMPANY'S
BUSINESSES, (B) THE LENDER'S PRESERVATION OR ATTEMPTED PRESERVATION OF
COLLATERAL, AND (C) ANY FAILURE OF THE SECURITY INTERESTS AND LIENS IN THE
COLLATERAL GRANTED TO THE LENDER PURSUANT TO THIS AGREEMENT TO BE OR TO REMAIN
PERFECTED OR TO HAVE THE PRIORITY AS CONTEMPLATED THERE IN REGARDLESS OF WHETHER
THE CLAIM IS CAUSED BY OR ARISES OUT OF, IN WHOLE OR IN PART, THE NEGLIGENCE OF
THE LENDER OR MAY BE BASED ON THE STRICT LIABILITY OF THE LENDER. THIS
INDEMNITY SHALL NOT APPLY TO THE EXTENT THE SUBJECT OF THE INDEMNIFICATION IS
CAUSED BY OR ARISES OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
LENDER. AT THE LENDER'S REQUEST THE COMPANY SHALL, AT ITS OWN COST AND
EXPENSE,
50
<PAGE>
DEFEND OR CAUSE TO BE DEFENDED ANY AND ALL SUCH ACTIONS OR SUITS THAT MAY BE
BROUGHT AGAINST THE LENDER AND, IN ANY EVENT, SHALL SATISFY, PAY, AND DISCHARGE
ANY AND ALL JUDGMENTS, AWARDS, PENALTIES, COSTS, AND FINES THAT MAY BE RECOVERED
AGAINST THE LENDER IN ANY SUCH ACTION, PLUS ALL ATTORNEYS' FEES AND COSTS
RELATED THERETO TO THE EXTENT PERMITTED BY APPLICABLE LAW; PROVIDED, HOWEVER,
THAT THE LENDER SHALL GIVE THE COMPANY (TO THE EXTENT THE LENDER SEEKS
INDEMNIFICATION THEREFOR FROM THE COMPANY UNDER THIS SECTION 11.11) WRITTEN
NOTICE OF ANY SUCH CLAIM, DEMAND, OR SUIT AFTER THE LENDER HAS RECEIVED WRITTEN
NOTICE THEREOF, AND THE LENDER SHALL NOT SETTLE ANY SUCH CLAIM, DEMAND, OR SUIT,
IF THE LENDER SEEKS INDEMNIFICATION THEREFOR FROM THE COMPANY, WITHOUT FIRST
GIVING NOTICE TO THE COMPANY OF THE LENDER'S DESIRE TO SETTLE AND OBTAINING THE
CONSENT OF THE COMPANY TO THE SAME, WHICH CONSENT THE COMPANY HEREBY AGREES NOT
TO UNREASONABLY WITHHOLD. ALL OBLIGATIONS OF THE COMPANY UNDER THIS SECTION
11.11 SHALL SURVIVE THE PAYMENT OF THE NOTE AND THE OBLIGATIONS.
11.12 No Waivers Except in Writing. No failure or delay on the part of
the Lender in exercising any power or right hereunder or under any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. No notice to or demand on
the Company or any other Person in any case shall entitle the Company or such
other Person to any other or further notice or demand in similar or other
circumstances.
11.13 Waiver of Jury Trial. Company hereby expressly waives any right
to a trial by jury in any action or legal proceeding arising out of or relating
to this Agreement or any other Loan Document for the transactions contemplated
hereby or thereby.
11.14 Multiple Counterparts. This Agreement may be executed in any
number of counterparts, all of which, taken together, shall constitute one and
the same instrument.
11.15 No Third Party Beneficiaries. This Agreement is for the sole and
exclusive benefit of the Company and Lender. This Agreement does not create, and
is not intended to create, any rights in favor of or enforceable by any other
Person. This Agreement may be amended or modified by the agreement of the
Company and Lender, without any requirement or necessity for notice to, or the
consent of or approval of any other Person.
11.16 REALEASE OF LENDER LIABILITY. TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW FROM TIME TO TIME IN EFFECT, THE COMPANY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY (AND AFTER IT HAS CONSULTED WITH ITS OWN ATTORNEY)
IRREVOCABLY AND UNCONDITIONALLY AGREES THAT NO CLAIM MAY BE MADE BY THE COMPANY
AGAINST THE LENDER OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES,
51
<PAGE>
ATTORNEYS, ACCOUNTANTS, AGENTS OR INSURERS, OR ANY OF ITS OR THEIR SUCCESSORS
AND ASSIGNS, FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN
RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (WHETHER THE CLAIM IS BASED ON
CONTRACT OR TORT OR DUTY IMPOSED BY LAW) ARISING OUT OF, OR RELATED TO, THE
TRANSACTIONS CONTEMPLATED BY ANY OF THIS AGREEMENT, THE NOTE, OR ANY OTHER LOAN
DOCUMENTS, OR ANY ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH OR
THEREWITH. IN FURTHERANCE OF THE FOREGOING, THE COMPANY HEREBY WAIVES, RELEASES
AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT
ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
11.17 Entire Agreement; Amendment. This Agreement, the Note, and the
other Loan Documents referred to herein embody the final, entire Agreement among
the parties hereto and supersede any and all prior commitments, agreements,
representations, and understandings, whether written or oral, relating to the
subject matter hereof. The provisions of this Agreement and the other Loan
Documents to which the Company is a party may be amended or waived only by an
instrument in writing signed by the parties hereto.
11.18 NO ORAL AGREEMENTS. THE WRITTEN LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
FIRST MORTGAGE NETWORK, INC.,
a Florida corporation
By:/s/ SETH WERNER
-----------------------------
SETH WERNER, Chairman and CEO
BANK UNITED
By:/s/ JOHN WEST
------------------------------
JOHN WEST, Regional Director,
Mortgage Banker Financing
52
<PAGE>
EXHIBITS:
- --------
A - Advance Request
B - Existing Company Indebtedness
C - Procedures and Documentation for Warehousing Single-family Mortgage
Loans
D - Shipping Instructions
E - Trust Receipt
F - Officer's Certificate
G - Subsidiaries
H - Litigation
I - Trade Names
J - Secretary's Certificate
K - Bailee Letter
L - Investors
M - Legal Opinion
N - Note
53
<PAGE>
STATE OF FLORIDA ss.
ss.
COUNTY OF BROWARD ss.
The foregoing instrument was acknowledged before me this 17th day of
August, 1998, by SETH WERNER, Chairman and CEO of FIRST MORTGAGE NETWORK, INC.,
a Florida corporation, on behalf of the corporation.
OFFICIAL NOTARY SEAL /s/ CHRIS ANDERSON
CHRIS ANDERSON -------------------------
COMMISSION NUMBER NOTARY PUBLIC IN AND FOR
CC 685293 THE STATE OF FLORIDA
MY COMMISSION EXPIRES
OCT. 28, 2001
[SEAL]
STATE OF GEORGIA ss.
ss.
COUNTY OF _____________ ss.
The foregoing instrument was acknowledged before me this______ day of
August, 1998, by JOHN D. WEST, Regional Director, Mortgage Banker Financing of
BANK UNITED, a federal savings bank, on behalf of federal savings bank.
_________________________
NOTARY PUBLIC IN AND FOR
THE STATE OF GEORGIA
[SEAL]
54
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIRST AMENDED AND RESTATED
WAREHOUSING CREDIT AND SECURITY AGREEMENT
(SINGLE FAMILY MORTGAGE LOANS)
BETWEEN
FIRST MORTGAGE NETWORK, INC.,
a Florida corporation
AND
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
------------------------------------------
Dated as of June 8, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS ......................................................... 1
1.1 Defined Terms ............................................. 1
1.2 Other Definitional Provisions ............................. 13
2. THE CREDIT .......................................................... 13
2.1 The Commitment ............................................. 13
2.2 Procedures for Obtaining Advances .......................... 15
2.3 Note ....................................................... 17
2.4 Interest ................................................... 17
2.5 Principal Payments ......................................... 19
2.6 Expiration of Commitment ................................... 23
2.7 Method of Making Payments .................................. 23
2.8 Non-Usage Fees ............................................. 23
2.9 Warehousing Fees ........................................... 23
2.10 Miscellaneous Charges ...................................... 24
2.11 Interest Limitation ........................................ 24
2.12 Increased Costs; Capital Requirements ...................... 24
3. COLLATERAL........................................................... 25
3.1 Grant of Security Interest .................................. 25
3.2 Release of Security Interest in Collateral .................. 27
3.3 Delivery of Additional Collateral or Mandatory .............. 29
Prepayment
3.4 Release of Collateral ....................................... 29
3.5 Collection and Servicing Rights ............................. 30
3.6 Return of Collateral at End of Commitment ................... 30
i
<PAGE>
4. CONDITIONS PRECEDENT .................................................. 30
4.1 Initial Advance ............................................... 31
4.2 Each Advance .................................................. 33
5. REPRESENTATIONS AND WARRANTIES ........................................ 34
5.1 Organization; Good Standing; Subsidiaries ..................... 34
5.2 Authorization and Enforceability .............................. 35
5.3 Approvals ..................................................... 35
5.4 Financial Condition ........................................... 35
5.5 Litigation .................................................... 36
5.6 Compliance with Laws .......................................... 36
5.7 Regulations G and U ........................................... 36
5.8 Investment Company Act ........................................ 36
5.9 Payment of Taxes .............................................. 36
5.10 Agreements .................................................... 37
5.11 Title to Properties ........................................... 37
5.12 ERISA ......................................................... 38
5.13 Eligibility ................................................... 38
5.14 Place of Business ............................................. 38
5.15 Special Representations Concerning Collateral ................. 38
5.16 Servicing ..................................................... 41
6. AFFIRMATIVE COVENANTS ................................................. 41
6.1 Payment of Note ............................................... 41
6.2 Financial Statements and Other Reports ........................ 41
6.3 Maintenance of Existence; Conduct of Business ................. 43
6.4 Compliance with Applicable Laws ............................... 43
6.5 Inspection of Properties and Books ............................ 44
ii
<PAGE>
6.6 Notice ......................................................... 44
6.7 Payment of Debt, Taxes, etc .................................... 44
6.8 Insurance ...................................................... 45
6.9 Closing Instructions ........................................... 45
6.10 Subordination of Certain Indebtedness .......................... 45
6.11 Other Loan Obligations ......................................... 46
6.12 Use of Proceeds of Advances .................................... 46
6.13 Special Affirmative Covenants Concerning Collateral............. 46
6.14 Transfer of FHA Insurance on Title I Mortgage Loan.............. 47
7. NEGATIVE COVENANTS 47
7.1 Contingent Liabilities ......................................... 48
7.2 Sale or Pledge of Servicing Contracts ......................... 48
7.3 Merger; Sale of Assets; Acquisitions .......................... 48
7.4 Deferral of Subordinated Debt ................................. 48
7.5 Loss of Eligibility ........................................... 48
7.6 Debt to Tangible Net Worth Ratio .............................. 48
7.7 Minimum Tangible Net Worth .................................... 49
7.8 Acquisition of Recourse Servicing Contracts ................... 49
7.9 Dividends ..................................................... 49
7.10 Transactions with Affiliates .................................. 49
7.11 Acquisition of Recourse Servicing Contracts ................... 49
7.12 Gestation Facilities .......................................... 49
7.13 Special Negative Covenants Concerning Collateral .............. 49
v
<PAGE>
8. DEFAULTS; REMEDIES ......................................... 50
8.1 Events of Default .................................. 50
8.2 Remedies ........................................... 53
8.3 Application of Proceeds ............................ 57
8.4 Lender Appointed Attorney-in-Fact .................. 57
8.5 Right of Set-Off ................................... 58
9. NOTICES ..................................................... 58
10. REIMBURSEMENT OF EXPENSES; INDEMNITY ......................... 58
11. FINANCIAL INFORMATION ........................................ 58
12. MISCELLANEOUS ..'............................................. 60
12.1 Terms Binding Upon Successors; Survival of
Representations 60
12.2 Assignment ........................................ 60
12.3 Amendments ........................................ 60
12.4 Governing Law ..................................... 60
12.5 Participations .................................... 60
12.6 Relationship of the Parties ....................... 61
12.7 Severability ...................................... 61
12.8 Operational Reviews ............................... 61
12.9 Consent to Credit References ...................... 61
12.10 Consent to Jurisdiction ........................... 62
12.11 Counterparts ...................................... 62
12.12 Entire Agreement .................................. 62
12.13 Waiver of Jury Trial .............................. 62
iv
<PAGE>
EXHIBIT
-------
Exhibit A Promissory Note
Exhibit B [INTENTIONALLY OMITTED]
Exhibit C-SF Request for Advance Against Single
Family Mortgage Loans
Exhibit D-SF Procedures and Documentation for
warehousing Single Family Mortgage
Loans
Schedule of Servicing Contracts
Exhibit E
Subordination of Debt Agreement
Exhibit F
Subsidiaries
Exhibit G
Legal Opinion
Exhibit H
Officer's Certificate
Exhibit I-SF
Schedule of Existing Warehouse Lines
Exhibit J
Exhibit K-1 Funding Bank Agreement (Wire)
Exhibit K-2 Funding Bank Agreement (Checks
Exhibit L Commitment Summary Report
Exhibit M Bailee Pledge Agreement
v
<PAGE>
THIS FIRST AMENDED AND RESTATED WAREHOUSING CREDIT AND SECURITY
AGREEMENT, dated as of June 8, 1998 between FIRST MORTGAGE NETWORK, INC., a
Florida corporation, (the "Company"), having its principal office at 8751
Broward Blvd., 5th Floor, Plantation, Florida 33324 and RESIDENTIAL FUNDING
CORPORATION, a Delaware corporation (the "Lender"), having its principal office
at 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota 55437.
WHEREAS, the Company and the Lender have entered into a Warehousing
Credit and Security Agreement (Single Family Mortgage Loans) dated as of April
8, 1994, as amended by the First Amendment to Warehousing Credit and Security
Agreement dated as of November 1, 1994, the Second Amendment to Warehousing
Credit and Security Agreement dated as of October 26, 1995, the Third Amendment
to Warehousing Credit and Security Agreement dated as of October 18, 1996, the
Fourth Amendment to Warehousing Credit and Security Agreement dated as of
February 17, 1997, the Fifth Amendment to Warehousing Credit and Security
Agreement dated as of June 9, 1997, the Sixth Amendment to Warehousing Credit
and Security Agreement dated as of June 24, 1997, the Seventh Amendment to
Warehousing Credit and Security Agreement dated as of July 30, 1997, the Eighth
Amendment to Warehousing Credit and Security Agreement dated as of August 18,
1997, the Ninth Amendment to Warehousing Credit and Security Agreement dated as
of August 20, 1997, and the Tenth Amendment to Warehousing Credit and Security
Agreement dated as of September 18, 1997 (as so amended, the "Existing
Agreement,);
WHEREAS, the Company and the Lender desire to set forth herein the terms
and conditions upon which the Lender shall provide warehouse financing to the
Company;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. Capitalized terms defined below or elsewhere
in this Agreement (including the Exhibits hereto) shall have the
following meanings:
"Adjustable Rate Mortgage Loan" means a Single Family Mortgage Loan
that bears interest at a fluctuating rate and that is eligible for purchase by
an Investor.
"Advance" means a disbursement by the Lender under the Commitment
pursuant to Article 2 of this Agreement, including, without limitation, Ordinary
Warehousing Advances, Wet Settlement Advances, Home Equity Advances,
Nonconforming Advance, High LTV Mortgage Advances, Second Mortgage Advances,
Title One Advances, HUD 203K Advances, Uncommitted Advances and readvances of
funds previously advanced to the Company and repaid to the Lender.
1
<PAGE>
"Advance Request" has the meaning set forth in Section 2.2(a) hereof.
"Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act.
"Aged Mortgage Loan" means a Pledged Mortgage against which an Advance
has been outstanding for a period exceeding sixty (60) days.
"Aged Rate" means, with respect to an Advance against a Pledged
Mortgage Loan, a floating rate of interest equal to one half of one percent
(0.50%) per annum plus the otherwise applicable interest rate for the type of
Advance.
"Agreement" means this Warehousing Credit and Security Agreement
(Single Family Mortgage Loans), either as originally executed or as it may from
time to time be supplemented, modified or amended.
"Approved Custodian" means a pool custodian or other Person which is
deemed acceptable to the Lender from time to time in its sole discretion to hold
a Mortgage Loan for inclusion in a Mortgage Pool or to hold a Mortgage Loan as
agent for an Investor who has issued a Purchase Commitment for such Mortgage
Loan.
"Bailee Pledge Agreement" has the meaning set forth in Section 2.2(b)
hereof.
"Base Rate" shall mean the highest prime rate quoted by The First
National Bank of Chicago and most recently published by Bridge Information
Services on its MoneyCenter system. if the prime rate is not so quoted or
published for any period, then during such period the term "Base Rate" shall
mean the highest quoted prime rate most recently published in The Wall Street
Journal in its regular column entitled "Money Rates."
"Business Day" means any day excluding Saturday or Sunday and excluding
any day on which national banking associations are closed for business.
"Cash Collateral Account" means a demand deposit account maintained at
the Funding Bank in the name of the Lender and designated for receipt of the
proceeds of the sale or other disposition of the Collateral.
"Check Disbursement Account" means a demand deposit account maintained
at the Funding Bank in the name of the Company and under the control of the
Lender for the clearing of checks written by the Company to fund Advances.
2
<PAGE>
"Closing Date" means June 8, 1998.
"Collateral" has the meaning set forth in Section 3.1 hereof.
"Collateral Documents" has the meaning set forth in Section 2.2(a)
hereof.
"Collateral Value" means (a) with respect to any Mortgage Loan as of
the date of determination, the lesser of (i) the amount of any Advance made
against such Mortgage Loan under Section 2.1(c) hereof; or (ii) the Fair Market
Value of such Mortgage Loan; (b) in the event Pledged mortgages have been
exchanged for Pledged Securities, the Fair Market Value of such Pledged
Securities; or (c) with respect to cash, the amount of such cash.
"Commitment" has the meaning set forth in Section 2.1(a) hereof.
"Commitment Amount" means Forty-five Million Dollars ($45,000,000).
"Committed Purchase Price" means for a Mortgage Loan the product of the
Mortgage Note Amount multiplied by (a) the price (expressed as a percentage) as
set forth in a Purchase Commitment for such Mortgage Loan or (b) in the event
such Mortgage Loan is to be used to back a Mortgage-backed Security, the price
(expressed as a percentage) as set forth in a Purchase Commitment for such
Mortgage-backed Security.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Conforming Mortgage Loan" means a First Mortgage Loan which is either
(a) an FHA insured (other than a HUD 203(K) Mortgage Loan or Title I Mortgage
Loan) or VA guaranteed Mortgage Loan or (b) a Conventional Mortgage Loan which
is underwritten substantially in accordance with FNMA or FHLMC underwriting
standards and the principal amount of which is less than or equal to the maximum
amount eligible for purchase by FNMA or FHLMC.
"Conventional Mortgage Loan" means a closed-end First Mortgage Loan
other than an FHA insured Mortgage Loan, a VA guaranteed Mortgage Loan or a High
LTV Mortgage.
"Credit Score" means the process by which the mortgagor's overall
consumer credit is represented by a single numeric credit score as provided by
an acceptable credit repository.
3
<PAGE>
"Debt" means, with respect to any Person, at any date (a) all
indebtedness or other obligations of such Person which, in accordance with GAAP,
would be included in determining total liabilities as shown on the liabilities
side of a balance sheet of such Person at such date; and (b) all indebtedness or
other obligations of such Person for borrowed money or for the deferred purchase
price of property or services; provided that for purposes of this Agreement,
there shall be excluded from Debt at any date loan loss reserves, Subordinated
Debt not due within one year of such date, and deferred taxes arising from
capitalized excess servicing fees and capitalized servicing rights.
"Default" means the occurrence of any event or existence of any
condition which, but for the giving of Notice, the lapse of time, or both, would
constitute an Event of Default.
"Depository Benefit" shall mean the compensation received by the
Lender, directly or indirectly, as a result of the Company's maintenance of
Eligible Balances with a Designated Bank.
"Designated Bank" means any bank(s) designated from time to time by
the Lender to be a Designated Bank with whom the Lender has an agreement under
which the Lender can receive a Depository Benefit.
"Designated Bank Charges" means any fees, interest or other charges
that would otherwise be payable to a Designated Bank, including Federal Deposit
Insurance Corporation insurance premiums, service charges and such other charges
as may be imposed by governmental authorities from time to time.
"Eligible Balances" means all funds of or maintained by the Company and
its Subsidiaries in accounts at a Designated Bank, less balances to support if
lost, reserve requirements, and such other reductions as may be imposed by
governmental authorities from time to time.
"Eligible Mortgage Pool" means a Mortgage Pool for which (a) an
Approved Custodian has issued its initial certification (on the basis of which a
Pledged Security is to be issued), (b) there exists a Purchase Commitment
covering such Pledged Security, and (c) such Pledged Security will be delivered
to the Lender.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules and regulations promulgated thereunder, as amended from time to time
and any successor statute.
"Event of Default" means any of the conditions or events set forth in
Section 8.1 hereof.
4
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Fair Market Value" means at any time for a Mortgage Loan or the
related Mortgage-backed Security (if such Mortgage Loan is to be used to back a
Mortgage-backed Security), (a) if such Mortgage Loan or the related
Mortgage-backed Security is covered by a Purchase Commitment, the Committed
Purchase Price, or (b) otherwise, the market price for such Mortgage Loan or
Mortgage-backed Security, determined by the Lender based on market data for
similar Mortgage Loans or Mortgagebacked Securities and such other criteria as
the Lender deems appropriate.
"FHA" means the Federal Housing Administration and any successor
thereto.
"FHLMC" means the Federal Home Loan Mortgage Corporation and any
successor thereto.
"FICA" means the Federal Insurance Contributions Act.
"FIRREA" means the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"First Mortgage" means a Mortgage which constitutes a first Lien on
the property covered thereby.
"First Mortgage Loan" means a Mortgage Loan secured by a First
Mortgage.
[REDACTED]
"FNMA" means the Federal National Mortgage Association and any
successor thereto.
"Funding Bank" means The First National Bank of Chicago or any other
bank designated from time to time by the Lender.
"Funding Bank Agreement" means the letter agreements substantially in
the forms of Exhibits K-1 and K-2 hereto.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified
5
<PAGE>
Public Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.
"Gestation Agreement" means an agreement under which the Company agrees
to sell or finance (a) a Pledged Mortgage prior to the date of purchase by an
Investor, or (b) a Mortgage Pool prior to the date the Mortgage-backed Security
is issued.
"GNMA" means the Government National Mortgage Association and any
successor thereto.
"Hedging Arrangements" means, with respect to any Person, any
agreements or other arrangement (including, without limitation, interest rate
swap agreements, interest rate cap agreements and forward sale agreements)
entered into by such Person to protect itself against changes in interest rates
or the market value of assets.
"High LTV Advance" means an Advance made against a High LTV Mortgage
Loan.
"High LTV Mortgage Loan" means a Mortgage Loan made to a mortgagor,
with a Credit Score of 630 or better, of which the sum of the maximum amount
available to be borrowed thereunder (whether or not borrowed) at the time of
origination plus the Mortgage Note Amounts of all other Mortgage Loans secured
by the related improved real property exceeds one hundred percent (100%) and is
less than or equal to one hundred twenty-five percent (125%) of the appraised
value of such related improved real property.
[REDACTED]
"Home Equity Advance" means an Advance made against a Home Equity Loan.
"Home Equity Loan" means an open-ended revolving line of credit that is
a Mortgage Loan secured by either a First Mortgage or a Second Mortgage, which
is not a High LTV Mortgage Loan or a Title I Mortgage Loan.
6
<PAGE>
"Home Improvement Rate" means a floating rate of interest equal to
one-quarter of one percent (.25%) per annum over the Base Rate. The Home
Improvement Rate shall be adjusted on and as of the effective date of each
change in the Base Rate. The Lender's determination of the Home Improvement Rate
as of any date of determination shall be conclusive and binding, absent manifest
error.
"HUD" means the Department of Housing and Urban Development and any
successor thereto.
"HUD 203(K) Advance" means an Advance made against a HUD 203(K)
Mortgage Loan.
"HUD 203(K) Escrow Amount" means, with respect to any HUD 203(K)
Mortgage Loan, the portion of such HUD 203(K) Mortgage Loan that was disbursed
into an escrow account to finance the rehabilitation or repair of the related
single family property.
"HUD 203(K) Mortgage Loan" means an FHA insured Mortgage Loan secured
by a First Mortgage, of which the HUD 203 (K) Escrow Amount will be used for the
purpose of rehabilitating and/or repairing the related single family property,
and which satisfies the definition of "rehabilitation loan" under 24 C.F.R.
Section 203.50(a).
"Indemnified Liabilities" has the meaning set forth in Article 10
hereof.
"Internal Revenue Code" means the Internal Revenue Code of 1986, or any
subsequent federal income tax law or laws, as any of the foregoing have been or
may from time to time be amended.
"Investor" means FNMA, FHLMC or a financially responsible private
institution which is deemed acceptable by the Lender from time to time in its
sole discretion.
"Jumbo Mortgage Loan" means a Conventional Mortgage Loan which is
underwritten substantially in accordance with FNMA or FHLMC underwriting
standards, but the principal amount of which is in excess of the maximum amount
eligible for purchase by FNMA or FHLMC, and which meets all eligibility
requirements for purchase by an Investor.
"Lender" has the meaning set forth in the first paragraph of this
Agreement.
"LIBOR" means, for each calendar week, the rate of interest per annum
which is equal to the arithmetic mean of the U.S. Dollar London Interbank
Offered Rates for one (1)
7
<PAGE>
month periods as of 11:00 a.m. London time on the first Business Day of each
week on which the London Interbank market is open, as published by Bridge
Information Services on its MoneyCenter system. LIBOR shall be rounded, if
necessary, to the next higher one sixteenth of one percent (1/16%). If such
U.S. dollar LIBOR rates are not so offered or published for any period, then
during such period LIBOR shall mean the London Interbank Offered Rate for one
(1) month periods published on the first Business Day of each week on which the
London Interbank market is open, in the Wall Street Journal in its regular
column entitled "Money Rates."
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
"Loan Documents" means this Agreement, the Note, any agreement of the
Company relating to Subordinated Debt, and each other document, instrument or
agreement executed by the Company in connection herewith or therewith, as any of
the same may be amended, restated, renewed or replaced from time to time.
"Manufactured Home" means a structure that is built on a permanent
chassis (steel frame) with the wheel assembly necessary for transportation in
one or more sections to a permanent site or semi-permanent site and which has
been built in compliance with the National Manufactured Housing Construction and
Safety Standards established by HUD.
"Margin Stock" has the meaning assigned to that term in Regulations G
and U of the Board of Governors of the Federal Reserve System as in effect from
time to time.
"Maturity Date" shall mean the earlier of: (a) the close of business on
May 31, 1999 as such date may be extended from time to time in writing by the
Lender, in its sole discretion, on which date the Commitment shall expire of its
own term, and without the necessity of action by the Lender, and (b) the date
the Advances become due and payable pursuant to Section 8.2 below.
"Miscellaneous Characters" has the meaning set forth in Section 2.10
hereof.
"Mortgage" means a mortgage or deed of trust on improved and
substantially completed real property (including, without limitation, real
property to which a Manufactured Home has been affixed in a manner such that the
Lien of a mortgage or deed of trust would attach to such manufactured home under
8
<PAGE>
applicable real property law). A Mortgage may be a First Mortgage or a Second
Mortgage.
"Mortgage-backed Securities" means GNMA, FNMA or FHLMC securities that
are backed by Mortgage Loans.
"Mortgage Loan" means any loan evidenced by a Mortgage Note and secured
by a Mortgage. The term "Mortgage Loan" shall include First Mortgage Loans and
Second Mortgage Loans unless the context otherwise requires.
"Mortgage Note" means a promissory note secured by a Mortgage.
"Mortgage Note Amount" means, as of the date of determination, the
then outstanding unpaid principal amount of a Mortgage Note (whether or not an
additional amount is available to be drawn thereunder).
"Mortgage Pool" means a pool of one or more Pledged Mortgages on the
basis of which there is to be issued a mortgage-backed Security.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a) (3) of ERISA which is maintained for employees of the Company or
a Subsidiary of the Company.
"Nonconforming Advance" means an Advance made against a Nonconforming
Mortgage Loan that is covered by a Purchase Commitment.
"Nonconforming Mortgage Loan" means a Conventional Mortgage Loan which
is not a Conforming Mortgage Loan or a Jumbo Mortgage Loan, which has a credit
risk rating C or better (determined using underwriting standards which comply
with industry standards in the sole judgment of the Lender), and which is
underwritten and approved for purchase by an Investor prior to funding if its
original principal amount exceeds Six Hundred Thousand Dollars ($600,000).
"Nonconforming Rate" means a floating rate of interest equal to two and
one-half percent (2.50%) per annum over LIBOR. The Committed Nonconforming
Rate shall be adjusted on and as of the effective date of each weekly change in
LIBOR. The Lender's determination of the Committed Nonconforming' Rate as of any
date of determination shall be conclusive and binding, absent manifest error.
"Non-Usage Fee, has the meaning set forth in Section 2.8 hereof.
"Note" has the meaning set forth in Section 2.3 hereof.
9
<PAGE>
"Notices" has the meaning set forth in Article 9 hereof.
"Obligations" means any and all indebtedness, obligations and
liabilities of the Company to the Lender (whether now existing or hereafter
arising, voluntary or involuntary, whether or not jointly owed with others,
direct or indirect, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later increased,
created or incurred), arising out of or related to the Loan Documents.
"Officer's Certificate" means a certificate executed on behalf of the
Company by its chief financial officer or its treasurer or by such other officer
as may be designated herein and substantially in the form of Exhibit I-SF
attached hereto.
"Operating Account" means a demand deposit account maintained at the
Funding Bank in the name of the Company and designated for funding that portion
of each Mortgage Loan not funded by an Advance made against such Mortgage Loan
and for returning any excess payment from an Investor for a Pledged Mortgage or
Pledged Security.
"Ordinary Warehousing Advance" means an Advance made against a
Conforming Mortgage Loan or a Jumbo Mortgage Loan.
"Participant" has the meaning set forth in Section 12.5 hereof.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Plans" has the meaning set forth in Section 5.12 hereof.
"Pledged Mortgages" has the meaning set forth in Section 3.1(a) hereof.
"Pledged Securities" has the meaning set forth in Section 3.1(b)
hereof.
"Purchase Commitment" means a written commitment, in form and substance
satisfactory to the Lender, issued in favor of the Company by an Investor
pursuant to which that Investor commits to purchase Mortgage Loans or
Mortgage-backed Securities.
10
<PAGE>
"Release Amount" has the meaning set forth in Section 3.2(g) hereof.
"RFC" means Residential Funding Corporation, a Delaware corporation,
and any successor thereto.
"RFC Rate" means a floating rate of interest equal to one and
one-quarter percent (1.25%) per annum over LIBOR. The RFC Rate shall be
adjusted on and as of the effective date of each change in LIBOR. The Lender's
determination of the RFC Rate as of any date of determination shall be
conclusive and binding, absent manifest error.
"RFC Mortgage Loan" means a Mortgage Loan covered by, a Purchase
Commitment issued by RFC.
"Second Mortgage" means a Mortgage which constitutes a second Lien on
the property covered thereby.
"Second Mortgage Advance" means an Advance made against a Second
Mortgage Loan.
"Second Mortgage Loan" means a closed-end Mortgage Loan secured by a
Second mortgage, which is not a Title I Mortgage Loan or a High LTV Mortgage
Loan.
"Servicing Contract" means, with respect to any Person, the
arrangement, whether or not in writing, pursuant to which such Person has the
right to service Mortgage Loans.
"Servicing Portfolio" means, as to any Person, the unpaid principal
balance of Mortgage Loans whose Servicing Contracts are owned by such Person.
"Single Family Mortgage Loan" means a Mortgage Loan secured by a
Mortgage covering improved real property containing one to four family
residences.
"Statement Debt" means the date of the most recent financial
statements of the Company (and, if applicable, its Subsidiaries, on a
consolidated basis) delivered to the Lender under the terms of this Agreement.
"Subordinated Debt" means all indebtedness of the Company, for borrowed
money which is, by its terms (which terms shall have been approved by the
Lender), effectively subordinated in right of payment to all other present and
future Obligations and, solely for purposes of Section 7.4 hereof, all
indebtedness of the Company which is required to be subordinated by Section
4.1(b) or Section 6.10 hereof.
11
<PAGE>
"Subsidiary" means any corporation, association or other business
entity in which more than fifty percent (50%) of the total voting power or
shares of stock entitled to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more of the other Subsidiaries of that Person or a
combination thereof.
"Tangible Net Worth" means with respect to any Person at any date, the
excess of the total assets over total liabilities of such Person on such date,
each to be determined in accordance with GAAP consistent with those applied in
the preparation of the financial statements referred to in Section 4.1(a)(5)
hereof, plus loan loss reserves and that portion Of Subordinated Debt not due
within one year of such date, provided that, for purposes of this Agreement,
there shall be excluded from total assets advances or loans to shareholders,
officers, employees or Affiliates, investments in Affiliates, assets pledged to
secure any liabilities not included in the Debt of such Person, intangible
assets, those other assets which would be deemed by HUD to be non-acceptable in
calculating adjusted net worth in accordance with its requirements in effect as
of such date, as such requirements appear in the ,Audit Guide of or Audit of
Approved Non-Supervised Mortgagees" and other assets deemed unacceptable by the
Lender in its sole discretion.
"Title I Advance" means an Advance made against a Title I Mortgage
Loan.
"Title I Mortgage Loan" means an FHA co-insured Mortgage Loan secured
by a mortgage which is underwritten in accordance with HUD underwriting
standards for the Title I Property Improvement Program as set forth in and which
is reported for insurance under the Mortgage Insurance Program authorized and
administered under Title I of the National Housing Act of 1934, as amended and
the regulations promulgated thereunder.
"Trust Receipt" means a trust receipt in a form approved by and
pursuant to which the Lender may deliver any document relating to the Collateral
to the Company for correction or completion.
"Uncommitted Advance" means an Advance made against a Nonconforming
Mortgage Loan that is not covered by a Purchase Commitment.
[REDACTED]
12
<PAGE>
"Unused Portion" has the meaning set forth in Section 2.8 hereof.
"Used Portion" has the meaning set forth in Section 2.8 hereof.
"VA" means the U.S. Department of Veterans Affairs and any successor
thereto.
"Warehousing Fee" has the meaning set forth in Section 2.9 hereof.
"Wet Settlement Advance" means an Advance pursuant to Section 2.2(b)
of this Agreement, in respect of the closing or settlement of a Mortgage Loan,
based upon delivery to the Lender of the Bailee Pledge Agreement, pending
subsequent delivery of the Collateral Documents as provided in such Section.
"Wire Disbursement Account" means a demand deposit account maintained
at the Funding Bank in the name of the Lender for the clearing of wire transfers
requested by the Company to fund Advances.
1.2 Other Definitional Provisions.
1.2(a) Accounting terms not otherwise defined herein shall have
the meanings given the terms under GAAP.
1.2(b) Defined terms may be used in the singular or the plural,
as the context requires.
1.2(c) All references to time of day shall mean the then
applicable time in Chicago, Illinois, unless expressly provided to the
contrary.
2. THE CREDIT.
2.1 The Commitment.
2.1(a) Subject to the terms and conditions of this Agreement and
provided no Default or Event of Default has occurred and is
continuing, the Lender agrees from time to time during the period from
the Closing Date, to, but not including, the Maturity Date, to make
Advances to the Company, provided the total aggregate principal amount
outstanding at any one time of all such
13
<PAGE>
Advances shall not exceed the Commitment Amount. The obligation of the Lender to
make Advances hereunder up to the Commitment Amount, is hereinafter referred to
as the "Commitment." Within the Commitment, the Company may borrow, repay and
reborrow. Effective as of the date of this Agreement, all outstanding loans made
pursuant to the Existing Agreement shall for all purposes be deemed to be
Advances made under this Agreement. All Advances under this Agreement shall
constitute a single indebtedness, and all of the Collateral shall be security
for the Note and for the performance of all the Obligations.
2. 1 (b) Advances shall be used by the Company solely for the purpose of
funding the acquisition or origination of Mortgage Loans and shall be made at
the request of the Company, in the manner hereinafter provided in Section 2.2
hereof, against the pledge of such Mortgage Loans as Collateral therefor. The
following limitations on the use of Advances shall be applicable:
(1) No Advance shall be made against a Mortgage Loan other than a
Single Family Mortgage Loan.
(2) No Advance other than an Uncommitted Advance shall be made
against a Mortgage Loan which is not covered by a Purchase Commitment.
(3) No Wet Settlement Advance shall be made against a Title I
Mortgage Loan.
(4) No Advance shall be made against any Mortgage Loan which was
closed more than ninety (90) days prior to the date of the requested
Advance.
(5) The aggregate amount of Wet Settlement Advances outstanding
at any one time shall not exceed thirty-five percent (35%) of the
Commitment Amount.
(6) The aggregate amount of Title I Advances and HUD 203 (K)
Advances outstanding at any one time shall not exceed five percent
(5%) of the Commitment Amount.
(7) No Advance shall be made against a Home Equity Loan or a
Second Mortgage Loan made to a mortgagor (or mortgagors) that does not
satisfy the
14
<PAGE>
underwriting criteria of FNMA and FHLMC for Conforming Mortgage Loans.
(8) The aggregate amount of High LTV Advances outstanding at any
one time shall not exceed one percent (1%) of the Commitment Amount.
(9) The aggregate amount of Nonconforming Advances and
Uncommitted Advances outstanding at any one time shall not exceed
twenty percent (20%) of the Commitment Amount.
(10) The aggregate amount of Uncommitted Advances outstanding at
any one time shall not exceed Five Million Dollars ($5,000,000).
2. 1 (c) No Advance shall exceed the following amount applicable to the
type of Collateral at the time it is pledged:
(1) For a Conforming Mortgage Loan, a Jumbo Mortgage Loan or an
RFC Mortgage Loan pledged hereunder, ninety-nine percent (99$) of the
lesser of (i) the Mortgage Note Amount or (ii) the Committed Purchase
Price.
(2) For a Nonconforming Mortgage Loan pledged hereunder that is
covered by a Purchase Commitment, other than an RFC Mortgage Loan,
ninety-seven percent (97%) of the lesser of (i) the Mortgage Note
Amount or (ii) the Committed Purchase Price.
(3) For a Nonconforming Mortgage Loan pledged hereunder that is
not covered by a Purchase Commitment, ninety-seven percent (97%) of
the Mortgage Note Amount.
(4) For a Second Mortgage Loan, a Home Equity Loan, a Title One
Mortgage Loan, a HUD 203 (K) Mortgage Loan, or a High LTV Mortgage
Loan pledged hereunder, other than an RFC Mortgage Loan, ninetyfive
percent (95%) of the lesser of (i) the Mortgage Note Amount, or (ii)
the Committed Purchase Price.
2.2 Procedures for Obtaining Advances.
2.2(a) The Company may obtain an Advance hereunder, subject to the
satisfaction of the conditions set forth in Sections 4.1 and 4.2 hereof, upon
compliance with the procedures set forth in this Section 2.2 and in Exhibit D-SF
with respect to Advances, attached hereto
15
<PAGE>
and made a part hereof including the delivery of all documents listed in Exhibit
D-SF, as applicable (the "Collateral Documents") to the Lender. Requests for
Advances shall be initiated by the Company by delivering to the Lender, no later
than one (1) Business Day prior to any Business Day that the Company desires to
borrow hereunder, a completed and signed request for an Advance (an "Advance
Request") on the then current form approved by the Lender. The current form in
use by the Lender is Exhibit C-SF for Advances, attached hereto and made a part
hereof. The Lender shall have the right, on not less than three (3) Business
Days' prior Notice to the Company, to modify any of said Exhibits to conform to
current legal requirements or Lender practices, and, as so modified, said
Exhibits shall be deemed a part hereof.
2.2(b) In the case of a Wet Settlement Advance, the Company shall
follow the procedures and, at or prior to the Lender's making of such Wet
Settlement Advance, shall deliver to the Lender the documents set forth in
Exhibit D-SF hereto together with a completed and executed Bailee Pledge
Agreement in the form of Exhibit M hereto. In the case of a Mortgage Loan
financed through a Wet Settlement Advance, the Company shall cause all
Collateral Documents required to be delivered to the Lender pursuant to Exhibit
D-SF within five (5) Business Days after the date of the Wet Settlement Advance
relating thereto.
2.2 (c) Before funding, the Lender shall have a reasonable time (one
(1) Business Day under ordinary circumstances) to examine such Advance Request
and the Collateral Documents to be delivered prior to such requested Advance, as
set forth in the applicable Exhibit hereto, and may reject such of them as do
not meet the requirements of this Agreement or of the related Purchase
Commitment.
2.2 (d) The Company shall hold in trust for the Lender, and the
Company shall deliver to the Lender promptly upon request, or if the recorded
Collateral Documents have not yet been returned from the recording office,
immediately upon receipt by the Company of such recorded Collateral Documents,
and the Pledged Mortgage is not being held by an Investor for purchase or hAs
not been redeemed from pledge, the following: (1) the originals of the
Collateral Documents for which copies are required to be delivered to the Lender
pursuant to Exhibit D-SF, (2) the original lender's ALTA Policy of Title
Insurance or an equivalent thereto, and (3) any other documents relating to a
Pledged Mortgage which the Lender may request, including, without limitation,
16
<PAGE>
documentation evidencing the FHA Commitment to Insure or the VA Guaranty of any
Pledged Mortgage which is either FHA insured or VA guaranteed, the appraisal,
Private Mortgage Insurance Certificate, if applicable, the Regulation Z
Statement, certificates of casualty or hazard insurance, credit information on
the maker of each such Mortgage Note, a copy of a HUD-1 or corresponding
purchase advice and other documents of all kinds which are customarily desired
for inspection or transfer incidental to the purchase of any Mortgage Note by an
Investor and any additional documents which are customarily executed by the
seller of a Mortgage Note to an Investor.
2.2 (e) To make an Advance, the Lender shall cause the Funding Bank to
credit either the Wire Disbursement Account or the Check Disbursement Account
upon compliance by the Company with the terms of the Loan Documents. The Lender
shall determine in its sole discretion the method by which Advances and other
amounts on deposit in the Wire Disbursement Account are disbursed by the Funding
Bank to or for the account of the Company.
2.2 (f) If, pursuant to the authorization given by the Company in the
Funding Bank Agreement, for the purpose of financing a Mortgage Loan against
which the Lender has made an Advance in accordance with a Request for Advance
(i) the Lender debits the Company's Operating Account at the Funding Bank to the
extent necessary to cover a wire to be initiated by the Lender, or (ii) the
Lender directs the Funding Bank to honor a check drawn by the Company on its
Check Disbursement Account at the Funding Bank, and such debit or direction
results in an overdraft, the Lender may make an additional Advance to fund such
overdraft.
2.3 Note. The Company's Obligations shall be evidenced by the
promissory note (the "Note") of the Company dated as of the date hereof
substantially in the form of Exhibit -A attached hereto. The term "Note" shall
include all extensions, renewals and modifications of the Note and all
substitutions therefor. All terms and provisions of the Note are hereby
incorporated herein.
2.4 Interest.
2.4(a) Except as otherwise provided in Section 2.4(b) or Section 2.4(f)
hereof, (i) the unpaid amount of each Ordinary Warehousing Advance, each Home
Equity Advance and each Second Mortgage Advance, other than an Advance against
an RFC Mortgage Loan, shall bear interest, from the date of such Advance, until
paid in
17
<PAGE>
full, at the Floating Rate, (ii) the unpaid amount of each High LTV Advance,
other than an Advance against an RFC Mortgage Loan, shall bear interest, from
the date of such High LTV Advance until paid in full, at the High LTV Rate,
(iii) the unpaid amount of each Uncommitted Advance shall bear interest, from
the date of such Advance until paid in full, at the Uncommitted Rate, (iv) the
unpaid amount of each Nonconforming Advance, other than Advance against an RFC
Mortgage Loan, shall bear interest, from the date of such Advance until paid in
full, at the Nonconforming Rate, (v) the unpaid amount of each Advance made
against a Title I Mortgage Loan or a HUD 203 (K) Mortgage Loan shall bear
interest, from the date of such Advance until paid in full, at the Home
Improvement Rate and (vii) the unpaid amount of each Advance made against an
RFC Mortgage Loan shall bear interest, from the date of such Advance until paid
in full, at the RFC Rate.
2.4 (b) Except as otherwise provided in Section 2.4(f), the unpaid
amount of each Advance against an Aged Mortgage Loan shall, in the sole
discretion of the Lender, bear interest from the date such Pledged Mortgage
becomes an Aged Mortgage Loan until paid in full at the Aged Rate.
2.4 (c) The Company is entitled to receive a benefit in the form of an
"Earnings Credit" on the portion of the Eligible Balances maintained in time
deposit accounts with a Designated Bank, and the Company is entitled to receive
a benefit in the form of an "Earnings Allowance" on the portion of the Eligible
Balances maintained in demand deposit accounts with a Designated Bank. Any
Earnings Allowance shall be used first and any Earnings Credit shall be used
second as a credit against accrued Designated Bank Charges, any other
Miscellaneous Charges and fees, including, but not limited to Commitment Fees,
Non-Usage Fees and Warehousing Fees, and may be used, at the Lender's option, to
reduce accrued interest. Any Earnings Allowance not used during the month in
which the benefit was received shall be accumulated for use and must be used
within six (6) months of the month in which the benefit was received. Any
Earnings Credit not used during the month in which the benefit was received
shall be used to provide a cash benefit to the Company.' The Lender's
determination of the Earnings Credit and the Earnings Allowance for any month
shall be determined by the Lender in its sole discretion and shall be conclusive
and binding absent manifest error. In no event shall the benefit received by the
Company exceed the Depository Benefit.
18
<PAGE>
Either party hereto may terminate the benefits provided for in this
Section effective immediately upon Notice to the other party, if the terminating
party shall have determined (which determination shall be conclusive and binding
absent manifest error) at any time that any applicable law, rule, regulation,
order or decree or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration
thereof, or compliance by such party with any request or directive (whether or
not having the force of law) of any such authority, shall make it unlawful or
impossible for such party to continue to offer or receive the benefits provided
for in this Section.
2.4 (d) Interest shall be computed on the basis of a 360-day year and
applied to the actual number of days elapsed in each interest calculation period
and shall be payable monthly in arrears, on the first day of each month,
commencing with the first month following the Closing Date and on the Maturity
Date.
2.4(e) If, for any reason, no interest is due on an Advance, the
Company agrees to pay to the Lender an administrative fee equal to one day of
interest on such Advance at the rate applicable to such Advances under the
applicable section hereof, as in effect on the date of such Advance.
Administrative and other fees shall be due and payable in the same manner as
interest is due and payable hereunder.
2.4 (f) Upon Notice to the Company, after the occurrence and during the
continuation of an Event of Default, the unpaid amount of each Advance shall
bear interest until paid in full at a per annum rate of interest (the "Default
Rate") equal to four percent (4%) in excess of the rate of interest otherwise
applicable to such Advance pursuant to any other subsection of this Section 2.4
or, if no rate is applicable, the highest rate then applicable to any
outstanding Advances.
2.5 Principal Payments.
2.5(a) The outstanding principal amount of all Advances shall be
payable in full on the Maturity Date.
2.5 (b) The Company shall have the right to prepay the outstanding
Advances in whole or in part, from time to time, without premium or penalty.
2.5(c) All payments of outstanding Advances from the proceeds of the
sale or other disposition of Pledged Mortgages and Pledged Securities shall be
paid directly
19
<PAGE>
by the Investor to the Cash Collateral Account to be applied against the
obligations.
2.5(d) The Company shall pay the Lender, without the necessity of prior
demand or notice from the Lender, and the Company authorizes the Lender to cause
the Funding Bank to charge the Company's Operating Account for, the amount of
any outstanding Advance against a specific Pledged Mortgage, upon the earliest
occurrence of any of the following events:
(1) one (1) Business Day elapses from the date an Advance was
made and the Pledged Mortgage which was to have been funded by such
Advance is not closed and funded.
(2) Ten (10) Business Days elapse from the date a Collateral
Document was delivered to the Company for correction or completion
under a Trust Receipt, without being returned to the Lender.
(3) On the date on which a Pledged Mortgage is determined to have
been originated based on untrue, incomplete or inaccurate information,
whether or not the Company had knowledge of such misrepresentation or
incorrect information, or the Pledged Mortgage is defaulted and
remains in default for a period of sixty (60) days or more.
(4) Three (3) Business Days after the mandatory delivery date of
the related Purchase Commitment and the specific Pledged Mortgage was
not delivered under the Purchase Commitment prior to such mandatory
delivery date, or the Purchase Commitment is terminated; unless in
each case, such Pledged Mortgage is eligible for delivery to an
Investor under a comparable Purchase Commitment acceptable to the
Lender.
(5) Upon sale, maturity or other disposition of the Pledged
Mortgage.
(6) If the Pledged mortgage is included in a Mortgage Pool, then,
if the Mortgage Pool is an Eligible Mortgage Pool, upon sale of the
Mortgage-backed Security, or if the Mortgage Pool is not an Eligible
Mortgage Pool, within two (2) Business Days after delivery of the
Pledged Mortgages to the pool custodian.
(7) On the date on which the Company knows, or has reason to
know, or receives notice from the
20
<PAGE>
Lender, that one or more of the representations and warranties set
forth in Section 5.15 were inaccurate or incomplete in any material
respect on any date when made or deemed made.
2.5(e) Upon Notice to the Company by the Lender, the Company shall pay
to the Lender, and the Company authorizes the Lender to cause the Funding Bank
to charge the Company's Operating Account for, the amount of any outstanding
Advance against a specific Pledged Mortgage upon the earliest occurrence of any
of the following events:
(1) For a Pledged Mortgage with respect to which a longer or
shorter period is not prescribed elsewhere in Sections 2.5(d) or
2.5(e), one hundred eighty (180) days elapse from the date of the
initial Advance made by the Lender against such Pledged Mortgage,
whether or not such Pledged Mortgage is included in an Eligible
Mortgage Pool.
(2) For a Title I Mortgage Loan or a Nonconforming Mortgage Loan
that is not covered by a Purchase Commitment, ninety (90) days elapse
from the date of the initial Advance made by the Lender against such
Pledged Mortgage, whether or not such Pledged Mortgage is included in
an Eligible Mortgage Pool.
(3) For a high LTV Mortgage Loan, sixty (60) days elapse from the
date of the initial Advance made by the Lender against such Pledged
Mortgage, whether or not such Pledged Mortgage is included in an
Eligible Mortgage Pool.
(4) For any Pledged Mortgage secured by a Second Mortgage, one
hundred twenty (120) days elapse from the date of the initial Advance
made by the Lender against such Pledged Mortgage or payment of any
Lien prior to such Pledged Mortgage is delinquent, and remains
delinquent for a period of sixty (60) days or more.
(5) Forty-five (45) days elapse from the date the Pledged
Mortgage was delivered to an Investor or an Approved Custodian for
examination and purchase or inclusion in an Eligible Mortgage Pool,
without the purchase being made or the Eligible Mortgage Pool being
initially certified, or upon rejection of the Pledged Mortgage as
unsatisfactory by an Investor or an Approved Custodian.
21
<PAGE>
(6) Seven (7) Business Days elapse from the date a Wet Settlement
Advance was made without receipt by the Lender of all Collateral
Documents relating to such Pledged Mortgage, or such Collateral
Documents, upon examination by the Lender, are found not to be in
compliance with the requirements of this Agreement or the related
Purchase Commitment.
(6) With respect to any Pledged Mortgage, any of the items
described in Section 2.2 (d), upon examination by the Lender, are
found not to be in compliance with the requirements of this Agreement
or the related Purchase Commitment.
2.5 (f) The outstanding amount of any Advance made pursuant to
Section 2.2 (f) shall be payable in full within one (1) Business Day
after the date of such Advance.
2.5 (g) In addition to the payments required pursuant to Sections
2.5(d) and 2.5(e), if the principal amount of any Pledged Mortgage is prepaid in
whole or in part while an Advance is outstanding against such Pledged Mortgage,
the Company shall be obligated to pay to the Lender, without the necessity of
prior demand or notice from the Lender, and the Company authorizes the Lender to
cause the Funding Bank to charge the Company's Operating Account for the amount
of such prepayment, to be applied to such Advance.
2.5 (h) The Company shall give Notice to the Lender (telephonically,
to be followed by written notice) of the Pledged Mortgages or Pledged Securities
for which proceeds have been received. Upon receipt of such Notice the Advances
against such Pledged Mortgages or Pledged Securities shall be repaid and such
Pledged Mortgages or Pledged Securities shall be considered to have been
redeemed from pledge. The Lender is entitled to rely upon the Company's
affirmation that deposits in the Cash Collateral Account represent payment from
Investors for the purchase of Pledged Mortgages or Pledged Securities as
specified by the Company. In the event that the payment from an Investor for the
purchase of Pledged Mortgages or Pledged Securities is less than the outstanding
Advances against such Pledged Mortgages or the Mortgage Loans backing Pledged
Securities, the Lender is authorized to cause the Funding Bank to charge the
Company's Operating Account for an amount equal to such deficiency. Provided no
Default or Event of Default exists, the Lender shall return any excess payment
from
22
<PAGE>
an Investor for Pledged Mortgages or Pledged Securities to the
Company.
2.6 Expiration of Commitment. The Commitment shall expire on the
Maturity Date.
2.7 Method of Making Payments.
2.7(a) Except as otherwise specifically provided herein, all
payments hereunder shall be made to the Lender not later than the close
of business on the date when due unless such date is a non-Business
Day, in which case, such payment shall be due on the first Business Day
thereafter, and shall be made in lawful money of the United States of
America in immediately available funds transferred via wire to accounts
designated by the Lender from time to time.
2.7(b) After the occurrence and during the continuance of an Event
of Default, and without the necessity of prior demand or notice from
the Lender, the Company authorizes the Lender to cause the Funding Bank
to charge the Company's Operating Account for any obligations due and
owing the Lender.
2.8 Non-Usage Fees. At the end of each calendar quarter during the term
hereof, the Lender shall determine the average usage of the Commitment by
calculating the arithmetic daily average of the Advances outstanding during such
calendar quarter. The Lender shall then subtract such quarterly average usage
(the "Used Portion") from the Commitment Amount (and the result thereof shall be
known as the "Unused Portion"). If the Unused Portion is more than forty percent
(40%) of the Commitment Amount, the Company shall pay in arrears, within
thirty (30) days after the end of each calendar quarter, a Non-Usage Fee (the
"Non-Usage Feel,) equal to one-quarter percent (.25%) per annum on the total
amount of the Unused Portion of the Commitment during such calendar quarter. If
the Maturity Date of the Commitment is other than the last day of a quarter, the
Company shall pay the prorated portion of the quarterly Non-Usage Fee due from
the beginning of the then current quarter to and including the Maturity Date.
For the purposes hereof, quarters shall be defined as beginning April 1, July 1,
October 1 and January 1. In the absence of manifest error, the calculation by
the Lender of the amount of any Non-Usage Fee shall be conclusive. If the
Commitment terminates at the request of the Company or as a result of an Event
of Default, the Non-Usage Fee shall be due and owing through the last day of the
current quarter.
2.9 Warehousing Fees. The Company agrees, at the time of each Advance,
to pay to the Lender a Warehousing Fee in the
23
<PAGE>
amount of Fifteen Dollars ($15.00) for each Mortgage Loan pledged as Collateral
for such Advance. Warehousing Fees are due when incurred, but shall not be
delinquent if paid within fifteen (15) days after receipt of an invoice or an
account analysis statement from the Lender.
2.10 Miscellaneous Charges. The Company agrees to reimburse the Lender
for miscellaneous charges and expenses (collectively, "Miscellaneous Charges")
incurred by or on behalf of the Lender in connection with the handling and
administration of Advances, and to reimburse the Lender for Miscellaneous
Charges incurred by or on behalf of the Lender in connection with the handling
and administration of the Collateral. For the purposes hereof, Miscellaneous
Charges shall include, but not be limited to, charges for wire transfers, check
processing charges, charges for security delivery fees, charges for overnight
delivery of Collateral to Investors, Funding Bank's service charges and
Designated Bank Charges. Miscellaneous Charges are due when incurred, but shall
not be delinquent if paid within fifteen (15) days after receipt of an invoice
or an account analysis statement from the Lender.
2.11 Interest Limitation. All agreements between the Company and the
Lender are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of this Agreement or
the Note or otherwise, shall the amount paid or agreed to be paid to the Lender
for the use, forbearance, loaning or retention of the Advances secured by this
Agreement exceed the maximum permissible under applicable law. If from any
circumstances whatsoever, fulfillment of any provisions hereof or of the Note,
or any other document securing this Agreement at any time given shall involve
transcending the limit of validity prescribed by law, then, the obligation to be
fulfilled shall automatically be reduced to the limit of such validity, and if
from any circumstances the Lender should ever receive as interest an amount
which would exceed the highest lawful rate of interest, such amount which would
be in excess of interest shall be applied to the reduction of the principal
balance secured by the Note and not to the payment of interest thereunder. This
provision shall control every other provision of all agreements between the
Company and Lender and shall also be binding upon and available to any
subsequent holder of the Note.
2.12 Increased Costs; Capital Requirements. In the event any
applicable law, order, regulation or directive issued by any governmental or
monetary authority, or any change therein or in the governmental or judicial
interpretation or application thereof, or compliance by the Lender with any
24
<PAGE>
request or directive (whether or not having the force of law) by any
governmental or monetary authority:
2.12(a) Does or shall subject the Lender to any tax of any kind
whatsoever with respect to this Agreement or any Advances made
hereunder, or change the basis of taxation on payments to the Lender
of principal, fees, interest or any other amount payable hereunder
(except for change in the rate of tax on the overall gross or net
income of the Lender by the jurisdiction in which the Lender's
principal office is located);
2.12 (b) Does or shall impose, modify or hold applicable any
reserve, capital requirement, special deposit, compulsory loan or
similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other
credit extended by, or any other acquisition of funds by, any office
of the Lender which are not otherwise included in the determination of
the interest rate as calculated hereunder;
and the result of any of the foregoing is to increase the cost to the Lender of
making, renewing or maintaining any Advance or to reduce any amount receivable
in respect thereof or to reduce the rate of return on the capital of the Lender
or any Person controlling the Lender as it relates to credit facilities in the
nature of that evidenced by this Agreement, then, in any such case, the Company
shall promptly pay any additional amounts necessary to compensate the Lender for
such additional cost or reduced amounts receivable or reduced rate of return as
determined by the Lender with respect to this Agreement or Advances made
hereunder. If the Lender becomes entitled to claim any additional amounts
pursuant to this Section, it shall notify the Company of the event by reason of
which it has become so entitled and the Company shall pay such amount within
fifteen (15) days thereafter. A certificate as to any additional amount payable
pursuant to the foregoing sentence containing the calculation thereof in
reasonable detail submitted by the Lender to the Company shall be conclusive in
the absence of manifest error. The obligations of the Company under this Section
shall survive the payment of all other Obligations and the termination of this
Agreement.
3. COLLATERAL.
3.1 Grant of Security Interest. As security for the payment of
the Note and for the performance of all of the Company's Obligations,
the Company hereby assigns and transfers to the Lender all right,
title and interest in and
25
<PAGE>
to and grants a security interest to the Lender in the following described
property (the "Collateral"):
3.1(a) All Mortgage Loans, including all Mortgage Notes and
Mortgages evidencing or securing such Mortgage Loans, which from time
to time are delivered or caused to be delivered to the Lender
(including delivery to a third party on behalf of the Lender), come
into the possession, custody or control of the Lender for the purpose
of assignment or pledge or in respect of which an Advance has been
made by the Lender hereunder, including without limitation all
Mortgage Loans in respect of which Wet Settlement Advances have been
made by the Lender (the "Pledged Mortgages").
3.1(b) All Mortgage-backed Securities which are from time to time
created in whole or in part on the basis of the Pledged Mortgages or
are delivered or caused to be delivered to, or are otherwise in the
possession of the Lender or its agent, bailee or custodian as
assignee, or pledged to the Lender, or for such purpose are registered
by book-entry in the name of the Lender (including delivery to or
registration in the name of a third party on behalf of the Lender)
hereunder or in respect of which from time to time an Advance has been
made by the Lender hereunder (the "Pledged Securities").
3. 1 (c) All private mortgage insurance and all commitments
issued by the FHA or VA to insure or guarantee any Mortgage Loans
included in the Pledged Mortgages; all Purchase Commitments held by
the Company covering the Pledged Mortgages or the Pledged Securities
and all proceeds resulting from the sale thereof to Investors pursuant
thereto; and all personal property, contract rights, servicing and
servicing fees and income or other proceeds, amounts and payments
payable to the Company as compensation or reimbursement, accounts and
general intangibles of whatsoever kind relating to the Pledged
Mortgages, the Pledged Securities, said FHA commitments or VA
commitments and the Purchase Commitments, and all other documents or
instruments relating to the Pledged Mortgages and the Pledged
Securities, including, without limitation, any interest of the Company
in any fire, casualty or hazard insurance policies and any awards made
by any public body or decreed by any court of competent jurisdiction
for a taking or for degradation of value in any eminent domain
proceeding as the same relate to the Pledged Mortgages.
3. 1 (d) All right, title and interest of the Company in and to
all escrow accounts, documents,
26
<PAGE>
instruments, files, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records (including
all information, records, tapes, data, programs, discs and cards
necessary or helpful in the administration or servicing of the
Collateral) and other information and data of the Company relating to
the Collateral.
3.1(e) All right, title and interest of the Company in and to any
Hedging Arrangements entered into to protect the Company against
changes in the value of Pledged Mortgages or Pledged Securities,
including, without limitation, all rights to payment arising under
such Hedging Arrangements.
3. 1 (f) All now existing or hereafter acquired cash delivered to
or otherwise in the possession of the Lender or its agent, bailee or
custodian or designated on the books and records of the Company as
assigned and pledged to the Lender.
3. 1 (g) All cash and non-cash proceeds of the Collateral,
including all dividends, distributions and other rights in connection
with, and all additions to, modifications of and replacements for, the
Collateral, and all products and proceeds of the Collateral, together
with whatever is receivable or received when the Collateral or
proceeds thereof are sold, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, including,
without limitation, all rights to payment with respect to any cause of
action affecting or relating to the Collateral or proceeds thereof.
3.2 Release of Security Interest in Collateral.
3.2(a) Pledged Mortgages shall be released from the Lender's
security interest only against payment to the Lender of the Release
Amount in connection with such Pledged Mortgages.
3.2 (b) If Pledged Mortgages are to be transferred to a pool
custodian or to FHLMC or FNMA for inclusion in a Mortgage Pool, the
Lender's security interest in such Pledged Mortgages shall be released
only against payment to the Lender of the Release Amount in connection
with such Pledged Mortgages. If the Lender's security interest in the
Pledged Mortgages comprising the Mortgage Pool is not released prior
to the issuance of the Mortgage-backed Security, then the
Mortgage-backed Security, when issued, shall be a Pledged Security.
The Lender's security interest shall continue in such Pledged
27
<PAGE>
Mortgages and the Pledged Security. The Lender shall be entitled to
possession of such Pledged Security in the manner provided below.
3.2 (c) If Pledged Mortgages are transferred to an Approved
Custodian and included in an Eligible Mortgage Pool, the Lender's
security interest in the Pledged Mortgages comprising the Eligible
Mortgage Pool shall be released upon the issuance of the
Mortgage-backed Security, which shall be a Pledged Security. The
Lender's security interest in such Pledged Security shall be released
only against payment to the Lender of the Release Amount in connection
with the Pledged Mortgages backing such Pledged Security. The Lender
shall be entitled to possession of such Pledged Security in the manner
provided below.
3.2(d) The Lender shall have the exclusive right to the
possession of the Pledged Securities or, if the Pledged Securities are
issued in book-entry form or issued in certificated form and delivered
to a clearing corporation (as such term is defined in the Uniform
Commercial Code of Minnesota) or its nominee, the Lender shall have
the right to have the Pledged Securities registered in the name of a
securities intermediary (as such term is defined in the Uniform
Commercial Code of Minnesota) in an account containing only customer
securities and credited to an account of the Lender. The Lender shall
have the right to cause delivery of the Pledged Securities to be made
to the Investor or the Pledged Securities credited to the account of
the Investor or the Investor's design only against payment therefor.
The Company acknowledges that the Lender may enter into one or more
standing arrangements with other financial institutions with respect
to Pledged Securities issued in book entry form or issued in
certificated form and delivered to a clearing corporation, pursuant to
which such Pledged Securities are registered in the name of such
financial institution, as agent or securities intermediary for the
Lender, and the Company agrees upon request of the Lender to execute
and deliver to such other financial institutions the Company's written
concurrence in any such standing arrangements.
3.2 (e) Prior to the occurrence of an Event of Default, the
Company may redeem a Pledged Mortgage or Pledged Security from the
Lender's security interest by notifying the Lender of its intention to
redeem such Pledged Mortgage or Pledged Security from pledge and
either (a) paying, or causing an Investor to pay, to the Lender, for
application to prepayment of the principal balance of the Note, the
Release Amount in connection
28
<PAGE>
with such Pledged Mortgage or Pledged Security, or (b) delivering
substitute Collateral which, in addition to being acceptable to the
Lender in its sole discretion will, when included with the Collateral,
result in a Collateral Value of all Collateral held by the Lender
which is at least equal to the aggregate outstanding Advances.
3.2(f) Following the occurrence of a Default or Event of Default,
the Lender may, with no liability to the Company or any Person,
continue to release its security interest in any Pledged Mortgage or
Pledged Security against payment of the Release Amount in connection
with such Pledged Mortgage or Pledged Security.
3. 2 (g) The amount (the "Release Amount") to be paid by the
Company to obtain the release of the Lender's security interest in a
Pledged Mortgage shall be (i) prior to the occurrence of an Event of
Default, the principal amount of the Advances made against such
Pledged Mortgage, and (ii) from and after the occurrence and during
the continuance of an Event of Default, the Committed Purchase Price
of such Pledged Mortgage or, if there is no Purchase Commitment
therefor, the amount paid to the Lender in a commercially reasonable
disposition thereof.
3.3 Delivery of Additional Collateral or Mandatory Pre-payment. At any
time that the aggregate Collateral Value of the Pledged Mortgages and
Pledged Securities then pledged hereunder is less than the aggregate
amount of the Advances then outstanding hereunder, the Lender may
request, and the Company shall within two (2) Business Days after
Notice by the Lender (a) deliver to the Lender for pledge hereunder
additional Mortgage Loans, and/or cash, with a Collateral Value
sufficient to cover the difference between the Collateral Value of the
Pledged Mortgages and Pledged Securities pledged and the aggregate
amount of Advances outstanding hereunder, and/or (b) repay the
Advances in an amount sufficient to reduce the aggregate balance
thereof outstanding to or below the Collateral Value of the Pledged
Mortgages and Pledged Securities pledged hereunder.
3.4 Release of Collateral.
3.4(a) The Lender may deliver documents relating to the
Collateral to the Company for correction or completion pursuant to a
Trust Receipt.
3.4(b) Prior to the occurrence of a Default or Event of Default,
upon delivery by the Company to the
29
<PAGE>
Lender of shipping instructions pursuant to Exhibit D-SF, the Lender
will transmit Pledged Mortgages or Pledged Securities and all related
loan documents or pool documents to the applicable Investor, Approved
Custodian or other party.
3.4 (c) Upon receipt of Notice from the Company under Section
2.5(h) hereof, and repayment of the Release Amount with respect to a
Pledged Mortgage identified by the Company, any Collateral Documents
relating to the redeemed Pledged Mortgage or Mortgage Loan backing a
Pledged Security which have not been delivered to an Investor or
Approved Custodian shall be released by the Lender to the Company.
3.5 Collection and Servicing Rights. So long as no Event of Default
shall have occurred and be continuing, the Company shall be entitled
to service and receive and collect directly all sums payable to the
Company in respect of the Collateral other than proceeds of any
Purchase Commitment or proceeds of the sale of any Collateral.
Following the occurrence of any Event of Default, the Lender or its
design shall thereafter be entitled to service and receive and collect
all sums payable to the Company in respect of the Collateral, and in
such case (a) the Lender or its design in its discretion may, in its
own name, in the name of the Company or otherwise, demand, sue for,
collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but
shall be under no obligation to do so, (b) the Company shall, if the
Lender so requests, hold in trust for the benefit of the Lender and
forthwith pay to the Lender at its office designated by Notice
hereunder, all amounts thereafter received by the Company upon or in
respect of any of the Collateral, advising the Lender as to the source
of such funds, and (c) all amounts so received and collected by the
Lender shall be held by it as part of the Collateral.
3.6 Return of Collateral at End of Commitment. If (a) the
Commitment shall have expired or been terminated, and (b) no Advances,
interest or other obligations shall be outstanding and unpaid, the
Lender shall deliver or release its security interest and shall
deliver all Collateral in its possession to the Company at the
Company's expense. The receipt of the Company for any Collateral
released or delivered to the Company pursuant to any provision of this
Agreement shall be a complete and full acquittance for the Collateral
so returned, and the Lender shall thereafter be discharged from any
liability or responsibility therefor.
30
<PAGE>
4. CONDITIONS PRECEDENT.
4.1 Initial Advance. The obligation of the Lender to make the
initial Advance under this Agreement is subject to the satisfaction, in
the sole discretion of the Lender, on or before the date thereof of the
following conditions precedent:
4.1 (a) The Lender shall have received the following, all of
which must be satisfactory in form and content to the Lender, in its
sole discretion:
(1) The Note and this Agreement duly executed by the
Company.
(2) The Company's articles of' incorporation as
certified by the Secretary of State of the Company's
incorporation, bylaws certified by the corporate secretary of
the Company, or a Certificate of the Company stating that there
has been no change in either the articles of incorporation or
bylaws since those delivered in connection with the Existing
Agreement, and certificates of good standing dated no less
recently than ninety (90) days prior to the date of this
Agreement.
(3) A resolution of the board of directors of the
Company, certified as of the date of this Agreement by its
corporate secretary, authorizing the execution, delivery and
performance of this Agreement and the other Loan Documents, and
all other instruments or documents to be delivered by the
Company pursuant to this Agreement.
(4) A certificate of the Company's corporate secretary
as to the incumbency and authenticity of the signatures of the
officers of the Company executing this Agreement and the other
Loan Documents and each Advance Request and all other
instruments or documents to be delivered pursuant hereto (the
Lender being entitled to rely thereon until a new such
certificate has been furnished to the Lender).
(S) Financial statements of the Company (and, if
applicable, its Subsidiaries, on a consolidated basis)
containing a balance sheet as of December 31 and related
statements of income, changes in stockholders, equity and cash
flows for the period ended on such date, all prepared in
accordance with GAAP applied on a basis consistent with prior
31
<PAGE>
periods and audited by independent certified public accountants
of recognized standing acceptable to the Lender.
(6) Financial statements of the Company (and, if applicable,
its Subsidiaries, on a consolidated basis) containing a balance
sheet as of March 31, 1998, related statements of income and
changes in stockholders, equity for the period ended on such date
prepared in accordance with GAAP applied on a basis consistent
with the Company's most recent audited financial statements.
(7) A favorable written opinion of counsel to the Company
dated as of the date of this Agreement substantially in the form
of Exhibit H attached hereto, addressed to the Lender.
(8) A Uniform Commercial Code, tax lien and judgment search
of the appropriate public records for the Company, which search
shall not have disclosed the existence of any prior Lien on the
Collateral other than in favor of the Lender or as permitted
hereunder.
(9) Copies of the certificates, documents or other written
instruments which evidence the Company's eligibility described in
Section 5.13 hereof, all in form and substance satisfactory to
the Lender.
(10) Copies of the Company's errors and omissions insurance
policy or mortgage impairment insurance policy and blanket bond
coverage policy, or certificates in lieu of policies, all in form
and content satisfactory to the Lender, showing compliance by the
Company as of the date of this Agreement with the related
provisions of Section 6.8 hereof.
(11) Receipt by the Lender of any fees due on the date
hereof, including, but not limited to, Commitment Fees and
document production fees.
(12) Evidence that all accounts necessary into which Advances
will be funded have been established at the Funding Bank and
receipt of a fully executed Funding Bank Agreement.
(13) Evidence that capital in the amount of at least Seven
Million Five Hundred Thousand Dollars
32
<PAGE>
($7,500,000) was contributed to the Company on __________, 1998.
4.1(b) All directors, officers and shareholders of the Company,
all Affiliates of the Company or of any Subsidiary of the Company, to
whom or to any of whom the Company shall be indebted as of the date of
this Agreement, shall have subordinated such indebtedness to the
Obligations, by executing a Subordination of Debt Agreement, in the
form of Exhibit F hereto; and the Lender shall have received an
executed copy of any such Subordination of Debt Agreement, certified
by the corporate secretary of the Company to be true and complete and
in full force and effect as of the date of the Advance.
4. 1 (c) The Company shall have received cash proceeds from the
sale of additional shares of its capital stock in an amount not less
than Six Million Dollars ($6,000,000), shall have converted
Subordinated Debt in an amount not less than Two Million Dollars
($2,000,000 to capital stock, and shall have provided satisfactory
evidence thereof to the Lender.
4.2 Each Advance. The obligation of the Lender to make the initial and
each subsequent Advance under this Agreement is subject to the
satisfaction, in the sole discretion of the Lender, as of the date of
each such Advance, of the following additional conditions precedent:
4.2 (a) The Company shall have delivered to the Lender the
Advance Request, Collateral Documents, and documents relating to Wet
Settlement Advances, called for under, and shall have satisfied the
procedures set forth in, Section 2.2 hereof and the applicable
Exhibits hereto described in that Section, according to the type of
the requested Advance. All items delivered to the Lender shall be
satisfactory to the Lender in form and content, and the Lender may
reject such of them as do not meet the requirements of this Agreement
or of the related Purchase Commitment.
4. 2 (b) The Lender shall have received evidence satisfactory to
it as to the making and/or continuation of any book entry or the due
filing and recording if all appropriate offices of all financing
statements and other instruments as may be necessary to perfect the
security interest of the Lender in the Collateral under the Uniform
Commercial Code or other applicable law.
4.2(c) The representations and warranties of the Company
contained in Article S hereof shall be accurate
33
<PAGE>
and complete in all material respects as if made on and as of the date
of each Advance.
4. 2 (d) The Company shall have performed all agreements to be
performed by it hereunder, and after giving effect to the requested
Advance, there shall exist no Default or Event of Default hereunder.
4. 2 (e) The Company shall not have incurred any material
liabilities, direct or contingent, other than in the ordinary course
of its business, since the Statement Date.
4.2(f) The Lender shall have received from counsel for the
Company, if requested by the Lender in its sole discretion, an updated
opinion, in form and substance satisfactory to the Lender, addressed
to the Lender and dated as of the date of such Advance, covering such
of the matters as the Lender may reasonably request.
Delivery of an Advance Request by the Company shall be deemed a
representation by the Company that all conditions set forth in this
Section 4.2 shall have been satisfied as of the date of such Advance.
5. REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to the Lender, as of the
date of this Agreement and as of the date of each Advance Request and
the making of each Advance, that:
5.1 Organization; Good Standing; Subsidiaries. The Company and each
Subsidiary of the Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation, has
the full legal power and authority to own its property and to carry on its
business as currently conducted and is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction in which the
transaction of its business makes such qualification necessary, except in
jurisdictions, if any, where a failure to be in good standing has no material
adverse effect on the business, operations, assets or financial condition of the
Company or any such Subsidiary. For the purposes hereof, good standing shall
include qualification for any and all licenses and payment of any and all taxes
required in the jurisdiction of its incorporation and in each jurisdiction in
which the Company transacts business. The Company has no Subsidiaries except as
set forth on Exhibit G hereto. Exhibit G sets forth with respect to each such
Subsidiary, its name, address, place of incorporation, each state in which it is
qualified as a
34
<PAGE>
foreign corporation, and the percentage ownership of its capital stock by the
Company.
5.2 Authorization and Enforceability. The Company has the power and
authority to execute, deliver and perform this Agreement, the Note and all other
Loan Documents to which the Company is party and to make the borrowings
hereunder. The execution, delivery and performance by the Company of this
Agreement, the Note and all other Loan Documents to which the Company is party
and the making of the borrowings hereunder and thereunder, have been duly and
validly authorized by all necessary corporate action on the part of the Company
(none of which actions has been modified or rescinded, and all of which actions
are in full force and effect) and do not and will not conflict with or violate
any provision of, law, of any judgments binding upon the Company, or of the
articles of incorporation or by-laws of the Company, conflict with or result in
a breach of or constitute a default or require any consent under, or result in
the creation of any Lien upon any property or assets of the Company other than
the Lien on the Collateral granted hereunder, or result in or require the
acceleration of any indebtedness of the Company pursuant to any agreement,
instrument or indenture to which the Company is a party or by which the Company
or its property may be bound or affected. This Agreement, the Note and all other
Loan Documents contemplated hereby or thereby constitute legal, valid, and
binding obligations of the Company, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency or other such laws
affecting the enforcement of creditors, rights.
5.3 Approvals. The execution and delivery of this Agreement, the Note
and all other Loan Documents and the performance of the Company's obligations
hereunder and thereunder and the validity and enforceability hereof and thereof
do not require any license, consent, approval or other action of any state or
federal agency or governmental or regulatory authority other than those which
have been obtained and remain in full force and effect.
5.4 Financial Condition. The balance sheet of the Company (and, if
applicable, its Subsidiaries, on a consolidated basis) as of the Statement Date,
and the related statements of income and changes in stockholders, equity for the
fiscal period ended on the Statement Date, heretofore furnished to the Lender,
fairly present the financial condition of the Company (and its Subsidiaries) as
of the Statement Date and the results of its operations for the fiscal period
ended on the Statement Date. The Company had, on the Statement Date, no known
material liabilities, direct or indirect, fixed or contingent, matured or
unmatured, or liabilities for taxes, long-term leases or unusual forward or
35
<PAGE>
long-term commitments not disclosed by, or reserved against in, said balance
sheet and related statements, and at the present time there are no material
unrealized or anticipated losses from any loans, advances or other commitments
of the Company except as heretofore disclosed to the Lender in writing. Said
financial statements were prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved. Since the Statement Date,
there has been no material adverse change in the business, operations, assets or
financial condition of the Company (and its Subsidiaries), nor is the Company
aware of any state of facts which (with or without notice or lapse of time or
both) would or could result in any such material adverse change.
5.5 Litigation. There are no actions, claims, suits or proceedings
pending or, to the knowledge of the Company, threatened or reasonably
anticipated against or affecting the Company or any Subsidiary of the Company in
any court or before any arbitrator or before any government commission, board,
bureau or other administrative agency which, if adversely determined, may
reasonably be expected to result in any material and adverse change in the
business, operations, assets or financial condition of the Company as a whole,
or which would affect the validity or enforceability of this Agreement, the Note
or any other Loan Document.
5.6 Compliance with Laws. Neither the Company nor any Subsidiary of the
Company is in violation of any provision of any law, or of any judgment, award,
rule, regulation, order, decree, writ or injunction of any court or public
regulatory body or authority which might have a material adverse effect on the
business, operations, assets or financial condition of the Company as a whole or
which would affect the validity or enforceability of this Agreement, the Note or
any other Loan Document.
5.7 Regulations G and U. The Company is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying Margin Stock, and no part of the proceeds of
any Advances made hereunder will be used to purchase or carry any Margin Stock
or to extend credit to others for the purpose of purchasing or carrying any
Margin Stock.
5.8 Investment Company Act. The Company is not an "investment company"
or controlled by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
5.9 Payment of Taxes. The Company and each of its Subsidiaries has
filed or caused to be filed all federal, state and local income, excise,
property and other tax returns
36
<PAGE>
with respect to the operations of the Company and its Subsidiaries which are
required to be filed, all such returns are true and correct, and the Company and
each of its Subsidiaries has paid or caused to be paid all taxes as shown on
such returns or on any assessment, to the extent that such taxes have become
due, including, but not limited to, all FICA payments and withholding taxes, if
appropriate. The amounts reserved, as a liability for income and other taxes
payable, in the financial statements described in Section 5.4 hereof are
sufficient for payment of all unpaid federal, state and local income, excise,
property and other taxes, whether or not disputed, of the Company and its
Subsidiaries accrued for or applicable to the period and on the dates of such
financial statements and all years and periods prior thereto and for which the
Company and its Subsidiaries may be liable in its own right or as transferee of
the assets of, or as successor to, any other Person.
5.10 Agreements. Neither the Company nor any Subsidiary of the Company
is a party to any agreement, instrument or indenture or subject to any
restriction materially and adversely affecting its business, operations, assets
or financial condition, except as disclosed in the financial statements
described in Section 5.4 hereof. Neither the Company nor any Subsidiary of the
Company is in default in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any agreement, instrument,
or indenture which default could have a material adverse effect on the business,
operations, properties or financial condition of the Company as a whole. No
holder of any indebtedness of the Company or of any of its Subsidiaries has
given notice of any asserted default thereunder, and no liquidation or
dissolution of the Company or of any of its Subsidiaries and no receivership,
insolvency, bankruptcy, reorganization or other similar proceedings relative to
the Company or of any of its Subsidiaries or any of its properties is pending,
or to the knowledge of the Company, threatened.
5.11 Title to Properties. The Company and each Subsidiary of the
Company has good, valid, insurable (in the case of real property) and marketable
title to all of its properties and assets (whether real or personal, tangible or
intangible) reflected on the financial statements described in Section 5.4
hereof, except for such properties and assets as have been disposed of since the
date of such financial statements as no longer used or useful in the conduct of
its business or as have been disposed of in the ordinary course of business, and
all such properties and assets are free and clear of all Liens except as
disclosed in such financial statements.
37
<PAGE>
5.12 ERISA. All plans ("Plans") of a type described in Section 3(3) of
ERISA in respect of which the Company or any Subsidiary of the Company is an
"Employer," as defined in Section 3(5) of ERISA, are in substantial compliance
with ERISA, and none of such Plans is insolvent or in reorganization, has an
accumulated or waived funding deficiency within the meaning of Section 412 of
the Internal Revenue Code, and neither the Company nor any Subsidiary of the
Company has incurred any material liability (including any material contingent
liability) to or on account of any such Plan pursuant to Sections 4062, 4063,
4064, 4201 or 4204 of ERISA; and no proceedings have been instituted to
terminate any such Plan, and no condition exists which presents a material risk
to the Company or a Subsidiary of the Company of incurring a liability to or on
account of -any such Plan pursuant to any of the foregoing Sections of ERISA. No
Plan or trust forming a part thereof has been terminated since September 1,
1974.
5.13 Eligibility. The Company is approved and qualified and in good
standing as a lender or seller/servicer, as set forth below, and meets all
requirements applicable to its status as such:
5.13(a) Lender in good standing under the VA loan guarantee
program eligible to originate, purchase, hold, sell and service
VA-guaranteed Mortgage Loans.
5.13 (b) HUD approved mortgagee, eligible to originate, purchase,
hold, sell and service FHA fully insured Mortgage Loans.
5.14 Place of Business. The principal place of business of the Company
is 8751 Broward Blvd., 5th Floor, Plantation, Florida 33324.
5.15 Special Representations Concerning Collateral. The Company hereby
represents and warrants to the Lender, as of the date of this Agreement and as
of the date of each Advance Request and the making of each Advance, that:
5.15 (a) The Company is the legal and equitable owner and holder,
free and clear of all Liens (other than Liens granted hereunder), of
the Pledged Mortgages and the Pledged Securities. All Pledged
Mortgages, Pledged Securities and Purchase Commitments have been
duly authorized and validly issued to the Company, and all of the
foregoing items of Collateral comply with all of the requirements of
this Agreement, and have been and will continue to be validly pledged
or assigned to the Lender, subject to no other Liens.
38
<PAGE>
5.15 (b) The Company has, and will continue to have, the full
right, power and authority to pledge the Collateral pledged and to be
pledged by it hereunder.
5.15 (c) Any Mortgage Loan and any related document included in
the Pledged Mortgages (1) has been duly executed and delivered by the
parties thereto at a closing held not more than ninety (90) days prior
to the date of the Advance Request for such Mortgage Loan, (2) has
been made in compliance with all requirements of the Real Estate
Settlement Procedures Act, Equal Credit Opportunity Act, the federal
Truth-In-Lending Act and all other applicable laws and regulations,
(3) is and will continue to be valid and enforceable in accordance
with its terms, without defense or offset, (4) has not been modified
or amended except in writing, which writing is part of the Collateral
Documents, nor any requirements thereof waived, (5) has been evaluated
or appraised in accordance with Title XI of FIRREA, and (6) complies
and will continue to comply with the terms of this Agreement and, if
applicable, with the related Purchase Commitment held by the Company.
Each Mortgage Loan other than a Home Equity Loan has been fully
advanced in the face amount thereof, each and each First Mortgage is a
first Lien on the premises described therein and each Second Mortgage
is secured by a second Lien on the premises described therein, and has
or will have a title insurance policy, in American Land Title
Association form or equivalent thereof, from a recognized title
insurance company, insuring the priority of the Lien of the Mortgage
and meeting the usual requirements of Investors purchasing such
Mortgage Loans.
5.15(d) No default has occurred and is continuing for more than
sixty (60) days under any Mortgage Loan included in the Pledged
Mortgages without the Advance against such Pledged Mortgage having
been repaid in accordance with Section 2.5(d) (3) hereof, provided,
however, that with respect to Pledged Mortgages which have already
been pledged as Collateral hereunder, if any default has occurred, the
Company will promptly notify the Lender.
5.15 (e) The Company has complied and will continue to comply
with all laws, rules and regulations in respect of the FHA insurance
or VA guaranty of each Mortgage Loan included in the Pledged Mortgages
designated by the Company as an FHA insured or VA guaranteed Mortgage
Loan, and such insurance or guarantee is and will continue to be in
full force and effect.
39
<PAGE>
5.15 (f) All fire and casualty policies covering the premises
encumbered by each Mortgage included in the Pledged Mortgages (1) name
and will continue to name the Company and its successors and assigns
as the insured under a standard mortgagee clause, (2) are and will
continue to be in full force and effect, and (3) afford and will
continue to afford insurance against fire and such other risks as are
usually insured against in the broad form of extended coverage
insurance from time to time available.
5.15 (g) Pledged Mortgages secured by premises located in a
special flood hazard area designated as such by the Director of the
Federal Emergency Management Agency are and shall continue to be
covered by special flood insurance under the National Flood Insurance
Program.
5.15(h) Each Pledged Mortgage, against which an Advance is made
on the basis of a Purchase Commitment, meets all requirements of such
Purchase Commitment. The Company shall assure that Pledged Mortgages
which are intended to be used in the formation of Mortgage-backed
Securities shall comply or, prior to the formation of any such
Mortgage-backed Security, shall comply with the requirements of the
governmental instrumentality, department or agency issuing or
guaranteeing such Mortgage-backed Security. The Company shall assure
that Uncommitted Mortgage Loans pledged hereunder meet all
requirements of one or more Investors with which the Company has
agreements or other arrangements to sell similar Mortgage Loans.
5.15(i) For Pledged Mortgages which will be used to back GNMA
Mortgage-backed Securities, the Company has received from GNMA a
Confirmation Notice or Confirmation Notices for Request Additional
Commitment Authority and for Request Pool Numbers, and there remains
available thereunder a commitment on the part of GNMA sufficient to
permit the issuance of GNMA Mortgage-backed Securities in an amount at
least equal to the amount of such Pledged Mortgages designated by the
Company as the Mortgage Loans to be used to back such GNMA
Mortgage-backed Securities; each such Confirmation Notice is in full
force and effect; each of such Pledged Mortgages has been as5igned by
the Company to one of such Pool Numbers and a portion of the available
GNMA Commitment has been allocated thereto by the Company, in an
amount at least equal to such Pledged Mortgages; and each such
assignment and allocation has been reflected in the books and records
of the Company.
40
<PAGE>
5.15 (j) Each Pledged Mortgage secured by real property to which
a Manufactured Home is affixed will create a valid Lien on such
Manufactured Home that will have priority over any other Lien on such
Manufactured Home, whether or not arising under applicable real
property law.
5.16 Servicing. Attached hereto as Exhibit E, is a true and complete
list of the Company's Servicing Portfolio. All of the Company's Servicing
Contracts are in full force and effect and, except as otherwise indicated, are
unencumbered by Liens. No default or event which, with notice or lapse of time
or both, would become a default, exists under any such Servicing Contract.
6. AFFIRMATIVE COVENANTS.
The Company hereby covenants and agrees that, so long as the
Commitment is outstanding or there remain any Obligations to be paid or
performed under this Agreement or under any other Loan Document, the
Company shall:
6.1 Payment of Note. Punctually pay or cause to be paid all
obligations payable hereunder and under the Note in accordance with the
terms hereof and thereof.
6.2 Financial Statements and Other Reports. Deliver to the Lender:
6. 2 (a) As soon as available and in any event within thirty
(30) days after the end of each calendar month of the Company,
statements of income and changes in stockholders, equity of the
Company (and, if applicable, its Subsidiaries, on a consolidated
basis) for the immediately preceding month and for the period
from the beginning of the fiscal year to the end of such calendar
month, and the related balance sheet as of the end of the
immediately preceding month, all in reasonable detail and
certified as to the fairness of presentation by the chief
financial officer of the Company, subject, however, to year-end
audit adjustments.
6.2 (b) As soon as available and in any event within ninety
(90) days after the close of each fiscal year of the Company,
statements of income, changes in stockholders' equity and cash
flow of the Company (and, if applicable, its Subsidiaries, on a
consolidated basis) for such year, and the related balance sheet
as of the end of such year (setting forth in comparative form the
corresponding figures for the preceding fiscal year), all in
reasonable detail and accompanied by an opinion in
41
<PAGE>
form and substance satisfactory to the Lender and prepared by an
accounting firm reasonably satisfactory to the Lender, or other
independent certified public accountants of recognized standing
selected by the Company and acceptable to the Lender, as to said
financial statements and a certificate signed by the chief
financial officer of the Company stating that said financial
statements fairly present the financial condition and results of
operations of the Company (and, if applicable, its Subsidiaries)
as of the end of, and for, such year.
6.2(c) Together with each delivery of financial statements
required in this Section 6.2, an Officer's Certificate
substantially in the form of Exhibit I-SF hereto: (1) setting
forth in reasonable detail all calculations necessary to show
that the Company is in compliance with the requirements of
Sections 7.6, 7.7, 7.9 and 7.10 hereof as of the end of such
month or year (or, if the Company is not in compliance, showing
the extent of non-compliance and specifying the period of
non-compliance and what actions the Company has taken, is taking
or proposes to take with respect thereto); (2) certifying that
the Company was, as of the end of the period, in compliance and
in good standing with applicable HUD, GNMA, or Investor net worth
requirements; and (3) stating that the signers have reviewed the
terms of this Agreement and have made, or caused to be made under
their supervision, a review in reasonable detail of the
transactions and conditions of the Company (and, if applicable,
its Subsidiaries) during the accounting period covered by such
financial statements and that such review has not disclosed the
existence during or at the end of such accounting period, and
that the signers do not have knowledge of the existence as of the
date of the Officer's Certificate, of any Default or Event of
Default, or if any Default or Event of Default existed or exists,
specifying the nature and period of the existence thereof and
what action the Company has taken, is taking and proposes to take
with respect thereto.
6.2 (d) As soon as available and in any event within thirty
(30) days after the end of each calendar month, a consolidated
report (the "Servicing Portfolio Report") as of the end of the
calendar month detailing, as to all Mortgage Loans the servicing
rights to which are owned by the Company (specified by investor
type, recourse and non-recourse) regardless of whether such
Mortgage Loans are Pledged Mortgages and which report shall
indicate Mortgage Loans which (A) are current and in good
standing, (B) are more than 30, 60 or 90 days past due,
respectively, (C) are, for Mortgage Loans
42
<PAGE>
serviced with recourse, more than three hundred sixty (360) days
past due, (D) are the subject of pending bankruptcy or
foreclosure proceedings, or (E) have been converted (through
foreclosure or other proceedings in lieu thereof) by the Company
into real estate owned by the Company.
6.2 (e) As soon as available and in any event within thirty
(30) days after the end of each calendar month, a commitment
summary and pipeline report substantially in the form of Exhibit
L (the "Commitment Summary Report") dated as of the end of such
month.
6.2 (f) Reports in respect of the Pledged Mortgages and
Pledged Securities, in such detail and at such times as the
Lender in its discretion may reasonably request at any time or
from time to time.
6. 2 (g) Copies of all regular or periodic financial and
other reports, if any, which the Company shall file with the
Securities and Exchange Commission or any governmental agency
successor thereto, copies of any audits completed by GNMA, FNMA
or FHLMC and copies of the Mortgage Bankers' Financial Reporting
Forms (FHLMC Form 1055/FNMA Form 1002) which the Company is
required to have filed, as the Lender may reasonably request.
6. 2 (h) From time to time, with reasonable promptness, such
further information regarding the business, operations,
properties or financial condition of the Company as the Lender
may reasonably request.
6.3 Maintenance of Existence; Conduct of Business. Preserve and
maintain its corporate existence in good standing and all of its
rights, privileges, licenses and franchises necessary or desirable in
the normal conduct of its business, including, without limitation, its
eligibility as lender, seller/servicer and issuer described under
Section 5.13 hereof; conduct its business in an orderly and sufficient
manner; maintain a net worth of acceptable assets as required
for maintaining the Company's eligibility as lender, seller/servicer
and issuer described under Section 5.13 hereof; and make no change in
the nature or character of its business or engage in any business in
which it was not engaged on the date of this Agreement.
6.4 Compliance with Applicable Laws. Comply with the
requirements of all applicable laws, rules, regulations and orders of
any governmental authority, a breach of which could materially
adversely affect its business, operations, assets, or financial
condition, except where contested in good faith and by appropriate
proceedings.
43
<PAGE>
6.5 Inspection of Properties and Books. Permit authorized
representatives of the Lender or any Participant to discuss the
business, operations, assets and financial condition of the Company
and its Subsidiaries with its officers and employees and to examine
its books of account and make copies or extracts thereof, all at such
reasonable times as the Lender or any Participant may request. The
Company will provide its accountants with a copy of this Agreement
promptly after the execution hereof and will instruct its accountants
to answer candidly any and all questions that the officers of the
Lender or any Participant or any authorized representatives of the
Lender or any Participant may address to them in reference to the
financial condition or affairs of the Company and its Subsidiaries.
The Company may have its representatives in attendance at any meetings
between the officers or other representatives of the Lender or any
Participant and the Company accountants held in accordance with this
authorization.
6.6 Notice. Give prompt Notice to the Lender of (a) any action,
suit or proceeding instituted by or against the Company or any of its
Subsidiaries in any federal or state court or before any commission or
other regulatory body (federal, state or local, domestic or foreign)
which action, suit or proceeding has at issue in excess of Twenty-Five
Thousand Dollars ($25,000), or any such proceedings threatened against
the Company or any of its Subsidiaries in a writing containing the
details thereof, (b) the filing, recording or assessment of any
federal, state or local tax Lien against the Company, or any of its
assets or any of its Subsidiaries, (c) the occurrence of any Event of
Default hereunder or the occurrence of any Default and continuation
thereof for five (5) days, (d) the suspension, revocation or
termination of the Company's eligibility, in any respect, as approved
lender, seller/servicer or issuer as described under Section 5.13
hereof, (e) the transfer, loss or termination of any Servicing
Contract to which the Company is a party, or which is held for the
benefit of the Company, and the reason for such transfer, loss or
termination, if known to the Company, and (f) any other action, event
or condition of any nature which may lead to or result in a material
adverse effect upon the business, operations, assets, or financial
condition of the Company and its Subsidiaries or which with or without
notice or lapse of time or both, would constitute a default under any
other agreement, instrument or indenture to which the Company (:)
any of its Subsidiaries is a party or to which the Company or any of
its Subsidiaries, its properties, or assets may be subject.
6.7 Payment of Debt, Taxes, etc. Pay and perform all obligations
and indebtedness of the Company, and cause to be paid and performed
all obligations and indebtedness of its Subsidiaries, promptly and in
accordance with the terms
44
<PAGE>
thereof and pay and discharge or cause to be paid and discharged
promptly all taxes, assessments and governmental charges or levies
imposed upon the Company or its Subsidiaries or upon their respective
income, receipts or properties before the same shall become past due,
as well as all lawful claims for labor, materials and supplies or
otherwise which, if unpaid, might become a Lien or charge upon such
properties or any part thereof; provided, however, that the Company
and its Subsidiaries shall not be required to pay taxes, assessments
or governmental charges or levies or claims for labor, materials or
supplies for which the Company or its Subsidiaries shall have obtained
an adequate bond or adequate insurance or which are being contested in
good faith and by proper proceedings which are being reasonably and
diligently pursued and for which proper reserves have been created.
6.8 Insurance. Maintain (a) errors and omissions insurance or
mortgage impairment insurance and blanket bond coverage, with such
companies and in such amounts as satisfy prevailing requirements
applicable to a lender, seller/servicer and issuer described under
Section 5.13 hereof, and (b) liability insurance and fire and other
hazard insurance on its properties, with responsible insurance
companies approved by the Lender, in such amounts and against such
risks as is customarily carried by similar businesses operating in the
same vicinity; and (c) within thirty (30) days after Notice from the
Lender, obtain such additional insurance as the Lender shall
reasonably require, all at the sole expense of the Company. Copies of
such policies shall be furnished to the Lender without charge upon
request of the Lender.
6.9 Closing Instructions. Indemnify and hold the Lender harmless
from and against any loss, including reasonable attorneys' fees and
costs, attributable to the failure of a title insurance company, agent
or approved attorney to comply with the disbursement or instruction
letter or letters of the Company relating to any Mortgage Loan.
6.10 Subordination of Certain Indebtedness. Cause any
indebtedness of the Company, incurred after the date of this
Agreement, to any shareholder, director or officer of the Company, or
to any Affiliate of the Company or of any Subsidiary of the Company,
to be subordinated to all Obligations by the execution of a
Subordination of Debt Agreement in the form of Exhibit F hereto and
deliver to the Lender an executed copy of said Agreement, certified by
the corporate secretary of the Company to be true and complete and in
full force and effect.
45
<PAGE>
6.11 Other Loan Obligations. Perform all material obligations
under the terms of each loan agreement, note, mortgage, security
agreement or debt instrument by which the Company is bound or to which
any of its property is subject, and promptly notify the Lender in
writing of a declared default under or the termination, cancellation,
reduction or nonrenewal of any of its other lines of credit or
agreements with any other lender. Exhibit J hereto is a true and
complete list of all such lines of credit or agreements as of the date
hereof and the Company hereby agrees to give the Lender at least
thirty (30) days Notice before entering into any additional lines of
credit or agreements.
6.12 Use of Proceeds of Advances. Use the proceeds of each
Advance solely for the purpose set forth in Section 2.1(b) for
Advances of that type.
6.13 Special Affirmative Covenants Concerning Collateral.
6.13 (a) Warrant and defend the right, title and interest
of the Lender in and to the Collateral against the claims and
demands of all Persons whomsoever.
6.13 (b) Service or cause to be serviced all Mortgage Loans
in accordance with the standard requirements of the issuers of
Purchase Commitments covering the same and all applicable FHA and
VA requirements, including without limitation taking all actions
necessary to enforce the obligations of the obligors under such
Mortgage Loans. The Company shall service or cause to be serviced
all Mortgage Loans backing Pledged Securities in accordance with
applicable governmental requirements and requirements of issuers
of Purchase Commitments covering the same. The Company shall hold
all escrow funds collected in respect of Pledged Mortgages and
Mortgage Loans backing Pledged Securities in trust, without
commingling the same with non-custodial funds, and apply the same
for the purposes for which such funds were collected.
6.13 (c) Execute and deliver to the Lender such Uniform
Commercial Code financing statements with respect to the
Collateral as the Lender may request. The Company shall also
execute and deliver to the Lender such further instruments of
sale, pledge or assignment or transfer, and such powers of
attorney, as required by the Lender, and shall do and perform all
matters and things necessary or desirable to be done or observed,
for the purpose of effectively creating, maintaining and
preserving the security and benefits intended to be afforded the
Lender under this Agreement. The Lender shall have all the
46
<PAGE>
rights and remedies of a secured party under the Uniform
Commercial Code of Minnesota, or any other applicable law, in
addition to all rights provided for herein.
6.13(d) Notify the Lender within two (2) Business Days of
any default under, or of the termination of, any Purchase
Commitment relating to any Pledged Mortgage, Eligible Mortgage
Pool or Pledged Security.
6.13(e) Promptly comply in all respects with the terms and
conditions of all Purchase Commitments, and all extensions,
renewals and modifications or substitutions thereof or thereto.
The Company will cause to be delivered to the Investor the
Pledged Mortgages and Pledged Securities to be sold under each
Purchase Commitment not later than three (3) Business Days prior
to the mandatory delivery date thereof.
6.13(f) Maintain, at its principal office or in a regional
office approved by the Lender, or in the office of a computer
service bureau engaged by the Company and approved by the Lender,
and, upon request, make available to the Lender the originals, or
copies in any case where the originals have been delivered to the
Lender or to an Investor, of its Mortgage Notes and Mortgages
included in Pledged Mortgages, Mortgage-backed Securities
delivered to the Lender as Pledged Securities, Purchase
Commitments, and all related Mortgage Loan documents and
instruments, and all files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs,
cards, accounting records and other information and data relating
to the Collateral.
6.14 Transfer of FHA Insurance on Title I Mortgage Loans. At any
time while a Title I Advance is outstanding against a Title I
Mortgage Loan pledged hereunder, the Lender may, by Notice to the
Customer, direct the Customer to submit to the FHA a "transfer of
note" report with respect to the Pledged Mortgage, reporting the
transfer of the Pledged Mortgage to the Lender or a Person
designated by the Lender in such Notice (either, a "Transferee"),
provided, that, the transfer of the Pledged Mortgage by the
Customer to the Transferee satisfies the applicable FHA
regulations. Upon the giving of such Notice, the Customer
promptly (and in any event within ten (10) days) shall submit
such "transfer of note" report to the FHA with respect to the
Pledged Mortgage and shall cause the FHA, as promptly as
possible, to transfer the FHA insurance relating to such Title I
Mortgage Loan pledged hereunder to the Transferee.
7. NEGATIVE COVENANTS.
47
<PAGE>
The Company hereby covenants and agrees that, so long as the Commitment
is outstanding or there remain any Obligations to be paid or performed, the
Company shall not, either directly or indirectly, without the prior written
consent of the Lender:
7.1 Contingent Liabilities. Assume, guarantee, endorse, or otherwise
become contingently liable for the obligation of any Person except by
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business.
7.2 Sale or Pledge of Servicing Contracts. Sell, pledge or grant a
security interest in any existing or future Servicing Contracts of the Company
other than to the Lender, except as otherwise expressly permitted in this
Agreement, or omit to take any action required to keep all such Servicing
Contracts in full force and effect; provided, however, that if no Default or
Event of Default has occurred and is continuing, servicing on individual
Mortgage Loans may be sold concurrently with and incidental to the sale of such
Mortgage Loans (with servicing released) in the ordinary course of the Company's
business; provided, if no Default or Event of Default has occurred and is
continuing, the Company may sell, pledge or grant a security interest in such
existing and future Servicing Contracts for the servicing of not in excess of
twenty percent (20%) of the total dollar amount of the outstanding principal
balances of all Mortgage Loans serviced by the Company.
7.3 Merger; Sale of Assets; Acquisitions. Liquidate, dissolve,
consolidate or merge or sell any substantial part of its assets, or acquire any
substantial part of the assets of another.
7.4 Deferral of Subordinated Debt. Pay in advance of the stated maturity
thereof any Subordinated Debt of the Company or, if a Default or Event of
Default hereunder shall have occurred, make any payment of any kind thereafter
on such Subordinated Debt until all Obligations have been paid and performed in
full and any applicable preference period has expired.
7.5 Loss of Eligibility. Take any action that would cause the Company
to lose all or any part of its status as an eligible lender, seller/servicer and
issuer as described under Section 5.13 hereof.
7.6 Debt to Tangible Net Worth Ratio. Permit the ratio of Debt
(excluding, for this purpose only, Debt arising under the Hedging Arrangements,
to the extent of assets arising under the same Hedging Arrangements) to Tangible
Net Worth of
48
<PAGE>
the Company (and its Subsidiaries, on a consolidated basis) at any time to
exceed 20 to 1.
7.7 Minimum Tangible Net Worth. Permit Tangible Net Worth of the
Company (and its Subsidiaries, on a consolidated basis) at any time to be less
than Seven Million Five Hundred Thousand Dollars ($7,500,000) plus sixty percent
(60'i) of all equity contributions (including Debt converted to equity) made
after the Closing Date.
7.8 Acquisition of Recourse Servicing Contract. Acquire Servicing
Contracts under which the Company is obligated to repurchase or indemnify the
holder of the Mortgage Loans as a result of defaults on the Mortgage Loans at
any time during the term of such Mortgage Loans.
7.9 Dividends. with the exception of dividends on the Special Preferred
Stock (Northern California Division) and dividends on the Special Preferred
Stock (SDI Mortgage Network Division), for each fiscal year, declare or pay
dividends in excess of one hundred percent (100%) of the Company's net after
tax income earned in any fiscal year as determined on a fiscal year-to-date
basis, less dividends previously declared in such fiscal year. Any dividends
declared must be paid by the end of the second quarter of the next succeeding
fiscal year.
7.10 Transactions with Affiliates. Directly or indirectly (a) make any
loan, advance, extension of credit or capital contribution to any of its
Affiliates, (b) transfer, sell, pledge, assign or otherwise dispose of any of
its assets to or on behalf of such Affiliates, (c) merge or consolidate with or
purchase or acquire assets from such Affiliates, or (d) pay management fees to
or on behalf of such Affiliates.
7.11 Acquisition of Recourse Servicer Contracts. Acquire Servicing
Contracts under which the Company is obligated to repurchase or indemnify the
holder of the Mortgage Loans as a result of defaults on the Mortgage Loans at
any time during the term of such Mortgage Loans.
7.12 Gestation Facilities. Directly or indirectly sell or finance
Pledged Mortgages under any Gestation Agreements.
7.13 Special Negative Covenants Concerning Collateral.
7.13(a) The Company shall not amend or modify, or waive any of
the terms and conditions of, or settle or compromise any claim in
respect of, any Pledged Mortgages or Pledged Securities.
49
<PAGE>
7.13(b) The Company shall not sell, assign, transfer or otherwise
dispose of, or grant any option with respect to, or pledge or otherwise encumber
(except pursuant to this Agreement or as permitted herein) any of the Collateral
or any interest therein.
7.13 (c) The Company shall not make any compromise, adjustment or
settlement in respect of any of the Collateral or accept other than cash in
payment or liquidation of the Collateral.
7.14 Sale or Finance of Mortgage Loan. Sell or finance Mortgage Loans
under any other warehousing agreement except for an agreement with Superior Bank
or Bank United of Texas, FS]3.
8. DEFAULTS; REMEDIES.
8.1 Events of Default. The occurrence of any of the following
conditions or events shall be an event of default ("Event of Default):
8.1 (a) Failure to pay the principal of any Advance when due,
whether at stated maturity, by acceleration, or otherwise; or failure to
pay any installment of interest on any Advance or any other amount due
under this Agreement within ten (10) days after the due date; or failure
to pay, within any applicable grace period, the principal or interest on
any other indebtedness of the Company due the Lender; or
8.1 (b) Failure of the Company or any of its Subsidiaries to pay,
or any default in the payment of any principal or interest on, any other
indebtedness or in the payment of any contingent obligation within any
period of grace provided; breach or default with respect to any other
material term of any other indebtedness or of any loan agreement,
mortgage, indenture or other agreement relating thereto, if the effect
of such breach or default is to cause, or to permit the holder or
holders thereof (or a trustee on behalf of such holder or holders) to
cause, indebtedness of the Company or its Subsidiaries in the aggregate
amount of Fifty Thousand Dollars ($50,000) or more to become or be
declared due prior to its stated maturity (upon the giving or receiving
of notice, lapse of time, both, or otherwise); or
8.1 (c) Failure of the Company to perform or comply with any term
or condition applicable to it
50
<PAGE>
contained in Sections 6.3, 6.12 and 6.13 or in any Section of Article
7 of this Agreement; or
8.1 (d) Any of the Company's representations or warranties made or
deemed made herein or in any other Loan Document (other than the
representations and warranties set forth in Section 5.15 hereof), or in
any statement or certificate at any time given by the Company in writing
pursuant hereto or thereto shall be inaccurate or incomplete in any
material respect on the date as of which made or deemed made; or
8.1 (e) The Company shall default in the performance of or
compliance with any term contained in this Agreement or any other Loan
Document other than those referred to above in Subsections 8.1(a),
8.1(c) or 8.1(d) and such default shall not have been remedied or waived
within thirty (30) days after the earliest of (i) receipt by the Company
of Notice from the Lender of such default, (ii) receipt by the Lender of
Notice from the Company of such default, or (iii) the date the Company
should have notified the Lender of such default pursuant to Section
6.6(c); or
8.1(f) (1) A court having jurisdiction shall enter a decree or
order for relief in respect of the Company, any Subsidiary of the
Company in an involuntary case under any applicable bankruptcy,
insolvency or other similar law in respect of the Company, or any
Subsidiary of the Company now or hereafter in effect, which decree or
order is not stayed; the Company, or any Subsidiary of the Company shall
consent to the entry of any such decree or order; or a filing of a
voluntary case under any applicable bankruptcy, insolvency or other
similar law in respect of the Company, or any Subsidiary of the Company
has occurred; or any other similar relief shall be granted under any
applicable federal or state law; or (2) the filing of an involuntary
case in respect of the Company, or any Subsidiary of the Company under
any applicable bankruptcy, insolvency or other similar law; or a decree
or order of a court having jurisdiction for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over the Company, or any Subsidiary of the Company
or over all or a substantial part of their respective property, shall
have been entered; or the involuntary appointment of an interim or
permanent receiver, trustee or other custodian of the Company, or any
Subsidiary of the Company for all or a substantial part of their
respective property; or the issuance of a warrant of attachment,
execution or similar process against any substantial part of the
property of the Company, or any
51
<PAGE>
Subsidiary of the Company, and the continuance of any such events in
Subsection (2) above for sixty (60) days unless dismissed, bonded off
or discharged; or
8.1 (g) The Company, or any Subsidiary of the Company, shall
consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its
property; the making by the Company, or any Subsidiary of the Company of
any assignment for the benefit of creditors; or the inability or failure
of the Company, or any Subsidiary of the Company, or the admission by
the Company, or any Subsidiary of the Company in writing of its
inability, to pay its debts as such debts become due; or
8.1 (h) Failure of the Company to perform any contractual
obligations which it may have to repurchase Mortgage Loans, if such
obligations in the aggregate exceed Five Hundred Thousand Dollars
($500,000); or
8.1 (i) Any money judgment, writ or warrant of attachment, or
similar process involving in any case an amount in excess of Twenty-Five
Thousand Dollars ($25,000) shall be entered or filed against the Company
or any of its Subsidiaries or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period of
thirty (30) days or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
8.1 (j) Any order, judgment or decree shall be entered against the
Company decreeing the dissolution or split up of the Company and such
order shall remain undischarged or unstayed for a period in excess of
twenty (20) days; or
8.1(k) Any Plan maintained by the Company or any of its
Subsidiaries shall be terminated within the meaning of Title IV of ERISA
or a trustee shall be appointed by an appropriate United States district
court to administer any Plan, or the Pension Benefit Guaranty
Corporation (or any successor thereto) shall institute proceedings to
terminate any Plan or to appoint a trustee to administer any Plan if as
of the date thereof the Company's liability or any such Subsidiary's
liability (after giving effect to the tax consequences thereof) to the
Pension Benefit Guaranty Corporation (or any successor thereto) for
unfunded guaranteed vested benefits under the Plan exceeds the then
current value of assets accumulated in such Plan by more than
Twenty-Five Thousand Dollars ($25,000) (or in the case of a termination
involving the Company or any of its
52
<PAGE>
Subsidiaries as a "substantial employer" (as defined in Section
4001(a)(2) of ERISA) the withdrawing employer's proportionate share of
such excess shall exceed such amount); or
8.1(1) The Company or any of its Subsidiaries as employer under a
Multiemployer Plan shall have made a complete or partial withdrawal from
such Multiemployer Plan and the plan sponsor of such Multiemployer Plan
shall have notified such withdrawing employer that such employer has
incurred a withdrawal liability in an annual amount exceeding
Twenty-Five Thousand Dollars ($25,000); or
8.1(m) The Company shall purport to disavow its obligations
hereunder, or shall contest the validity or enforceability hereof; or
the Lender's security interest on any portion of the Collateral shall
become unenforceable or otherwise impaired; provided that, subject to
the Lender's approval, no Event of Default shall occur as a result of
such impairment if all Advances made against any such Collateral shall
be paid in full within ten (10) days of the date of such impairment; or
8.1(n) There shall be a material adverse change in the financial
condition, business or operations of the Company.
8.2 Remedies.
8.2 (a) Upon the occurrence of any Event of Default described in
Sections 8.1(f) or 8.1(g), the Commitment shall be terminated and the
unpaid principal amount of and accrued interest on the Note and all
other Obligations shall automatically become due and payable, without
presentment, demand or other requirements of any kind, all of which are
hereby expressly waived by the Company.
8.2 (b) Upon the occurrence of any Event of Default, other than
those described in Sections 8.1(f) and 8. 1 (g), the Lender may, by
Notice to the Company, terminate the Commitment and/or declare all
Obligations to be immediately due and payable, whereupon the same shall
forthwith become due and payable, together with all accrued interest
thereon, and the obligation of the Lender to make any Advances shall
thereupon terminate.
8.2 (c) Upon the occurrence of any Event of Default, the Lender
may also do any of the following:
53
<PAGE>
(1) Foreclose upon or otherwise enforce its security interest in
and Lien on the Collateral to secure all payments and performance of the
obligations in any manner permitted by law or provided for hereunder.
(2) Notify all obligors in respect of Collateral that the
Collateral has been assigned to the Lender and that all payments thereon
are to be made directly to the Lender or such other party as may be
designated by the Lender; settle, compromise, or release, in whole or in
part, any amounts owing on the Collateral, any such obligor or any
Investor or any portion of the Collateral, on terms acceptable to the
Lender; enforce payment and prosecute any action or proceeding with
respect to any and all Collateral; and where any such Collateral is in
default, foreclose on and enforce security interests in such Collateral
by any available judicial procedure or without judicial process and sell
property acquired as a result of any such foreclosure.
(3) Act, or contract with a third party to act, as servicer or
subservicer of each item of Collateral requiring servicing and perform
all obligations required in connection with Servicing Contracts and
Purchase Commitments, such third party's fees to be paid by the Company.
(4) Require the Company to assemble the Collateral and/or books and
records relating thereto and make such available to the Lender at a
place to be designated by the Lender.
(5) Enter onto property where any Collateral or books and records
relating thereto are located and take possession thereof with or without
judicial process.
(6) Prior to the disposition of the Collateral, prepare it for
disposition in any manner and to the extent the Lender deems
appropriate.
(7) Exercise all rights and remedies of a secured creditor under
the Uniform Commercial Code of Minnesota or other applicable law,
including, but not limited to, selling or otherwise disposing of the
Collateral, or any part thereof, at one or more public or private sales,
whether or not such Collateral is present at the place of sale, for
54
<PAGE>
cash or credit or future delivery, on such terms and in such manner as
the Lender may determine, including, without limitation, sale pursuant
to any applicable Purchase Commitment. If notice is required under such
applicable law, the Lender will give the Company not less than ten (10)
days' notice of any such public sale or of the date after which any
private sale may be held. The Company agrees that ten (10) days, notice
shall be reasonable notice. The Lender may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the, time and place fixed
for the sale, and such sale may be made at any time or place to which
the same may be so adjourned. In case of any sale of all or any part of
the Collateral on credit or for future delivery, the Collateral so sold
may be retained by the Lender until the selling price is paid by the
purchaser thereof, but the Lender shall not incur any liability in case
of the failure of such purchaser to take up and pay for the Collateral
so sold and, in case of any such failure, such Collateral may again be
sold upon like notice. The Lender may, however, instead of exercising
the power of sale herein conferred upon it, proceed by a suit or suits
at law or in equity to collect all amounts due upon the Collateral or to
foreclose the pledge of and sell the Collateral or any portion thereof
under a judgment or decree of a court or courts of competent
jurisdiction, or both.
(8) Proceed against the Company on the Note.
8.2(d) The Lender shall incur no liability as a result of the sale or
other disposition of the Collateral, or any part thereof, at any public or
private sale or disposition. The Company hereby waives (to the extent permitted
by law) any claims it may have against the Lender arising by reason of the fact
that the price at which the Collateral may have been sold at such private sale
was less than the price which might have been obtained at a public sale or was
less than the aggregate amount of the outstanding Advances and the unpaid
interest accrued thereon, even if the Lender accepts the first offer received
and does not offer the Collateral to more than one offeree. Any sale of
Collateral pursuant to the terms of a Purchase Commitment, or any other
disposition of Collateral arranged by the Company, whether before or after the
occurrence of an Event of Default, shall be deemed to have been made in a
commercially reasonable manner.
55
<PAGE>
8.2 (e) The Company acknowledges that Mortgage Loans and
Mortgage-backed Securities are collateral of a type which is customarily sold on
a recognized market. The Company waives any right it may have to prior notice of
the sale of any Pledged Mortgage or Pledged Security, and agrees that the Lender
may purchase any Pledged Mortgages or Pledged Securities at a private sale of
such Collateral.
8.2 (f) The Company specifically waives and releases (to the extent
permitted by law) any equity or right of redemption, all rights of redemption,
stay or appraisal which the Company has or may have under any rule of law or
statute now existing or hereafter adopted, and any right to require the Lender
to (1) proceed against any Person, (2) proceed against or exhaust any of the
Collateral or pursue its rights and remedies as against the Collateral in any
particular order, or (3) pursue any other remedy in its power. The Lender shall
not be required to take any steps necessary to preserve any rights of the
Company against holders of mortgages prior in lien to the Lien of any Mortgage
included in the Collateral or to preserve rights against prior parties.
8.2 (g) The Lender may, but shall not be obligated to, advance any sums
or do any act or thing necessary to uphold and enforce the Lien and priority of,
or the security intended to be afforded by, any Mortgage included in the
Collateral, including, without limitation, payment of delinquent taxes or
assessments and insurance premiums. All advances, charges, costs and expenses,
including reasonable attorneys' fees and disbursements, incurred or paid by the
Lender in exercising any right, power or remedy conferred by this Agreement, or
in the enforcement hereof, together with interest thereon, at the Default Rate,
from the time of payment until repaid, shall become a part of the principal
balance outstanding hereunder and under the Note.
8.2(h) No failure on the part of the Lender to exercise, and no delay
in exercising, any right, power or remedy provided hereunder, at law or in
equity shall operate as a waiver thereof; nor shall any single or partial
exercise by the Lender of any right, power or remedy provided hereunder, at law
or in equity preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. Without intending to limit the foregoing, all
defenses based on the statute of limitations are hereby waived by the Company to
the extent permitted by law. The remedies herein provided
56
<PAGE>
are cumulative and are not exclusive of any remedies provided at law or in
equity.
8.3 Application of Proceeds. The proceeds of any sale, disposition or
other enforcement of the Lender's security interest in all or any part of the
Collateral shall be applied by the Lender:
First, to the payment of the costs and expenses of such sale or
enforcement, including reasonable compensation to the Lender's agents and
counsel, and all expenses, liabilities and advances made or incurred by or on
behalf of the Lender in connection therewith;
Second, to the payment of interest accrued and unpaid on the Note;
Third, to the payment of any other Obligations due (other than
principal and interest) under this Agreement and the Loan Documents;
Fourth, to the payment of the outstanding principal balance of the
Note; and
Finally, to the payment to the Company, or to its successors or
assigns, or as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.
If the proceeds of any such sale, disposition or other enforcement are
insufficient to cover the costs and expenses of such sale, as aforesaid, and the
payment in full of all Obligations, the Company shall remain liable for any
deficiency.
8.4 Lender Appointed Attorney-in-Fact. The Lender is hereby appointed
the attorney-in-fact of the Company, with full power of substitution, for the
purpose of carrying out the provisions hereof and taking any action and
executing any instruments which the Lender may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, the Lender shall have the right and power to give notices of its
security interest in the Collateral to any Person, either in the name of the
Company or in its own name, to endorse all Pledged Mortgages or Pledged
Securities payable to the order of the Company, to change or cause to be changed
the book-entry registration or name of subscriber or Investor on any Pledged
Security, or to receive, endorse and collect all checks made payable to the
order of the Company representing any payment on account of the principal of or
interest on, or the proceeds
57
<PAGE>
of sale of, any of the Pledged Mortgages or Pledged Securities and to give full
discharge for the same.
8.5 Right of Set-Off. If the Company shall default in the payment of
the Note, any interest accrued thereon, or any other sums which may become
payable hereunder when due, or in the performance of any of its other
obligations or liabilities under this Agreement, the Lender shall have the
right, at any time and from time to time, without notice, to set-off and to
appropriate or apply any and all property or indebtedness of any kind at any
time held or owing by the Lender to or for the credit or the account of the
Company against and on account of the obligations of the Company under the Note
and this Agreement, irrespective of whether or not the Lender shall have made
any demand hereunder and whether or not said obligations shall have matured.
9. NOTICES.
All notices, demands, consents, requests and other communications
required or permitted to be given or made hereunder (collectively,
"Notices") shall, except as otherwise expressly provided hereunder, be
in writing and shall be delivered in person or telecopied or mailed,
first class or delivered by overnight courier, return receipt requested,
postage prepaid, addressed to the respective parties hereto at their
respective addresses hereinafter set forth or, as to any such party, at
such other address as may be designated by it in a Notice to the other.
All Notices shall be conclusively deemed to have been properly given or
made when duly delivered, in person, by telecopy or by overnight
courier, or if mailed, on the date of receipt as noted on the return
receipt, addressed as follows:
if to the Company: First Mortgage Network, Inc.
8751 Broward Blvd., 5th Floor
Plantation, FL 33324
Attention: Debbie Otto,
Chief Financial Officer
Telecopier No.: (305) 472-0800
if to the Lender: Residential Funding Corporation
4800 Montgomery Lane, Suite 300
Bethesda, Maryland 20814
Attention: Jim Clapp, Director
Telecopier No.: (301) 215-6288
58
<PAGE>
10. REIMBURSEMENT OF EXPENSES; INDEMNITY.
The Company shall: (a) pay a documentation production fee of Three
Thousand Five Hundred Dollars ($3,500) in connection with the preparation and
negotiation of this Agreement; (b) pay such additional documentation production
fees as the Lender may require and all out-of-pocket costs and expenses of the
Lender, including, without limitation, reasonable fees and disbursements of
counsel (including allocated costs of internal counsel), in connection with the
amendment, enforcement and administration of this Agreement, the Note, and other
Loan Documents and the making and repayment of the Advances and the payment of
interest thereon; (c) indemnify, pay, and hold harmless the Lender and any
holder of the Note from and against, any and all present and future stamp,
documentary and other similar taxes with respect to the foregoing matters and
save the Lender and the holder or holders of the Note harmless from and against
any and all liabilities with respect to or resulting from any delay or omission
to pay such taxes; and (d) indemnify, pay and hold harmless the Lender and any
of its officers, directors, employees or agents and any subsequent holder of the
Note (collectively called the "Indemnitees") from and against any and all
liabilities, obligations, losses, damages, penalties, judgments, suits, costs,
expenses and disbursements of any kind or nature whatsoever (including without
limitation, the reasonable fees and disbursements of counsel of the Indemnitees
(including allocated costs of internal counsel) in connection with any
investigative, administrative or judicial proceeding, whether or not such
Indemnitees shall be designated a party thereto) which may be imposed upon,
incurred by or asserted against such Indemnitees in any manner relating to or
arising out of this Agreement, the Note, or any other Loan Document or any of
the transactions contemplated hereby or thereby (the "Indemnified
Liabilities',); provided, however, that the Company shall have no obligation
hereunder with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of any such Indemnitees. To the extent that the
undertaking to indemnify, pay and hold harmless as set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Company shall contribute the maximum portion which it is permitted
to pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them. The
agreement of the Company contained in this Subsection (d) shall survive the
expiration or termination of this Agreement and the payment in full of the Note.
Attorneys' fees and disbursements incurred in enforcing, or on appeal from, a
judgment pursuant hereto shall be recoverable separately from and in addition to
any other amount included in such judgment, and this clause is intended to be
severable from the other provisions of this Agreement and to survive and not be
merged into such judgment.
59
<PAGE>
11. FINANCIAL INFORMATION.
All financial statements and reports furnished to the Lender
hereunder shall be prepared in accordance with GAAP, applied on a basis
consistent with that applied in preparing the financial statements as
at the end of and for the last fiscal year ended (except to the extent
otherwise required to conform to good accounting practice).
12. MISCELLANEOUS.
12.1 Terms Binding Upon Successors; Survival of
Representations. The terms and provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. All representations, warranties,
covenants and agreements herein contained on the part of the Company
shall survive the making of any Advance and the execution of the Note,
and shall be effective so long as the Commitment is outstanding
hereunder or there remain any obligations to be paid or performed.
12.2 Assignment. This Agreement may not be assigned by
the Company. This Agreement and the Note, along with the Lender's
security interest in any or all of the Collateral, may, at any time, be
transferred or assigned, in whole or in part, by the Lender, and any
assignee thereof may enforce this Agreement, the Note and such security
interest.
12.3 Amendments. Except as otherwise provided in this
Agreement, this Agreement may not be amended, modified or supplemented
unless such amendment, modification or supplement is set forth in a
writing signed by the parties hereto.
12.4 Governing Law. This Agreement and the other Loan
Documents shall be governed by the laws of the State of Minnesota,
without reference to its principles of conflicts of laws.
12.5 Participations. The Lender may at any time sell, assign
or grant participations in, or otherwise transfer to any other Person
(a "Participant"), all or part of the Obligations. Without limitation
of the exclusive right of the Lender to collect and enforce such
Obligations, the Company agrees that each disposition will give rise
to a debtor creditor relationship of the Company to the Participant,
and the Company authorizes each Participant, upon the occurrence of an
Event of Default, to proceed directly by right of setoff, banker's
lien, or otherwise, against any assets of the Company which may be in
the hands of such Participant. The Company authorizes the Lender to
disclose to any prospective Participant and any Participant any and
all information in the Lender's possession concerning the Company,
this Agreement and the Collateral.
60
<PAGE>
12.6 Relationship of the Parties. This Agreement provides for the
making of Advances by the Lender, in its capacity as a lender, to the Company,
in its capacity as a borrower, and for the payment of interest, repayment of
principal by the Company to the Lender, and for the payment of certain fees by
the Company to the Lender. The relationship between the Lender and the Company
is limited to that of creditor/secured party, on the one hand, and debtor, on
the other hand. The provisions herein for compliance with financial covenants
and delivery of financial statements are intended solely for the benefit of the
Lender to protect its interests as lender in assuring payments of interest and
repayment of principal and payment of certain fees, and nothing contained in
this Agreement shall be construed as permitting or obligating the Lender to act
as a financial or business advisor or consultant to the Company, as permitting
or obligating the Lender to control the Company or to conduct the Company's
operations, as creating any fiduciary obligation on the part of the Lender to
the Company, or as creating any joint venture, agency, or other relationship
between the parties hereto other than as explicitly and specifically stated in
this Agreement. The Company acknowledges that it has had the opportunity to
obtain the advice of experienced counsel of its own choosing in connection with
the negotiation and execution of this Agreement and to obtain the advice of such
counsel with respect to all matters contained herein. The Company further
acknowledges that it is experienced with respect to financial and credit matters
and has made its own independent decisions to apply to the Lender for credit and
to execute and deliver this Agreement.
12.7 Severability. If any provision of this Agreement shall be declared
to be illegal or unenforceable in any respect, such illegal or unenforceable
provision shall be and become absolutely null and void and of no force and
effect as though such provision were not in fact set forth herein, but all other
covenants, terms, conditions and provisions hereof shall nevertheless continue
to be valid and enforceable.
12.8 Operational Reviews. From time to time upon
request, the Company shall permit the Lender or its representative access to its
premises and records, for the purpose of conducting a review of the Company's
general mortgage business methods, policies, and procedures, auditing loan files
and reviewing financial and operational aspects of the Company's business. -
12.9 Consent to Credit References. The company hereby consents to the
disclosure of information regarding the Company and its relationships with the
Lender to Persons making credit inquiries to the Lender. This consent is
revocable by the Company at any time upon Notice to the Lender as provided in
Section 9 hereof.
61
<PAGE>
12.10 Consent to Jurisdiction. The Company hereby agrees that any
action or proceeding under the Loan Documents, the Note or any document
delivered pursuant hereto may be commenced against it in any court of competent
jurisdiction within the State of Minnesota, by service of process upon the
Company by first class registered or certified mail, return receipt requested,
addressed to the Company at its address last known to the Lender. The Company
agrees that any such suit, action or proceeding arising out of or relating to
this Agreement or any other such document may be instituted in the Hennepin
County State District Court or in the United States District Court for the
District of Minnesota at the option of the Lender; and the Company hereby waives
any objection to the jurisdiction or venue of any such court with respect to, or
the convenience of any court as a forum for, any such suit, action or
proceeding. Nothing herein shall affect the right of the Lender to accomplish
service of process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Company in any other jurisdiction
or court.
12.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute but one and the same instrument.
12.12 Entire Agreement. This Agreement, the Note and the other Loan
Documents represent the final agreement among the parties hereto and thereto
with respect to the subject matter hereof and thereof, and may not be
contradicted by evidence of prior or contemporaneous oral agreements among such
parties. There are no oral agreements among the parties with respect to the
subject matter hereof and thereof.
12.13 WAIVER OF JURY TRIAL. THE COMPANY AND THE LENDER EACH HEREBY (a)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT
BY A JURY, AND (b) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT
ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY THE COMPANY AND THE
LENDER, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND
EACH ISSUE AS TO WHICH THE RIGHT OF A JURY TRIAL WOULD OTHERWISE ACCRUE. THE
LENDER AND THE COMPANY IS EACH HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS
AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF THE FOREGOING WAIVER OF
THE RIGHT TO JURY TRIAL. FURTHER, THE COMPANY AND THE LENDER EACH HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE OTHER PARTY, INCLUDING THE
OTHER PARTY'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF ITS
REPRESENTATIVES OR
62
<PAGE>
AGENTS THAT THE OTHER PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF
RIGHT TO JURY TRIAL PROVISION.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
FIRST MORTGAGE NETWORK, INC.,
a Florida corporation
By: /s/ Debra C. Otto
----------------------------------------
Its: C.F.O
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ Jim Clapp
----------------------------------------
Its: Director
STATE OF FLORIDA )
) ss
COUNTY 0F BROWARD)
On June 8, 1998 before me, a Notary Public, personally appeared Debra
C. Otto, the CFO of FIRST MORTGAGE NETWORK, INC., a Florida corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Chris Anderson
----------------------------------------
Notary Public
(SEAL) My Commission Expires: _______________
OFFICIAL NOTARY SEAL
CHRIS ANDERSON
COMMISSION NUMBER
63 CC68529
MY COMMISSION EXPIRES
OCT. 28, 2001
<PAGE>
STATE OF MARYLAND )
) SS
COUNTY OF MONTGOMERY)
On June 15, 1998 before me, a Notary Public, personally appeared Jim
Clapp, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ S. von dem Hagen
---------------------------------------
Notary Public
(SEAL) My Commission Expires:_________________
STEPHANIE von dem HAGEN
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires October 15, 2001
64
<PAGE>
26(a)
FIRST AMENDMENT TO
------------------
FIRST AMENDED AND RESTATED
--------------------------
WAREHOUSING CREDIT AND SECURITY AGREEMENT
-----------------------------------------
THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED WAREHOUSING CREDIT
AND SECURITY AGREEMENT (this "Amendment") is entered into as of this 30th day of
June, 1998 by and between FIRST MORTGAGE NETWORK, INC., a Florida corporation
(the "Company") and RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the
"Lender").
WHEREAS, the Company and the Lender have entered into a single family
revolving warehouse facility with a present Commitment Amount of $45,000,000, to
finance the origination and acquisition of Mortgage Loans as evidenced by a
Promissory Note in the principal sum of $45,000,000, dated June 8, 1998 (the
"Note"), and by a First Amended and Restated Warehousing Credit and Security
Agreement dated June 8, 1998, as the same may have been amended or supplemented
(the "Agreement");
WHEREAS, the Company has requested that the Lender temporarily increase
the Commitment Amount and amend certain other terms of the Agreement and the
Lender has agreed to such increase and amendment of the Agreement subject to the
terms and conditions of this Amendment;
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants, agreements and conditions hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined shall
have their respective meanings set forth in the Agreement.
2. The effective date ("Effective Date",) of this Amendment shall be
July 1, 1998.
3. Section 1.1 of the Agreement shall be amended to delete the
definitions of "Commitment Amount, "Debt" and "Tangible Net Worth" in their
entirety, replacing them with the following definitions:
"Commitment Amount" means Forty-five Million Dollars ($45,000,000).
Notwithstanding the foregoing, during the period from June 30, 1998 to
and including August 31, 1998 the Commitment Amount shall be
temporarily increased to $50,000,000. on the first Business Day
following the expiration of the temporary increase of the Commitment
Amount,
-1-
<PAGE>
the Company shall repay to the Lender the amount by which the outstanding
Advances exceed the Commitment Amount.
"Debt" means, with respect to any Person, at any date (a) all
indebtedness or other obligations of such Person which, in accordance with GAAP,
would be included in determining total liabilities as shown on the liabilities
side of a balance sheet of such Person at such date; and (b) all indebtedness or
other obligations of such Person for borrowed money or for the deferred purchase
price of property or services; provided that for purposes of this Agreement,
there shall be excluded from Debt at any date Subordinated Debt not due within
one year of such date, and deferred taxes arising from capitalized excess
servicing fees and capitalized servicing rights.
"Tangible Net Worth" means with respect to any Person at any date, the
excess of the total assets over total liabilities of such Person on such date,
each to be determined in accordance with GAAP consistent with those applied in
the preparation of the financial statements referred to in Section 4.1(a)(5)
hereof, plus that portion of Subordinated Debt not due within one year of such
date, provided that, for purposes of this Agreement, there shall be excluded
from total assets advances or loans to shareholders, officers, employees or
Affiliates, investments in Affiliates, assets pledged to secure any liabilities
not included in the Debt of such Person, intangible assets, those other assets
which would be deemed by HUD to be non-acceptable in calculating adjusted net
worth in accordance with its requirements in effect as of such date, as such
requirements appear in the "Audit Guide for Audit of Approved Non-Supervised
Mortgagees" and other assets deemed unacceptable by the Lender in its sole
discretion.
4. Section 2.1(b) of the Agreement is hereby amended by adding the following
paragraph after Section 2.1(b)(10):
(11) No Advance shall be made against a Mortgage Loan other than a
Mortgage Loan secured by a Mortgage on real property located in one of
the states of the United States or the District of Columbia.
5. Section 2.3 of the Agreement shall be deleted in its entirety and the
following shall be substituted in lieu thereof:
2.3 Note. The Company's Obligations shall be evidenced by the First
Amended and Restated Promissory Note (the "Note") substantially in the
form of Exhibit A attached hereto. The terms "Promissory Note", "Note"
or "Notes" shall include such Note and all extensions, renewals and
modifications of such Note and all substitutions therefor. All terms
and provisions of the Note are hereby incorporated herein.
-2-
<PAGE>
6. Exhibit A to the Agreement is deleted in its entirety and Exhibit A
attached to this Amendment is substituted in lieu thereof. The Promissory Note
is amended and restated in its entirety as set forth in the First Amended and
Restated Promissory Note, in the form of Exhibit A attached to this Amendment.
All references in this Amendment and in the Agreement to the Promissory Note
shall be deemed to refer to the First Amended and Restated Promissory Note
delivered in connection with this Amendment.
7. Exhibit I-SF to the Agreement is deleted in its entirety and
replaced with the new Exhibit I-SF attached to this Amendment. All references in
this Amendment and the Agreement to Exhibit I-SF shall be deemed to refer to the
new Exhibit I-SF.
8. The Company shall deliver to the Lender (a) an executed original of
this Amendment; (b) an executed original of the First Amended and Restated
Promissory Note; (c) an executed Certificate of Secretary with corporate
resolutions; and (d) a Three Hundred Fifty Dollar ($350) document production
fee.
9. The Company represents, warrants and agrees that (a) there exists
no Default or Event of Default under the Loan Documents, (b) the Loan Documents
continue to be the legal, valid and binding agreements and obligations of the
Company enforceable in accordance with their terms, as modified herein, (c) the
Lender is not in default under any of the Loan Documents and the Company has no
offset or defense to its performance or obligations under any of the Loan
Documents, (d) the representations contained in the Loan Documents remain true
and accurate in all respects, and (e) there has been no material adverse change
in the financial condition of the Company from the date of the Agreement to the
date of this Amendment.
10. Except as hereby expressly modified, the Agreement shall otherwise
be unchanged and shall remain in full force and effect, and the Company ratifies
and reaffirms all of its obligations thereunder.
11. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
-3-
<PAGE>
IN WITNESS WHEREOF, the Company and the Lender have caused this
Amendment to be duly executed on their behalf by their duly authorized officers
as of the day and year above written.
FIRST MORTGAGE NETWORK, INC..
a Florida corporation
By: /s/ Seth Werner
---------------------------
Its: Chairman & CEO
----------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ Jim Clapp
---------------------------
Its: Director
----------------------------
STATE OF Florida
-------- )
) ss
COUNTY OF Broward
------- )
On July 1, 1998, before me, a Notary Public personally appeared SETH
WERNER, the Chairman & CEO of FIRST MORTGAGE NETWORK, INC., a Florida
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed he instrument.
WITNESS my hand and official seal.
Chris Anderson
-----------------------------------
Notary Public
(SEAL) My Commission Expires:
-------------
-----------------------------------
OFFICIAL NOTARY SEAL
Chris Anderson
COMMISSION NUMBER
CC685293
My Commission Expires
OCT. 28, 2001
-----------------------------------
-4-
<PAGE>
STATE OF Maryland
------------ )
) ss
COUNTY OF Montgomery
----------- )
On July 8, 1998, before me, a Notary Public, personally appeared Jim
Clapp, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Stephanie van dem HAGEN
-------------------------------------
Notary Public
(SEAL) My Commission Expires:
---------------
Stephanie van dem HAGEN
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires October 15, 2001
-5-
<PAGE>
26(b)
SECOND AMENDMENT TO
-------------------
FIRST AMENDED AND RESTATED
-------------------------
WAREHOUSING CREDIT AND SECURITY AGREEMENT
-----------------------------------------
THIS SECOND AMENDMENT TO FIRST AMENDED AND RESTATED WAREHOUSING CREDIT
AND SECURITY AGREEMENT (this "Amendment") is entered into as of this 31st day of
July, 1998 by and between FIRST MORTGAGE NETWORK, INC., a Florida corporation
(the "Company") and RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the
"Lender").
WHEREAS, the Company and the Lender have entered into a single family
revolving warehouse facility with a present Commitment, Amount of $45,000,000,
temporarily increased to $50,000,000, to finance the origination and acquisition
of Mortgage Loans as evidenced by a First Amended and Restated Promissory Note
in the principal sum of $50,000,000, dated as of June 30, 1998 (the "Note"),
and by a First Amended and Restated Warehousing Credit and Security Agreement
dated as of June 8, 1998, as the same may have been amended or supplemented (the
"Agreement"); and
WHEREAS, the Company has requested that the Lender increase the
Commitment Amount, and amend certain terms of the Agreement, and the Lender has
agreed to such increase and amendment subject to the terms and conditions of
this Amendment.
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants, agreements and conditions hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined shall
have their respective meanings set forth in the Agreement.
2. The effective date ("Effective Date",) of this Amendment shall be
July 30, 1998.
3. Section 1.1 of the Agreement is hereby amended to delete the
definition of "Commitment Amount" in its entirety and to substitute the
following in lieu thereof:
"Commitment Amount" means $65,000,000.
4. Section 7.6 of the Agreement shall be deleted in its entirety and
the following shall be substituted in lieu thereof:
7.6 Debt to Tangible Net Worth Ratio. Permit the ratio of Debt to
Adjusted Tangible Net Worth of the
-1-
<PAGE>
Company (and its Subsidiaries, on a consolidated basis) at any time to
exceed (i) from the Effective Date to and including December 30, 1998,
20 to 1; (ii) from December 31, 1998 to and including March 30, 1999,
18 to 1; (iii) from March 31, 1999, to and including June 29, 1999, 17
to 1; and (iv) from June 30, 1999 and thereafter, 16 to 1.
5. The First Amended and Restated Warehousing Promissory Note is
amended and restated in its entirety as set forth in the Second Amended and
Restated Promissory Note, in the form of Exhibit A attached to this Amendment.
All references in this Amendment and in the Agreement to the Promissory Note
shall be deemed to refer to the Second Amended and Restated Promissory Note
delivered in, connection with this Amendment.
6. Exhibit I-SF to the Agreement is deleted in its entirety and
replaced with the new Exhibit I-SF attached to this Amendment. All references in
this Amendment and the Agreement to Exhibit I-SF shall be deemed to refer to the
new Exhibit I-SF.
7. The Company shall deliver to the Lender (a) an executed original of
this Amendment; (b) an executed original of the Second Amended and Restated
Promissory Note; (c) a Certificate of Secretary with Corporate Resolutions; and
(d) a $350 document production fee.
8. The Company represents, warrants and agrees that (a) there exists
no Default or Event of Default under the Loan Documents, (b) the Loan Documents
continue to be the legal, valid and binding agreements and obligations of the
Company enforceable in accordance with their terms, as modified herein, (c) the
Lender is not in default under any of the Loan Documents and the Company has no
offset or defense to its performance or obligations under any of the Loan
Documents, (d) the representations contained in the Loan Documents remain true
and accurate in all respects, and (e) there has been no material adverse change
in the financial condition of the Company from the date of the Agreement to the
date of this Amendment.
9. Except as hereby expressly modified, the Agreement shall otherwise
be unchanged and shall remain in full force and effect, and the Company ratifies
and reaffirms all of its obligations thereunder.
10. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the Company and the Lender have caused this
Amendment to be duly executed on their behalf by their duly authorized officers
as of the day and year above written.
FIRST MORTGAGE NETWORK, INC..
a Florida corporation
By: /s/ David Larson
---------------------------
Its: President
----------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ Jim Clapp
---------------------------
Its: Director
----------------------------
STATE OF Florida
-------- )
) ss
COUNTY OF Broward
------- )
On August 4, 1998, before me, a Notary Public personally appeared David
Larson, the President of FIRST MORTGAGE NETWORK, INC., a Florida corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed he instrument.
WITNESS my hand and official seal.
Chris Anderson
-----------------------------------
Notary Public
(SEAL) My Commission Expires:
-------------
-----------------------------------
OFFICIAL NOTARY SEAL
Chris Anderson
COMMISSION NUMBER
CC685293
My Commission Expires
OCT. 28, 2001
-----------------------------------
-3-
<PAGE>
STATE OF Maryland
------------ )
) ss
COUNTY OF Montgomery
----------- )
On August 7, 1998, before me, a Notary Public, personally appeared Jim
Clapp, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Stephanie van dem HAGEN
-------------------------------------
Notary Public
(SEAL) My Commission Expires:
---------------
Stephanie van dem HAGEN
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires October 15, 2001
-4-
<PAGE>
26(c)
THIRD AMENDMENT TO
------------------
FIRST AMENDED AND RESTATED
--------------------------
WAREHOUSING CREDIT AND SECURITY AGREEMENT
-----------------------------------------
THIS THIRD AMENDMENT TO FIRST AMENDED AND RESTATED WAREHOUSING CREDIT
AND SECURITY AGREEMENT (this "Amendment") is entered into as of this 29th day of
December 1998, by and between FIRST MORTGAGE NETWORK, INC., a Florida
corporation (the "Company") and RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation (the "Lender").
WHEREAS, the Company and the Lender have entered into a single family
revolving warehouse facility with a present Commitment Amount of $65,000,000, to
finance the ' origination and acquisition of Mortgage Loans as evidenced by a
Second Amended and Restated Promissory Note in the principal sum of $65,000,000,
dated as of July 31, 1998 (the "Note"), and by a First Amended and Restated
Warehousing Credit and Security Agreement dated as of June 8, 1998, as the same
may have been amended or supplemented (the "Agreement"); and
WHEREAS, the Company has requested that the Lender temporarily increase
the Commitment Amount and the Lender has agreed to such increase subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual Covenants, agreements and conditions hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined shall
have their respective meanings set forth in the Agreement.
2. The effective date ("Effective Date") of this Amendment shall be
Dec 29, 1998.
3. Section 1.1 of the Agreement is hereby amended to delete the
definition of "Commitment Amount" in its entirety and to substitute the
following in lieu thereof:
"Commitment Amount" means $65,000,000. Notwithstanding the
foregoing, during the period from December 29, 1998 to and including
January 31, 1999, the Commitment Amount shall be temporarily increased
to $75,000,000. on the first Business Day following the expiration of
the temporary increase of the Commitment Amount, the Company shall
repay to the Lender the amount by which the outstanding Advances exceed
the Commitment Amount.
-1-
<PAGE>
4. The Second Amended and Restated Promissory Note is amended and
restated in its entirety as set forth in the Third Amended and Restated
Promissory Note, in the form of Exhibit A attached to this Amendment. All
references in this Amendment and in the Agreement to the Note shall be deemed to
refer to the Third Amended and Restated Promissory Note delivered in connection
with this Amendment.
5. The Company shall deliver to the Lender (a) an executed original of
this Amendment; (b) an executed original of the Third Amended and Restated
Promissory Note; (c) a Certificate of Secretary with Corporate Resolutions; and
(d) a $350 document production fee.
6 The Company represents, warrants and agrees that (a) there exists no
Default or Event of Default under the Loan Documents, (b) the Loan Documents
continue to be the legal, valid and binding agreements and obligations of the
Company enforceable in accordance with their terms, as modified herein, (c) the
Lender is not in default under any of the Loan Documents and the Company has no
offset or defense to its performance or obligations under any of the Loan
Documents, (d) the representations contained in the Loan Documents remain true
and accurate in all respects, and (e) there has been no material adverse change
in the financial condition of the Company from the date of the Agreement to the
date of this Amendment.
7. Except as hereby expressly modified, the Agreement shall otherwise
be unchanged and shall remain in full force and effect, and the Company ratifies
and reaffirms all of its obligations thereunder.
8. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the Company and the Lender have caused this
Amendment to be duly executed on their behalf by their duly authorized officers
as of the day and year above written.
FIRST MORTGAGE NETWORK, INC.,
a Florida corporation
By: /s/ David Larson
---------------------------
Its: President
----------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ Jim Clapp
---------------------------
Its: Director
----------------------------
STATE OF
------------ )
) ss
COUNTY OF
----------- )
On December 29, 1998, before me, a Notary Public, personally appeared
David Larson, the President of First Mortgage Network, Inc., a Florida
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ RICHARD H. WITHERSPOON
-------------------------------------
Notary Public
(SEAL) My Commission Expires:10/25/02
--------------------------------------
RICHARD H. WITHERSPOON
Notary Public - State of Florida
My Commission Expires Oct 25, 2002
Commission # CC 785934
--------------------------------------
-3-
<PAGE>
STATE OF Maryland
------------ )
) ss
COUNTY OF Montgomery
----------- )
On January 21, 1999, before me, a Notary Public, personally appeared
Jim Clapp, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Stephanie van dem HAGEN
-------------------------------------
Notary Public
(SEAL) My Commission Expires:
---------------
Stephanie van dem HAGEN
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires October 15, 2001
-4-
<PAGE>
26(d)
FOURTH AMENDMENT TO
-------------------
FIRST AMENDED AND RESTATED
--------------------------
WAREHOUSING CREDIT AND SECURITY AGREEMENT
-----------------------------------------
THIS FOURTH AMENDMENT TO FIRST AMENDED AND RESTATED WAREHOUSING CREDIT
AND SECURITY AGREEMENT (this "Amendment") is entered into as of this 26th day of
March 1999, by and between MORTGAGE.COM, INC., f/k/a FIRST MORTGAGE NETWORK,
INC., a Florida corporation (the "Company") and RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation (the "Lender").
WHEREAS, the Company and the Lender have entered into a single family
revolving warehouse facility with a present Commitment Amount of $65,000,000, to
finance the origination and acquisition of Mortgage Loans as evidenced by a
Third Amended and Restated Promissory Note in the principal sum of $75,000,000
dated December 29, 1998 (the "Note"), and by a First Amended and Restated
Warehousing Credit and Security Agreement dated June 8, 1998, as the same may
have been amended or supplemented (the "Agreement");
WHEREAS, the Company has requested that the Lender temporarily increase
the Commitment Amount, extend the period for which the Commitment under the
Agreement has been made and amend certain other terms of the Agreement and the
Lender has agreed to such increase, extension and amendment of the Agreement
subject to the terms and conditions of this Amendment;
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants, agreements and conditions hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined shall
have their respective meanings set forth in the Agreement.
2. The effective date ("Effective Date",) of this Amendment shall be
March 30, 1999.
3. Section 1.1 of the Agreement shall be amended by adding the
following definitions in the appropriate alphabetical order:
"Agency Security" means a Mortgage-backed Security issued or
guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
-1-
<PAGE>
"Fannie Mae" means Fannie Mae, a corporation created under the laws
of the United States, and any successor thereto.
"Freddie Mac" means Freddie Mac, a corporation created under the
laws of the United States, and any successor thereto.
"Ginnie Mae" means the Government National Mortgage Association, an
agency of the United States government, and any successor thereto.
"Year 2000 Problem" means the risk that computer applications may
not be able to properly perform dat@6sensitive functions after December
31, 1999.
4. Section 1.1 of the Agreement shall be amended to delete the
definitions of "Commitment Amount," "Eligible Balances," "Fair Market Value,"
"Investor," "Mortgage-backed Securities," "Second Mortgage Loan" and "Tangible
Net Worth" in their entirety, replacing them with the following definitions:
"Commitment Amount" means $65,000,000. Notwithstanding the
foregoing, during the period from the Effective Date to and including
July 15, 1999, the Commitment Amount shall be temporarily increased to
$75,000,000. On the first Business Day following the expiration of the
temporary increase of the Commitment Amount, the Company shall repay to
the Lender the amount by which the outstanding Advances exceed the
Commitment Amount.
"Eligible Mortgage Pool" means a Mortgage Pool for which (a) an
Approved Custodian has issued its initial certification (on the basis
of which an Agency Security is to be issued), (b) there exists a
Purchase Commitment covering such Agency Security, and (c) such Agency
Security will be delivered to the Lender.
"Fair Market Value" means at any time for an Eligible Loan or the
related Agency Security (if such Eligible Loan is to be used to back an
Agency Security), (a) if such Eligible Loan or the related Agency
Security is covered by a Purchase Commitment, the Committed Purchase
Price, or (b) otherwise, the market price for such Mortgage Loan or
Agency Security, determined by the Lender based on market data for
similar Mortgage Loans or Agency Securities and such other criteria as
the Lender deems appropriate.
"Investor" means Fannie Mae, Freddie Mac or a financially
responsible private institution which is deemed acceptable by the
Lender from time to time in its sole discretion with respect to a
particular category of Pledged Mortgages.
-2-
<PAGE>
"Mortgage-backed Securities" means securities that are secured or
otherwise backed by Mortgage Loans.
"Second Mortgage Loan" means a Mortgage Loan secured by a Second
Mortgage.
"Tangible Net Worth" means with respect to any Person at any date,
the excess of the total assets of such Person over total liabilities of
such Person on such date, each to be determined in accordance with GAAP
consistent with those applied in the preparation of the financial
statements referred to in Section 4.1(a)(5) hereof, plus that portion
of Subordinated Debt not due within one year of such date; provided
that, for purposes of calculating Tangible Net Worth, there shall be
excluded from total assets advances or loans to shareholders, officers,
employees or Affiliates, investments in Affiliates, assets pledged to
secure any liabilities not included in the Debt of such Person,
intangible assets, those other assets which would be deemed by HUD to
be non-acceptable in calculating adjusted net worth in accordance with
its requirements in effect as of such date, as such requirements appear
in the "Audit Guide for Audit of Approved Non-Supervised Mortgagees,"
and other assets deemed unacceptable by the Lender in its sole
discretion.
5. The definition of "Maturity Date" in Section 1.1 of the Agreement
shall be amended by inserting the date "July 15, 1999", in place of "May 31,
1999", wherever it appears in such definition.
6. All references in the Agreement to "FNMA," "FHLMC" and "GNMA" are
amended to be references to "Fannie Mae," "Freddie Mac" and "Ginnie Mae,"
respectively.
7. Section 2.1(b)(10) of the Agreement is hereby deleted in its
entirety and the following section is substituted in lieu thereof:
(10) [INTENTIONALLY OMITTED.]
8. Sections 2.2 (b) and 2.2 (e) of the Agreement shall be deleted in
their entirety and the following shall be substituted in lieu thereof:
2.2(b) In the case of a Wet Settlement Advance, the Company
shall follow the procedures and, at or prior to the Lender's making
of such Wet Settlement Advance, shall deliver to the Lender the
documents set forth in Exhibit D-SF hereto. In the case of a
Mortgage Loan financed through a Wet Settlement Advance, the
Company shall cause all Collateral Documents required to be
delivered to the Lender pursuant to Exhibit D-SF within
-3-
<PAGE>
7 Business Days after the date of the Wet Settlement Advance
relating thereto.
2.2 (e) To make an Advance, the Lender shall cause the
Funding Bank to credit either the Wire Disbursement Account or the
Check Disbursement Account upon compliance by the Company with the
terms of the Loan Documents. The Lender shall determine in its sole
discretion the method by which Advances and other amounts on
deposit in the Wire Disbursement Account or the Check Disbursement
Account are disbursed by the Funding Bank to or for the account of
the Company.
9. Section 2.4 of the Agreement shall be further amended by adding the
following Section immediately after Section 2.4(f):
2.4 (g) The floating rates of interest provided for in this
Agreement will be adjusted as of the effective date of each change
in the applicable index. The Lender's determination of such rates
as of any date of determination shall be conclusive and binding,
absent manifest error.
10. Sections 2.5(d)(4), (5) and (6) of the Agreement shall be deleted
in their entirety and the following shall be substituted in lieu thereof:
(4) For a Mortgage Loan covered by a Purchase Commitment
at the time pledged hereunder, 3 Business Days after the
mandatory delivery date of the related Purchase Commitment and
the specific Pledged Mortgage was not delivered under the
Purchase Commitment prior to such mandatory delivery date, or
the Purchase Commitment is terminated; unless in each case,
such Pledged Mortgage is eligible for delivery 'to an Investor
under a comparable Purchase Commitment acceptable to the
Lender.
(5) Upon sale or other disposition of the Pledged
Mortgage or, if a Pledged Mortgage is included in an Eligible
Mortgage Pool, upon sale or other disposition of the related
Agency Securities.
(6) [INTENTIONALLY OMITTED.]
11. Section 2.10 of the Agreement shall be deleted in its entirety and
the following shall be substituted in lieu thereof:
-4-
<PAGE>
2.10 Miscellaneous Charges. The Company agrees to reimburse the Lender
for miscellaneous charges and expenses (collectively, "Miscellaneous Charges")
incurred by or on behalf of the Lender in connection with the handling and
administration of Advances, and to reimburse the Lender for Miscellaneous
Charges incurred by or on behalf of the Lender in connection with the handling
and administration of the Collateral. For the purposes hereof, Miscellaneous
Charges shall include, but not be limited to, costs for UCC, tax lien and
judgment searches conducted by the Lender, filing fees, charges for wire
transfers, check processing charges, charges for security delivery fees, charges
for overnight delivery of Collateral to Investors, the Funding Bank's service
charges and Designated Bank Charges. Miscellaneous Charges are due when
incurred, but shall not be delinquent if paid within 15 days after receipt of an
invoice or an account analysis statement from the Lender.
12. Section 5.9 of the Agreement is hereby amended by adding the
following sentence at the end thereof:
No tax Liens have been filed and no material claims are being asserted
with respect to any such taxes, fees or charges.
13. Section 5 of the Agreement is further amended by adding the
following new sections immediately after Section 5.16:
5.17 No Adverse Selection. The Company has not selected the
Collateral in a manner so as to affect adversely the Lender's
interests.
5.18 Year 2000 Compliance. The Company has conducted a
comprehensive review and assessment of the Company's computer
applications and made inquiry of the Company's key suppliers, vendors,
customers, and Investors with respect to the Year 2000 Problem and,
based on that review and inquiry, the Company does not believe the Year
2000 Problem will result in a material adverse change in the Company's
business condition (financial or otherwise), operations, properties or
prospects, or ability to pay the Obligations.
14. Sections 6.2(b) and (c) of the Agreement shall be deleted in their
entirety and the following shall be substituted in lieu thereof:
6. 2 (b) As soon as available and in any event within 90 days after
the close of each fiscal year of the Company, statements of income,
changes in stockholders' equity and cash flow of the Company (and, if
applicable, its Subsidiaries, on a consolidated basis) for such year,
and the related balance sheet as of the end of such year (setting forth
in comparative form the corresponding
-5-
<PAGE>
figures for the preceding fiscal year), all in reasonable detail and
accompanied by an opinion (which opinion shall not be qualified due to
possible failure to take all appropriate steps to successfully address
the Year 2000 Problem) in form and substance satisfactory to the Lender
and prepared by an accounting firm reasonably satisfactory to the
Lender, or other independent certified public accountants of recognized
standing selected by the Company and acceptable to the Lender, as to
said financial statements and a certificate signed by the chief
financial officer of the Company stating that said financial statements
fairly present the financial condition and results of operations of the
Company (and, if applicable, its Subsidiaries) as of the end of, add
for, such year.
6.2(c) Together with each delivery of financial statements required
in this Section 6.2, an Officer's Certificate substantially in the form
of Exhibit I-SF hereto: (1) setting forth in reasonable detail all
calculations necessary to show that the Company is in compliance with
the requirements of Sections 7.6, 7.7, 7.9 and 7.10 hereof as of the
end of such month or year (or, if the Company is not in compliance,
showing the extent of non-compliance and specifying the period of
non-compliance and what actions the Company has taken, is taking or
proposes to take with respect thereto); (2) certifying that the Company
was, as of the end of the period, in compliance and in good standing
with applicable HUD, Ginnie Mae, or Investor net worth requirements;
(3) certifying that the representation set forth in Section 5.18 hereof
is true and correct as of the date of such certificate or, if such
representation is not true and correct as of such date, specifying the
nature of the problem and what action the Company has taken, is taking
and proposes to take with request thereto, and (4) stating that the
signe3@-t have reviewed the terms of this Agreement and have made, or
caused to be made under their supervision, a review in reasonable
detail of the transactions and conditions of the Company (and, if
applicable, its Subsidiaries) during the accounting period covered by
such financial statements and that such review has not disclosed the
existence during or at the end of such accounting period, and that the
signers do not have knowledge of the existence as of the date of the
Officer's Certificate, of any Default or Event of Default, or if any
Default or Event of Default existed or exists, specifying the nature
and period of the existence thereof and what action the Company has
taken, is taking and proposes to take with respect thereto.
-6-
<PAGE>
15. Section 8.1(n) of the Agreement shall be deleted in its entirety
and the following shall be substituted in lieu thereof:
8.1 (n) A material adverse change occurs, or is reasonably
likely to occur, in the business condition (financial or
otherwise), operations, properties or prospects of the Company, or
in the ability of the Company to repay the Obligations.
16. Section 8.1 of the Agreement is further amended by adding the
following immediately after Section 8.1(n):
8.1 (o) Any Lien for any taxes, assessments or other
governmental charges (i) is filed against the Company or any of
its property, or is otherwise enforced against the Company or any
portion of the Collateral, or (ii) obtains priority that is equal
or greater than the priority of the Lender's security interest in
any of the Collateral.
17. Section 8.2 (c) (5) of the Agreement shall be deleted in its
entirety and the following shall be substituted in lieu thereof:
(5) Enter onto property where any Collateral or books and
records relating thereto are located and take possession thereof
with or without judicial process; and obtain access to the
Company's data processing equipment, computer hardware and software
relating to the Collateral and to use all of the foregoing and the
information contained therein in any manner the Lender deems
necessary for the purpose of effectuating its rights under this
Agreement and any other Loan Document.
18. Section 8.2 of the Agreement shall be amended by adding the
following section immediately after Section 8.2(h):
8.2(i) The Lender is hereby granted a license or other right
to use, without charge, the Company's computer programs, other
programs, labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks and
advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in advertising for sale and selling any
Collateral and the Company's rights under all licenses and all
other agreements related to the foregoing shall inure to the
Lender's benefit until the Obligations are paid in full.
-7-
<PAGE>
19. Section 8.3 of the Agreement shall be amended by adding the
following clause "Fifth," immediately after clause "Fourth:"
Fifth, to any remaining obligations; and
20. Section 9 of the Agreement shall be deleted in its entirety and the
following shall be substituted in lieu thereof:
9. NOTICES.
All notices, demands, consents, requests and other communications
required or permitted to be given or made hereunder (collectively,
"Notices") shall, except as otherwise expressly provided hereunder, be
in writing and shall be delivered in person or telecopied or mailed,
first class or delivered by overnight courier, return receipt
requested, postage prepaid, addressed to the respective parties hereto
at their respective addresses hereinafter set forth or, as to any such
party, at such other address as may be designated by it in a Notice to
the other. All Notices shall be conclusively deemed to have been
properly given or made when duly delivered, in person, by telecopy or
by overnight courier, or if mailed, on the date of receipt as noted on
the return receipt, addressed as follows:
if to the Company: Mortgage.com, Inc.
8751 Broward Blvd., 5th Floor
Plantation, FL 33324
Attention: Ed Johnson
Chief Financial Officer
Telecopier No.: (305) 472-0800
if to the Lender: Residential Funding Corporation
4800 Montgomery Lane, Suite 300
Bethesda, Maryland 20814,
Attention: Jim Clapp, Director
Telecopier No.: (301) 21,5-6288
21. Exhibit D-SF to the Agreement is hereby deleted in its entirety and
replaced with the new Exhibit D-SF attached to this Amendment. All references
in the Agreement to Exhibit D-SF shall be deemed to refer to the new Exhibit
D-SF.
22. Exhibit I-SF to the Agreement is hereby deleted in its entirety and
replaced with the new Exhibit I-SF attached to this Amendment. All references in
the Agreement to Exhibit I-SF shall be deemed to refer to the new Exhibit I-SF.
23. The Company shall deliver to the Lender (a) an executed
-8-
<PAGE>
original of this Amendment; (b) an executed Certificate of Secretary with
corporate resolutions; (c) Amendment to Articles of Incorporation reflecting the
Company's name change and (d) a $350 document production fee.
24. The Company represents, warrants and agrees that (a) there exists
no Default or Event of Default under the Loan Documents, (b) the Loan Documents
continue to be the legal, valid and binding agreements and obligations of the
Company enforceable in accordance with their terms, as modified herein, (c) the
Lender is not in default under any of the Loan Documents and the Company has no
offset or defense to its performance or obligations under any of the Loan
Documents, (d) the representations contained in the Loan Documents remain true
and accurate in all respects, and (e) there has been no material adverse change
in the financial condition of the Company from the date of the Agreement to the
date of this Amendment.
25. Except as hereby expressly modified, the Agreement shall otherwise
be unchanged and shall remain in full force and effect, and the Company ratifies
and reaffirms all of its obligations thereunder.
26. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Lender have caused this
Amendment to be duly executed on their behalf by their duly authorized officers
as of the day and year above written.
MORTGAGE.COM INC.
f/k/a FIRST MORTGAGE NETWORK, INC.,
a Florida Corporation
By: /s/ Seth Werner
---------------------------------
Its: Chairman/CEO
---------------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ Jim Clapp
---------------------------------
Its: Director
---------------------------------
-9-
<PAGE>
STATE OF Florida
------------)
) ss
COUNTY OF Broward
-----------)
On March 31, 1999, before me, a Notary Public, personally appeared Seth
Werner, the ____________ of MORTGAGE.COM, INC., f/k/a FIRST MORTGAGE NETWORK,
INC., a Florida corporation, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Chris Anderson
-------------------------------------
Notary Public
(SEAL) My Commission Expires:
- ----------------------------------- ---------------
OFFICIAL NOTARY SEAL
Chris Anderson
COMMISSION NUMBER
CC685293
My Commission Expires
OCT. 28, 2001
- -----------------------------------
STATE OF MARYLAND
--------------)
) ss
COUNTY OF MONTGOMERY
-------------)
On April 23, 1999, before me, a Notary Public, personally appeared Jim
Clapp, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Stephanie van dem HAGEN
-------------------------------------
Notary Public
(SEAL) My Commission Expires:
---------------
Stephanie van dem HAGEN
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires October 15, 2001
-10-
MASTER LEASE AGREEMENT
Agreement No. 10571 Dated as of April 1, 1998
between
DOMINION VENTURES, INC.
44 Montgomery Street, Suite 4200
San Francisco, California 94104
as Lessor
and
FIRST MORTGAGE NETWORK, INC.
a Florida corporation
8751 Broward Boulevard, Fifth Floor
Plantation, Florida 33324
as Lessee
Master Lease Line: $670,500
Rent Factor: 2.81% Initial Lease Term: 42 months
Advance Rental: $37,682.10 Security Deposit: $0
(PLUS APPLICABLE TAXES)
Minimum Funding Amount: $25,000 Maximum Funding Frequency: monthly
Funding Expiration Date: June 30, 1998
Eligible Equipment: Computer and office equipment, and Mitel telephone system.
All equipment to be purchased must be approved by Lessor.
Any equipment presently owned by Lessee and acquired by
Lessor will be purchased via a sale/leaseback at its current
fair market value. Should an appraisal of any sale/leaseback
equipment be required by the Lessor, the Lessee shall bear
the cost of any appraisal.
ORIGINAL COUNTERPART NO. ___
<PAGE>
The terms and information set forth on the cover page are a part of the
Master Lease Agreement, dated as of the date first written above (this "Lease"),
entered into by and between DOMINION VENTURES, INC. ("Lessor") and the Lessee
set forth above, the terms and conditions of which are as follows:
LESSOR'S OBLIGATIONS UNDER THIS LEASE AND EACH SCHEDULE ARE SUBJECT TO THE
PRIOR SATISFACTION OF THE CONDITIONS SET FORTH ON ADDENDUM I HERETO.
1. DEFINITIONS: Unless otherwise defined in this Lease (which term shall
include the cover page, any Addendum, any Exhibit and any Schedule hereto),
capitalized terms shall have the following meanings:
(a) "Acceptance Certificate" means the Certificate of Inspection and
Acceptance in the form attached hereto as Exhibit D.
(b) "Acceptance Date" means, with respect to each Schedule, the date of
the Acceptance Certificate executed in connection with such Schedule.
(c) "Advance Rental" has the meaning set forth in Paragraph 5(a) and is in
the amount as set forth on the cover page.
(d) "Assignee" has the meaning set forth in Paragraph II(b).
(e) "Bill of Sale" means a bill of sale in the form attached hereto as
Exhibit C.
(f) "Commencement Date" has the meaning set forth in Paragraph 4.
(g) "Cost" means the cost to Lessor of purchasing one or more Units of
Equipment including any sales taxes and other charges paid by Lessor
and net of any discounts and rebates.
(h) "Discount Rate" means, as of any date of determination, the lesser of
(i) the then current per annum interest rate for one-year United
States treasury bills as set forth in the Wall Street Journal on such
date and (ii) six percent (6%).
(i) "Eligible Equipment" means Equipment of the types listed following
such term on the cover page of this Lease to the extent reasonably
acceptable to Lessor.
(j) "Environmental Law" means the Resource Conservation and Recovery Act
of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, and any other Federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree (in each case
having the force of law) regulating or imposing liability or standards
of conduct concerning any Hazardous Materials or other hazardous,
toxic or dangerous waste, constituent, or other substance, whether
solid, liquid or gas, as now or at any time hereafter in effect.
(k) "Equipment" means all Units listed in any Schedule together with all
replacement parts, additions, accessions and accessories to such
Units.
(l) "Event of Default" shall have the meaning set forth in Paragraph 24
hereof.
(m) "Financial Statements" has the meaning set forth in Paragraph 19(a).
(n) "Funding Expiration Date" means the date set forth opposite such term
on the cover page of this Lease or such earlier date on which Lessor
terminates its commitment to fund Schedules pursuant to the terms of
this Lease.
(o) "Hazardous Material" means any hazardous or toxic substance, material,
pollutant or waste, whether solid, liquid or gaseous, which is
regulated by any Federal, state or local governmental authority.
(p) "Holdover Period" has the meaning set forth in Paragraph 18.
(q) "Initial Lease Term" means, with respect to each Schedule, the period
beginning on the first day of the calendar month following the
Acceptance Date for such Schedule and continuing for the time interval
specified opposite such term on the cover page of this Lease.
(r) "Interim Rent" shall have the meaning set forth in Paragraph 5(b) of
this Lease.
-1-
<PAGE>
(s) "Lease Term" means, with respect to each Schedule, the Noncancellable
Term and any Holdover Period.
(t) "Lessor Affiliate" has the meaning set forth in Paragraph 11(c)
hereof.
(u) "Master Lease Line" means the amount set forth following such term on
the cover page of this Lease.
(v) "Maximum Funding Frequency" means the time interval specified opposite
such term on the cover page hereof.
(w) "Minimum Funding Amount" means the amount set forth following such
term on the cover page of this lease.
(x) "Noncancellable Term" means, with respect to each Schedule, the period
from the Acceptance Date for such Schedule through the end of the
Initial Lease Term for such Schedule.
(y) "Purchase Order Assignment" means a purchase order assignment in the
form of Exhibit B hereto.
(z) "Rent Factor" means the Rent Factor applicable to each Schedule, which
is set forth on the cover page of this Lease.
(aa) "Rental Payment" means, for any Schedule, the monthly rent payment for
the Units identified in such Schedule.
(bb) "Residual Value" has the meaning set forth in Paragraph 22(b) of this
Lease.
(cc) "Schedule" means a schedule in the form of Exhibit F to this Lease
identifying this Lease and incorporating this Lease by reference,
which is executed by both parties hereto.
(dd) "UCC" means the Uniform Commercial Code as in effect in the State of
California from time to time.
(ee) "Unit" means an item of Equipment.
2. LEASE. Lessor leases to Lessee, and Lessee hires and takes from Lessor,
subject to the terms and conditions set forth in this Lease, the Units described
in the Schedules executed hereunder. Each Schedule shall constitute a separate
and independent lease and contractual obligation of Lessee incorporating the
terms of this Lease. Lessor's commitment to fund Schedules under this Lease
continues through the Funding Expiration Date and is limited to the amount of
the Master Lease Line; provided, however, that Lessor, acting in its sole
discretion, may terminate or modify its funding commitment at any time if: (a)
there is any material adverse change to the general affairs, management, results
of operations, condition (financial or otherwise) or prospects of Lessee,
whether or not arising from transactions in the ordinary course of business, (b)
there is any material adverse deviation by Lessee from the business plan (as it
may have been supplemented in writing) of Lessee presented to Lessor, since the
date first written on the cover page of this Lease, (c) any Event of Default or
event which with the passage of time or notice or both would constitute an Event
of Default exists, or (d) if any term or condition in any Schedule is not
satisfied prior to the Acceptance Date with respect to such Schedule. Each
Schedule shall be funded in an amount not less than the Minimum Funding Amount
and not more frequently than the Maximum Funding Frequency. No Unit of Equipment
shall have a unit cost of less than $1,000 or be subject to a single invoice of
less than $5,000.
3. EQUIPMENT SUBJECT TO LEASE. Lessee shall select the type and quantity of
Equipment (which Equipment shall in each case be Eligible Equipment) to be
subject to each Schedule. Subject to the terms and conditions of this Lease: (i)
if such Equipment is not previously owned by Lessee and is not subject to a
purchase order issued by Lessee, Lessor shall at Lessee's direction order each
Unit from the respective suppliers, and upon delivery and acceptance by Lessee
each such Unit shall be leased to Lessee hereunder; (ii) if Lessee has
previously issued its purchase order to a supplier, Lessee shall execute a
Purchase Order Assignment assigning such purchase order to Lessor and the Units
subject to such purchase order, upon delivery and acceptance by Lessee, shall be
leased to Lessee hereunder; or (iii) if Lessee owns the Equipment which it
intends to make subject to this Lease, Lessee shall execute a Bill of Sale
transferring title to such Equipment to Lessor at the purchase price agreed to
between Lessor and Lessee according to an appraisal undertaken at the expense of
Lessee (except in the case of Equipment placed in service by Lessee not more
than sixty (60) days prior to the date of any Schedule for which the purchase
price shall be the original cost to Lessee thereof (net of freight, taxes,
installation and similar costs). Lessee acknowledges that Lessor may have the
ability to
-2-
<PAGE>
obtain discounts or rebates not available to Lessee from suppliers from which
Lessor buys in volume. Any discounts or rebates remitted to Lessee shall be
turned over to Lessor and Cost of the Equipment set forth on any Schedule shall
be deemed to be the Cost net of such discount or rebate. Any request by Lessee
to Lessor to purchase Equipment directly or by assignment of a purchase order
shall be irrevocable.
4. TERM. This Lease is effective upon execution hereof by Lessor and shall
continue until full performance of every provision of this Lease; provided that
Lessor's obligations to fund any Schedule are subject to the prior satisfaction
by Lessee of the conditions set forth in Part I of Addendum I to this Lease. All
obligations under each Schedule shall commence upon Lessee's execution of an
Acceptance Certificate and Schedule for the Units to be subject to such Schedule
and Lessor's countersignature on such Schedule; provided that Lessor's
obligation to fund such Schedule is subject to the prior satisfaction by Lessee
of the conditions set forth in Part 2 of Addendum I to this Lease. The Initial
Lease Term with respect to each Schedule shall begin on the first day of the
calendar month following the Acceptance Date (the "Commencement Date").
5. RENTAL PAYMENTS. RENTAL PAYMENTS,
(a) Advance Rental. Upon execution of this Lease, Lessee shall pay to
Lessor an advance payment in an amount equal to the Rent Factor multiplied by
the Master Lease Line (plus applicable taxes) (the "Advance Rental"). A pro-rata
portion of the Advance Rental shall be deemed to prepay as of the date of this
Lease the last Rental Payment for each Schedule. If the Master Lease Line has
not been fully expended by the Funding Expiration Date, Lessor shall retain the
unutilized portion of the Advance Rental as compensation for expenses.
(b) Interim Rent. If the Acceptance Date with respect to any Schedule shall
be other than the first day of a calendar month, Lessee shall make interim
rental payments ("Interim Rent") for each day from and including the Acceptance
Date, through and including the last day of the calendar month prior to the
beginning of the Initial Lease Term in an amount equal to one-thirtieth of the
monthly Rental Payment set forth on the Schedule. Such Interim Rent shall be due
and payable on the first day of the calendar month following the month for which
such payment is assessed.
(c) Rental Payments. Lessee shall pay to Lessor, as rental for Equipment
during each month of the Initial Lease Term of any Schedule and during any
Holdover Period, an amount equal to the Rent Factor set forth on the cover page
of this Lease multiplied by the total Cost of the Equipment to Lessor, which
amount shall be due and payable in advance on the first day of each calendar
month during the Initial Lease Term and during any Holdover Period. In addition
to any other remedies that Lessor may have under this Lease, if Lessee fails to
pay any Rental Payment or Interim Rent or other amount herein provided within
five (5) business days after the same is due, Lessee shall pay to Lessor a late
charge calculated daily from the due date until the date of payment, at the rate
of two percent (2%) of such amount per month, or at the highest rate permitted
by applicable law, whichever is less, to compensate Lessor for additional
bookkeeping and collection expense. All Rental Payments, Advance Rental, Interim
Rent, late charges and other amounts for which Lessee is liable shall be paid to
Lessor at its address as set forth above or as otherwise directed by Lessor.
(d) Automatic Transfers. If Lessee so agrees, Lessor will initiate monthly
debit entries to Lessee's bank account for payment of Rental Payments on the
fifth business day of each month. If Lessee agrees to automatic transfers,
Lessee will provide depository and account information to Lessor and shall
execute or cause to be executed such supplemental agreements as Lessor deems
necessary in order to instate and maintain automatic transfer payments by Lessee
to Lessor. Other amounts due hereunder will be invoiced to Lessee by Lessor and
shall be due and payable within five (5) days of receipt of invoice.
-3-
<PAGE>
6. CHARACTERIZATION OF LEASE; WARRANTIES; WAIVERS; LIABILITY.
(a) Characterization of Lease. It is the intent of Lessor and Lessee that
this Lease be a true lease and not a lease intended as security or a conditional
sales agreement. Lessor and Lessee agree to treat this Lease as a true lease for
income tax purposes. Lessor and Lessee agree that this Lease is a "finance
lease" as that term is defined by Section 10103(a)(7) of the UCC. With respect
to the Equipment subject to each Schedule, Lessee acknowledges and warrants as
of the date of such Schedule that (i) Lessee has received a copy of the
contract(s) pursuant to which Lessor acquired the Equipment (the "Supply
Contract"), or (ii) Lessee has reviewed and approved the Supply Contract, or
(iii) Lessor has informed Lessee in writing that Lessee may have rights under
the Supply Contract and that Lessee should contact the supplier for a
description of any such rights. LESSOR AND LESSEE AGREE THAT THIS LEASE IS A
"NET" LEASE, AND LESSEE'S OBLIGATION TO MAKE RENTAL PAYMENTS AND PAY OTHER SUMS
WHEN DUE AND OTHERWISE PERFORM ITS OBLIGATIONS UNDER THIS LEASE SHALL BE
ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO OR AFFECTED BY OR
REDUCED BY ANY ABATEMENT, REDUCTION, SET-OFF, DEFENSE, COUNTERCLAIM,
INTERRUPTION, DEFERMENT, RECOUPMENT OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST
LESSOR, THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT OR ANY OTHER PERSON.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NO DEFECT OR UNFITNESS OF ANY
ITEM OF EQUIPMENT NOR OTHER CLAIM REGARDING CONDITION OR USE OF THE EQUIPMENT
SHALL RELIEVE LESSEE OF THE OBLIGATION TO MAKE RENTAL PAYMENTS, PAY ANY OTHER
SUM WHEN DUE OR OTHERWISE PERFORM ANY OTHER OBLIGATION DUE TO LESSOR AND ITS
SUCCESSORS AND ASSIGNS UNDER THIS LEASE.
(b) Warranties. Lessor warrants that, so long as no Event of Default has
occurred and is continuing, neither Lessor nor its successors or Assignees or
anyone acting or claiming through Lessor will interfere with Lessee's quiet
enjoyment and use of the Equipment. EXCEPT FOR LESSOR'S WARRANTY OF QUIET
ENJOYMENT, LESSEE HAS NOT RELIED UPON LESSOR IN SELECTING THE EQUIPMENT AND
ACKNOWLEDGES THAT LESSOR HAS MADE NO REPRESENTATION OR WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT, INCLUDING WITHOUT LIMITATION
ITS CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. Until the
Lease is terminated, Lessor hereby assigns to Lessee and Lessee shall have the
benefit of, any and all manufacturer's warranties, service agreements and
intellectual property indemnities, if any, with respect to each Unit. Lessee's
sole remedy for the breach of any such warranty, indemnification or service
agreement shall be against the manufacturer or supplier of such Equipment and
not against Lessor, nor shall any such breach have any effect whatsoever on the
rights and obligations of Lessor or Lessee hereunder.
(c) Waivers. Lessee hereby specifically waives any and all rights and
remedies conferred upon Lessee by UCC Sections 10508 through 10522, including
(without limitation) Lessee's rights to (i) cancel or repudiate this Lease, (ii)
reject or revoke acceptance of any Unit, (iii) recover damages from Lessor for
breach of warranty or for any other reason, (iv) claim a security interest in
any rejected property in Lessee's possession or control, (v) deduct from Rental
Payments all or any part of any claimed damages resulting from Lessor's default
under this Lease, (vi) accept partial delivery of the Equipment, (vii) "cover"
by making any purchase or lease of other property in substitution for property
due from Lessor, (viii) recover from the Lessor any general, special, incidental
or consequential damages, for any reason whatsoever, and (ix) seek specific
performance, replevin or the like for any of the Units. To the extent permitted
by applicable law, Lessee also hereby waives any rights now or hereafter
conferred by statute or otherwise which may require Lessor to sell, lease or
otherwise use any Equipment in mitigation of Lessor's damages except as set
forth in Paragraph 26 of this Lease or which may otherwise limit or modify any
of Lessor's rights or remedies under Paragraph 25. Notwithstanding the
foregoing, nothing in this Lease shall be construed as a waiver of Lessee's
right to
-4-
<PAGE>
seek a separate recovery of any Rental Payment that is not due and payable under
this Lease, and Lessee retains the right to seek damages or other remedies on
account of Lessor's failure to perform its obligations under this Lease.
(d) Liability. LESSEE ACKNOWLEDGES THAT LESSOR IS NOT THE MANUFACTURER,
SUPPLIER OR DISTRIBUTOR OF THE EQUIPMENT, THAT SAID ENTITIES ARE NOT AGENTS OF
LESSOR, THAT LESSEE RENTS THE EQUIPMENT "AS IS", AND THAT LESSOR HAS ACCEPTED NO
RESPONSIBILITY FOR THE TRANSPORTATION, INSTALLATION OR REQUIRED LICENSING
NECESSARY FOR THE TRANSFER, INSTALLATION OR USE OF THE EQUIPMENT. LESSEE HEREBY
WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN
TORT) WHICH IT MIGHT HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING
INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED DIRECTLY OR INDIRECTLY BY
THE EQUIPMENT, ITS USE OR MAINTENANCE, OR ANY DELAY OR FAILURE TO PROVIDE ANY
UNIT OF EQUIPMENT, OR ANY INTERRUPTION OF SERVICE OR LOSS OF USE OF THE
EQUIPMENT. If any Unit is unsatisfactory for any reason, Lessee shall make any
claim solely against the manufacturer or supplier of the Unit. Lessor shall not
be liable for specific performance of this Lease or for damages if for any
reason a supplier declines, delays or fails to fill any order.
7. ADJUSTMENTS FOR ACTUAL COST. Upon Lessee's request, Lessor may, but
shall have no obligation to, fund a Schedule which would cause the aggregate
Cost of Equipment on all Schedules funded under this Lease to exceed the Master
Lease Line. If at any time the actual aggregate Cost of all Equipment exceeds
the Master Lease Line, the Advance Rental shall be increased proportionately.
Lessee shall pay any additional sums for Advance Rental due under this Lease
within five (5) business days after receiving notice from Lessor. Lessee may not
request funding for a Schedule which would cause the aggregate Cost of Equipment
under all Schedules funded under this Lease to exceed the Master Lease Line by
more than ten percent (10%).
8. TITLE. All Equipment shall remain personal property, and the title
thereto shall remain exclusively in Lessor, notwithstanding the manner in which
any Unit may be attached to realty. Lessee agrees, upon the request of Lessor at
any time during the Lease Term, to affix or permit Lessor to affix, in a
permanent place on any Unit, labels supplied by Lessor identifying the Equipment
as property of Lessor, and shall not alter or remove any such label from any
Unit. Lessee shall keep the Equipment free from any and all liens and
encumbrances except those created by Lessor. Lessee shall give Lessor immediate
notice of any judicial process or encumbrance affecting the Equipment and shall
indemnify and save Lessor harmless from any loss or damage caused thereby,
including without limitation court costs, reasonable attorney few and expenses.
9. FILING. Lessee shall execute or cause to be executed, at Lessee's sole
expense, such supplemental instruments, financing statements and landlord's
waivers as Lessor deems necessary or advisable and shall cooperate to defend the
title of Lessor in the Equipment by filing or otherwise. Lessee authorizes
Lessor to record in any state, this Lease and any financing statements, security
agreements and landlord's waivers with respect to the Equipment or any
collateral provided by Lessee to Lessor. Lessee agrees to give Lessor thirty
(30) days written notice of any change in Lessee's name or place of business.
Lessee agrees to five written notice to Lessor as soon as Lessee has knowledge
of any change of ownership of the real property upon which or within which the
Equipment is located.
10. TAXES. Lessee shall pay in a timely fashion, and shall indemnify and
hold Lessor harmless against all federal, state and local taxes, assessments,
license and registration fees, and other governmental charges of any kind,
including, without limitation, those levied on motor vehicles or trailers, and
any interest or penalties thereon, which may be levied, directly or indirectly,
against the Equipment or with respect to its ordering, purchasing, delivery,
ownership, possession, use, leasing, documentation, and return or other
disposition thereof, regardless of whether such taxes and fees are levied
against Lessor or Lessee. Such taxes and fees to be paid by Lessee shall
include, without limitation,
-5-
<PAGE>
property, sales, rent, franchise, gross receipts, lease, and use taxes, and any
other tax measured by gross Rental Payments, but shall not include income or
franchise taxes based on Lessor's net income and payable by Lessor on its
receipt of Rental Payments hereunder. Personal property taxes shall be
reasonably estimated by Lessor and billed to Lessee as of the date of assessment
each year. Upon receipt by Lessor of the final personal property tax assessment
and invoice, Lessor shall invoice or credit Lessee, as applicable, for any
differences of such final assessment and Lessor's original estimate. Lessor
shall have the right, but not the obligation, to pay any such taxes or fees
regardless of whether levied against Lessor or Lessee. Any and all sales or use
taxes levied against Lessor's purchase of Equipment shall be added to the total
Cost of such Equipment as specified on the Schedule under which such Equipment
is added to this Lease. With the exception of taxes and fees which are added to
the total Cost of Equipment hereunder, Lessee shall reimburse Lessor within five
(5) days after receipt of invoice from Lessor specifying the amount of, and
reason for, any payment by Lessor of amounts for which Lessee is liable under
this Paragraph 10. Lessee shall timely prepare and file all reports and returns
which are required to be made with respect to such taxes and/or fees, and all
such reports shall show Lessor as owner of the Equipment.
11. ASSIGNMENTS AND SUBLEASES.
(a) WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, LESSEE SHALL NOT ASSIGN,
PLEDGE, GRANT A SECURITY INTEREST IN, OTHERWISE ENCUMBER, SUBLEASE OR TRANSFER,
OR IN ANY WAY DISPOSE OF OR OTHERWISE RELINQUISH POSSESSION OR CONTROL OVER
(COLLECTIVELY, A "TRANSFER") ITS RIGHTS WITH RESPECT TO ANY UNIT OF EQUIPMENT OR
ALL OR ANY PART OF ITS RIGHTS AND OBLIGATIONS UNDER THIS LEASE. If
notwithstanding the foregoing, a Transfer by Lessee takes place, the rights of
the sublessee or other transferee will be subject and subordinate to all of the
terms of this Lease, including Lessor's right of repossession on the occurrence
of an Event of Default. Lessee will remain primarily liable for the performance
of all of the terms of this Lease to the same extent as if the sublease or
transfer of possession had not occurred. Lessor and Lessee agree that any
purchase of all or substantially all of Lessee's assets, any merger or
consolidation into or with Lessee regardless of whether Lessee is the surviving
entity or any entity acquiring more than fifty percent (50%) of Lessee's voting
securities shall be deemed to be a Transfer under this Lease. Notwithstanding
anything contained in this section 11(a), a Transfer shall not include a
merger or consolidation where (i) the Lessee is the surviving entity, (ii) such
merger or consolidation will not result in an Event of Default and (iii) the
Lessee will have a net worth after giving effect to the merger or consolidation
at least as great as the net worth of the Lessee prior to such merger or
consolidation.
(b) Lessor shall have the right, in its sole discretion, to assign, sell,
pledge, grant a security interest in or otherwise encumber its rights under this
Lease or one or more Schedules and/or with respect to the Equipment subject to
this Lease or such Schedule(s) to one or more persons or entities (each, an
"Assignee"). Lessee acknowledges that an assignment, sale or other encumbrance
by Lessor would not materially change Lessee's duties under the Lease or
materially increase its burdens or risks. Even if such an assignment, sale or
other encumbrance could be deemed to have that effect, Lessee agrees that the
assignment, sale or other encumbrance will nevertheless be permitted. Without
prejudice to any rights that Lessee may have against Lessor, Lessee agrees that
it will not assert against an Assignee any claim or defense that it may have
against Lessor.
(c) Lessee acknowledges that it is Lessor's intention to assign this Lease
and/or one or more Schedules and the related Equipment to one or more limited
partnerships with which Lessor is affiliated (each, a "Lessor Affiliate") and
agrees that upon any such assignment the sole liability for performance of
Lessor's obligations hereunder shall fall upon such Lessor Affiliate which shall
assume such obligations and Lessor shall be fully released from such liabilities
and that the limited partners of such Lessor Affiliate shall have no personal
liability for the performance or observance of this Lease. A Lessor Affiliate
which succeeds to the rights and interests of Lessor under this Paragraph 11(c)
shall be bound
-6-
<PAGE>
by the terms of this Lease without alteration and any claim or defense which
Lessee may have had against Lessor prior to such assignment may only be asserted
against the assignee Lessor Affiliate.
(d) Subject to the foregoing, this Lease inures to the benefit of, and is
binding upon, the heirs, legatees, representatives, successors and assigns of
Lessee and Lessor.
12. REPRESENTATIONS AND WARRANTIES.
(a) Lessee warrants and represents the following as of the date hereof. (i)
Lessee is a corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation and is duly qualified and
authorized to do business in the state(s) where the Equipment will be located;
(ii) Lessee has the full corporate power, authority and legal right and has
obtained all approvals and consents and has given all notices necessary to
execute and deliver this Lease and perform the terms hereof and of each
Schedule; (iii) there is no action, proceeding or claim pending or, insofar as
Lessee knows, threatened against Lessee or any of its subsidiaries before any
court or administrative agency which might have a material adverse effect on the
business, condition or operations of Lessee or any subsidiary; and (iv) this
Lease has been and each Schedule will be duly executed and delivered by Lessee
and constitute or will constitute the valid, binding and enforceable obligations
of Lessee.
(b) Lessee agrees that by its signature on each Schedule it shall be deemed
to have warranted and represented the following as of the Acceptance Date of
such Schedule: (i) all of the Units subject to such Schedule are accurately
described in Annex A attached to such Schedule, have been fully assembled and
conform to all applicable performance criteria; (ii) the requirements of this
Lease and of Lessor with respect to the identification of the Units have been
met; and (iii) each of the representations and warranties set forth in clause
(a) of this Section 12 remains true and correct.
13. USE AND INDEMNITY. Lessee shall use the Equipment only in Lessee's
business. Lessee agrees not to allow the Equipment to be used by other than its
employees, consultants, customers and agents. Lessee acknowledges that the
Equipment is leased for commercial purposes and not for personal, family or
household use. Lessee agrees to indemnify and hold Lessor, and Lessor's
officers, directors, shareholders, partners, affiliates, agents, servants,
successors and Assignees, harmless against any and all liabilities, losses,
damages, actions, claims and expenses of any kind and nature, including, without
limitation, court costs and reasonable attorneys' fees and expenses (each, a
"Claim"), directly or indirectly related to or arising in connection with the
breach of any representation or warranty of Lessee under this Lease or the
manufacture, purchase, licensing, lease or sublease, delivery, installation,
operation, use, ownership, maintenance, storage, relocation, return or condition
of any Unit of the Equipment (regardless of whether such Unit is at the time in
the possession or control of Lessee), except to the extent any such claims,
actions, liabilities and expenses result from the willful misconduct of Lessor.
The foregoing indemnity shall cover, without limitation, (i) any Claim in
connection with a design or other defect (latent or patent) in any Unit, (ii)
any Claim for infringement of any patent, copyright, trademark or other
intellectual property right, (iii) any Claim resulting from the presence on or
under or the escape, seepage, leakage, spillage, discharge, emission or release
from any Unit of any Hazardous Materials, including, without limitation, any
Claims asserted or arising under any Environmental Law, or (iv) any Claim for
negligence or strict or absolute liability in tort. Upon Lessor's written
demand, Lessee shall assume and diligently conduct, at its sole cost and
expense, the entire defense of Lessor and its agents, employees, successors and
assigns against any indemnified Claim described in this Paragraph 5. Lessee
shall not settle or compromise any Claim against or involving Lessor without
first obtaining Lessor's written consent thereto, which consent shall not be
unreasonably withheld. The foregoing indemnity shall continue in full force and
effect notwithstanding the termination or cancellation of this Lease, whether by
expiration of time, operation of law or otherwise.
-7-
<PAGE>
14. LOCATION. Lessee shall keep the Equipment at its place of business as
specified above or on the Schedules. Lessee shall not permit any Equipment to be
moved to a new location without the prior written consent of Lessor, which
consent will not be unreasonably withheld or delayed.
15. RIGHT OF INSPECTION. Lessor and its agents shall have the right, at any
time during normal business hours, to inspect and photograph the Equipment, to
review all maintenance records related to the Equipment and, during the last
ninety (90) days of the Noncancellable Term of each respective Schedule, to
demonstrate the Equipment specified thereon to prospective purchasers; provided,
however, Lessor shall give five (5) days' notice to Lessee of any such
demonstration.
16. MAINTENANCE. Lessee shall exercise due and proper care in the use,
repair and servicing of the Equipment. Lessee shall, at its own expense, make
all repairs and replacements required to maintain the Equipment in good working
condition in accordance with manufacturers' specifications and Lessor's
requirements, and shall pay all other operating expenses relating to the
Equipment. Lessee shall have the right, upon ten (10) days prior written notice
to Lessor, to make any alterations, additions or improvements to any Unit which
do not render the Unit in such a condition that it cannot, prior to the
expiration, cancellation or other termination of this Lease, be restored to its
original condition, reasonable wear and tear alone excepted; provided that no
such alteration, addition or improvement shall be made by Lessee if as a result
thereof any warranties made by the supplier of the Unit would be canceled or
terminated. If Lessee does not exercise its option to purchase the Equipment, as
specified in Paragraph 17, or if this Lease shall be earlier terminated or
canceled for any reason, Lessee shall restore each Unit to its original
condition, reasonable wear and tear alone excepted, prior to the expiration,
cancellation or other termination of each respective Schedule. All replacement
parts and additions incorporated into a Unit shall become the property of Lessor
immediately upon incorporation; provided, however, that Lessor shall transfer to
Lessee title to any alterations, additions and improvements which were made by
Lessee at its own expense to each item of Equipment purchased by Lessee pursuant
to the provisions of Paragraph 17. Lessee agrees to maintain and provide upon
request of Lessor all internal maintenance reports relating to the Equipment.
17. PURCHASE OPTION. Upon written notice to Lessor not less than ninety
(90) days nor more than one hundred eighty (180) days prior to the last day of
the Noncancellable Term of the first Schedule executed pursuant to this Lease,
if Lessee has fulfilled all of its obligations hereunder, Lessee shall have the
right to purchase all, but not less than all, of the Equipment under all
Schedules, for the aggregate Fair Market Value of such Equipment (plus
applicable taxes), provided that in the case of leasehold improvements and
software, the purchase price shall be 15% of the original cost of such leasehold
improvements and software. Should Lessor and Lessee fail to agree upon the Fair
Market Value of the Equipment, said price shall be determined by an independent
appraiser, and the cost of the appraisal shall be borne equally by both Lessor
and Lessee. Notwithstanding the date on which Lessee exercises this option,
Lessee shall acquire no rights of title to any Equipment, nor shall title to any
Unit be transferred to Lessee after the exercise of this purchase option until
the expiration of the Noncancellable Term for the Schedule on which such Unit is
specified. Lessee shall remain liable for all Rental Payments and other
obligations due under each Schedule until the expiration of the Noncancellable
Term of such Schedule. Any Equipment sold by Lessor shall be sold "AS IS",
"WHERE IS", and with no warranties, express or implied, including without
limitation implied warranties of merchantability and fitness for any particular
purpose. "Fair Market Value" is defined as the estimated amount at which the
property might be expected to exchange in an arm's length transaction between a
willing buyer (other than a used equipment dealer) and a willing seller, neither
being under compulsion, each having reasonable knowledge of all relevant facts,
and with equity to both, with the assumptions that the Units (i) are being sold
"in place and in use," (ii) are free and clear of all liens and encumbrances,
and (iii) are in the condition required by Paragraph 16 of this Lease.
18. RETURN OF EQUIPMENT. Upon ninety (90) days' written notice to Lessor,
in the event Lessee has not exercised its purchase option as specified in
Paragraph 17, after such notification and upon the expiration,
-8-
<PAGE>
cancellation or other termination of the Noncancellable Term of each Schedule,
Lessee shall, at Lessee's sole expense, properly pack and return the Equipment,
insured, unencumbered and in the same condition as when received by Lessee,
reasonable wear and tear alone excepted, by such carriers as Lessor shall
approve and to such place as designated by Lessor. Should Lessee fail to give
notice of its intent to return or fail to return the Equipment as directed
above, all obligations of Lessee under this Lease, including Rental Payments,
shall remain in full force and effect for the period from the end of the Initial
Lease Term until ninety (90) days after notice is given to Lessor of Lessee's
intent to return or purchase the Equipment (the "Holdover Period").
19. FINANCIAL STATEMENTS; OTHER INFORMATION.
(a) Lessee shall provide to Lessor the financial statements specified in
this Paragraph 19 (a), prepared in accordance with generally accepted accounting
principles, consistently applied (the "Financial Statements"); provided,
however, that after the effective date of the initial registration statement
covering a public offering of Lessee's securities, the term "Financial
Statements" shall be deemed to refer only to those statements required to be
filed by the Securities and Exchange Commission, to be provided no less
frequently than quarterly.
(i) As soon as practicable (and in any event within thirty (30) days
after the end of each month), a reasonably detailed balance sheet as of the end
of such month and the related statements of income or loss, cash flow and
capital structure of the Lessee during such month (including notification of the
commencement of any material litigation by or against Lessee), certified by
Lessee's Chief Executive Officer or Chief Financial Officer fairly to present
the data reflected therein.
(ii) As soon as practicable (and in any event within ninety (90) days
after the end of each fiscal year), audited balance sheets as of the end of such
year (consolidated if applicable), and related statements of income or loss,
retained earnings or deficit, cash flows and capital structure of Lessee for
such year, setting forth in comparative form the corresponding figures for the
preceding fiscal year, and accompanied by an audit report and opinion of the
independent certified public accountants of recognized national standing
selected by Lessee.
(b) Lessee shall promptly provide to Lessor copies of all notices, minutes,
consents and other material that it provides to its directors at the same time
they are delivered to the directors. Lessee shall promptly furnish to Lessor any
additional information (including but not limited to tax returns, income
statements, balance sheets, and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing financial
obligations (the "Additional Information").
(c) Lessor agrees to preserve the confidentiality of all information
provided to it hereunder by Lessee regarding the Lessee and its business which
Lessee designates in writing as confidential and which is otherwise not
generally known (except to the extent any disclosure of such information is
required by a court of competent jurisdiction or governmental authority).
20. TAX INDEMNIFICATION. Lessee acknowledges that this Lease has been
entered into on the basis that Lessor or Lessor's Assignee intends to claim such
depreciation, interest deductions and other tax benefits (the "Tax Benefits") as
are provided to an owner of Equipment under the Internal Revenue Code of 1986,
as amended (the "Code") and corresponding provisions of state law. If Lessor or
Lessor's Assignee shall not have the right to claim or there shall be
disallowed, deferred, recaptured or otherwise made unavailable with respect to
Lessor or Lessor's Assignee all or any portion of the Tax Benefits as a result
of an act or failure to act by Lessee in contravention of any of the terms and
conditions of the Lease, Lessee shall promptly pay to Lessor or Lessor's
Assignee, an amount which, on an after-tax basis, will compensate Lessor or
Lessor's Assignee for the value of the lost Tax Benefits. The Tax Benefits shall
be
-9-
<PAGE>
deemed to have been disallowed or recaptured upon the earliest of (i) the
adjustment by a taxing authority of the tax return of Lessor to reflect such
loss; or (ii) the payment by Lessor to the Internal Revenue Service or state
taxing authority of the tax increase resulting from such lost Tax Benefits.
Lessor or Lessor's Assignee shall be deemed not to have the right to claim the
Tax Benefits if, in the opinion of Lessor's independent tax counsel, reasonably
acceptable to Lessee, there is no reasonable basis for claiming the Tax
Benefits.
21. ADDITIONAL LESSOR RIGHTS.
(a) A representative of Lessor shall have the right to meet with Lessee's
Chief Executive Officer and Chief Financial Officer once each quarter throughout
the lease term to review and discuss the operating performance and financial
condition of the Company.
22. RISK OF LOSS. Lessee assumes the entire risk of loss, theft and damage
of the Equipment from any cause whatsoever, and no such event shall relieve
Lessee of any obligation under this Lease. Lessee shall notify Lessor in writing
within ten (10) days after any such event. Lessee agrees that Lessor shall have
the following remedies upon each occurrence of the following events:
(a) In the case of damage of any kind whatsoever to any Unit (unless such
Unit is damaged beyond repair), Lessee shall, at Lessee's sole expense and with
Lessor's reasonable consent, (i) restore such Equipment to its original
condition, reasonable wear and tear alone excepted, or (ii) replace it with like
equipment of the same or later model in good condition. Upon Lessee's
replacement of any Equipment as specified in clause (ii) of this Paragraph
22(a), Lessee shall transfer title to such replaced Equipment to Lessor.
(b) if any Unit is determined by Lessor to be damaged beyond repair, or if
Lessor has reasonable cause to believe that any Unit is stolen or lost and such
Unit is not returned to its proper location within thirty (30) days after notice
thereof to Lessee, Lessee shall, with Lessor's reasonable consent, immediately
pay to Lessor: (i) the amount required to replace such Unit with like equipment
of the same or later model in good condition, in which case such Unit shall be
substituted for the damaged Unit on the relevant Schedule, and Rental Payments
shall continue throughout the Lease Term of the Schedule to which the Unit
becomes subject without any interruption, or (ii) the sum of (A) the aggregate
unpaid rent due for the balance of the Noncancellable Term for the Unit
involved, discounted to present value at the Discount Rate; plus (B) the then
estimated Fair Market Value of the Unit involved, calculated as of the
expiration of the Noncancellable Term (the "Residual Value"), discounted to
present value at the Discount Rate; plus (C) any tax payments or indemnification
for which Lessee is liable under Paragraphs 10 and 20; plus any other amounts
with respect to such Unit for which Lessee is liable under this Lease; provided,
however, the option specified in clause (i) of this Paragraph 22(b) shall not be
available if an Event of Default has occurred and is continuing. Upon payment
under clause (ii) of Paragraph 22(b), this Lease shall terminate with respect to
the Unit(s) paid for, and Lessee shall become entitled to such Unit(s) "AS IS"
and "WHERE IS" WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(c) Any proceeds paid to Lessor from the personal property insurance
specified in Paragraph 23(a)(i) shall be applied to Lessee's obligations under
this Paragraph 22.
-10-
<PAGE>
23. INSURANCE.
(a) Lessee shall, at its own expense, maintain the following types of
insurance, with companies with an A5 Best rating or better, acceptable to
Lessor, until such time as Lessee has returned the Equipment as specified in
Paragraph 18 or taken title to the Equipment pursuant to Paragraph 17:
(i) Personal property insurance on all property owned by Lessee
(including without limitation all of the Equipment) in an agreed amount based
upon the following:
(A) Standard "all risk" property insurance, including boiler and
machinery insurance, earthquake insurance, if applicable, and flood insurance if
any Equipment is located in an identified "flood hazard area," in which flood
insurance has been made available pursuant to the National Flood Insurance Act
of 1968;
(B) The amount of such insurance shall be not less than the greater
of the fair market value or the full undepreciated replacement value of the
Equipment. The amount of such insurance allocable to loss or damage or personal
property shall not have a deductible in excess of one thousand dollars
($1,000.00) per occurrence.
(C) Such insurance shall contain an endorsement issued by the
insurer (as opposed to a certificate issued by an agent of the insurer) in which
Lessor is named as loss payee with respect to the Equipment, and shall set aside
the amount stated in Paragraph 23(a)(i)(B) for the sole benefit of, and payable
directly to, Lessor.
(ii) Employee dishonesty insurance payable to Lessor with respect to
the theft of the Equipment.
(iii) Business interruption insurance in an amount at all times equal
to the total Rental Payments to become due during the six months following the
date of calculation. In the event of any interruption of Lessee's business, the
amount payable to Lessor shall be equal to the actual loss of Rental Payments
suffered by Lessor as the result of such interruption, and shall be payable to
Lessor within thirty (30) days from the date of loss, and on a month-to-month
basis thereafter, until Lessee's business is returned to a fully operational
state, plus ninety (90) days.
(iv) Commercial general liability insurance covering bodily injury
(including death) and property damage, naming Lessor, its directors, officers,
agents and employees as an Additional Insureds on all policies (evidenced by an
endorsement issued by the insurer (as opposed to a certificate issued by an
agent of the insurer)), and providing total limits in amounts as are at the time
carried by entities engaged in the same or similar business and which are
similarly situated, but in no event less than two million dollars
($2,000,000.00) for combined single limit occurrence. All such policies shall
cover any injury or damage occasioned by, or occurring upon, Lessee's premises,
products, operations and, at Lessor's option, explosion, collapse and
underground hazards. All such policies shall contain contractual liability
coverage including all liability assumed under this agreement, and a cross
liability clause providing that such insurance shall, except with respect to the
limits of liability, apply separately to each insured.
(v) Workers compensation insurance.
(b) All insurance specified in this Paragraph 23 shall be primary over, and
in no event shall, any insurance carried by Lessor be called upon to contribute
to any loss relating to or arising out of this Lease. All insurance shall be in
effect, and shall be evidenced by policies and/or endorsements delivered to
Lessor no later than twenty (20) days after the date upon which Lessee executes
this Lease. Notwithstanding anything to the contrary contained in this Lease,
-11-
<PAGE>
Lessor shall have no obligation to purchase any Equipment until all policies are
in place. All such policies shall provide for at least thirty (30) days' prior
written notice to Lessor in the event of any cancellation, non-renewal or
material change in coverage, and Lessor shall receive a copy of any and all
endorsements or other documentation relating to such policies.
(c) Should Lessee, at any time during the Lease Term, be without sufficient
insurance, as determined by Lessor in accordance with the provisions of this
Paragraph 23, Lessee appoints Lessor as its agent to obtain such coverage, and
promises to pay to Lessor the entire cost of such coverage.
24. DEFAULT. Each of the following events shall constitute an "Event of
Default" under this Lease:
(a) Nonpayment, by the due date specified herein, of any Rental Payment or
other payment required of Lessee under the terms of this Lease, and such
nonpayment shall continue for a period of five (5) business days;
(b) Noncompliance with any or all of the provisions of Paragraph 23, and
such noncompliance shall continue for a period of five (5) days after notice
thereof is given to Lessee;
(c) If Lessor shall determine that Lessee has made a misstatement or false
statement of, or omitted to state, a material fact in connection with the
execution, performance or nonperformance of this Lease or any Schedule, or if
any representation or warranty of Lessee in this Lease, any Schedule or any
Acceptance Certificate is inaccurate or false;
(d) If Lessee, without Lessor's prior written consent, shall have removed,
parted possession with, sold transferred, encumbered, assigned or sublet the
Equipment or Lessee's interest under this Lease or attempted to do any of the
foregoing; or if Lessee shall have converted any interest of Lessor arising
under this Lease or any purchase order, or resulting from the purchase of
Equipment or attempted to convert any of the foregoing;
(e) If Lessee, without Lessor's prior written consent, shall encumber or
grant a security interest in (other than for valid business purposes in the
ordinary course of business with respect to license agreements or similar
agreements), sell, transfer or assign Lessee's rights, title and interest in all
patents, patent applications, invention disclosures, copyrights, copyright
applications, trademarks (including service marks), trademark registrations,
trade names, computer software and hardware, microcode and source code, trade
secrets, know-how and processes owned by Lessee or other intellectual property
rights;
(f) If any of Lessee's credit or financial information submitted to Lessor
at any time (including but not limited to due diligence materials, Financial
Statements and Additional Information) contains any misstatement or false
statement of a material fact, or fails to state therein any material fact
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading;
(g) If in the determination of Lessor the present fair salable value of
Lessee's assets is less than the amount that will be required to pay the
probable liability on Lessee's existing debts as they become absolute and
matured;
(h) If any single judgment for payment of money damages in excess of fifty
thousand dollars ($50,000.00), or aggregate judgments for payment of money
damages in excess of one hundred thousand dollars ($100,000.00), shall be
rendered against Lessee and shall remain undischarged for a period of sixty (60)
days (unless during such period execution shall not be effectively stayed in
which case there shall be no grace period under this Paragraph 24(h));
-12-
<PAGE>
(i) if any substantial part of Lessee's property shall be subjected to any
levy, seizure, involuntary assignment, attachment, application or sale for or by
any creditor or governmental agency;
(j) If any single indebtedness of Lessee exceeding the sum of fifty
thousand dollars ($50,000.00), or aggregate indebtedness exceeding the sum of
one hundred thousand dollars ($100,000.00), under any other lease or contract
for the borrowing of money or on account of the deferred purchase price of
property shall be accelerated, or subject to acceleration upon the giving of
notice, passage of time or both as a result of a default by Lessee, or the
obligee with respect to such indebtedness shall exercise any other remedy it may
have as a result of such default;
(k) If an order, judgement or decree shall be entered by any court having
jurisdiction for (i) relief in respect of Lessee in an involuntary case under
any applicable bankruptcy, insolvency or other similar law (as now or hereafter
in effect), (ii) appointing of receiver, liquidator, assignee, trustee,
custodian, sequestrator (or similar official) for Lessee or for any substantial
part of its property, or sequestering any substantial part of the property of
Lessee, or (iii) liquidating of Lessee's affairs, and any such order, judgement
or decree shall remain in force dismissed, unstayed or unvacated for a period of
sixty (60) days after the date of entry thereof; or if Lessee shall seek relief
of any kind under any such law or consent to any of the foregoing; or
(1) Nonperformance of any of Lessee's obligations under this Lease other
than those described elsewhere in this Paragraph 24, and such nonperformance
shall continue for a period of ten (10) days after notice thereof is given to
Lessee.
25. REMEDIES. Upon the occurrence and during the continuance of any Event
of Default, with or without canceling or terminating this Lease, Lessor or its
agent shall have the right, without demand or prior notice, in Lessor's sole
discretion, to exercise any one or more of the following remedies:
(a) To cancel this Lease and all Schedules;
(b) To declare the damages specified in Paragraph 26 to be immediately due
and payable;
(c) To take possession of any or all Units of Equipment with or without any
court order or other process of law, and for this purpose Lessor and/or its
agents may enter upon any premises of or under the control or jurisdiction of
Lessee or any agent of Lessee, without liability for suit, action or other
proceeding by Lessee and remove the Equipment therefrom; Lessee further agrees,
on demand, to assemble the Equipment and make it available to Lessor at a place
to be designated by Lessor which is reasonably convenient to Lessor and Lessee;
notwithstanding the foregoing, such taking of possession shall not relieve
Lessee of its obligations to pay damages as set forth in Paragraph 26. Lessee
further waives any and all damages occasioned by such taking of possession.
(d) To exercise any other right or remedy which may be available to Lessor
under the UCC or any other applicable law.
26. DAMAGES. Lessor's damages, in the event of default by Lessee, shall
include (in addition to all other damages available to Lessor under applicable
law): (i) the due and unpaid balance of Rental Payments and all other amounts
payable hereunder plus late charges and interest due under Paragraph 5(c) (but
not more than the maximum rate permitted by law) for the period after the date
such payments were due, (ii) the aggregate of all remaining Rental Payments
through the end of the Noncancellable Term of each Schedule, discounted to
present value at the Discount Rate, (iii) the Residual Value, discounted to
present value at the Discount Rate, (iv) any indemnification payments due
hereunder plus interest at a rate equal to the lesser of 1.5% per month or the
maximum rate permitted by
-13-
<PAGE>
law for the period after the date such payments were due, (v) costs of
repossession, recovery, storage and repairs and of lease or sale to a third
party, plus (vi) all other expenses including court costs and reasonable
attorneys' fees and expenses. Lessor's obligation to mitigate said damages and
any reduction of the amounts due to Lessor shall be limited as follows:
(a) Lessor shall make best efforts to mitigate its damages by releasing
the Equipment to a third party, and any rentals received in consideration for
such third party's use of said Equipment during any period of the Noncancellable
Term of any Schedule shall be applied only to that portion of Lessor's damages
resulting from loss of rentals that Lessor would have received from Lessee
during the same period had Lessee not become in default. Amounts received from
such third party shall be applied in mitigation of Lessor's damages only to the
extent such amounts are payable in connection with such third party's periodic
rental obligations as specified in the preceding sentence; in no event shall any
other amount received from such third party, including without limitation as a
security deposit or as an advance on periodic rental obligations, be applied in
mitigation of Lessor's damages hereunder.
(b) Lessor shall have no obligation to sell any of the Equipment; however,
any amounts received from a sale to a third party shall be applied to Lessor's
damages as specified in this Paragraph 26.
27. MISCELLANEOUS.
(a) If more than one Lessee is named in or added to this Lease, the
liability of each shall be joint and several.
(b) All notices related hereto shall be mailed to Lessor or Lessee at its
respective address as specified on the cover page of this Lease, or at such
other address as either party may designate upon ten days written notice to the
other party.
(c) Paragraph titles are solely for convenience and are not an aid in the
interpretation of this Lease.
(d) Time is of the essence of this Lease and each of its provisions.
(e) If notwithstanding the intent of the parties this Lease and any
Schedules hereto are determined to be a lease for security or a security
agreement, Lessee shall have been deemed to have granted to Lessor a security
interest in all of Lessee's right, title and interest in and to the Equipment
and the proceeds thereof to secure all of Lessee's obligations to Lessor arising
hereunder or otherwise.
(f) This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument;
provided however that to the extent, if any, that this Lease constitutes chattel
paper (as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction), no security interest in this Lease may be created
through the transfer or possession of any counterpart of this Lease or any
Schedule other than the original counterparts marked "Original Counterpart No.
1".
28. RIGHT OF FIRST OFFER. During the lease term, Lessee shall provide
Lessor with all requests for additional equipment lease financing prior to the
time that such requests are provided to other financing sources. Should Lessor
and Lessee fail to agree on the terms and conditions of such financing, then
Lessee may accept a funding source other than Lessor.
-14-
<PAGE>
29. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee shall fail duly
and promptly to perform any of its obligations under this Lease, Lessor may, at
its option and at any time, perform the same without waiving any default on the
part of Lessee, or any of Lessor's rights. Lessee shall reimburse Lessor, within
five (5) days after notice thereof is given to Lessee. for all expenses and
liabilities incurred by Lessor in the performance of Lessee's obligations.
30. NONWAIVER; RIGHTS AND REMEDIES CUMULATIVE. Lessor's failure at any time
to require strict performance by Lessee shall not constitute waiver of, or
diminish, Lessor's right to demand strict compliance with any provision of this
Lease. Waiver by Lessor of any default shall not constitute waiver of any other
default. No rights or remedies referred to herein shall be exclusive, but shall
be cumulative and in addition to any other right or remedy set forth herein or
otherwise available to Lessee at law or in equity.
31. SURVIVAL OF OBLIGATIONS; LIMITATIONS ON ACTIONS. All agreements,
covenants, representations and warranties of Lessee contained in this Lease or
in the Schedules or other documents delivered pursuant hereto or in connection
herewith shall survive the execution and delivery, and the expiration.
cancellation or other termination of this Lease. Any action by Lessee against
Lessor for any default by Lessor under this Lease shall be commenced within one
(1) year after any such cause of action accrues.
32. SEVERABILITY If any provision or remedy herein provided is determined
invalid under applicable law, such provision shall be inapplicable and deemed
omitted; but the remaining provisions, including remaining default remedies,
shall be given effect in accordance with their terms.
33. UPGRADES; ADDITIONS AND ATTACHMENTS. Any added memory, upgrades,
additions and attachments to Equipment previously placed under this Lease shall,
upon approval by Lessor, be included on a Schedule, with a Noncancellable Term
that is coterminous with the Equipment to which such added memory, upgrade,
addition or attachment is being attached.
34. CHOICE OF LAW. THIS LEASE SHALL BE DEEMED TO HAVE BEEN MADE AND
ACCEPTED AND PERFORMED IN THE COUNTY OF SAN FRANCISCO, IN THE STATE OF
CALIFORNIA, WHERE THE LESSOR'S PRINCIPAL PLACE OF BUSINESS IS LOCATED. THIS
LEASE AND ALL TRANSACTIONS HEREUNDER, AND ALL RIGHTS AND LIABILITIES OF THE
PARTIES HERETO, SHALL BE DETERMINED AND GOVERNED AS TO THE VALIDITY,
INTERPRETATION, ENFORCEMENT AND EFFECT BY THE LAWS OF THE STATE OF CALIFORNIA.
THE LESSEE HEREBY CONSENTS, IN ALL ACTIONS AND PROCEEDINGS ARISING DIRECTLY OR
INDIRECTLY FROM THIS LEASE, TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL
DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR ANY STATE COURT
LOCATED WITHIN SAN FRANCISCO COUNTY IN THE STATE OF CALIFORNIA. LESSEE HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS LEASE. IN ADDITION, ANY CLAIM OR DISPUTE
ARISING UNDER OR RELATING TO THIS LEASE MAY, AT LESSOR'S DISCRETION, BE
SUBMITTED TO BINDING ARBITRATION IN SAN FRANCISCO, CALIFORNIA PURSUANT TO THE
COMMERCIAL RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
Lessee Initials: Lessor Initials
------ ------
35. ENTIRE AGREEMENT. This instrument constitutes the entire agreement
between the parties and
<PAGE>
may not be modified except in writing executed by Lessor and Lessee. No supplier
or agent of Lessor is authorized to bind Lessor or to waive or modify any term
of this Lease.
Lessee Initials: _________ Lessor Initials _________
The undersigned representative of Lessee affirms that he or she has read
and understood this Lease and is duly authorized to execute this Lease on behalf
of Lessee and that, if Lessee is a corporation, this Lease is entered into with
consent of Lessee's Board of Directors and stockholders if so required.
IN WITNESS WHEREOF, the parties hereto execute this noncancellable Lease as
of the date on the cover page hereof.
LESSEE: LESSOR:
FIRST MORTGAGE NETWORK, INC. DOMINION VENTURES, INC.
By: /s/ David W. Larson By: /s/ Rendall J. Cooper
---------------------------------- ---------------------------------
Name: David W. Larson Name: Rendall J. Cooper
-------------------------------- -------------------------------
Title: President Title: CFO
------------------------------ -----------------------------
This Lease incorporates the following Addenda as if fully set forth herein:
Addendum I.
This foregoing instrument was acknowledged before me this 7th day of April,
1998, by David W. Larson, President of First Mortgage Network, Inc.
By:/s/ Christien M. Ray
--------------------------------------
Christien M. Ray, Notary Public
My Commission expires: 10-31-2001
<PAGE>
ADDENDUM I
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 10571
April 1, 1998
Conditions to Lessor's Obligations
By their initials below and on the signature page of the Master Lease
Agreement referenced in the upper right corner of this page, Lessor and Lessee
agree that the Lease incorporates the following terms:
Part 1: On or prior to the date of execution of the Lease by Lessor, Lessor
shall have received in form and substance satisfactory to Lessor:
(a) Copies, certified, in substantially the manner set forth in
Exhibit E to the Lease, by the Secretary or Assistant Secretary
of: (A) the Articles of Incorporadon and By-Laws of Lessee (as
amended to the date of the Lease) and (B) the resolutions
adopted by Lessee's board of directors authorizing the
transaction and the documents being executed in connection
therewith.
(b) A Good Standing Certificate (including tax status if available)
with respect to Lessee from Lessee's state of incorporation,
dated a date reasonably close to the date of acceptance of the
Lease by Lessor.
(c) Evidence of the insurance coverage required by Paragraph 23 of
the Lease.
(d) All necessary consents of shareholders and other third parties
with respect to the subject matter of the Lease and the other
documents being executed in connection therewith.
(e) Landlord waiver(s) in the form of Exhibit A.
(f) The Advance Rental plus applicable taxes.
(g) All other documents as Lessor shall have reasonably requested.
Part 2: Prior to any funding of a Schedule, each of the conditions set
forth in Part I of this Addendum I shall have been satisfied and
Lessor shall have received in form and substance satisfactory to
Lessor:
(a) Such documentation as Lessor may request with respect to
invoices, purchase orders, canceled checks and the like
relating to the Equipment to be subject to the Schedule.
(b) A Purchase Order Assignment or Bill of Sale if applicable.
(c) A UCC-I financing statement duly executed by Lessee.
(d) An Acceptance Certificate with respect to the Equipment to be
subject to the Schedule.
Initials (Lessor)
<PAGE>
INDEX OF EXHIBITS
TO
MASTER LEASE AGREEMENT
Exhibit A -- Landlord Waiver
Exhibit B -- Purchase Order Assignment
Exhibit C -- Bill of Sale
Exhibit D -- Certificate of Inspection and Acceptance
Exhibit E -- Secretary's or Assistant Secretary's Certificate
Exhibit F -- Form of Schedule
$25,000,000
WAREHOUSE CREDIT AGREEMENT
among
FIRST MORTGAGE NETWORK, INC., as Borrower,
COOPER RIVER FUNDING INC., as Lender
and
GE CAPITAL MORTGAGE SERVICES, INC., as Agent
-------------------------------------
Dated as of August 7, 1998
-------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION..........................1
1.01 Defined Terms ......................................................1
1.02 Principles of Construction.........................................14
SECTION 2. AMOUNT AND TERMS OF CREDIT ........................................15
2.01 Commitment.........................................................15
2.02 Minimum Borrowing Amount...........................................15
2.03 Pledge of Collateral...............................................15
2.04 Request for Advance................................................16
2.05 Disbursement of Funds..............................................16
2.06 Note...............................................................16
2.07 Interest...........................................................17
SECTION 3. FEES...............................................................17
3.01 Fees...............................................................17
SECTION 4. PREPAYMENTS; PAYMENTS..............................................17
4.01 Voluntary Prepayments..............................................18
4.02 Mandatory Prepayments..............................................18
4.03 Release of Collateral; Substitution................................20
4.04 Sale of Collateral to Investors....................................21
4.05 Method and Place of Payment........................................22
4.06 Net Payments.......................................................22
4.07 Breakage Costs.....................................................22
SECTION 5. CONDITIONS PRECEDENT ..............................................22
5.01 Execution of Agreement; Note.........................................22
5.02 No Default; Representations and Warranties...........................23
5.03 Request for Advance .................................................23
5.04 Opinions of Counsel..................................................23
5.05 Diligence............................................................23
5.06 Corporate Documents; Proceedings.....................................23
5.07 Financial Statements.................................................23
5.08 Mandatory Prepayment ................................................24
5.09 Warehouse Security Agreement.........................................24
5.10 No Adverse Change....................................................24
5.11 Insurance............................................................24
5.12 [Intentionally Omitted]..............................................25
5.13 Delivery of the Collateral...........................................25
5.14 Fees.................................................................25
5.15 No Litigation........................................................25
5.16 Liquidity Agreement..................................................25
5.17 Acknowledgment.......................................................25
5.18 Legal or Regulatory Proceedings......................................25
5.19 Intercreditor Agreement..............................................26
5.20 Treatment of Existing Liens..........................................26
<PAGE>
SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS ........................26
6.01 Corporate Status.....................................................26
6.02 Corporate Power and Authority........................................26
6.03 No Violation.........................................................26
6.04 Governmental Approvals...............................................27
6.05 Financial Statements; Financial Condition;
Undisclosed Liabilities; etc.........................................27
6.06 Litigation...........................................................27
6.07 True and Complete Disclosure.........................................27
6.08 Use of Proceeds; Margin Regulations..................................28
6.09 Tax Returns and Payments.............................................28
6.10 Compliance with ERISA................................................28
6.11 Capitalization.......................................................28
6.12 Subsidiaries.........................................................29
6.13 Compliance with Statutes, etc........................................29
6.14 Investment Company Act...............................................29
6.15 No Burdensome Agreement..............................................29
6.16 Security Interests...................................................29
6.17 Registration.........................................................29
6.18 Representations Relating to the Mortgage Loans.......................30
6.19 Representations Relating to the Mortgage-backed Securities...........31
6.20 Insurance............................................................31
6.21 Title to Property....................................................31
6.22 No Recourse Sales....................................................31
6.23 Fictitious Names.....................................................32
SECTION 7. AFFIRMATIVE COVENANTS .............................................32
7.01 Information Covenants................................................32
7.02 Books, Records and Inspections.......................................35
7.03 Maintenance of Property, Insurance...................................35
7.04 Corporate Franchises.................................................36
7.05 Compliance with Statutes, etc........................................36
7.06 ERISA................................................................36
7.07 Performance of Obligations...........................................37
7.08 Mortgage Loans.......................................................37
7.09 Payment of Taxes.....................................................37
7.10 Corporate Separateness...............................................38
7.11 Collateral...........................................................38
7.12 Portfolio Hedging Arrangements.......................................38
7.13 Borrowing Base Valuation Reports.....................................38
7.14 Year 2000 Compliance.................................................39
SECTION 8. NEGATIVE COVENANTS.................................................39
8.01 Liens................................................................39
8.02 Consolidation, Merger, Sale of Assets, etc...........................39
8.03 Dividends............................................................39
8.04 Indebtedness.........................................................40
8.05 Advances, Investments and Loans......................................40
8.06 Transactions with Affiliates.........................................41
8.07 Capital Expenditures.................................................41
8.08 Maximum Adjusted Leverage Ratio......................................41
8.09 Minimum Adjusted Tangible Net Worth. ................................41
8.10 [Intentionally Omitted]..............................................41
8.11 Modifications of Certificate of Incorporation,
By-Law's, Certain Other Agreements and Collateral....................41
8.12 Limitation on Restrictions on Subsidiary Dividends
and Other Distributions..............................................42
ii
<PAGE>
8.13 Limitation on Issuances of Capital Stock by Subsidiaries.............42
8.14 Business.............................................................42
8.15 Portfolio Aging......................................................42
8.16 Minimum Current Ratio................................................42
SECTION 9. EVENTS OF DEFAULT .................................................42
9.01 Payments.............................................................42
9.02 Representations, etc.................................................43
9.03 Covenants............................................................43
9.04 Default Under Other Agreements.......................................43
9.05 Default Under Agreements With Agent..................................43
9.06 Bankruptcy, etc......................................................43
9.07 ERISA................................................................43
9.08 Warehouse Security Agreement.........................................44
9.09 [Intentionally Omitted]..............................................44
9.10 Management...........................................................44
9.11 Judgments............................................................44
9.12 Material Adverse Change..............................................44
9.13 Default Not a Condition of a 120-Day Demand..........................45
SECTION 10. THE AGENT.........................................................45
10.01 Authorization and Action.............................................45
10.02 Agent's Duties.......................................................45
10.03 GE Capital Mortgage Services, Inc. and Affiliates....................45
10.04 Successor Agent......................................................45
SECTION 11. MISCELLANEOUS ...................................................46
11.01 Payment of Expenses; Indemnity.......................................46
11.02 Notices..............................................................51
11.03 Benefit of Agreement.................................................51
11.04 Remedies Cumulative..................................................51
11.05 Calculations; Computations...........................................51
11.06 Governing Law; Submission to Jurisdiction; Venue.....................51
11.07 No Proceedings.......................................................52
11.08 Counterparts.........................................................52
11.09 Effectiveness........................................................52
11.10 Headings Descriptive.................................................52
11.11 Amendment or Waiver..................................................52
11.12 Survival.............................................................52
11.13 Waiver of Jury Trial.................................................53
SCHEDULES
SCHEDULE 6.11 - CAPITALIZATION
SCHEDULE 6.23 - FICTITIOUS NAMES
SCHEDULE 7.01(p) - CREDIT PACKAGE DOCUMENTS (LIST OF DOCUMENTS
TO BE DELIVERED WITH RESPECT TO A PLEDGE MORTGAGE)
SCHEDULE 8.04(ii) - EXISTING INDEBTEDNESS
iii
<PAGE>
EXHIBITS
EXHIBIT A-1 FORM OF PLEDGE OF COLLATERAL
EXHIBIT A-2 FORM OF REQUEST FOR ADVANCE BY CHECK
EXHIBIT A-3 FORM OF REQUEST FOR ADVANCE BY WIRE
EXHIBIT B-1 FORM OF WET ADVANCE DISBURSEMENT INSTRUCTION
EXHIBIT B-2 FORM OF BORROWER'S WET ADVANCE DISBURSEMENT INSTRUCTION
INTENTIONALLY OMITTED
EXHIBIT C FORM OF NOTE
EXHIBIT D FORM OF OPINION OF SPECIAL COUNSEL FOR THE BORROWER
EXHIBIT E FORM OF OFFICERS' CERTIFICATE FOR BORROWER
EXHIBIT F-1 FORM OF OWNERS' AND OFFICERS' CERTIFICATION
EXHIBIT F-2 CREDIT SCORES
EXHIBIT G FORM OF ACKNOWLEDGMENT OF COLLATERAL AGENT'S RIGHTS
EXHIBIT H FORM OF WAREHOUSE SECURITY AGREEMENT
EXHIBIT I FORM OF INTERCREDITOR AGREEMENT
EXHIBIT J
iv
<PAGE>
WAREHOUSE CREDIT AGREEMENT (as modified, supplemented or amended from
time to time, this "Agreement"), dated as of August 7, 1998, among FIRST
MORTGAGE NETWORK, INC., a Florida corporation (the "Borrower"), COOPER RIVER
FUNDING INC., a Delaware corporation (the "Lender"), and GE CAPITAL MORTGAGE
SERVICES, INC., a New Jersey corporation (the "Agent").
WITNESSETH:
-----------
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Lender is willing to make available to the Borrower the credit facilities
provided for herein;
NOW, THEREFORE, IT IS AGREED:
Section 1. Definitions and Principles of Construction.
------------------------------------------
1.01 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Adjusted Leverage Ratio" shall mean, as to any Person, the ratio of
the Consolidated Liabilities of such Person to the Adjusted Tangible Net Worth
of such Person.
"Adjusted Tangible Net Worth" shall mean, as to any Person, (x) the sum
of, without duplication, the Consolidated Net Worth of such Person and its
Subsidiaries, plus an amount equal to 1.00% of the aggregate principal amount of
the Servicing Portfolio of such Person, plus the principal amount of any
Indebtedness that is subordinated to the payment of the Obligations on such
terms as are acceptable to the Agent and that does not permit or require any
principal payment in respect thereof prior to the Expiration Date in effect from
time to time, less (y) the sum of (i) the amount of all intangible items,
including, without limitation, goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks, brand names, write-ups of
assets and purchased, capitalized or excess servicing, (ii) all receivables from
any officer, director or Affiliate of the Borrower, (iii) all unpaid stock
subscriptions, (iv) the Contingent Obligations of such Person as determined by
the Agent and (v) any other assets determined by the Agent in its reasonable
discretion.
"Advance" shall have the meaning provided in Section 2.01.
"Advance Account" shall mean the depositary account of the Borrower
designated by the Borrower by written notice to the Agent and the Lender.
"Affiliate" shall mean, as to any Person, any other Person (other than
an individual) directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such
<PAGE>
Person; provided, however, that for purposes of Section 8.06, an Affiliate of
the Borrower shall include any Person that directly or indirectly owns more than
5% of the Borrower and any officer or director of the Borrower or any such
Person. A Person shall be deemed to control another Person if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such other Person, whether through the ownership
of voting securities, by contract or otherwise.
"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto.
"Borrower's Wet Advance Disbursement Instruction" shall have the
meaning provided in Section 2.05.
"Borrowing Base" shall mean, as of any date, an amount that is the sum
of the following, with respect to all Eligible Mortgage Loans, Eligible
Nonconforming Mortgage Loans and Liquid Assets pledged to the Security Agent as
of such date: (1) the sum for all Conforming Loans that are Committed Mortgage
Loans and are the subject of an Interest Rate Commitment of the product of (x)
the Mortgage Loan Aging Percentage with respect to such Mortgage Loan and (y)
100% of the Market Value of such Mortgage Loan, (2) the sum for all other
Conforming Loans that are Committed Mortgage Loans of the product of (x) the
Mortgage Loan Aging Percentage with respect to such Mortgage Loan and (y) 99% of
the Market Value of such Mortgage Loan, (3) the sum for all Jumbo Loans (each of
which shall be a Committed Mortgage Loan) which are the subject of an Interest
Rate Commitment of the product of (x) the Mortgage Loan Aging Percentage with
respect to such Mortgage Loan and (y) 100% of the Market Value of such Mortgage
Loan, (4) the sum for all other Jumbo Loans (each of which shall be a Committed
Mortgage Loan) of the product of (x) the Mortgage Loan Aging Percentage with
respect to such Mortgage Loan and (y) 99% of the Market Value of such Mortgage
Loan, (5) the sum for all Mortgage Loans that are FHA Loans, VA Loans or State
Loans of the product of (x) the Mortgage Loan Aging Percentage with respect to
such Mortgage Loan and (y) 99% of the Market Value of such Mortgage Loan, (6)
0% of the Market Value of each Mortgage-backed Security, (7) an amount equal to
the aggregate principal amount of the Liquid Assets, (8) the sum for all Credit
A- Loans of the product of (x) the Nonconforming Mortgage Loan Aging Percentage
with respect to such Mortgage Loan and (y) 99% of the Market Value of such
Mortgage Loan, (9) the sum for all Credit B Loans of the product of (x) the
Nonconforming Mortgage Loan Aging Percentage with respect to such Mortgage Loan
and (y) 99% of the Market Value of such Mortgage Loan, (10) the sum for all
Credit C Loans of the product of (x) the Nonconforming Mortgage Loan Aging
Percentage with respect to such Mortgage Loan and (y) 98% of the Market Value
of such Mortgage Loan and (1 1) the sum for all Credit D Loans of the product of
(x) the Nonconforming Mortgage Loan Aging Percentage with respect to such
Mortgage Loan and (y) 0% of the Market Value of such Mortgage Loan.
"Borrowing Base Valuation Report" shall have the meaning provided in
Section 7.13.
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be in New York, New York, a legal holiday or a day on which banking
institutions are authorized or required by law or other government action to
close.
2
<PAGE>
"Cash Equivalents" means (i) securities with maturities of sixty days
or less from the date of acquisition issued or fully guaranteed or insured by
the United States Government or any agency thereof, (ii) certificates of
deposit, eurodollar time deposits, overnight bank deposits, bankers' acceptances
and repurchase agreements of any commercial bank whose short-term obligations
are rated "A-1" by S&P and, if rated by Moody's, "P-1" by Moody's and, if rated
by Fitch, "F-1" by Fitch, having maturities of sixty days or less from the date
of acquisition, (iii) commercial paper having maturities of sixty days or less
from the date of acquisition, rated at least "A-1" by S&P or by Moody's and, if
rated by Fitch, "F-1 " by Fitch, (iv) money market funds rated at least "AAAM"
or "AAA-G" by S&P or "P-1" by Moody's and, if rated by Fitch, "AAA" by Fitch,
and (v) repurchase agreements with counterparties whose short-term obligations
are rated at least "A-1" by S&P or "P-1" by Moody's and, if rated by Fitch,
"F-1" with a term of sixty days or less.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean all "Collateral" as defined in the Warehouse
Security Agreement.
"Collateral Agent" shall mean General Electric Capital Corporation in
its capacity as collateral agent pursuant to the Cooper River Security
Agreement.
"Collateral Documents" shall mean, as to a Mortgage Loan which has been
or is to be pledged to the Security Agent as Collateral, the following documents
and instruments:
(i) The original Mortgage Note executed with respect to such
Mortgage Loan by a third party in favor of the Borrower (or
properly endorsed to the Borrower if purchased or acquired by
the Borrower) and endorsed in blank by the Borrower;
(ii) The original recorded Mortgage securing such Mortgage Note or
a copy of the original Mortgage securing such Mortgage Note,
certified by the Borrower or a title company or escrow company
reasonably satisfactory to the Security Agent to be a true
copy of the original instrument submitted for recording;
(iii) If the Mortgage Note was purchased by the Borrower, an
original properly recorded assignment of the related Mortgage
to the Borrower or a copy of such assignment certified by the
Borrower or a title or escrow company reasonably satisfactory
to the Security Agent to be a true copy of the original
instrument submitted for recording and a certified copy of
each intervening assignment of such Mortgage, if any;
(iv) An assignment of the Mortgage by the Borrower to the Security
Agent fully completed and in recordable form. If appropriate
filing and recording information regarding the Mortgage has
not been inserted into the assignment, the Borrower hereby
authorizes the Security Agent to insert such information, when
available. Such assignment shall not be filed for recordation
unless the Security Agent shall in good faith deem such action
necessary to further secure any Advances, in which
3
<PAGE>
case the Security Agent may file of record any or all such
assignments. The Borrower shall immediately reimburse the
Security Agent for any and all costs and expenses incurred by
the Security Agent in connection with such recordation;
(v) A closing protection letter executed by an authorized
representative of a title insurance company or escrow company
reasonably satisfactory to the Agent stating that the closing
agent with respect to such Mortgage Loan is an authorized
agent of such title insurance company or escrow company; and
(vi) Such other documents as the Security Agent may reasonably
require from time to time, including, without limitation, a
copy of any Purchase Commitment or Master Commitment relating
to the Mortgage Loan.
"Collateral Value" shall mean, at any time, with respect to a Mortgage
Loan or a Mortgagebacked Security, the amount resulting from that part of the
calculation of the Borrowing Base at such time that relates to such Mortgage
Loan or Mortgage-backed Security.
"Combined Loan-to-Value Ratio" shall mean, as to any Mortgage Loan, the
ratio expressed as a percentage that the sum of the original principal balance
of such Mortgage Loan and the then current principal balance of any related
first priority mortgage bears to the appraised value of the related mortgaged
property at the time such Mortgage Loan was originated.
"Commercial Paper" shall mean the short-term promissory notes of the
Lender.
"Commercial Paper Rate" shall mean with respect to any calendar month,
a rate per annum determined by annualizing the aggregate interest expense of
Lender (determined on an accrual basis) for such calendar month in respect of
(i) Commercial Paper outstanding during such calendar month and (ii) any
borrowings made by Lender under the Liquidity Agreement.
"Commitment" shall mean the obligation of the Lender to make Advances
in an aggregate principal amount outstanding at any time not to exceed
$25,000,000.
"Committed Mortgage Loans" shall mean all Mortgage Loans pledged to
the Security Agent pursuant to the terms of this Agreement and of the Warehouse
Security Agreement (i) which satisfy all of the requirements of any Purchase
Commitment or are covered by a Hedging Contract, (ii) which could be delivered
under any such Purchase Commitment, and (iii) which, in respect of all Mortgage
Loans of a particular type and yield, do not in the aggregate have a principal
amount in excess of the sum of (A) the aggregate then remaining amount of all
Purchase Commitments the requirements of which are satisfied by Mortgage Loans
of such type and yield owned by the Borrower plus (B) the aggregate amount of
all Hedging Contracts that cover Mortgage Loans of such type and yield owned by
the Borrower.
"Conforming Loan" shall mean a Mortgage Loan (other than a VA Loan, an
FHA Loan or a State Loan) that is underwritten in conformity with FHLMC or FNMA
underwriting standards and is otherwise eligible for purchase by FNMA or FHLMC.
4
<PAGE>
"Consolidated Liabilities" shall mean, as to any Person, the
liabilities of such Person and its Subsidiaries determined on a consolidated
basis and in accordance with generally accepted accounting principles in the
United States, applied on a consistent basis, and shall include in any event the
Contingent Obligations of such Person and its Subsidiaries.
"Consolidated Net Worth" shall mean, as to any Person, the Net Worth of
such Person and its Subsidiaries determined on a consolidated basis and in
accordance with generally accepted accounting principles in the United States,
applied on a consistent basis.
"Consolidated Subsidiaries" shall mean, as to any Person, all
Subsidiaries of such Person which are or are required to be consolidated with
such Person for financial reporting purposes in accordance with generally
accepted accounting principles in the United States.
"Contingent Obligation" shall mean, as to any Person, any obligation of
such Person arising from an existing condition or situation that involves
uncertainty as to outcome and that will be resolved by the occurrence or
nonoccurrence of some future event, including but not limited to any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly; provided,
however, that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by the Agent.
"Cooper River Security Agreement" shall mean the Assignment and
Security Agreement dated as of March 1, 1993 among the Lender, the Collateral
Agent and the cash collateral bank named therein (as such agreement may be
amended, supplemented or modified from time to time).
"Credit A- Loan" shall mean a Mortgage Loan (other than a Mortgage Loan
that satisfies all the requirements of an Eligible Mortgage Loan) the obligor of
which has a Credit Score as described on Exhibit G hereto.
"Credit B Loan" shall mean a Mortgage Loan (other than a Mortgage Loan
that satisfies all the requirements of an Eligible Mortgage Loan) the obligor of
which has a Credit Score as described on Exhibit G hereto.
"Credit C Loan" shall mean a Mortgage Loan (other than a Mortgage Loan
that satisfies all the requirements of an Eligible Mortgage Loan) the obligor of
which has a Credit Score as described on Exhibit G hereto.
5
<PAGE>
"Credit D Loan" shall mean a Mortgage Loan (other than a Mortgage Loan
that satisfies all the requirements of an Eligible Mortgage Loan) the obligor of
which has a Credit Score as described on Exhibit G hereto.
"Credit Documents" shall mean this Agreement, the Note and the
Warehouse Security Agreement.
"Credit Package Documents" shall have the meaning provided in Section
7.01(p).
"Credit Score" shall mean the numeric consumer credit score developed
by Fair Isaac & Co., Inc. and referred to as a "FICO Score".
"Current Ratio" shall mean, as to any Person, the ratio of current
assets to current liabilities, as determined in accordance with generally
accepted accounting principles in the United States, applied on a consistent
basis.
"Custodian" shall mean, with respect to any Investor, any financial
institution selected by such Investor to act as a custodian for Mortgage Loans
acquired or to be acquired by such Investor; provided that such financial
institution has been approved by the Security Agent and meets all applicable
requirements of such Investor to act as such custodian.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Depositary" shall mean Bankers Trust Company, a New York banking
corporation, in its capacity as issuing and paying agent for the Commercial
Paper under the Depositary Agreement.
"Depositary Agreement" shall mean the Depositary Agreement entered into
by the Lender, the Depositary, and the agent under the Liquidity Agreement, as
such agreement may be supplemented or modified from time to time.
"Effective Date" shall have the meaning provided in Section 11.09.
"Eligible Mortgage Loan" shall mean at the time of the determination
thereof (a) a Mortgage Loan, which at such time (i) is pledged as Collateral
pursuant to the terms of this Agreement and of the Warehouse Security Agreement
and is not pledged as security for any Indebtedness owing to, or otherwise
subject to a Lien for the benefit of, any person other than the Lender, (ii) is
a First Mortgage Loan, (iii) is, without duplication, a Conforming Loan, a
Jumbo Loan, an FHA Loan, a VA Loan or a State Loan, (iv) is subject to a
Purchase Commitment or covered by a Hedging Contract or is a Mortgage Loan that
bears interest at an adjustable rate and is covered by a Master Commitment, (v)
in the case of a Mortgage Loan that is not subject to a Wet Advance, has an
Origination Date that is less than 180 calendar days prior to such time, (vi) in
the case of a Mortgage Loan that is subject to a Wet Advance, has an Origination
Date that is not more than five Business Days prior to such time and (vii) has a
Combined Loan-to-Value Ratio of 100% or less, excluding in all such cases,
however, any Mortgage Loan about which any of the
6
<PAGE>
representations, warranties and agreements contained in Section 6.18 is not true
and correct; provided that, in the case of a Mortgage Loan (other than a State
Loan), the interest rate on such Mortgage Loan was, as of the date on which such
interest rate was set or established, at least equal to the then current market
rate of interest for mortgage loans of the same type as determined by the Agent;
or (b) a Mortgage-backed Security which at such time (i) is subject to a
Purchase Commitment, (ii) is pledged as Collateral pursuant to the terms of this
Agreement and of the Warehouse Security Agreement and (iii) was issued by FNMA,
FHLMC or GNMA not more than 60 calendar days prior to such time.
"Eligible Nonconforming Mortgage Loan" shall mean at the time of the
determination thereof, a Mortgage Loan, which at such time (i) is pledged as
Collateral pursuant to the terms of this Agreement and of the Warehouse Security
Agreement and is not pledged as security for any Indebtedness owing to, or
otherwise subject to a Lien for the benefit of, any person other than the
Lender, (ii) is, without duplication, a First Mortgage Loan or a Second Mortgage
Loan, (iii) is subject to a Purchase Commitment, (iv) has and has had no
delinquency with respect to any payment due thereunder, (v) has no deficiencies
in respect of the documentation therefor, (vi) is, without duplication, a Credit
A- Loan, a Credit B Loan, a Credit C Loan or a Credit D Loan, (vii) in the case
of a Mortgage Loan that is not subject to a Wet Advance, has an Origination Date
that is less than 20 calendar days prior to such time, (viii) in the case of a
Mortgage Loan that is subject to a Wet Advance, has an Origination Date that is
not more than five Business Days prior to such time and (ix) has a Combined
Loan-to-Value Ratio of 100% or less, excluding in all such cases, however any
Mortgage Loan about which any of the representations, warranties and agreements
contained in Section 6.18 is not true and correct; provided that the interest
rate on such Mortgage Loan was, as of the date on which such interest rate was
set or established, at least equal to the then current market rate of interest
for mortgage loans of the same type as determined by the Agent.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations Promulgated and rulings issued
thereunder.
"ERISA Affiliate" shall mean any person (as defined in Section 3(9) of
ERISA) which together with the Borrower or any of its Subsidiaries would be a
member of the same "controlled group" within the meaning of Section 414(b), (m),
(c) and (o) of the Code.
"Event of Default" shall have the meaning provided in Section 9.
"Existing Indebtedness" shall have the meaning provided in Section
8.04(ii).
"Expiration Date" shall mean the earlier of (i) August 31, 1999 as such
date may be extended upon mutual agreement among the Borrower, the Lender and
the Agent from time to time, (ii) the date which is fifteen days prior to the
Liquidity Termination Date in effect from time to time and (iii) the date that
is 120 days after the date on which the Lender shall have given the Borrower the
notice referred to in Section 9.13 hereof.
7
<PAGE>
"Facility Documents" shall mean the Credit Documents, the Collateral
Documents, the Liquidity Agreement, the Depositary Agreement, the Reimbursement
Agreement, the Cooper River Security Agreement, any letters of credit issued
pursuant to the terms of the Reimbursement Agreement, the Commercial Paper and
any agreements entered into by the Lender with placement agent(s) or dealer(s)
for the placement or sale of Commercial Paper.
"Fees" shall mean all fees and expenses required to be paid by the
Borrower pursuant to Section 3.01.
"FHA" shall mean the Federal Housing Administration or any successor
thereto.
"FHA Loan" shall mean a Mortgage Loan which (i) is eligible for
insurance by FHA and (ii) is so insured or is subject to a current binding, and
enforceable commitment for such insurance pursuant to the provisions of the
National Housing Act, as now in effect and as may be hereafter amended from time
to time, and is otherwise eligible for inclusion in a GNMA Mortgage-backed
Security pool.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation or any
successor thereto.
"First Mortgage Loan" shall mean a Mortgage Loan that is underwritten
in conformity with underwriting standards approved by the applicable Investor
and is secured by a first priority Mortgage.
"Fitch" shall mean Fitch Investors Service, L.P.
"FNMA" shall mean the Federal National Mortgage Association or any
successor thereto.
"GNMA" shall mean the Governmental National Mortgage Association or any
successor thereto.
"Hedging Contract" shall mean a written contractual arrangement
designed to provide protection against fluctuations in interest rates with
respect to Mortgage Loans and commitments made to prospective Mortgage Loan
obligors to extend Mortgage Loans at specified rates of interest, in each case
in accordance with guidelines acceptable to the Agent.
"HUD" shall mean the Department of Housing and Urban Development or any
successor thereto.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services, (ii) the face amount of all letters of credit issued for the account
of such Person and all drafts drawn thereunder, (iii) all liabilities secured by
any Lien on any property owned by such Person, whether or not such liabilities
have been assumed by such Person, (iv) the aggregate amount required in
accordance with generally accepted accounting
8
<PAGE>
principles to be capitalized under leases under which such Person is the lessee
and (v) all Contingent Obligations of such Person.
"Initial Borrowing Date" shall mean the date on which the initial
incurrence of Advances occurs.
"Insolvency Event" shall mean, with respect to any Person, the
occurrence of any of the following events: (i) such Person shall become
insolvent or generally fail to pay, or admit in writing its inability to pay,
its debts as they become due, or shall voluntarily commence any proceeding or
file any petition under any bankruptcy, insolvency or similar law or seeking
dissolution, liquidation or reorganization or the appointment of a receiver,
trustee, custodian, conservator or liquidator for itself or a substantial
portion of its property, assets or business or to effect a plan or other
arrangement with its creditors, or shall file any answer admitting the
jurisdiction of the court and the material allegations of an involuntary
petition filed against it in any bankruptcy, insolvency or similar proceeding,
or shall be adjudicated bankrupt, or shall make a general assignment for the
benefit of creditors, or such Person, or a substantial part of its property,
assets or business, shall be subject to, consent to or acquiesce in the
appointment of a receiver, trustee, custodian, conservator or liquidator for
itself or a substantial portion of its property, assets or business; (ii)
corporate action shall be taken by such Person for the purpose of effectuating
any of the foregoing; (iii) an order for relief shall be entered in a case under
the Bankruptcy Code in which such Person is a debtor; or (iv) involuntary
proceedings or an involuntary petition shall be commenced or filed against such
Person under any bankruptcy, insolvency or similar law or seeking, the
dissolution, liquidation or reorganization of such Person or the appointment of
a receiver, trustee, custodian, conservator or liquidator for such Person or of
a substantial part of the property, assets or business of such Person, or any
writ, order, judgment, warrant of attachment, execution or similar process
shall be issued or levied against a substantial part of the property, assets or
business of such Person, and such proceeding or petition shall not be dismissed,
or such execution or similar process shall not be released, vacated or fully
bonded, within sixty (60) days after commencement, filing or levy, as the case
may be.
"Interest Rate Commitment" shall mean a commitment whereby the Borrower
agrees to deliver a Mortgage Loan to GE Capital Mortgage Services, Inc., as
investor, according to the terms of a Purchase Commitment and GE Capital
Mortgage Services, Inc. agrees to a specified interest rate and purchase price
for a designated length of time.
"Investor" shall mean FHLMC, FNMA, GNMA or any financial institution,
broker, dealer, institutional investor or state agency or instrumentality
approved by the Agent.
"Jumbo Loan" shall mean a Mortgage Loan (other than an FHA Loan, a VA
Loan, or a State Loan) that is underwritten in accordance with standards
approved by the Agent that are generally comparable to the standards established
by FNMA or FHLMC in all respects other than the original principal amount of the
Mortgage Loan and that were established by an Investor (other than FHLMC, FNMA
or GNMA).
9
<PAGE>
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Liquid Assets" shall mean (i) certificates of deposit of any
commercial bank whose short term obligations are rated "A-1+" by S&P and, if
rated by Moody's, "P-1" by Moody's and, if rated by Fitch, "F-1+" by Fitch
having maturities of 60 days or less from the date of acquisition and (ii)
securities issued or fully guaranteed or insured by the United States Government
or any agency thereof having maturities of 60 days or less from the date of
acquisition.
"Liquidity Agreement" shall mean the Liquidity Agreement dated as of
March 1, 1993 among the Lender, the liquidity lenders party thereto and General
Electric Capital Corporation, as liquidity agent, as the same may be amended or
modified from time to time.
"Liquidity Lenders" shall mean the banks and financial institutions
that are parties to the Liquidity Agreement from time to time.
"Liquidity Termination Date" shall mean the earlier of (1) June 23,
1999, as such date may be extended in accordance with the terms of the Liquidity
Agreement and (ii) the date on which the commitment of the Liquidity Lenders
under the Liquidity Agreement is terminated following the occurrence of an event
of default thereunder.
"LOC Providers" shall mean those banks and financial institutions that
are parties to the Reimbursement Agreement.
"Margin Stock" shall have the meaning provided in Regulation U of the
Board of Governors of the Federal Reserve System.
"Market Value" shall mean as of any date at which the amount thereof is
to be determined, (i) as to any Mortgage-backed Security, the purchase price
therefor (exclusive of any accrued interest included in such purchase price)
under the Purchase Commitment with respect thereto; and (ii) as to any Mortgage
Loan an amount equal to the lower of (A) an amount equal to (1) with respect to
a Mortgage Loan that was funded directly by the Borrower to the obligor
thereunder, the outstanding principal amount of such Mortgage Loan or (2) with
respect to a Mortgage Loan that was purchased by the Borrower, the lesser of (x)
the purchase price paid by the Borrower therefor (exclusive of any accrued
interest or servicing release premium included in such purchase price) and (y)
the outstanding principal amount of such Mortgage Loan, as applicable, (B) the
amount determined by the Agent, in its sole discretion, as the price (exclusive
of any accrued interest that would be included in such price) at which such
Mortgage Loan could on the date of such determination be sold in the secondary
market to a bona fide investor in an arm's-length transaction and (C) the price
at which an Investor has committed to purchase such Mortgage Loan.
10
<PAGE>
"Master Commitment" shall mean a written master commitment or any other
written commitment, on general terms and conditions approved by the Agent, from
an Investor to purchase from the Borrower from time to time up to a specified
dollar amount of Mortgage Loans without specification of the yield or purchase
price of each such Mortgage Loan.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgage" shall mean a first or second mortgage, first or second deed
of trust, first or second deed to secure debt or other first or second security
device which is customary and serves the same function as a mortgage under the
law and practice in the jurisdiction in which the premises subject to the
mortgage are located. For all Mortgage Loans secured by premises located in
states in which it is customary to use deeds of trust or security deeds as the
security device, a deed of trust or security deed, as the case may be, shall be
used as the security device. Mortgages shall, unless the Agent shall otherwise
approve, be on forms acceptable to FNMA, GNMA or FHLMC.
"Mortgage-backed Securities" shall mean securities that are (A) (i)
issued in accordance with guidelines established by GNMA, FNMA or FHLMC, (ii)
guaranteed as to payment by GNMA, FNMA or FHLMC in accordance with the
guidelines established by such entities and (iii) secured by a pool of Mortgage
Loans originally included as Eligible Mortgage Loans hereunder, or which would
have otherwise satisfied the requirements for Eligible Mortgage Loans if such
Mortgage Loans had been pledged to the Security Agent pursuant to the terms of
this Agreement and of the Warehouse Security Agreement, (B) subject to a
Purchase Commitment and (C) issued in book-entry form.
"Mortgage Bankers' Reporting Forms" shall have the meaning provided in
Section 7.01(o).
"Mortgage Loan" shall mean a loan evidenced by a Mortgage Note and
secured by a Mortgage encumbering a completed one to four family residential
property (including, without limitation, condominium units and excluding
cooperative ownership interests).
"Mortgage Loan Aging Percentage" shall mean, as of any date, with
respect to any Eligible Mortgage Loan, (i) 100% if such Mortgage Loan has an
Origination Date that is less than 90 days prior to such date, (ii) 75% if such
Mortgage Loan has an Origination Date that is less than 120 days and more than
89 days prior to such date, (iii) 50% if such Mortgage Loan has an Origination
Date that is less than 150 days and more than 119 days prior to such date, (iv)
25% if such Mortgage Loan has an Origination Date that is less than 180 days and
more than 149 days prior to such date and (v) 0% if such Mortgage Loan has an
Origination Date that is 180 or more days prior to such date.
"Mortgage Note" shall mean a promissory note executed by a competent
party which is secured by a Mortgage.
"Net Worth" shall mean, as to any Person, the sum of (i) Its capital
stock, capital in excess of par or stated value of shares of its capital stock,
retained earnings and any other account which,
11
<PAGE>
in accordance with generally accepted accounting principles in the United
States, constitutes stockholder equity less (ii) any treasury stock, any unpaid
stock subscriptions and any subordinated or other loans from stockholders, in
each case to the extent included in clause (i).
"Nonconforming Commitment" shall have the meaning provided in Section
2.01.
"Nonconforming Mortgage Loan Aging Percentage" shall mean, as of any
date, with respect to any Eligible Nonconforming Mortgage Loan, (i) 100% if such
Mortgage Loan has an Organization Date that is less than 60 days prior to such
date, (ii) 50% if such Mortgage Loan has an Origination Date that is less than
90 days and more than 59 days prior to such date and (iii) 0% if such Mortgage
Loan has an Origination Date that is 90 days or more prior to such date.
"Note" shall have the meaning provided in Section 2.06.
"Obligations" shall mean all amounts owing to the Lender or the Agent
pursuant to the terms of this Agreement and any other Credit Document.
"Office" shall mean the office of the Agent located at Three Executive
Campus, Cherry Hill, New Jersey 08002 or such other address as the Agent may
specify from time to time in a written notice to the Borrower and the Lender.
"Origination Date" shall mean, with respect to any Mortgage Loan, the
date such Mortgage the Loan was funded to the obligor thereon.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA or any successor thereto.
"Person" shall mean any individual, partnership, joint venture,
firm-, corporation, association, trust or other enterprise or any government
or political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any multiemployer plan or single-employer plan as
defined in Section 4001 of ERISA, which is maintained or contributed to by (or
to which there is an obligation to contribute of), or at any time during the
five calendar years preceding the date of this Agreement was maintained or
contributed to by (or to which there is an obligation to contribute of), the
Borrower or by a Subsidiary of the Borrower or an ERISA Affiliate.
"Purchase Commitment" shall mean a current binding and enforceable
written commitment (or contract for purchase) from an Investor to purchase from
the Borrower Mortgage Loans or Mortgage-backed Securities of a particular type
and yield owned by the Borrower at a committed price, which commitment shall at
all times be subject to approval by the Agent as to terms and conditions.
12
<PAGE>
"Rating Agency" shall mean each credit rating agency that the Lender
shall have requested to provide a credit rating with respect to the Commercial
Paper and which is then providing such a credit rating.
"Reimbursement Agreement" shall mean the Letter of Credit and
Reimbursement Agreement dated as of March 1, 1993 among the Lender, the banks
and financial institutions party thereto and General Electric Capital
Corporation, as letter of credit agent, as such agreement may be amended,
supplemented or modified from time to time.
"Reportable Event" shall mean an event described in Section 4043(b) of
ERISA with respect to a Plan as to which the 30-day notice requirement has not
been waived by the PBGC.
"Request for Advance" shall have the meaning provided in Section 2.04.
"S&P" shall mean Standard & Poor's Corporation.
"Second Mortgage Loan" shall mean a Mortgage Loan that is underwritten
in conformity with underwriting standards approved by the applicable Investor
and is secured by a second priority Mortgage.
"Security Agent" shall mean GE Capital Mortgage Services, Inc. in its
capacity as security agent for the Lender pursuant to the Warehouse Security
Agreement.
"Servicing Portfolio" shall mean, as to any Person, all Mortgage Loans
the servicing or subservicing rights for which are owned by such Person and with
respect to which such Person functions as the servicing institution.
"State Loan" shall mean a Mortgage Loan that is (i) underwritten in
conformity with underwriting standards that are established by a state agency or
instrumentality and approved by the Agent and (ii) subject to a Purchase
Commitment from such state agency or instrumentality.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has (A) more than a 50% equity interest at the time or (B) an
interest satisfying the provisions of clause (i) hereof in any general partner
of any limited partnership or joint venture.
"Taxes" shall have the meaning provided in Section 11.01(e).
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in New Jersey or any other relevant jurisdiction, as applicable.
13
<PAGE>
"Unfunded Current Liability" of any Plan means the amount, if any, by
which the present value of the accrued benefits under the Plan as of the close
of its most recent plan year, determined in accordance with Statement of
Financial Accounting Standards No. 35, based upon the actuarial assumptions used
by the Plan's actuary in the most recent annual valuation of the Plan, exceeds
the fair market value of the assets allocable thereto, determined in accordance
with Section 412 of the Code.
"VA" shall mean the Veterans Administration or any successor thereto.
"VA Loan" shall mean a Mortgage Loan which is eligible for guarantee by
VA and is either so guaranteed or is subject to a current binding and
enforceable commitment for such guarantee pursuant to the provisions of the
Servicemen's Readjustment Act, as now in effect and as may be hereafter amended
from time to time, and is otherwise eligible for inclusion in a GNMA
Mortgagebacked Security pool.
"Warehouse Payment Account" shall mean the segregated direct deposit
account number 00-379-049 maintained by the Collateral Agent with respect to
this Agreement at Bankers Trust Company in accordance with the terms of the
Cooper River Security Agreement.
"Warehouse Security Agreement" shall have the meaning provided in
Section 5.09.
"Wet Advance" shall mean an Advance made by the Lender against the
pledge of Eligible Mortgage Loans or Eligible Nonconforming Mortgage Loans with
respect to which the Borrower has delivered to the Agent a Request for Advance
in accordance with Section 2.04 in lieu of the delivery of the Mortgage Note
related thereto; provided, however, that from and after the date on which the
Mortgage Note with respect to any such Mortgage Loan is received by the Security
Agent, such Advance shall cease to be a Wet Advance.
"Wet Advance Disbursement Instruction" shall have the meaning provided
in Section 2.05.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock is at the time owned by such Person
and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity
interest at such time.
1.02 Principles of Construction. (a) All references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified. The words "hereof," "herein," "hereto" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
14
<PAGE>
(b) All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles in
conformity with those used in the preparation of the financial statements
referred to in Section 6.05(a).
Section 2. Amount and Terms of Credit.
2.01 Commitment. Subject to and upon the terms and conditions set forth
herein, the Lender agrees, at any time and from time to time prior to the
Expiration Date (or such earlier date as the Commitment shall have been
terminated pursuant to the terms hereof), to make an advance or advances (each
an "Advance" and, collectively, the "Advances") to the Borrower, which Advance:
(i) shall be made at any time and from time to time in accordance with the terms
hereof on and after the Effective Date and prior to the Expiration Date; (ii)
shall bear interest as provided in Section 2.07; (iii) may be prepaid and
reborrowed in accordance with the provisions hereof; and (iv) shall be made
against the pledge by the Borrower of Eligible Mortgage Loans, Eligible
Nonconforming Mortgage Loans or Liquid Assets as Collateral for such Advance as
provided herein and in the Warehouse Security Agreement; provided, however, that
(1) the aggregate principal amount of Advances outstanding at any time shall not
exceed the lesser of (x) the Commitment and (y) the Borrowing Base, at such
time, (2) the aggregate principal amount of Advances outstanding at any time
secured by Mortgage-backed Securities shall not exceed 0% of the Commitment, (3)
the aggregate principal amount of Wet Advances outstanding at any time shall not
exceed 30% of the Commitment, (4) the aggregate principal amount of Advances
outstanding at any time secured by Jumbo Loans shall not exceed 75% of the
Commitment, (5) the aggregate principal amount of Advances outstanding at any
time secured by Eligible Nonconforming Mortgage Loans shall not exceed
$5,000,000 (the "Nonconforming Commitment"), (6) the aggregate principal amount
of Advances outstanding at any time secured by Credit A- Loans shall not exceed
100% of the Nonconforming Commitment, (7) the aggregate principal amount of
Advances outstanding at any time secured by Credit B Loans shall not exceed 100%
if the Nonconforming Commitment, (8) the aggregate principal amount of Advanced
outstanding at any time secured by Credit C Loans shall not exceed 50% of the
Nonconforning Commitment and (9) the aggregate principal amount of Advances
outstanding at any time secured by Credit D Loans shall not exceed 0% of the
Nonconforming Commitment.
2.02 Minimum Borrowing Amount. The principal amount of each Advance
shall not be less than $500.
2.03 Pledge of Collateral. Whenever the Borrower desires to pledge a
Mortgage Loan or Mortgage-Backed Security to the Security Agent, it shall
deliver to the Agent at its office a pledge of Collateral substantially in the
form of Exhibit A-1 (the "Pledge of Collateral"). Each Pledge of Collateral:
(i) shall be appropriately completed by an authorized employee of the Borrower
to describe the Collateral to be pledged; and (ii) shall have attached thereto
each of the Collateral Documents required in the Pledge of Collateral,
including, without limitation, in the case of a Mortgage Loan with respect to
which a Wet Advance is being requested in accordance with Section 2.04, an
assignment by the Borrower to the Security Agent of the related Mortgage fully
completed and in recordable form.
15
<PAGE>
2.04 Request for Advance. Whenever the Borrower desires to incur an
Advance hereunder, it shall deliver to the Agent at its Office a request for
Advance substantially in the form of Exhibit A-2 or Exhibit A-3, as applicable
(the "Request for Advance") not later than the close of business on the Business
Day prior to the proposed date of such Advance; provided, however, that before
submitting a request for an Advance to be secured by a Mortgage Loan with an
outstanding principal amount in excess of $650,000, the Borrower shall have
obtained the prior approval of the Agent. Each Request for Advance: (i) shall be
appropriately completed by an authorized employee of the Borrower to specify the
aggregate principal amount of the Advance or Wet Advance to be made and the
proposed date of such Advance (which shall be a Business Day); and (ii) shall,
in the case of a Wet Advance, include instructions with respect to the
disbursement of such Wet Advance.
2.05 Disbursement of Funds. (a) No later than 3:00 P.M. (New York City
time) on the date specified in the Request for Advance with respect to any
Advance other than a Wet Advance, the Lender shall make available to the
Borrower the amount of such Advance requested to be made on such date by wire
transfer of funds to the Borrower's Advance Account.
(b) No later than 3:00 P.M. (New York City time) on the date specified
in the Request for Advance with respect to any Wet Advance, the Agent shall
disburse the amount of such Wet Advance directly to the appropriate title
company, escrow agent or closing agent, by cashier's check or wire transfer in
accordance with the instructions set forth in the related Request for Advance,
the Agent's customary practice and the requirements of applicable law.
(c) In the event that a Wet Advance is disbursed by a cashier's check
sent by the Agent or the Agent's bank to the appropriate title company, escrow
agent or closing agent, the Agent shall disburse the amount of such Wet Advance
under cover of an instruction letter substantially in the form of Exhibit B-1
(a "Wet Advance Disbursement Instruction"). In the event that a Wet Advance is
to be disbursed by wire transfer or by a cashier's check printed at the
Borrower's office and sent by the Borrower to the appropriate title company,
escrow agent or closing agent, the Borrower shall deliver to the appropriate
title company, escrow agent or closing agent an instruction letter substantially
in the form of Exhibit B-2 (a "Borrower's Wet Advance Disbursement
Instruction"). Upon the request of the Agent, the Borrower shall deliver to the
Agent a copy of any Borrower's Wet Advance Disbursement Instruction delivered by
the Borrower.
2.06 Note. The Borrower's obligation to pay the principal of, and
interest on, all Advances made to it by the Lender shall be evidenced by a
promissory note substantially in the form of Exhibit D (the "Note"). The Note
shall (i) be executed by the Borrower, (ii) be payable to the order of the
Lender and be dated on or prior to the Initial Borrowing Date, (iii) be in a
stated principal amount equal to the Commitment and be payable in the aggregate
principal amount of the Advances evidenced thereby, (iv) mature, with respect to
each Advance evidenced thereby, on the Expiry Date, (v) bear interest as
provided in Section 2.07, (vi) be subject to mandatory prepayment as provided in
Section 4.02 and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents. The Lender will note on its internal records the amount
of each Advance made by it and each payment in respect thereof and will prior to
any transfer of the Note endorse on the
16
<PAGE>
reverse side thereof the outstanding principal amount of Advances evidenced
thereby. Failure to make any such notation shall not affect the Borrower's
obligations in respect of such Advances.
2.07 Interest. [REDACTED]
(b) Overdue principal and, to the extent permitted by law, overdue
interest, and any other overdue amount payable by the Borrower hereunder, shall
bear interest at a rate per annum equal to 4% per annum in excess of the rate
specified in clause (a) above in effect from time to time; provided, however,
that no Advance shall bear interest at a rate in excess of the maximum rate
permitted by applicable law.
(c) Accrued (and theretofore unpaid) interest shall be payable in
respect of the Advances (i) monthly in arrears on the fifth Business Day of each
calendar month with respect to interest accrued during the preceding calendar
month, (ii) on any prepayment which reduces the outstanding Advances to zero,
(iii) at maturity (whether by acceleration, demand or otherwise) and (iv) after
such maturity, on demand. The Agent shall provide the Borrower with a notice
setting forth the interest accrued with respect to each calendar month not later
than the third Business Day following the end of such calendar month.
Section 3. Fees.
----
3.01 [REDACTED]
(b) The Agent shall provide the Borrower with a notice setting forth
the Administration Fee accrued and the administrative costs with respect to each
calendar month not later than the third Business Day following the end of such
calendar month.
Section 4. Prepayments; Payments.
---------------------
17
<PAGE>
4.01 Voluntary Prepayments. The Borrower shall have the right to prepay
the Advances, without premium or penalty except as set forth in Section 4.07, in
whole or in part from time to time on the following terms and conditions: (i)
the Borrower shall give the Agent at its Office notice of its intent to prepay
not later than 2:00 p.m. (New York City time) at least one Business Day prior to
the date of such prepayment; provided, however, that with respect to any
prepayment of an amount in excess of 30% of the Advances then outstanding, the
Borrower shall give the Agent notice of its intent to prepay at least 5 Business
Days prior to the date of such prepayment, and (ii) the amount of such
prepayment shall be at least $10,000.
4.02 Mandatory Prepayments. Except as set forth in Section 4.03(b), a
prepayment of Advances shall be required, without notice or demand of any kind
to the Borrower, as follows:
(a) if on any date the aggregate principal amount of Advances
outstanding (after giving effect to all other repayments thereof on
such date) exceeds the lesser of (x) the Commitment or (y) the
Borrowing Base, as then in effect, the Borrower shall immediately
prepay the principal of Advances in an aggregate amount equal to such
excess;
(b) if on any date the aggregate principal amount outstanding of
Advances secured by Mortgage-backed Securities exceeds 0% of the
Commitment, the Borrower shall immediately prepay the principal of
Advances secured by Mortgage-backed Securities in an aggregate amount
equal to such excess;
(c) if on any date the aggregate principal amount outstanding of
Wet Advances exceeds 30% of the Commitment, the Borrower shall
immediately prepay the principal of Wet Advances in an aggregate amount
equal to such excess;
(d) if on any date the aggregate principal amount outstanding of
Advances secured by Jumbo Loans exceeds 75% of the Commitment, the
Borrower shall immediately prepay the principal of Advances secured by
Jumbo Loans in an aggregate amount equal to such excess;
(e) if (i) 60 calendar days shall have elapsed from the date of
first issuance of a Mortgage-backed Security in respect of which an
Advance has been made hereunder, and (ii) such Mortgage-backed Security
has not been sold by the Borrower and paid for by an Investor and (iii)
the Advances secured by such Mortgage-backed Security have not been
prepaid pursuant to any other clause of this Section 4.02, the Borrower
shall immediately prepay the principal of Advances in an aggregate
amount equal to the Collateral Value of such Mortgage-backed Security;
(f) if the Agent shall have notified the Borrower or the Borrower
otherwise becomes aware that any Mortgage Loan or Mortgage-backed
Security originally included as an Eligible Mortgage Loan or an
Eligible Nonconforming Mortgage Loan no longer constitutes an Eligible
Mortgage Loan or an Eligible Nonconforming Mortgage Loan pursuant to
the terms and standards set forth herein and in the Warehouse Security
Agreement, the Borrower shall immediately prepay the principal of
Advances in an
18
<PAGE>
aggregate amount equal to the Collateral Value of such Mortgage Loan
or Mortgage-backed Security;
(g) if a Mortgage Loan or a Mortgage-backed Security in respect of
which an Advance has been made hereunder is sold, the Borrower shall on
the date of settlement for such sale prepay the principal of Advances
in an aggregate amount equal to the Collateral Value of such Mortgage
Loan or Mortgage-backed Security;
(h) if 21 calendar days shall have elapsed from the date a
Mortgage Loan is sent from the Security Agent to an Investor or the
Custodian for an Investor as provided in Section 4.04 and in the
Warehouse Security Agreement and such Mortgage Loan has neither been
redelivered to the Security Agent nor purchased pursuant to the letter
of transmittal delivered therewith, the form of which shall be that
customarily used by the Security Agent or, if appropriate, the form
required by FNMA or FHLMC, the Borrower shall immediately prepay the
principal of Advances in an aggregate amount equal to the Collateral
Value of such Mortgage Loan;
(i) if 14 calendar days shall have elapsed from the date on which
the Borrower is requested by the Security Agent to obtain a corrected
or completed copy of any document in connection with any Mortgage Loan
or Mortgage-backed Security and the same shall not have been delivered
to the Security Agent with the appropriate completion or correction,
the Borrower shall immediately prepay the principal of Advances in an
aggregate amount equal to the Collateral Value of such Mortgage Loan or
Mortgage-backed Security;
(j) if (1) there shall be a default in the payment of principal or
interest by the obligor under (x) an Eligible Mortgage Loan in respect
of which an Advance has been made hereunder and such default shall be
continuing for 60 days or more or (y) a Mortgage- backed Security in
respect of which an Advance has been made hereunder and such default
shall be continuing for 3 Business Days or more or (z) an Eligible
Nonconforming Mortgage Loan in respect of which an Advance has been
made hereunder and such default shall be continuing for 60 days or
more, (2) an Insolvency Event shall occur in respect of an obligor on
any Mortgage Loan in respect of which an Advance has been made
hereunder or (3) foreclosure or similar proceedings shall be commenced
in respect of the premises which secure any Mortgage Loan in respect of
which an Advance has been made hereunder, the Borrower shall
immediately prepay the principal of Advances in an aggregate amount
equal to the Collateral Value of such Mortgage Loan or Mortgage-backed
Security;
(k) if the Mortgage Loan to be funded with the proceeds of any Wet
Advance is not funded on the date of such Wet Advance, the Borrower
shall immediately prepay the full principal amount of such Wet Advance;
(l) if the Mortgage Note in respect of any Mortgage Loan securing
a Wet Advance is not delivered to the Lender within five Business Days
following the date on which such Wet Advance was made, the Borrower
shall immediately prepay the full principal amount of such Wet Advance;
19
<PAGE>
(m) if on any date the aggregate principal amount of Advances
outstanding at any time secured by Eligible Nonconforming Mortgage
Loans exceeds the Nonconforming Commitment then in effect, the Borrower
shall immediately prepay the principal of Advances in an aggregate
amount equal to such excess;
(n) if on any date the aggregate principal amount of Advances
secured b Credit A- Loans exceeds 100% of the Nonconforming Commitment,
the Borrower shall immediately prepay the principal of Advances secured
by Credit A- Loans in an aggregate amount equal to such excess;
(o) if on any date the aggregate principal amount of Advances
secured by Credit B Loans exceeds 100% of the Nonconforming Commitment,
the Borrower shall immediately prepay the principal of Advances secured
by Credit B Loans in an aggregate amount equal to such excess;
(p) if on any date the aggregate principal amount of Advances
secured by Credit C Loans exceeds 50% of the Nonconforming Commitment,
the Borrower shall immediately prepay the principal of Advances secured
by Credit C Loans in an aggregate amount equal to such excess; and
(q) if on any date the aggregate principal amount of Advances
secured by Credit D Loans exceeds 0% of the Nonconforming Commitment,
the Borrower shall immediately prepay the principal of Advances secured
by Credit D Loans in an aggregate amount equal to such excess.
4.03 Release of Collateral; Substitution. (a) So long as no Default or
Event of Default has occurred and is continuing or would result therefrom, upon
the Borrower's request therefor accompanied by a prepayment by the Borrower of
Advances in an amount sufficient to cause the amount of Advances outstanding to
be less than or equal to the Borrowing Base (calculated without reference to any
Collateral which the Borrower requests be released from the Lien granted
pursuant to the Warehouse Security Agreement) and a deposit by the Borrower of
such amount as the Agent shall designate as a reserve for application to any
fees, accrued interest or breakage costs payable with respect to the calendar
month in which such prepayment occurs, the Security Agent shall, within one
Business Day after the later of the receipt of such request or such prepayment
and deposit, release from the Lien granted pursuant to the Warehouse Security
Agreement and deliver to the Borrower in accordance with the terms of the
Warehouse Security Agreement (i) the Collateral corresponding to such Mortgage
Loan(s) or Mortgage-backed Security(ies) and (ii) the Collateral Documents
pertaining thereto.
(b) So long as no Default or Event of Default has occurred and is
continuing in lieu of any required pre-payment of principal pursuant to Section
4.02, the Borrower may, subject to the terms and conditions hereof and the prior
consent of the Agent, substitute and pledge additional Eligible Mortgage Loans
and/or Eligible Nonconforming Mortgage Loans (together with all required
Collateral Documents with respect thereto) having an aggregate Collateral Value
in an amount such that immediately after giving effect to such substitution or
addition, such prepayment is no longer required.
20
<PAGE>
4.04 Sale of Collateral to Investors. (a) The Security Agent shall
arrange, in accordance with the provisions of the Warehouse Security Agreement,
for the delivery of Mortgage Loans pledged to the Security Agent to an Investor
(or such Investor's Custodian) pursuant to a Purchase Commitment for examination
and purchase thereof by such Investor; provided, however, that prior thereto the
Security Agent shall have received from the Borrower one Business Day's prior
written notice describing the Mortgage Loan(s) to be delivered and the shipping
or wiring instructions therefor, such notice executed by an authorized employee
of the Borrower and identifying the Investor and the price which such Investor
has agreed to pay for such Collateral and/or the Mortgage-backed Security that
is to be issued against the delivery and release of such Collateral.
(b) The Security Agent shall release Collateral consisting of
Mortgage-backed Securities to the Investor under the related Purchase Commitment
on the settlement date specified in such Purchase Commitment by book-entry
transfer of such Mortgage-backed Securities to the account of such Investor
against the wire transfer to the account of the Security Agent of the full
purchase price specified in such Purchase Commitment; provided that (i) the
Security Agent shall have received from the Investor or the Borrower appropriate
instructions with respect to such delivery, transfer and payment and (ii) the
Borrower shall have made all deposits (if any) required in connection therewith
pursuant to Section 4.04(c) below.
(c) The Borrower shall make a deposit in immediately available funds
into the Warehouse Payment Account by 4:00 p.m. on the Business Day on which the
release of the Security Agent's security interest in such Mortgage Loan or
Mortgage-backed Securities is scheduled to occur pursuant to the purchase by an
Investor under a Purchase Commitment, in an amount equal to the amount by which
the aggregate amount of Advances outstanding exceeds the Borrowing Base
(calculated without reference to any such Mortgage Loan or Mortgage-backed
Security).
(d) Each delivery of Collateral pursuant to this Section 4.04 shall be
accompanied by a bailee letter in accordance with the requirements of the
Warehouse Security Agreement. All payments in respect of such Collateral so
purchased shall not be deemed received by the Security Agent until such funds
constitute "immediately available" funds in the Warehouse Payment Account or
such Mortgage-backed Securities have been credited to the account of the
Security Agent. For purposes hereof, confirmation of receipt of wired funds
shall constitute "immediately available" funds.
(e) In the event that the Borrower has entered into an agreement which
provides for the sale by the Borrower to an Investor of the rights to service
any Mortgage Loan (which sale is separate from the sale of such Mortgage Loan)
pledged to the Security Agent pursuant to the terms of this Agreement and the
Warehouse Security Agreement, the Borrower shall provide such Investor with
written notice (in a form satisfactory to the Agent) that the payment for such
servicing rights shall be made directly to the Agent for the account of the
Lender.
(f) The Borrower shall deliver to the Agent, on or prior to 10:30 a.m.
on the Business Day following receipt by the Security Agent of payment from an
Investor for Mortgage Loans (or the right to service Mortgage Loans) or
Mortgage-backed Securities purchased, notice designating
21
<PAGE>
the Mortgage Loans or Mortgage-backed Securities to which such payment applies.
An amount equal to the funds transferred to the Security Agent in respect of
Mortgage Loans (or the right to service Mortgage Loans) or Mortgage-backed
Securities purchased by an Investor (whether such funds were transferred by the
Borrower pursuant to Section 4.04(c,) or by the Investor pursuant to Sections
4.04(b), 4.04(d) or 4.04(e)) shall be applied by the Security Agent as a
prepayment of Advances.
4.05 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement and the Note shall be made to
the Agent for the account of the Lender not later than 2:00 p.m. (New York City
time) on the date when due and shall be made in immediately available funds for
deposit to the Warehouse Payment Account. Any payment received after 2:00 p.m.
(New York City time) on any Business Day shall be treated as being received on
the next succeeding Business Day. Whenever any payment to be made hereunder or
under the Note shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day and,
with respect to payments of principal, interest, fees and penalties shall be
payable at the rate otherwise applicable. The Borrower hereby authorizes the
Lender to deduct from each Advance to be made hereunder, all amounts due and
owing to the Lender or Agent including interest, penalties, fees or mandatory
prepayments.
4.06 Net Payments. All payments made by or on behalf of the Borrower
hereunder will be made without setoff, counter-claim or other defense.
4.07 Breakage Costs. If the Borrower shall prepay any principal of
Advances, whether pursuant to a voluntary or mandatory prepayment (other than a
mandatory prepayment made pursuant to Section 4.02(g)), at any time prior to the
maturity date of the Commercial Paper issued by the Lender to fund or maintain
such Advances, Borrower shall pay to the Lender (in addition to principal and
interest) such additional amounts as may be necessary to compensate the Lender
for any loss and any direct or indirect costs, including the lost of
reemployment of funds so prepaid at rates lower than the cost to the Lender of
such funds. Such losses and costs, which the Lender shall exercise reasonable
efforts to minimize, shall be specified in writing to the Borrower by the Lender
and, absent manifest error in computation, shall be binding on the Borrower. The
Borrower shall make payment of such costs and losses on the date on which
interest in respect of the Advances prepaid is otherwise due and payable.
Section 5. Conditions Precedent.
--------------------
The obligation of the Lender to make each Advance to the Borrower
hereunder is subject, at the time of the making of each such Advance (except as
hereinafter indicated), to the satisfaction of the following conditions:
5.01 Execution of Agreement; Note. On or prior to the Initial Borrowing
Date, (i) the Effective Date shall have occurred and (ii) there shall have been
delivered to the Lender the Note executed by the Borrower in the amount,
maturity and as otherwise provided herein.
22
<PAGE>
5.02 No Default, Representations and Warranties. At the time of the
making of each Advance and also after giving effect thereto (1) there shall
exist no Default or Event of Default, and (ii) all representations and
warranties contained herein and in the other Credit Documents shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Advance.
5.03 Request for Advance. Prior to the making of each Advance, the
Agent shall have received a Request for Advance with respect thereto meeting the
requirements of Section 2.04.
5.04 Opinions of Counsel. On the Initial Borrowing Date, the Lender
shall have received from outside counsel for the Borrower (who shall be
reasonably satisfactory to the Lender) an opinion addressed to the Lender and
dated the Initial Borrowing Date covering the matters set forth in Exhibit E and
such other matters incident to the transactions contemplated herein as the
Lender may reasonably request. If, at the time of the making of any Advance
subsequent to the Initial Borrowing Date, the Lender shall have requested same,
the Lender shall have received from counsel (who shall be reasonably
satisfactory to the Lender) for the Borrower an opinion in form and substance
reasonably satisfactory to the Lender, addressed to the Lender and dated the
date of such Advance, covering such matters as the Lender shall specify or such
other matters incident to the transactions contemplated herein as the Lender may
reasonably request.
5.05 Diligence. On or prior to the Initial Borrowing Date, the Agent
shall have satisfactorily completed its due diligence review of the Borrower's
operations, business, financial condition and underwriting and origination of
Mortgage Loans.
5.06 Corporate Documents; Proceedings. (a) On the Initial Borrowing
Date, the Lender shall have received a certificate, dated the Initial Borrowing
Date, signed by the President or any Vice President of the Borrower, and
attested to by the Secretary or any Assistant Secretary of the Borrower,
substantially in the form of Exhibit F-1 and with appropriate insertions,
together with copies of the Certificate of Incorporation and By-Laws of the
Borrower, the resolutions of the Borrower referred to in such certificate and a
good-standing certificate from the Secretary of State of the jurisdiction of
incorporation of the Borrower.
(b) All corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated in this Agreement
and the other Credit Documents shall be reasonably satisfactory in form and
substance to the Lender, and the Lender shall have received all information and
copies of all documents and papers, including records of corporate proceedings
and governmental approvals, if any, which the Lender reasonably may have
requested in connection therewith, such documents and papers where appropriate
to be certified by proper corporate or governmental authorities.
5.07 Financial Statements. On or prior to the Initial Borrowing Date,
the Lender shall have received (i) the consolidated and consolidating balance
sheets of the Borrower and its Consolidated Subsidiaries for the fiscal year
most recently ended and the related statements of income and retained earnings
and statements of cash flows of the Borrower and its Consolidated Subsidiaries
for such fiscal year, in each case certified by an independent certified public
23
<PAGE>
accountant reasonably acceptable to the Lender and prepared in accordance with
generally accepted accounting principles in the United States consistently
applied, together with any "management letters" detailing any "material
weaknesses in internal controls" (as defined by the Financial Accounting
Standards Board) noted by such accountants for such period and (ii) copies of
any uniform single audit reports in respect of the Borrower required or
requested by FNMA or FHLMC, any audits or financial reports in respect of the
Borrower completed or requested by HUD, GNMA, FNMA, FHLMC or any other
governmental agency or Investor and any Mortgage Bankers' Reporting Forms
prepared by the Borrower, in each case during the year preceding the date
hereof.
5.08 Mandatory Prepayment. After giving effect to the proposed Advance,
no prepayment would be required pursuant to Section 4.02.
5.09 Warehouse Security Agreement. The Borrower shall have duly
authorized, executed and delivered a Warehouse Security Agreement substantially
in the form of Exhibit I (as modified, supplemented or amended from time to
time, the "Warehouse Security Agreement") covering all of the Borrower's present
and future Collateral, together with:
(a) acknowledgment copies of proper financing statements (Form UCC-1)
duly filed under the UCC of each jurisdiction as may be necessary or, in the
opinion of the Security Agent, desirable to perfect the security interests
purported to be created by the Warehouse Security Agreement;
(b) certified copies of "Requests for Information or Copies" (Form
UCC-11), or equivalent reports, listing the financing statements referred to in
clause (a) above and all other effective financing statements that name the
Borrower as debtor and that are filed in the jurisdictions referred to in said
clause (a), together with copies of such other financing statements (none of
which shall cover the Collateral, except to the extent evidencing Liens
permitted pursuant to Section 8.01).
(c) evidence of the completion of all other recordings and filings of,
or with respect to, the Warehouse Security Agreement and the taking of all other
actions as may be necessary or, in the opinion of the Security Agent, desirable
to perfect the security interests purported to be created by the Warehouse
Security Agreement.
5.10 No Adverse Change. Since May 31, 1998, there shall have been no
material adverse change in the operations, business, property, assets or
financial condition or prospects of the Borrower.
5.11 Insurance. On or prior to the Initial Borrowing Date, the Lender
shall have received from the Borrower, a copy of a fidelity bond and policy of
insurance containing errors and omissions coverage and such other insurance as
the Lender shall require, each of which policies, where applicable, shall be in
such form, with such companies and in such amounts as are in accordance with the
Agent's requirements and shall name the Lender and the Agent as loss payees and
certificate holders.
24
<PAGE>
5.12 [Intentionally Omitted]
5.13 Delivery of the Collateral. Prior to the making of an Advance, the
Security Agent shall have received (a) if such Advance is to be made in respect
of Mortgage Loans and is not to be a Wet Advance, the Collateral Documents
relating to the Mortgage Loans pledged to secure such Advance; (b) if such
Advance is to be a Wet Advance, a duly executed assignment by the Borrower to
the Security Agent of the related Mortgage fully completed and in recordable
form, a copy of the Purchase Commitment or the Master Commitment, if applicable,
and satisfactory confirmation that the Collateral Documents relating thereto are
to be delivered to an escrow agent, closing agent or title company acceptable to
the Lender with instructions that such Collateral Documents are to be delivered
directly to the Security Agent; or (c) if such Advance is to be made in respect
of Mortgage-backed Securities, copies of the applicable mortgage schedules and
FNMA, FHLMC or GNMA delivery schedules, the confirmed trade ticket and
satisfactory confirmation of the Security Agent's interest in such
Mortgage-backed Securities.
5.14 Fees. Prior to the making of an Advance, the Borrower shall have
paid all Fees then due and payable to the Lender and the Agent.
5.15 No Litigation. There shall be no judgment, order, injunction or
other restraint which shall prohibit or impose, and no litigation pending or
threatened against or affecting the Borrower or any of its Subsidiaries which,
in the opinion of the Lender or the Agent, would prohibit or result in the
imposition of materially adverse conditions upon, the financing contemplated
hereby, or otherwise have a material adverse effect on the business, operations,
property, assets, condition (financial or otherwise) or prospects of the
Borrower or any of its Subsidiaries.
5.16 Liquidity Agreement. The Liquidity Agreement shall be in full
force and effect and the Lender shall have obtained sufficient funds to permit
it to make such Advance through the issuance of Commercial Paper as provided in
the Liquidity Agreement or through the borrowing of such funds from the
Liquidity Lenders.
5.17 Acknowledgment. On or prior to the Initial Borrowing Date, the
Borrower shall have executed and delivered to the Agent an Acknowledgment of
Collateral Agent's Rights substantially in the form of Exhibit H pursuant to
which the Borrower shall have acknowledged that all of the right, title and
interest of the Lender in and to this Agreement, the Note and the Collateral has
been pledged and assigned to, and will be enforceable by, General Electric
Capital Corporation, as Collateral Acent for the secured parties under the
Cooper River Security Agreement.
5.18 Legal or Regulatory Proceedings. On or prior to the Initial
Borrowing Date, the Borrower shall have delivered to the Agent certificates of
the principal shareholders and senior officers of the Borrower, in substantially
the form of Exhibit F-2, with respect to certain legal and regulatory
proceedings relating to such persons.
25
<PAGE>
5.19 Intercreditor Agreement. On or prior to September 30, 1998, the
Lender shall have received from the Borrower an lntercreditor Agreement
substantially in the form of Exhibit J hereto, duly executed by the Borrower and
each of the Borrower's then current warehouse lenders (as modified, supplemented
or amended from time to time, the "Intercreditor Agreement").
5.20 Treatment of Existing Liens. Within ten (10) days after the
Initial Borrowing Date, the Borrower shall have delivered to the Agent for
filing a proper amendment to financing statement (Form UCC-3) duly executed by
Eastern National Bank, evidencing the amendment of the original financing
statement filed by such lender to make clear that the collateral covered by such
financing statement does not include any of the Collateral.
The acceptance of the benefits of each Advance shall constitute a
representation, and warranty by the Borrower to the Lender that all the
conditions specified in Sections 5.02, 5.08, 5.10 and 5.15 exist as of that
time. All of the Note, certificates and other documents and papers referred to
in this Section 5, unless otherwise specified, shall be delivered to the Agent
at the Office for the account of the Lender and shall be reasonably satisfactory
in form and substance to the Agent.
Section 6. Representations. Warranties and Agreements.
-------------------------------------------
In order to induce the Lender to enter into this Agreement and to make
the Advances, the Borrower makes the following representations, warranties and
agreements as of the Effective Date, all of which shall survive the execution
and delivery of this Agreement and the Note and the making of the Advances (with
the execution and delivery of this Agreement and the making of each Advance
thereafter being deemed to constitute a representation and warranty that the
matters as specified in this Section 6 are true and correct in all respects on
and as of the date hereof and as of the date of such Advance, unless stated to
relate to a specific earlier date):
6.01 Corporate Status. Each nf the Borrower and its Subsidiaries (i) is
a duly organized and validly existing corporation in good standing under the
laws of the jurisdiction of its incorporation, (ii) has the power and authority
to own its property and assets and to transact the business in which it is
engaged and (iii) is duly qualified as a foreign corporation and in good
standing in each jurisdiction where the ownership, leasing or operation of
property or the conduct of its business requires such qualification.
6.02 Corporate Power and Authority. The Borrower has the corporate
power to execute, deliver and perform the terms and provisions of each of the
Credit Documents and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of each of such Credit Documents. The
Borrower has duly executed and delivered each of the Credit Documents, and each
of such Credit Documents constitutes its legal, valid and binding obligation
enforceable in accordance with its terms.
6.03 No Violation. Neither the execution, delivery or performance by
the Borrower of the Credit Documents, nor compliance by it with the terms and
provisions thereof, (i) will contravene any provision of any law, statute, rule
or regulation or any order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
26
<PAGE>
result in any breach of any of the material terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien other than a Lien
permitted pursuant to Section 8.01 upon any of the property or assets of the
Borrower pursuant to the terms of any indenture, mortgage, deed of trust, credit
agreement, loan agreement or any other agreement, contract or instrument to
which the Borrower is a party or by which it or any of its property or assets is
bound or to which it may be subject or (iii) will violate any provision of the
certificate of incorporation or by-laws of the Borrower.
6.04 Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made prior to the Effective Date), or exemption
by, any Governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance of any Credit Document or (ii) the legality, validity,
binding effect or enforceability of any such Credit Document.
6.05 Financial Statements: Financial Condition; Undisclosed
Liabilities; etc. (a) The consolidated and consolidation balance sheet of the
Borrower and its Consolidated Subsidiaries and the related consolidated and
consolidating statements of income and retained earnings and statements of cash
flows of the Borrower and its Consolidated Subsidiaries furnished to the Lender
in accordance with Section 5.07 hereof present fairly the consolidated and
consolidating financial condition of the Borrower and its Consolidated
Subsidiaries at the dates of such balance sheets and the consolidated and
consolidating results of the operations of the Borrower and its Consolidated
Subsidiaries for the fiscal periods covered by such statements of income and
retained earnings and statements of cash flows. All such financial statements
have been prepared in accordance with generally accepted accounting principles
and practices in the United States consistently applied. Since May 31, 1998
there has not been any material adverse change in the business, operations,
property, assets, condition (financial or otherwise) or prospects of the
Borrower.
(b) Except as fully reflected on the financial statements referred to
in Section 6.05(a), there will be as of the Effective Date no liabilities or
obligations with respect to the Borrower or any of its Subsidiaries of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due) which, either individually or in the aggregate, would be
material to the Borrower or to the Borrower and its Subsidiaries taken as a
whole.
6.06 Litigation. There are no actions, suits or proceedings pending or
threatened (i) with respect to any Credit Document or (ii) that could materially
and adversely affect the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrower.
6.07 True and Complete Disclosure. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of the Borrower
to the Lender or the Agent (including, without limitation, all information
contained in the Credit Documents) for purposes of or in connection with this
Agreement, the Warehouse Security Agreement or any transaction contemplated
herein or therein is, and all other such factual information (taken as a whole)
hereafter furnished by or on behalf of the Borrower to the Lender or the Agent
will be, true and accurate in all material respects on the date furnished to the
Lender or the Agent and not
27
<PAGE>
incomplete by omitting to state any fact necessary to make such information
(taken as a whole) not misleading in any material respect at such time in light
of the circumstances under which such information was provided.
6.08 Use of Proceeds; Margin Regulations. All proceeds of each Advance
will be used by the Borrower for the financing of the Borrower's mortgage
lending business; provided that no part of the proceeds of any Advance will be
used by the Borrower to purchase or carry any Margin Stock or to extend credit
to others for the purpose of purchasing or carrying any Margin Stock.
Neither the making of any Advance nor the use of the proceeds thereof will
violate or be inconsistent with the provisions of Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System.
6.09 Tax Returns and Payments. The Borrower and each of its
Subsidiaries has filed all tax returns required to be filed by it and has paid
all income taxes payable by it which have become due pursuant to such tax
returns and all other taxes and assessments payable by it which have become due,
other than those not yet delinquent and except for those contested in good faith
and for which adequate reserves have been established. The Borrower and each of
its Subsidiaries has paid, or has provided adequate reserves (in the good faith
judgement of the management of the Borrower or such Subsidiary, as the case may
be) for the payment of, all federal, state and foreign income taxes applicable
for all prior fiscal years and for the current fiscal year to the date hereof.
6.10 Compliance with ERISA. Each Plan is in substantial compliance with
ERISA and the Code; no Reportable Event has occurred with respect to a Plan; no
Plan is insolvent or in reorganization, no Plan has an Unfunded Current
Liability, and no Plan has an accumulated or waived funding deficiency or
permitted decreases in its funding standard account within the meaning- of
Section 412 of the Code; neither the Borrower nor any ERISA Affiliate of the
Borrower has incurred any material liability to or on account of a Plan pursuant
to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of
ERISA or Section 4971 or 4975 of the Code or expects to incur any liability
under any of the foregoing sections on account of the termination of,
participation in or contributions to any such Plan; no proceedings have been
instituted to terminate any Plan; no condition exists which presents a material
risk to the Borrower or any ERISA Affiliate of incurring a liability to or on
account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no
Lien imposed under the Code or ERISA on the assets of the Borrower exists or is
likely to arise on account of any Plan; and the Borrower may terminate
contributions to any other employee benefit plans maintained by it without
incurring any material liability to any Person interested therein.
6.11 Capitalization. Set forth on Schedule 6.11 is an accurate and
complete list of all Persons who own 5% or more of the voting stock of the
Borrower, together with the percentage ownership of each. All outstanding shares
of the Borrower's capital stock have been duly and validly issued, are fully
paid and non-assessable. The Borrower does not have outstanding any securities
convertible into or exchangeable for its capital stock or outstanding any rights
to subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock
except as set forth on Schedule 6.11 hereto.
28
<PAGE>
6.12 Subsidiaries. Set forth on Schedule 6.12 is an accurate and
complete list of all Subsidiaries of the Borrower, together with a brief
description of the business of each such Subsidiary.
6.13 Compliance with Statutes, etc. The Borrower and each of its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property, except such noncompliances as would not (i) in the aggregate,
have a material adverse effect on the business, operations, property, assets,
condition (financial or otherwise) or prospects of the Borrower and (ii) affect
in any respect the validity or enforceability of any Credit Document or the
Security Agent's rights in the Collateral.
6.14 Investment Company Act. Neither the Borrower nor any Subsidiary of
the Borrower is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
6.15 No Burdensome Agreement. Neither of the Borrower nor any
Subsidiary is a party to any indenture, loan or credit agreement or any lease or
other agreement or instrument or subject to any charter or corporate restriction
which by its terms would have a material adverse effect on the business,
condition (financial or otherwise), operations or properties of the Borrower or
such Subsidiary or on the ability of the Borrower to carry out its obligations
under the Note or the other Credit Documents to which it is a party.
6.16 Security Interests. The Warehouse Security Agreement creates, as
security for the Obligations, valid and enforceable security interests in and
Liens on all of the Collateral in favor of the Security Agent on behalf of the
Lender which are perfected and superior and prior to the rights of all third
Persons and subject to no other Liens (other than Liens permitted pursuant to
Section 8.01). The Borrower has, or will have at the time of pledge thereof,
good and marketable title to all of the Collateral, free and clear of all Liens
except those described in the preceding sentence.
6.17 Registration. The Borrower currently is, and will be at all times
at which any Advance is outstanding hereunder, licensed, registered, approved,
qualified or otherwise authorized in good standing to the extent required under
applicable law, as a mortgage banker, mortgage broker, real estate broker,
servicer of mortgage loans or otherwise in each jurisdiction in which the
conduct of its business requires such licensing, registration, approval,
qualification or other authorization, including, without limitation, as
applicable, as a (i) GNMA approved seller and/or servicer of Mortgage Loans and
issuer of Mortgage-backed Securities guaranteed by GNMA, (ii) FNMA approved
seller and/or servicer of Mortgage Loans, eligible to originate, purchase, hold,
sell and service Mortgage Loans to be sold to FNMA, (iii) FHLMC approved seller
and/or servicer of Mortgage Loans, eligible to originate, purchase, hold, sell
and service Mortgage Loans to be sold to FHLMC, (iv) lender in good standing
under the VA loan guaranty program eligible to originate, purchase, hold, sell
and service VA Loans, (v) HUD approved lender, eligible to originate, purchase,
hold, sell and service FHA Loans and (vi) licensed mortgage banker in each state
in which it originates Mortgage Loans. All appraisers providing services in
connection with
29
<PAGE>
the origination of Mortgage Loans by the Borrower have all licenses,
registrations, approvals and qualifications required by all applicable laws or
regulations.
6.18 Representations Relating to the Mortgage Loans. (a) At all times
during which a Mortgage Loan is pledged as Collateral for Advances hereunder,
such Mortgage Loan will (i) be an FHA Loan, a VA Loan, a Conforming Loan, a
Jumbo Loan, a State Loan, a Credit A- Loan, a Credit B Loan, a Credit C Loan or
a Credit D Loan; (ii) be an Eligible Mortgage Loan or an Eligible Nonconforming
Mortgage Loan and be free of any default and the Borrower will have had no
notice of any event which has occurred which may, with the passage of time or
the giving of notice, or both, become a default; (iii) comply with the terms of
this Agreement and with the relevant Purchase Commitment and/or Master
Commitment, if any; (iv) be a legal, valid and binding obligation of the
mortgagor and the mortgagee thereunder enforceable in accordance with its terms
and subject to no offset, defense or counterclaim, obligating such mortgagor to
make the payments specified therein, and each FHA Loan and each VA Loan will be
fully eligible for, and the Borrower will have complied with all applicable
requirements of law, rule or regulation in respect of, FHA insurance or VA
guaranty, respectively; (v) if such Mortgage Loan is an Eligible Nonconforming
Mortgage Loan, be subject to a Purchase Commitment, or if such Mortgage Loan is
an Eligible Mortgage Loan, be subject to a Purchase Commitment or Hedging
Contract or, if it is a Mortgage Loan that bears interest at an adjustable rate,
a Master Commitment which Purchase Commitment or Master Commitment is a legal,
valid and binding obligation of the Investor party thereto, is enforceable
against such Investor in accordance with its terms, and, except as is otherwise
notified in writing by the Borrower to the Lender and Agent, permits the
assignment thereof to the Security Agent; (vi) be owned by the Borrower and be
subject to no Lien or claim whatsoever, either legal or equitable, other than
that granted to the Security Agent for the benefit of the Lender; (vii) be fully
disbursed, the final disbursement to the mortgagor in connection therewith
having been made no more than 30 days prior to the date of pledge if such
disbursement was made by the Borrower (unless such Mortgage Loan is delivered as
Collateral securing the initial Advance made to the Borrower hereunder); (viii)
not be modified (except as to correction of clerical or scrivener errors),
amended, superseded or otherwise subject to any other agreement or contract of
any kind with the relevant mortgagor under such Mortgage Loan except to the
extent such amendment, modification or other agreement or contract has been
disclosed in writing to the Security Agent by the Borrower at the time of the
pledge and does not affect the salability of such Mortgage Loan pursuant to any
applicable Master Commitment or Purchase Commitment; (ix) be a valid first or
second lien on the mortgaged premises subject thereto; (x) if required by the
Investor, have a title insurance policy or binder, in ALTA form satisfactory to
the Agent insuring the priority of the Borrower's first or second lien therein
subject only to (1) the lien of the related first mortgage, if any, (2) the lien
of current real property taxes and assessments, (3) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of the related mortgage or deed of trust, such exceptions
appearing of record being acceptable to mortgage lending institutions generally
in the area wherein the property subject thereto is located and (4) other
matters to which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by the
related mortgage or deed of trust and (xi) not have been selected for pledge
hereunder utilizing procedures, other than those necessary to comply with the
representations and warranties set forth herein, which are adverse to the
interests of the Lender.
30
<PAGE>
(b) At the time of the pledge of each Mortgage Loan, the Borrower will
have received with respect to each such Mortgage Loan (i) a hazard insurance
policy with a standard mortgage clause in a form satisfactory to the Agent and
with extended coverage in an amount which is at least equal to the maximum
insurable value of the improvements securing such Mortgage Loan from time to
time or the principal balance owing on such Mortgage Loan, whichever is less and
(ii) a policy, or other satisfactory evidence, of flood insurance or
satisfactory documentation to demonstrate that the mortgaged premises are not
located in a special flood hazard area. Such documentation will be retained in
the Borrower's files relating to such Mortgage Loan.
(c) With respect to each Mortgage Loan pledged to the Security Agent,
the Borrower has fully complied with, and will fully comply with, or the
original mortgage thereof has fully complied with and will fully complete with,
(A) all applicable state and federal laws and regulations, including but not
limited to (i) the Real Estate Settlement Procedures Act of 1974, (ii) the Equal
Credit Opportunity Act, (iii) the Federal Truth in Lending Act and Regulation Z
of the Board of Governors of the Federal Reserve System, (iv) any laws requiring
persons providing appraisals of property values to be properly licensed, and (v)
all other usury, disclosure, consumer credit protection or truth-in-lending laws
which may apply, and in each such case with all regulations promulgated in
connection therewith as the same may be from time to time amended and will
maintain sufficient documentary evidence in its file to substantiate such
compliance (including, without limitation, delivery of all necessary disclosure
statements) and (B) all of the terms and provisions of such Mortaage Loan and of
any contractual escrow arrangements applicable thereto.
6.19 Representations Relating to the Mortgage-backed-Securities. At the
time a Mortgage-backed Security is pledged as Collateral, such Mortgage-backed
Security will be (i) an Eligible Mortgage Loan free of any default, (ii) subject
to a Purchase Commitment which is a legal, valid and binding obligation of the
Investor party thereto, is enforceable against such Investor in accordance with
its terms, permits the assignment thereof to the Security Agent and the
Collateral Acent and may be enforced against such Investor by the Security Agent
or the Collateral Agent, (iii) comply with all of the terms of such Purchase
Commitment, (iv) a legal, valid and binding obligation of the issuer thereof
enforceable in accordance with its terms, and (v) subject to no Lien or claim
whatsoever, either legal or equitable, other than that granted to the Security
Agent for the benefit of the Lender and the interest of the Investor under the
related Purchase Commitment.
6.20 Insurance. The Borrower has blanket fidelity bond coverage and
errors and omissions insurance coverage in such form, with such companies and
in such amounts as are in accordance with standards and requirements
satisfactory to the applicable Investor and the Agent.
6.21 Title to Property. The Borrower has good and marketable title to
all of its property, the value of which is included in the financial statements
delivered pursuant hereto, subject to no Liens, encumbrances or claims other
than those disclosed on such financial statements.
6.22 No Recourse Sales. No commitment or other contractual arrangement
pursuant to which the Borrower has sold or currently has a right to sell
Mortgage Loans to a third party
31
<PAGE>
provides for any recourse to the Borrower except in the event of a breach of
representations or warranties made in connection with such sale.
6.23 Fictitious Names. Neither the Borrower nor any Subsidiary of the
Borrower operates or does business under any assumed, trade or fictitious name,
except as set forth on Schedule 6.23.
Section 7. Affirmative Covenants.
The Borrower covenants and agrees that as of the Effective Date, and
thereafter for so long as this Agreement is in effect and until the Commitment
has terminated, the Note is no longer outstanding and the Advances, together
with interest, Fees and all other Obligations, are paid in full:
7.01 Information Covenants. The Borrower will furnish to the Agent
(unless otherwise indicated):
(a) Monthly Financial Statements. Within 30 days after the close of
each monthly accounting period of the Borrower, the consolidated
statements of financial condition of the Borrower and its Consolidated
Subsidiaries as at the end of such period, and the related consolidated
statements of income and retained earnings and statements of cash flows
for such period and for the elapsed portion of the fiscal year ended
with the last day of such period, setting forth comparative figures for
the related periods in the prior fiscal year, all of which shall be in
form and substance satisfactory to the Agent and certified as to
fairness of presentation by the Chief Financial Officer of the
Borrower, subject to normal year-end audit adjustments and accompanied
by a certificate from such financial officer to the effect that no
Default or Event of Default has occurred and is continuing.
(b) Annual Financial Statements. Within 90 days after the close of each
fiscal year of the Borrower, the consolidated and consolidating
statements of financial condition of the Borrower and its Consolidated
Subsidiaries as at the end of such fiscal year, and the related
consolidated and consolidating statements of income and retained
earnings and statements of cash flows for such fiscal year, in form and
substance satisfactory to the Agent and setting forth comparative
figures for the preceding fiscal year and certified, in the case of the
consolidated financial statements, by independent certified public
accountants reasonably acceptable to the Agent, together with a report
of such accounting firm stating that its regular audit of the financial
statements of the Borrower was conducted in accordance with generally
accepted auditing standards.
(c) Management Letters. Promptly, and in no event later than five
days, after receipt by the Borrower thereof, a copy of any "management
letter" received by the Borrower from its certified public accountants
detailing any "material weaknesses in internal control" noted by such
accountants (as defined by the Financial Accounting Standards Board).
(d) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Section 7.01(a) and (b), a
certificate of the Chief Financial Officer of the
32
<PAGE>
Borrower to the effect that, to the best of his knowledge, no Default
or Event of Default has occurred and is continuing or, if any Default
or Event of Default has occurred and is continuing, specifying the
nature and extent thereof and any actions taken or proposed to be
taken to cure any such Default or Event of Default, which certificate
shall set forth the calculations required to establish whether the
Borrower was in compliance with the provisions of Sections 8.08 and
8.09, at the end of such month or fiscal year, as the case may be.
(e) Notice of Default. Promptly (and in no event later than one
Business Day following the occurrence thereof), notice of (i) the
occurrence of any event which constitutes a Default or Event of
Default, detailing the nature of such Default or Event of Default and
any actions taken or proposed to be taken to cure such Default or Event
of Default, (ii) the commencement of any action, suit or proceeding
against the Borrower or any of its Subsidiaries before any court,
arbitrator or governmental department, commission, board, bureau,
agency or instrumentality which (A) could result in liability or loss
of $250,000 or more, in excess of any applicable insurance coverage to
the Borrower or such Subsidiary, as the case may be, or (B) would
otherwise materially adversely affect the management or the condition
or operations (financial or otherwise) of the Borrower or any of its
Subsidiaries, (iii) any change in any executive or financial officer of
the Borrower, (iv) any change in ownership of the voting stock of the
Borrower or (v) any loss or threatened loss of any authorization,
qualification, license or permit issued by any governmental or
regulatory authority to the Borrower or any of its Subsidiaries the
loss of which could have a material adverse effect upon the financial
condition or business of the Borrower or any of its Subsidiaries.
(f) Reports Relating to Collateral. In respect of the Collateral,
bi-weekly or more frequently as Agent may, from time to time, request a
position valuation report from the Borrower in a form acceptable to the
Agent (the "Position Valuation Report").
(g) Monthly Servicing Reports. Within 30 days after the close of each
calendar month in which the Borrower owns a Servicing Portfolio, a
consolidated report of the Borrower providing a summary, for all
Mortgage Loans the servicing rights to which are owned by the Borrower,
regardless of whether such Mortgage Loans are pledged to the Lender, of
(i) the entities that own such Mortgage Loans, (ii) the original terms
of such Mortgage Loans and whether such Mortgage Loans bear interest at
a fixed rate or an adjustable rate, (iii) the weighted average interest
rate and the weighted average net servicing fee with respect to such
Mortgage Loans, (iv) whether any such Mortgage Loans were sold by the
Borrower with recourse and the nature of such recourse, (v) which of
such Mortgage Loans (A) are current and in good standing, (B) are more
than 30, 60 or 90 days past due, respectively, (C) are the subject of
pending litigation, bankruptcy or foreclosure proceedings, and (D) have
been converted (through foreclosure or other proceedings in lieu
thereof) by the Borrower into real estate owned by the Borrower, and
(vi) any reserves established by the Borrower for losses in respect of
delinquent Mortgage Loans or real estate owned by the Borrower.
33
<PAGE>
(h) Other Reports and Filings. Promptly, and in any event within 10
days following the filing thereof, copies of all financial information,
proxy materials and other information and reports, if any, which the
Borrower shall file with the Securities and Exchange Commission or any
governmental agencies substituted therefor.
(i) Servicing Transactions. (i) Promptly, and in any event within 10
days following the execution thereof, copies of any agreements executed
by the Borrower which provide for the sale by the Borrower to an
Investor of the rights to service any Mortgage Loan, which sale is
separate from the sale of the related Mortgage Loan, pledged to the
Security Agent pursuant to the terms of this Agreement and the
Warehouse Security Agreement and (ii) written notice not less than 10
days prior to any purchase or sale of mortgage servicing rights or any
other transaction which would result in greater than a 10 percent
increase or decrease in the aggregate unpaid principal balance of all
Mortgage Loans included in the Servicing Portfolio of the Borrower.
(j) Leases. Written notice not less than 10 days prior to any agreement
to rent or lease any real or personal property which would result in
aggregate payments thereunder by the Borrower (including, without
limitation, any property taxes paid as additional rent or lease
payments) in excess of $500,000.
(k) Capital Expenditures. Written notice not less than 10 days prior
to any agreement by the Borrower pursuant to which the Borrower intends
to make any expenditure for fixed or capital assets (including, without
limitation, expenditures for maintenance and repairs which should be
capitalized in accordance with generally accepted accounting principles
and including capitalized lease obligations) which will exceed
$1,000,000.
(1) Prepayments, Modification. Prior written notice of any (i)
voluntary or optional payment or prepayment on or redemption or
acquisition for value of (including, without limitation, by way of
depositing with the trustee with respect thereto money or securities
before due for the purpose of paying when due) any Existing
Indebtedness providing for repayment in installments or (ii) amendment
or modification of any provision affecting the term, principal amount,
applicable interest rate, financial covenants or collateral securing
any obligations of the Borrower under any Existing Indebtedness or any
agreement (including, without limitation, any purchase agreement,
indenture, loan agreement or security agreement) otherwise relating to
any of the foregoing.
(m) Commitment Default. Notice within 2 Business Days of any default
under, or of the termination, invalidation or cancellation of, any
Purchase Commitment or Master Commitment relating to any Mortgage Loan
or Mortgage backed Security constituting Collateral.
(n) Collateral Servicing Report. Within five (5) Business Days after
the end of each calendar month, a report detailing the identities of
the entities other than the Borrower, if any, servicing any Mortgage
Loans pledged as Collateral hereunder or which secure a Mortgage-backed
Security pledged as Collateral hereunder.
34
<PAGE>
(o) Other Information. Promptly, and in any event within five (5)
Business Days after the Borrower's receipt or filing thereof, (i)
copies of any notices or information given to or received from the
holders of any Indebtedness of the Borrower relating to any actual or
alle-ed default, demand for payment or acceleration of payment, or from
the PBGC or the United States Department of Labor in connection with
any matter arising with respect to ERISA, (ii) copies of all audits
completed by HUD, GNMA, FNMA, FHLMC or any other governmental agency or
Investor with respect to the Borrower, (iii) all Mortgage Bankers'
Financial Reporting Form Statement of Condition (designated as FHLMC
Form 1055 and FNMA Form 1002, respectively, and any successor thereto
or replacement thereof) (the "Mortgage Bankers' Reporting Forms") filed
by the Borrower with FHLMC or FNMA, (iv) copies of any uniform single
audit reports required or requested by FNMA or FHLMC, and (v) such
other information or documents (financial or otherwise) as the Agent or
the Lender may reasonably request.
(p) Credit Package Documents. Promptly upon the written request by
the Agent, to the extent available, each of the documents listed in
Schedule 7.01(p) (collectively, the "Credit Package Documents"), as
applicable.
7.02 Books, Records and Inspections. The Borrower will, and will cause
each of its Subsidiaries to, keep proper books of record and account in which
full, true and correct entries in conformity with generally accepted accounting
principles in the United States and all requirements of law shall be made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of its Subsidiaries to, permit officers and
designated representatives of the Agent or the Lender to visit and inspect any
of the properties of the Borrower or such Subsidiary, and to examine the books
of record and account of the Borrower or such Subsidiary and discuss the
affairs, finances and accounts of the Borrower or such Subsidiary with, and be
advised as to the same by, its and their officers, employees and independent
accountants, all at such reasonable times and intervals and to such extent as
the Agent or the Lender may request. Any such inspection and/or examination may
include an audit by the Agent of the servicing of the Collateral and the
Borrower's Servicing Portfolio and such procedures as the Agent deems
appropriate to confirm the reporting of Mortgage Loan balances.
7.03 Maintenance of Property, Insurance. The Borrower will, and will
cause each of its Subsidiaries to, (i) keep all property necessary for the
operation of its business in good working order and condition, (ii) except as
otherwise provided in clause (iii) below, maintain with financially sound and
reputable insurance companies insurance (including such insurance as the Agent
or the Lender shall require) in at least such amounts and against at least such
risks as are customarily insured against by companies in the same or similar
business, (iii) maintain fidelity bond coverage and errors and omissions
insurance coverage in accordance with standards and requirements satisfactory to
the applicable Investor and the Agent and (iv) furnish to the Agent or the
Lender, upon written request, full information as to the insurance carried. The
provisions of this Section 7.03 shall be deemed to be supplemental to, but not
duplicative of, the provisions of any of the security documents that require the
maintenance of insurance.
35
<PAGE>
7.04 Corporate Franchises. The Borrower will, and will cause each of
its Subsidiaries to, do or cause to be done, all things necessary to preserve
and keep in full force and effect its existence and its material rights,
franchises, qualifications, licenses, permits and patents; provided, however,
that nothing in this Section 7.04 shall prevent the withdrawal by the Borrower
or any of its Subsidiaries of its qualification as a foreign corporation in any
jurisdiction where such withdrawal could not have a material adverse effect on
the business, operations, property, assets, condition (financial or otherwise)
or prospects of the Borrower or such Subsidiary.
7.05 Compliance with Statutes, etc. The Borrower will, and will cause
each of its Subsidiaries and each appraiser, correspondent, broker or other
service provider that participates with the Borrower in the origination or
servicing of Mortgage Loans to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property (including applicable statutes, regulations, orders
and restrictions relating to (1) licensing or registration (as described in
Section 6.17 hereof) and (2) environmental standards and controls), except such
noncompliances as could not (i) adversely affect in any manner the legality,
validity or enforceability of any Mortgage Loan, Mortgage-backed Security,
Purchase Commitment or Hedging Contract or (ii) in the aggregate, have a
material adverse effect on the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Borrower or the Borrower and its
Subsidiaries taken as a whole.
7.06 ERISA. As soon as possible and, in any event, within 10 days after
the Borrower or any of its Subsidiaries or ERISA Affiliates knows or has reason
to know any of the following, the Borrower will deliver to the Agent a
certificate of the Chief Financial Officer of the Borrower setting, forth
details as to such occurrence and such action, if any, which the Borrower, such
Subsidiary or such ERISA Affiliate is required or proposes to take, together
with any notices required or proposed to be given to or filed with or by the
Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan participant
or the Plan administrator with respect thereto: that a Reportable Event has
occurred; that an accumulated funding deficiency has been incurred or an
application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section
412 of the Code with respect to a Plan; that a Plan has been or may be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan has an Unfunded Current Liability giving rise to a Lien under
ERISA; that proceedings may be or have been instituted to terminate a Plan; that
a proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan; or that the Borrower, any of its Subsidiaries
or ERISA Affiliates will or may incur any liability (including any contingent or
secondary liability) to or on account of the termination of or withdrawal from a
Plan under Section 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or with respect
to a Plan under Section 4971 or 4975 of the Code or Section 409, 502(i) or
502(l) of ERISA. The Borrower will deliver to the Agent a complete copy of the
annual report (Form 5500) of each Plan required to be filed with the Internal
Revenue Service. In addition to any certificates or notices delivered to the
Agent pursuant to the first sentence hereof, copies of annual reports and any
other notices received by the Borrower or any of its Subsidiaries required to be
delivered to the Agent hereunder shall be delivered to the Agent no later than
10 days after the later of the date such report or notice has been
36
<PAGE>
filed with the Internal Revenue Service or the PBGC, given to Plan participants
or received by the Borrower or such Subsidiary.
7.07 Performance of Obligations. The Borrower will, and will cause
each of its Subsidiaries to, perform all of its obligations under the terms of
each mortgage, indenture, security agreement and other debt instrument by which
it is bound, except such non-perfonnances as could not in the aggregate, have a
material adverse effect on the business, operations, property, assets, condition
(financial or otherwise) or, prospects of the Borrower or of the Borrower and
its Subsidiaries taken as a whole.
7.08 Mortgage Loans. (a) The Borrower will not modify or waive any
term of any pledged Mortgage Loan or release any security or obligor, if as a
result thereof such Mortgage Loan would become, nor cause, through any activity
or inactivity, a Mortgage Loan to become, ineligible for FHA insurance or VA
guaranty, if applicable, or for purchase in accordance with the relevant Master
Commitment or Purchase Commitment. The Borrower will notify the Agent of (i) any
payment default in respect of any pledged Collateral which has continued for 30
days, 60 days or 90 days, respectively, (ii) the occurrence of an Insolvency
Event in respect of an obligor on any Mortgage Loan pledged as Collateral, (iii)
the commencement of foreclosure or similar proceedings in respect of the
premises which secure any Mortgage Loan pledged as Collateral and (iv) any other
material default in any other term of any pledged Collateral, such notice to be
delivered not later than three (3) Business Days following the occurrence
thereof in the case of an event specified in clauses (i) or (iii) and promptly
upon the Borrower's receiving notice or otherwise becoming aware thereof in the
case of an event specified in clauses (ii) or (iv).
(b) All FHA Loans, and VA Loans will comply in all respects with all
applicable requirements for purchase under the applicable GNMA or FNMA standard
form of selling contract for FHA insured and VA guaranteed loans and any
supplement thereto then in effect. All Conforming Mortgage Loans will comply in
all respects with all applicable requirements for purchase under the applicable
FNMA or FHLMC selling contract for Mortgage Loans of such type and any
supplement thereto then in effect. All Jumbo Loans will comply in all respects
with all applicable requirements for purchase under any Purchase Commitment
relating thereto. All State Loans will comply in all respects with all
applicable requirements for purchase by the state agency or instrumentality that
issued a Purchase Commitment in respect thereof. All Eligible Nonconforming
Mortgage Loans will comply in all respects with all applicable requirements for
purchase under any Purchase Commitment relating thereto. All Mortgage Loans will
be serviced and administered in accordance with all requirements of any Investor
that has issued a Purchase Commitment or a Master Commitment applicable thereto.
7.09 Payment of Taxes. The Borrower will pay and discharge all taxes,
assessments and governmental charges or liens imposed upon the Borrower or upon
the Borrower's income or profits, or upon any properties belonging to the
Borrower, prior to the date on which any penalties attach thereto, and all
lawful claims which, if unpaid, might become a Lien upon any such property.
37
<PAGE>
7.10 Corporate Separateness. The Borrower will, and will cause each of
its Subsidiaries to, take such actions as are necessary to keep its operations
and the operations of each of its Subsidiaries separate and apart from each of
the other's, including, without limitation, insuring that all customary
formalities regarding the corporate existence of the Borrower and each such
Subsidiary, including holding regular meetings and maintenance of its current
minute books, are followed.
7.11 Collateral. The Borrower will (a) warrant and defend the right,
title and interest of the Lender and the Security Agent in and to the Collateral
against the claims and demands of all persons whomsoever; (b) service, or cause
to be serviced, all Mortgage Loans in accordance with the requirements of the
issuers of Master Commitments and Purchase Commitments covering the same and all
applicable FHA and VA requirements (including without limitation taking all
actions necessary to enforce the obligations of the obligors under such Mortgage
Loans) and service, or cause to be serviced, all Mortgage Loans backing
Mortgage-backed Securities in accordance with applicable governmental
requirements and the requirements of issuers of Purchase Commitments covering
the same; (c) hold all escrow funds collected in respect of Mortgage Loans and
mortgage loans backing Mortgage-backed Securities in trust, without commingling
the same with noncustodial funds, and apply the same for the purposes for which
such funds were collected; (d) comply in all respects with the terms and
conditions of all Master Commitments and Purchase Commitments, and all
extensions, renewals and modifications or substitutions thereof or thereto, and
deliver or cause to be delivered to the applicable Investor the Mortgage Loans
and Mortgagebacked Securities to be sold under each Purchase Commitment not
later than three (3) Business Days prior to the expiration thereof; and (e)
maintain, and, upon request, shall make available to the Lender, the Agent or
the Security Agent the originals, or copies in any case where the original has
been delivered to the Security Agent or to an Investor, of its Mortgage Notes,
Mortgages, Purchase Commitments, Master Commitments, Hedging Contracts and all
related Mortgage Loan documents and instruments, and all files, surveys,
certificates, correspondence, appraisals, computer programs, tapes, discs,
cards, accounting records and other information and data relating to the
Collateral.
7.12 Portfolio Hedging Arrangements. The Borrower will enter into and
maintain from time to time Hedging Contracts with respect to Mortgage Loans held
by it and commitments made by it to prospective Mortgage Loan obligors to extend
Mortcage Loans at specified rates of interest.
7.13 Borrowing Base Valuation Reports. The Agent will prepare and
deliver to the Borrower weekly, or more frequently as the Agent may from time to
time determine, a report with respect to all Eligible Mortgage Loans, Eligible
Nonconforming Mortgage Loans and Liquid Assets pledged to the Security Agent as
of such date (a "Borrowing Base Valuation Report"). Unless the Borrower shall,
within 24 hours after receiving any such Borrowing Base Valuation Report, notify
the Agent that the Borrower disagrees with the information contained therein,
the Borrower shall be deemed to have certified to the Agent that, as of the date
of the Borrowing Base Valuation Report: (a) the calculations contained therein
are accurate and have been prepared in accordance with the terms and conditions
of the Warehouse Credit Agreement; and (b) no prepayment is required under the
terms of Section 4.02 of the Warehouse Credit Agreement.
38
<PAGE>
7.14 Year 2000 Compliance. On or before October 31, 1999, the Borrower
shall eliminate all problems or limitations on the capacity or readiness of the
Borrower's system, network, applications, data base and computer file software
and related software (including information processing and delivery systems of
any kind and telecommunications systems and other communications processors and
security systems) to accurately process (including, but not limited to,
calculating, comparing and sequencing) calendar date information with respect to
calendar year 1999 or any subsequent calendar year beginning on or after January
1, 2000 (including leap year calculations), except where the failure to correct
the same could not reasonably be expected to have a material adverse impact on
the financial condition, operations or prospects of the Borrower.
Section 8. Negative Covenants.
-------------------
The Borrower covenants and agrees that as of the Effective Date, and
thereafter for so long as this Agreement is in effect and until the Commitment
has terminated, the Note is no longer outstanding and the Advances, together
with interest, Fees and all other Obligations, are paid in full, without the
prior written consent of the Lender:
8.01 Liens. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to (i) any Collateral, or (ii) any portion of the Servicing Portfolio of
the Borrower or any Subsidiary; provided that the provisions of this Section
8.01 shall not prevent the creation, incurrence, assumption or existence of:
(a) Liens for taxes not yet due, or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves
have been established;
(b) Liens created pursuant to the Warehouse Security Agreement; and
(c) Liens in favor of FNMA, GNMA or FHLMC on the right of the Borrower
to service Mortgage Loans sold to such agencies.
8.02 Consolidation, Merger, Sale of Assets, etc. The Borrower will
not, and will not permit any of its Subsidiaries which are engaged in the
mortgage banking business to, wind up, liquidate or dissolve its affairs or
enter into any transaction of merger or consolidation (except a merger or
consolidation in which the Borrower is the surviving corporation), or convey,
sell, lease or otherwise dispose of (or agree to do any of the foregoing at any
future time) all or any part of its property or assets (including, but not
limited to, any rights to service Mortgage Loans in such Person's Servicing
Portfolio), without the prior approval of the Lender or the Agent, except that
the Borrower and its Subsidiaries may, in the ordinary course of business, (1)
sell equipment which is uneconomic or obsolete and (ii) acquire Mortgage Loans
for resale and sell Mortgage Loans and Mortgage-backed Securities.
8.03 Dividends. (a) Upon the occurrence and during the continuance of
any Default or Event of Default (determined after giving effect to any proposed
action of the Borrower), the Borrower will not, and will not permit any of its
Subsidiaries to, declare or pay any dividends, or
39
<PAGE>
return any capital, to its stockholders or authorize or make any other
distribution, payment or delivery of property or cash to its stockholders as
such, or redeem, retire, purchase or otherwise acquire, directly or indirectly,
for a consideration, any shares of any class of its capital stock now or
hereafter outstanding (or any options or warrants issued by the Borrower or by
such Subsidiary with respect to its capital stock), or set aside any funds for
any of the foregoing purposes, or permit any of its Subsidiaries to purchase or
otherwise acquire for a consideration any shares of any class of the capital
stock of the Borrower or such Subsidiary now or hereafter outstanding (or any
options or warrants issued by the Borrower or such Subsidiary with respect to
its capital stock), except that any Subsidiary may pay dividends to the Borrower
or to any Wholly-Owned Subsidiary of the Borrower.
(b) The Borrower will not at any time declare or pay any dividends, or
return, any capital, to its stockholders or authorize or make any other
distribution, payment or delivery of property or cash to its stockholders as
such, or redeem, retire, purchase or otherwise acquire, directly or indirectly,
for a consideration, any shares of any class of its capital stock now or
hereafter outstanding (or any options or warrants issued by the Borrower with
respect to its capital stock), or set aside any funds for any of the foregoing
purposes, or permit any of its Subsidiaries to purchase or otherwise acquire for
a consideration any shares of any class of the capital stock of the Borrower now
or hereafter outstanding (or any options or warrants issued by the Borrower with
respect to its capital stock), or pay any special distributions or bonuses not
in the ordinary course of business to any officer or employee that owns capital
stock of the Borrower, if after giving effect thereto the Adjusted Tangible Net
Worth of the Borrower would be less than the amount required by Section 8.09
hereof.
8.04 Indebtedness. The Borrower will not, and will not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except (i) Indebtedness of the Borrower incurred under the Credit
Documents, (ii) Indebtedness listed on Schedule 8.04(ii) ("Existing
Indebtedness"), (iii) Indebtedness in an aggregate amount not in excess of
$250,000 incurred to finance the acquisition by the Borrower of assets other
than Collateral and secured solely by such assets, (iv) accrued expenses and
current trade accounts payable incurred in the ordinary course of business by
the Borrower, or any of its Subsidiaries, which are to be repaid in full not
more than one year after the date on which such Indebtedness is originally
incurred, and (v) Indebtedness incurred by any Subsidiary of the Borrower which
is not engaged in the mortgage banking business, so long as the Borrower is not
obligated thereon; provided that the Borrower and its Subsidiaries shall not be
permitted to incur any Indebtedness otherwise permitted under this Section 8.04
so long as any Default or Event of Default has occurred and is continuing or if
a Default or Event of Default would occur as a result of the incurrence of any
such Indebtedness.
8.05 Advances, Investments and Loans. The Borrower will not, and will
not permit any of its Subsidiaries to, lend money or credit or make advances to
any Person, or purchase or acquire any stock, obligations or securities of, or
any other interest in, or make anv capital contribution to, any other Person,
except for:
(a) Mortgage Loans or other loans extended in the ordinary course of
the Borrower's or any Subsidiary's mortgage banking business; or
40
<PAGE>
(b) cash, Cash Equivalents and Mortgage-backed Securities.
8.06 Transactions with Affiliates. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of the Borrower, other than on terms and conditions substantially
as favorable to the Borrower or such Subsidiary as would be obtainable by the
Borrower or such Subsidiary at the time in a comparable arm's-length transaction
with a Person other than an Affiliate; provided, however, that the Borrower will
not, and will not permit any of its Subsidiaries to:
(a) use, furnish, or rely upon an insurance policy (including but not
limited to, title insurance and hazard insurance) underwritten by or
issued by any Affiliate of the Borrower;
(b) use, furnish, or rely upon an appraisal issued by any Affiliate or
by any Person controlled by any Affiliate of the Borrower except with
respect to FHA Loans, VA Loans or State Loans; or
(c) pledge any Mortgage Loan to the Lender under which the Borrower or
any Affiliate thereof is a mortgagor or Guarantor for such Mortgage
Loan.
8.07 Capital Expenditures. The Borrower will not, and will not permit
any of its Subsidiaries to, make any expenditure for fixed or capital assets
(including, without limitation, expenditures for maintenance and repairs which
should be capitalized in accordance with generally accepted accounting
principles and including capitalized lease obligations) other than such
expenditures made in the ordinary course of such Person's business in an amount
not in excess of $500,000.
8.08 Maximum Adjusted Leverage Ratio. The Borrower will not permit its
Adjusted Leverage Ratio at any time during any fiscal year to be greater than 15
to 1.
8.09 Minimum Adjusted Tangible Net Worth. The Borrower will not permit
its Adjusted Tangible Net Worth at any time during any fiscal year to be less
than $8,000,000.
8.10 [Intentionally Omittedl
8.11 Modifications of Certificate of Incorporation, By-Laws, Certain
Other Agreements and Collateral. The Borrower will not, without prior written
notice to the Lender, amend, modify or change its certificate of incorporation
(including, without limitation, by the filing or modification of any certificate
of designation) or by-laws, or any agreement entered into by it, with respect to
its capital stock, or enter into any new agreement with respect to its capital
stock. The Borrower will not, without the prior written consent of the Lender,
amend, modify or waive any of the terms of, or settle or compromise any claim
with respect to, any Collateral or any Collateral Document.
41
<PAGE>
8.12 Limitation on Restrictions on Subsidiary Dividends and Other
Distributions. The Borrower will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Subsidiary to (a) pay dividends or make any other distributions on its
capital stock or any other interest or participation in its profits owned by the
Borrower or any Subsidiary of the Borrower, or pay any Indebtedness owed to the
Borrower or any Subsidiary of the Borrower, (b) make loans or advances to the
Borrower or (c) transfer any of its properties or assets to the Borrower, except
for such encumbrances or restrictions existing under or by reasons of (i)
applicable law, (ii) this Agreement and (iii) customary provisions restricting
subletting or assignment of any lease governing a leasehold interest of the
Borrower or any Subsidiary of the Borrower.
8.13 Limitation on Issuances of Capital Stock by Subsidiaries. The
Borrower will not permit any of its Subsidiaries to issue any capital stock
(including by way of sales of treasury stock or any options or warrants to
purchase, or securities convertible into, capital stock, except for (i)
transfers and replacements of then outstanding shares of capital stock and (ii)
stock splits, stock dividends and similar issuances which do not decrease the
percentage ownership of the Borrower or any of its Subsidiaries in any class of
the capital stock of such Subsidiary.
8.14 Business. The Borrower will not, and will not permit any of its
Subsidiaries to, engage (directly or indirectly) in any business other than the
business in which the Borrower or such Subsidiary, respectively, is engaged on
the Effective Date.
8.15 Portfolio Aging. The Borrower will not at any time permit the
aggregate principal amount of the Eligible Mortgage Loans then pledged as
Collateral that have an Origination Date that is more than 60 days prior to such
time, to exceed 0% of the aggregate principal amount of all Eligible Mortgage
Loans that are pledged as Collateral at such time and will not at any time
permit the aggregate principal amount of the Eligible Nonconforming Mortgage
Loans then pledged as Collateral that have an Origination Date that is more than
60 days prior to such time to exceed 0% of the aggregate principal amount of all
Eligible Nonconforming Mortgage Loans that are pledged as Collateral at such
time.
8.16 Minimum Current Ratio. The Borrower will not permit its Current
Ratio to be less than 1.0 to 1.0 at any time during any fiscal year.
Section 9. Events of Default.
-----------------
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
9.01 Payments. The Borrower shall (i) default in the payment when due
of any principal of any Advance or (ii) default, and such default shall continue
unremedied for 3 or more days, in the payment when due of any interest on any
Advance or any Fees or any other amount owing hereunder or under any Credit
Document; or
42
<PAGE>
9.02 Representations, etc. Any representation, warranty or statement
made or deemed made by the Borrower herein or in any other Credit Document or in
any certificate delivered pursuant hereto or thereto or to the Agent as part of
the Agent's due diligence review of the Borrower shall prove to be untrue in any
material respect on the date as of which made or deemed made; or
9.03 Covenants. The Borrower shall (i) default in the due performance
or observance by it of any term, covenant or agreement contained in Sections
7.01(e), 7.04, 7.05, 7.06, 7.07, 7.08 or 8 or (ii) default in the due
performance or observance by it of any term, covenant or agreement contained in
this Agreement (other than those referred to in Sections 9.01 and 9.02 and
clause (i) of this Section 9.03) and such default shall continue unremedied for
a period of 15 days after written notice thereof from the Agent or the Lender to
the Borrower; or
9.04 Default Under Other Agreements. (a) The Borrower or any of its
Subsidiaries shall (i) default in any payment of any Indebtedness pursuant to
which the Borrower is obligated in any manner (other than the Obligations)
beyond the period of grace (not to exceed 30 days), if any, provided in the
instrument or agreement under which such Indebtedness was created or (ii)
default in the observance or performance of any agreement or condition relating
to any such Indebtedness (other than the Obligations) or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause (determined without regard to whether any notice is required), any such
Indebtedness to become due prior to its stated maturity; or (b) any Indebtedness
(other than the Obligations) of the Borrower or any Indebtedness of its
Subsidiaries pursuant to which the Borrower is obligated in any manner shall be
declared to be due and payable, or required to be prepaid other than by a
regularly scheduled required prepayment or as a mandatory prepayment (unless
such required prepayment or mandatory prepayment results from a default
thereunder or an event of the type that constitutes an Event of Default), prior
to the stated maturity thereof; or
9.05 Default Under Agreements With Agent. The Borrower, or any of its
Subsidiaries, shall default under any contract, agreement or arrangement between
the Borrower, or such Subsidiary, and the Agent or any Affiliate of the Agent,
or the Borrower or such Subsidiary shall terminate, for any reason whatsoever
(other than the failure of any such Mortgage Loan to be funded to the obligor
thereunder), any commitment of the Agent or any Affiliate of the Agent to
purchase Mortgage Loans originated or owned by the Borrower or such Subsidiary;
or
9.06 Bankruptcy, etc. An Insolvency Event shall occur with respect to
the Borrower or any of its Subsidiaries; or
9.07 ERISA. Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or
extension of any amortization period is sought or granted under Section 412 of
the Code, any Plan is, shall have been or is likely to be terminated or the
subject of termination proceeding under ERISA, any Plan shall have an Unfunded
Current Liability, or the Borrower or any of its Subsidiaries or ERISA
Affiliates has incurred or is likely to incur a liability to or on account of a
Plan under Section 409, 501 (i), 501 (1),
43
<PAGE>
515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of
the Code, and there shall result from any such event or events the imposition of
a Lien upon the assets of the Borrower or any of its Subsidiaries, the granting
of a security interest, or a liability or a material risk of incurring a
liability to the PBGC or a Plan or a trustee appointed under ERISA or a penalty
under Section 4971 of the Code, which lien, security interest, liability or
penalty, singly or in the aggregate exceeds $250,000; or
9.08 Warehouse Security Aizreement. The Warehouse Security Agreement or
any provision thereof shall cease to be in full force and effect, or shall cease
to give the Security Agent the Liens, rights, powers and privileges purported to
be created thereby, or the Borrower shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to the Warehouse Security Agreement; or
9.09 [Intentionally Omitted]
9.10 Management. The Chief Executive Officer, Chief Operating Officer,
Chief Financial Officer or any other executive officer of the Borrower shall
cease to be actively involved in the management of the Borrower and its
Subsidiaries with substantially the same duties as currently performed and,
within 90 days thereafter, the Borrower shall have failed to replace such
individual with a substitute satisfactory to the Lender and the Agent; or
9.11 Judgements. One or more judgments or decrees shall be entered
against the Borrower or any of its Subsidiaries involving in the aggregate for
the Borrower and its Subsidiaries a liability (not paid or fully covered by
insurance) of $250,000 or more, and all such judgments or decrees shall not have
been vacated, discharged or stayed or bonded pending appeal within 30 days after
the entry thereof; or
9.12 Material Adverse Change. A material adverse change shall occur in
the financial condition, operations or prospects of the Borrower; or any
material adverse action shall be taken by any state or federal regulatory body
or any court against the Borrower which may result in the loss of any agreement,
permit or license of the Borrower, or otherwise limit the business or operations
of the Borrower which loss or limitation would have a material adverse effect on
the financial condition, operations or prospects of the Borrower;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Agent may, and upon the written request of the
Lender shall, by written notice to the Borrower, take any or all of the
following actions, without prejudice to the rights of the Agent, the Lender or
the holder of the Note to enforce its claims against the Borrower (provided-
that, if an Event of Default specified in Section 9.06 shall occur with respect
to the Borrower, the result which would occur upon the giving of written notice
by the Agent to the Borrower as specified in clauses (i) and (ii) below shall
occur automatically without the giving of any such notice): (i) declare the
Commitment terminated, whereupon the Commitment of the Lender shall forthwith
terminate immediately and any Fees shall forthwith become due and payable
without any other notice of any kind; and (ii) declare the principal of and any
accrued interest in respect of all Advances and all Obligations to be, whereupon
the same shall become, forthwith due and payable
44
<PAGE>
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.
9.13 Default Not a Condition of a 120-Day Demand. Notwithstanding any
of the other terms of this Agreement, including, without limitation, the
preceding provisions of this Section 9, the Lender shall have the right to
demand payment of the outstanding Advances at any time, upon 120 days' prior
written notice to the Borrower, whether or not any Default or Event of Default
exists or the Expiry Date has occurred.
Section 10. The Agent.
10.01 Authorization and Action. The Lender hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, to-ether with such powers as are reasonably incidental thereto. The
Lender hereby delegates to the Agent all of its powers hereunder.
10.02 Agent's Duties. The Agent shall follow its customary standards,
policies and procedures in performing its duties as Agent hereunder and in
performing such duties shall use that degree of care and attention that the
Agent exercises with respect to the administration of comparable financing
facilities that the Agent extends for its own account. Neither the Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them as Agent under or in connection with
this Agreement (including, without limitation, the Agent's servicing,
administering or collecting Collateral as Security Agent pursuant to the
Warehouse Security Agreement), except for its or their own willful misconduct,
gross negligence or bad faith. Without limiting the generality of the foregoing,
the Agent: (i) may consult with legal counsel, independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (ii) makes no warranty or representation to the
Lender and shall not be responsible to the Lender for any statements, warranties
or representations (whether written or oral) made by the Borrower in or in
connection with this Agreement; (iii) shall not be responsible to the Lender for
the due execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement, the Note, any other Credit Document, any Collateral
Document or any other instrument or document furnished pursuant hereto; and (iv)
shall incur no liability under or in respect of this Agreement by acting upon
any notice (including notice by telephone), consent, certificate or other
instrument or writing (which may be by telecopier, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
10.03 GE Capital Mortgage Services, Inc. and Affiliates. GE Capital
Mortgage Services, Inc. and its Affiliates may generally engage in any kind of
business with the Borrower, any of its Affiliates and any person who may do
business with or own securities of the Borrower or any of its Affiliates, all as
if GE Capital Mortgage Services, Inc. were not the Agent and without any duty to
account therefor to the Lender.
10.04 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lender and the Borrower; provided, that each
Rating Agency shall have confirmed in
45
<PAGE>
writing that such resignation shall not result in a withdrawal or reduction of
the then current rating by such Rating Agency of the Commercial Paper. Upon any
such resignation, the Lender shall have the right to appoint a successor Agent,
subject to (i) the prior written approval of such successor Agent by each LOC
Provider and each Liquidity Lender and (ii) receipt of written confirmation from
each Rating Agency that such appointment shall not result in a withdrawal or
downgrading of the then current credit rating of the Commercial Paper. If no
successor Agent shall have been so appointed by the Lender or shall have
accepted such appointment within 15 days after the retiring Agent's giving of
notice of resignation, the Agent, on behalf of the Lender, may appoint a
successor Agent. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and from such time the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 10 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement.
Section 11. Miscellaneous.
11.01 Payment of Expenses; Indemnity. (a) Whether or not the
transactions contemplated hereby are consummated, in addition to the rights of
indemnification granted to the Indemnified Parties under Section 11.01(b)
hereof, the Borrower agrees to pay on demand all costs and expenses in
connection with the preparation, execution, delivery, modification, amendment,
administration and monitoring of the Credit Documents and the other documents to
be delivered thereunder (including the costs in respect of the perfection and
maintenance of the security interests and conducting due diligence with respect
to the Borrower and its business), including, without limitation, the fees and
out-of-pocket expenses of counsel for the Lender and the Agent, and of local
counsel who may be retained by the Lender and the Agent, with respect thereto
and with respect to advising the Lender and the Agent as to their rights and
remedies under the Credit Documents, and including all reasonable costs and
expenses in connection with the servicing and liquidation of the Collateral. The
Borrower further agrees to pay on demand all costs and expenses, if any
(including, without limitation, reasonable counsel fees and expenses), in
connection with the enforcement (whether through negotiations, workout, legal
proceedings or otherwise) of the Credit Documents and the other documents to be
delivered thereunder, including, without limitation, reasonable counsel fees and
expenses in connection with the enforcement of rights under this Section 11.01
(a).
(b) (i) The Borrower shall reimburse the Lender, upon demand (which
demand shall contain reasonable details thereof), for all fees, expenses or
increased costs payable by the Lender to any Liquidity Lender pursuant to the
Liquidity Agreement due to either (x) the effectiveness of or the introduction
of, or any change in, or in the interpretation of, any law or regulation or (y)
compliance by such Liquidity Lender with any guideline or request from any
central bank or other governmental authority or official (whether or not having
the force of law), which subjects such Liquidity Lender (A) to an increase in
the cost of making, funding or maintaining any loan or any commitment under the
Liquidity Agreement or (B) to make a payment calculated by reference to the
principal of, or interest on, such loan or such commitment made by such
Liquidity Lender.
46
<PAGE>
(ii) The Borrower shall reimburse the Lender upon demand (which demand
shall contain reasonable details thereof), for all fees, expenses or increased
costs payable by the Lender to any Liquidity Lender or any LOC Provider (the
Liquidity Lenders and the LOC Providers collectively referred to in this Section
11.01(b) as the "Financial Institutions" and, individually, as a "Financial
Institution") pursuant to the Liquidity Agreement or the Reimbursement
Agreement, respectively, due to either (x) the effectiveness of or the
introduction of, or any change in, or in the interpretation of, any law or
regulation or (y) compliance by any Financial Institution with any guideline or,
request from any central bank or other governmental authority or official
(whether or not having the force of law and including, in any event, any law,
regulation, interpretation, or guideline with respect to capital adequacy or
request in connection with any of the foregoing and any law, regulation,
interpretation, guideline or request contemplated by the report dated July, 1988
entitled "International Convergence of Capital Measurement and Capital
Standards" issued by the Basle Committee on Banking Regulations and Supervisory
Practices at the Bank for International Settlements) which has or would have the
effect of reducing the rate of return on the capital of such Financial
Institution, or any corporation controlling such Financial Institution, as a
consequence of its obligations under the Liquidity Agreement, the Reimbursement
Agreement or the Letters of Credit, as the case may be, to a level below that
which such Financial Institution, or such controlling corporation, could have
otherwise achieved but for such adoption, change or compliance (taking into
consideration such Financial Institution's, or the respective controlling
corporation's, policies with respect to capital adequacy) or which has or would
have the effect of increasing the amount of capital required or expected to be
maintained by such Financial Institution, or such controlling corporation, as a
consequence of its obligations under the Liquidity Agreement, the Reimbursement
Agreement or the Letters of Credit, as the case may be.
(iii) The Borrower shall reimburse the Lender, upon demand (which
demand shall contain reasonable details thereof), for any increase in any sum
payable by the Lender to any Liquidity Lender under the Liquidity Agreement to
compensate such Liquidity Lender for deductions for Liquidity Taxes (as defined
below) applicable to such sum (including deductions for Liquidity Taxes
applicable to such increase in such sum) such that such Liquidity Lender shall
receive an amount equal to the sum it would have otherwise received had no such
deductions for Liquidity Taxes been made. As used in this Section 11.01 (b),
the term "Liquidity Taxes" shall mean any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities, with
respect to any sum payable under the Liquidity Agreement (but excluding taxes
that would not be imposed but for a connection between the Liquidity Lenders or
the Liquidity Agent (as the case may be) and the jurisdiction imposing such tax,
other than a connection arising by virtue of the activities of the Liquidity
Lenders or the Liquidity Agent (as the case may be) pursuant to or in respect of
the Liquidity Agreement or under any other Facility Document, including, without
limitation, the entering into, the loan of money or the extension of credit
pursuant to, the receipt of payments under, or the enforcement of, the Liquidity
Agreement or any other Facility Document).
(iv) The Borrower shall reimburse the Lender, upon demand (which demand
shall contain reasonable details thereof), for all costs or expenses payable by
the Lender under the Liquidity Agreement for any present or future stamp,
recording or documentary taxes or similar levies arising from any payment made
under the Liquidity Agreement or from the execution,
47
<PAGE>
delivery or registration of, or otherwise with respect to, the Liquidity
Agreement or the promissory notes delivered by the Lender thereunder or from the
execution, delivery or registration of, or otherwise with respect to, the
Liquidity Agreement or such promissory notes.
(v) The Borrower shall reimburse the Lender, upon demand (which demand
shall contain reasonable details thereof), for any increase in any payment
payable by the Lender to any LOC Provider under the Reimbursement Agreement to
compensate such LOC Provider for deductions of LOC Taxes (as defined below) such
that such increase results in a yield to such LOC Provider (after payment of all
LOC Taxes) of interest or any other amounts payable under the Reimbursement
Agreement at the rates or in the amounts specified in the Reimbursement
Agreement. As used in this Section 11.01 (b), the term "LOC Taxes" shall mean
any present or future stamp or other taxes, levies, imports, duties, charges,
fees, deductions, withholdings or restrictions or conditions of any nature
whatsoever, now or hereafter imposed, levied, collected, withheld or assessed by
any jurisdiction or by any political subdivision or taxing authority thereof or
therein in respect of any payment made under the Reimbursement Agreement (but
excluding, in the case of each LOC Provider, any tax imposed on or measured by
the net income of such LOC Provider pursuant to the laws of any jurisdiction (or
any political subdivision or taxing authority thereof or therein) in which the
principal office of such LOC Provider is located).
(vi) The Borrower shall reimburse the Lender, upon demand (which demand
shall contain reasonable details thereof), for all indemnities payable by the
Lender to any placement agents or dealers for the Commercial Paper.
(vii) In the event the Lender enters into agreements for the making of
advances to one or more borrowers other than the Borrower, the Lender shall
allocate the liability for the costs, expenses and other amounts referred to in
clauses (i) through (vi), inclusive, of this Section 11.01(b) and Section
11.01(c) to the Borrower and each other borrower who has so agreed, provided
that if such costs, expenses or amounts are attributable to the Borrower or the
Credit Documents and not attributable to any other borrower, the Borrower
shall be solely liable for such costs, expenses and amounts.
(c) Without limiting any other rights which the Lender, the Agent, the
Security Agent, the LOC Providers, the Liquidity Lenders, the Collateral Agent,
the Depositary or any Affiliate of any thereof, as well as their respective
directors, officers, employees and agents (each, an "Indemnified Party") may
have hereunder or under applicable law, the Borrower hereby agrees to indemnify
each Indemnified Party from and against any and all claims, losses, damages,
expenses and liabilities (including reasonable attorneys' fees) (all of the
foregoing being collectively referred to as "Indemnified Amounts") arising out
of, relating to or resulting from this Agreement, any other Facility Document,
any Mortgage Loan, Mortgage-backed Security or other Collateral or the use of
any proceeds of Advances, excluding, however, Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct (as determined by a final
judgment of a court of competent Jurisdiction) on the part of such Indemnified
Party or any Affiliate of such Indemnified Party which directly or indirectly
controls, is controlled by or is under common control with such Indemnified
Party or is a director or officer of such Indemnified Party or of an Affiliate
of such Indemnified Party. Without limiting or being limited by the foregoing,
the Borrower shall pay on
48
<PAGE>
demand to each Indemnified Party any and all amounts necessary to indemnify such
Indemnified Party from and against any and all Indemnified Amounts relating to
or resulting from:
(i) the making of an Advance secured by a pledge of a Mortgage
Loan or Mortgage-backed Security which is not at the date of the
creation of such security interest an Eligible Mortgage Loan or
an Eligible Nonconforming Mortgage Loan or which thereafter
ceases to be an Eligible Mortgage Loan or an Eligible
Nonconforming Mortgage Loan;
(ii) reliance on any representation or warranty or statement made
or deemed made by the Borrower (or any of its officers) under or
in connection with any Credit Document which shall have been
incorrect when made;
(iii) the failure by the Borrower to comply with any applicable
law, rule or regulation with respect to any Collateral, or the
nonconformity of any Collateral with any such applicable law,
rule or regulation;
(iv) the failure to vest in the Security Agent under the
Warehouse Security Agreement a valid first priority security
interest in the Mortgage Loans, the Mortgage-backed Securities
and the other Collateral, except as otherwise permitted by this
Agreement;
(v) the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the
UCC of any applicable jurisdiction or other applicable laws with
respect to any Collateral, whether at the time of any Advance or
at any subsequent time;
(vi) [Intentionally omitted];
(vii) any investigation, litigation or proceeding related to this
Agreement or, any other Credit Document or the use of proceeds of
Advances or in respect of any Mortgage Loan or other Collateral;
(viii) the loss, misplacement or destruction of any cashier's
check issued by the Lender in respect of any Advance after
receipt of such check by the closing agent, escrow agent, title
company, attorney or any other authorized party identified in the
Request for Advance relating to such Advance, it being understood
and agreed that, notwithstanding the indemnity under this Section
11.01 (c)(viii) or any such loss, misplacement or destruction,
the funds represented by any such lost, misplaced or destroyed
cashier's check shall constitute an Advance hereunder; and
(ix) the making of any wire transfer to an incorrect account or
in an incorrect amount in accordance with instructions received
from the Borrower, it being understood and agreed that,
notwithstanding the indemnity under this
49
<PAGE>
Section 11.01 (c)(ix), the funds represented by any such wire
shall constitute an Advance hereunder.
(d) If after the date hereof due to either (a) the effectiveness or
introduction of, or any change in, or any change in the interpretation of, any
law or regulation by any court or administrative or governmental authority
charced with administration thereof or (b) compliance with any guideline or
request from any central bank or other Governmental authority or official
(whether or not having the force of law and including, in any event, any law,
regulation or interpretation with respect to capital adequacy or request in
connection with any of the foregoing), there shall be an increase in the cost to
the Lender of making, funding or maintaining any Advance or the Commitment
hereunder or the Lender shall be required to make a payment calculated by
reference to the principal of, or interest on, any Advance made by it or the
Commitment (other than any,such increased cost, reduction in the amount
receivable, or payment required to be made resulting from the imposition or an
increase in the rate of any Taxes unless such Taxes are payable by the Borrower
under Section 11.01 (e) or there shall be an increase in the amount of capital
required or expected to be maintained by the Lender or any corporation
controlling the Lender and the Lender reasonably determines that the amount of
such capital is increased by or based upon the existence of the Lender's
agreement, in its discretion, to make or maintain Advances hereunder and other
similar agreements and facilities), then the Borrower shall, from time to time,
upon demand by the Lender, immediately pay to the Lender additional amounts
sufficient to compensate the Lender for any such increased cost or increase in
capital (to the extent the Lender reasonably determines such increase in capital
to be allocable to the existence of the Lender's agreements hereunder). A
certificate of an officer of the Lender as to such amounts (and the calculation
thereof) submitted to the Borrower shall be conclusive and binding for all
purposes, absent manifest error.
(e) Promptly upon (and in no event later than 10 days following) notice
from the Lender or the Agent to the Borrower, the Borrower agrees to pay, prior
to the date on which penalties attach thereto, all present and future income,
stamp and other taxes, levies, or costs and charges whatsoever imposed,
assessed, levied or collected on or in respect of an Advance and/or the
recording, registration, notarization or other formalization of an Advance or
the execution and delivery or otherwise with respect to the Agreement or the
other Credit Documents and/or any payments of principal, interest or other
amounts made on or in respect of an Advance (all such taxes, levies, costs and
charges being herein collectively called "Taxes"); provided that Taxes shall not
include taxes imposed on or measured by the overall net income or receipts of
the Lender by the United States of America or any political subdivision or
taxing authority thereof or therein. The Borrower agrees to also pay such
additional amounts equal to increases in taxes payable by the Lender described
in the foregoing proviso, which increases arise solely from the receipt by the
Lender of payments made by the Borrower described in the immediately preceding
sente7nce of this Section 11.01(e). Promptly (and in no event later than 10
days) after the date on which payment of any such Tax is due pursuant to
applicable law, the Borrower will, at the request of the Lender, furnish to the
Lender evidence, in form and substance satisfactory to the Lender, that the
Borrower has met its obligation under this Section 11.01 (e). The Borrower
agrees to indemnify the Lender against, and reimburse the Lender on demand for,
any Taxes, as reasonably determined by the Lender in good faith. The Lender
shall provide the Borrower with appropriate receipts for any payments or
reimbursements made by the Borrower pursuant to this Section 11.01 (e).
50
<PAGE>
11.02 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to the Borrower, the
Lender or the Agent, at its address specified opposite its signature below, or
at such other address as shall be designated by such party in a written notice
to the other parties hereto. All such notices and communications shall, when
mailed, telegraphed, telecopied or sent by ovenight courier, be effective when
deposited in the mails, delivered to the telegraph company or overnight courier,
as the case may be, or sent by telecopier, except that notices and
communications given to the Agent or the Lender pursuant to Section 2 and
Section 4 shall not be effective until received by the Agent or the Lender, as
the case may be.
11.03 Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that the Borrower may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of the Agent and the Lender. The Lender may at any time assign
any of its rights and obligations hereunder or under the Note.
11.04 Remedies Cumulative. No failure or delay on the part of the
Agent or the Lender or the holder of the Note in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between the Borrower and the Agent or the Lender or the holder of the Note shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights, powers and remedies herein or
in any other Credit Document expressly provided are cumulative and not exclusive
of any rights, powers or remedies which the Agent or the Lender or the holder of
the Note would otherwise have. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further rotice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Agent, or the Lender or the holder of the Note to any other or further action
in any circumstances without notice or demand.
11.05 Calculations; Computations. (a) The financial statements to be
furnished to the Lender pursuant hereto shall be made and prepared in accordance
with generally accepted accounting principles in the United States consistently
applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by the Borrower to the Lender);
provided that, except as otherwise specifically provided herein, all
computations determining compliance with Section 8 shall utilize accounting
principles and policies in conformity with those used to prepare the historical
financial statements referred to in Section 6.05(a).
(b) All computations of interest and the Fees hereunder shall be made
on the basis of a year of 360 days for the actual number of days occurring in
the period for which such interest or fees are payable.
11.06 Governing Law; Submission to Jurisdiction; Venue. (a) This
Agreement and the other Credit Documents and the rights and obligation of the
parties hereunder and thereunder shall
51
<PAGE>
be construed in accordance with and be governed by the law of the State of New
York, without regard to principles of conflicts of laws. Any legal action or
proceeding against the Borrower with respect to this Agreement or any other
Credit Document may be brought in the courts of the State of New Jersey located
in Camden County or in the United States Federal courts located in Camden
County, and, by execution and delivery of this Agreement, the Borrower hereby
irrevocably accepts for itself and in respect of its property, Generally and
unconditionally, the jurisdiction of the aforesaid courts.
(b) The Borrower hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any,such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
11.07 No Proceedings. The Borrower hereby covenants and agrees that,
prior to the date which is one year and one day after the payment in full of all
outstanding Commercial Paper, it will not institute against, or join any other
Person in instituting against, the Lender, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any state of the United States.
11.08 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Agent.
11.09 Effectiveness. This Agreement shall become effective on the date
(the "Effective Date") on which the Borrower, the Lender and the Agent shall
have signed a copy hereof (whether the same or different copies) and shall have
delivered the same to the Agent at its Office.
11. 1O Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
11.11 Amendment or Waiver. Neither this Agreement nor any other Credit
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the Lender, the Agent and the Borrower.
11.12 Survival. All indemnities set forth herein including, without
limitation, in Section 11.01 shall survive the execution and delivery of this
Agreement and the Note and the making and repayment of the Advances.
52
<PAGE>
11.13 Waiver of Jury Trial. THE LENDER, THE AGENT AND THE BORROWER EACH
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT EACH OF THEM
MAY HAVE TO A TRIAL BY JURY OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE
NOTE AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF ANY PARTY RELATING HERETO OR THERETO. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE LENDER AND THE AGENT TO ENTER INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address: FIRST MORTGAGE NETWORK, INC.
8751 Broward Boulevard, 5th Floor
Plantation, FL 33324
Attention: Harris C. Friedman By: /s/ Seth Werner
Facsimile No.: (954) 472-0800 ----------------------------
Title: Chairman & CEO
c/o GE Capital Mortgage Services, Inc. COOPER RIVER FUNDING INC.
Three Executive Campus
Cherry Hill, NJ 08002
Attention: Martin A. Schroeter By: /s/
Facsimile No.: (609) 661-7528 ----------------------------
Title: Assistant Treasurer
Three Executive Campus GE CAPITAL MORTGAGE SERVICES, INC.,
Cherry Hill, NJ 08002 as Agent
Attention: Martin A. Schroeter
Facsimile No.: (609) 661-7528 By: /s/
----------------------------
Title: Vice President
53
Ex-10.29
AMENDED AND RESTATED
OPERATING AGREEMENT
for the
NORTHERN CALIFORNIA DIVISION
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE 1
Selected Definitions
--------------------
ARTICLE 2
Management of the Division
<S> <C> <C>
Section 2.1 Management..................................................................... 3
Section 2.2 Board Information Rights....................................................... 3
ARTICLE 3
Accounting and Financial Matters
Section 3.1 Capital Contributions.......................................................... 4
Section 3.2 Interest on Capital Contributions.............................................. 4
Section 3.3 Books, Records and Accounts.................................................... 4
Section 3.4 Budgets and Reports............................................................ 4
Section 3.5 Taxes.......................................................................... 5
Section 3.6 Acquisition of Additional Division Assets...................................... 5
Section 3.7 Cash Distributions............................................................. 5
Section 3.8 Priority in Distributions...................................................... 5
ARTICLE 4
Covenants
Section 4.1 Covenants of FMN............................................................... 5
Section 4.2 Consent of Mason-McDuffie to Amendments to Preferred
Stock.......................................................................... 7
ARTICLE 5
Non-Competition
Section 5.1 Non-Competition................................................................ 7
Section 5.2 Confidential and Proprietary Information....................................... 7
<PAGE>
Section 5.3 Enforceability................................................................. 8
ARTICLE 6
Restriction on Assignment of Preferred Stock
Section 6.1 Prohibition.................................................................... 8
Section 6.2 Remedy for Violation........................................................... 9
ARTICLE 7
Conversion Rights
Section 7.1 Upon Initial Public Offering................................................... 9
Section 7.2 Upon Change of Control......................................................... 9
ARTICLE 8
Term and Termination
Section 8.1 Term of Agreement.............................................................. 9
Section 8.2 Termination of Agreement....................................................... 9
Section 8.3 Assignment of Pipeline; Return of Capital Contributions........................ 11
ARTICLE 9
Arbitration
Section 9.1 Arbitration.................................................................... 12
ARTICLE 10
Miscellaneous
Section 10.1 Specific Performance........................................................... 12
Section 10.2 Notices........................................................................ 12
Section 10.3 Successors..................................................................... 13
Section 10.4 Assignment..................................................................... 13
Section 10.5 Effect and Interpretation...................................................... 13
Section 10.6 Amendment...................................................................... 13
Section 10.7 Severability................................................................... 14
ii
<PAGE>
Section 10.8 No Third-Party Rights.......................................................... 14
Section 10.9 Counterparts................................................................... 14
Appendix A Form of Monthly Statements of Net Profits
Appendix B Map of the Territory
Appendix C Amended Designation of Relative Rights, Preferences and
Limitations of Special Preferred Stock (Northern California Division)
iii
</TABLE>
<PAGE>
AMENDED AND RESTATED OPERATING AGREEMENT
for the
NORTHERN CALIFORNIA DIVISION
THIS AGREEMENT (the "Agreement") is entered into by and between:
FIRST MORTGAGE NETWORK, INC.,
a Florida corporation ("FMN")
and
MASON-McDUFFIE REAL ESTATE, INC.,
a California corporation ("Mason-McDuffie")
(collectively, the "Parties")
Background
----------
A. FMN is a mortgage banking company, headquartered in Plantation,
Florida, which originates, processes, and funds residential mortgage loans
through its membership network and retail loan officers. FMN uses its
proprietary CLOser(R) software to track loans from application to closing and to
offer online access to information about loan rates and FMN's line of loan
products. FMN currently conducts its mortgage banking business in Florida,
Georgia and California.
B. FMN has created a division known as the First Mortgage Network
Northern California Division (the "Division") which it operates with
Mason-McDuffie pursuant to an Operating Agreement for the Northern California
Division dated July 1, 1997, among FMN, Mason-McDuffie and John Hogan (the
"Prior Operating Agreement").
C. The Parties wish to set forth the manner in which the Division will
be operated and the methodology for the distribution of net profits of the
Division, effective as of July 1, 1998.
D. This Agreement is intended to supersede in its entirety the Prior
Operating Agreement.
NOW THEREFORE, in consideration of the mutual benefits to be derived
herefrom, the parties agree as follows:
<PAGE>
ARTICLE 1
Selected Definitions
--------------------
The following terms, as used in this Agreement, have the following
meanings:
"Affiliate" -- A person or entity which, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the person or entity specified; provided, however, that
franchisees and trademark licensees of Mason-McDuffie will not be considered
"Affiliates" of Mason-McDuffie.
"Affinity Business" -- Origination, processing and funding of mortgage
loans, the source of which are members of an organization that has contracted
with FMN to provide FMN products to such organization's members.
"Board" -- The board of directors of FMN, as it may be constituted from
time to time.
"Division Business" -- All revenues and expenses (including without
limitation, servicing revenues and expenses and revenues and expenses resulting
from the sale of servicing rights), derived from (a) Retail Business where the
majority of the underlying mortgaged real estate is situated in the Territory,
(b) Member Business where the majority of the underlying mortgaged real estate
is situated in the Territory, (c) Affinity Business where the majority of the
underlying mortgaged real estate is situated in the Territory and (d) all other
business of any kind generated or referred by FMN or Mason-McDuffie, so long as
approved by the Board and so long as handled by Division Employees, even if such
business would be deemed to be outside of the Territory. Notwithstanding the
foregoing, the operations of FMN or its Affiliates with respect to Intuit, Inc.,
Anytime Access, Openclose.com, SMART, Realeads U.S.A., Inc., RESULTS, Superior
Bank, F.S.B., or First Realty Network, or any of their Affiliates, shall not be
included as "Division Business."
"Division Employees" -- FMN employees or individual independent
contractors whose salaries and commissions are paid by the Division.
"Expenses" -- The expenses of the Division, determined in accordance
with generally accepted accounting principles consistently applied.
"Member Business" -- Origination, processing and funding of mortgage
loans referred to FMN by companies (typically mortgage brokers, home builders,
realtors, banks and credit unions) that have executed a membership agreement or
net branch agreement with FMN.
"Net Profits" -- The excess of Revenues over Expenses, determined in
accordance with generally accepted accounting principles consistently applied,
with adjustments to Revenues as described herein.
2
<PAGE>
"Pipeline" -- As of any date, mortgage loans that have been originated
and processed, but not closed, and which, if closed, would have appeared in the
column designated "Center 51 - WAM" on the monthly statements of Net Profits
required to be delivered by FMN to Mason-McDuffie pursuant to Section 4.1(a)(2)
hereof.
"Preferred Stock" -- FMN's Special Preferred Stock (Northern California
Division).
"Retail Business" -- Origination, processing and funding of mortgage
loans originated by a Division Employee or by non-Division Employees.
"Revenues" -- The revenues of the Division (excluding the "technology
fee" identified as "Interco Technology Charge" on Appendix A hereto), determined
in accordance with generally accepted accounting principles consistently
applied.
"Territory" -- That area of California lying north of Bakersfield as
set forth in the map attached hereto as Appendix B, and such other places as the
Board may designate from time to time with the consent of Mason-McDuffie. FMN
may not reduce the Territory without the consent of Mason-McDuffie.
ARTICLE 2
Management of the Division
Section 2.1 Management. The Division Business will be carried out under
the overall management and direction of the Board and such officers, employees
and consultants as are appointed by the Board to operate the Division on a
day-to-day basis.
Section 2.2 Board Information Rights. So long as Mason-McDuffie is the
beneficial owner of more than 34% of the current number of issued and
outstanding shares of the Preferred Stock, FMN shall provide a representative of
Mason-McDuffie (the "Representative"), which Representative shall be reasonably
acceptable to FMN, a copy of all notices, minutes, consents and other Board of
Directors' materials that it provides to all of its directors; provided,
however, that (i) FMN reserves the right to withhold any information, or any
portion thereof, as is reasonably determined by the Chairman of the Board of
Directors or a majority of the members of the Board of Directors to be necessary
for purposes of confidentiality, competitive factors, attorney-client privilege
or other reasonable purposes and (ii) in no event shall the failure to provide
the materials described above invalidate in any way any action taken at a
meeting of the Board of Directors or by written consent.
Mason-McDuffie agrees, and will cause the Representative to agree, to
hold in confidence all non-public information provided pursuant to
Mason-McDuffie's rights under this
3
<PAGE>
Section 2.2, and Mason-McDuffie will not use or disclose any such information
provided to or learned by it in connection with the rights described herein,
other than for purposes of Mason-McDuffie's interest as a shareholder of FMN.
The confidentiality provisions in this paragraph shall survive any termination
of this Agreement.
ARTICLE 3
Accounting and Financial Matters
Section 3.1 Capital Contributions. As of July 1, 1998, the books of the
Division reflect capital contributions from each of FMN and Mason-McDuffie of
$50,000. Upon execution of this Agreement, Mason-McDuffie shall receive a return
of $30,000 of its capital and FMN shall contribute an additional $30,000 to the
capital of the Division, so that FMN and Mason-McDuffie's respective percentages
of the total capital contributions are 80% and 20%, respectively. Upon the
mutual agreement of FMN and Mason-McDuffie, additional capital contributions to
the Division may be made from time to time, and any such additional capital
contributions shall be made by FMN and Mason-McDuffie in accordance with the
percentages set forth in the preceding sentence.
Section 3.2 Interest on Capital Contributions. The Parties are not
entitled to receive any interest on capital contributions made to the Division.
Section 3.3 Books, Records and Accounts. FMN will cause true and
correct books of account for the Division to be kept on the accrual basis of
accounting, upon which will be entered all matters relating to the Division,
including, but not limited to, all receipts, expenditures, profits, losses,
assets, liabilities and payroll matters. The books and records of the Division
will be kept in accordance with generally accepted accounting principles
consistently applied and the Division shall be treated as nearly as practicable
as if it operated on a stand-alone basis. The Division may, but will not be
required to, maintain bank accounts and assets separately from FMN. No corporate
overhead charges incurred outside the Territory will be allocated to the
Division, other than Secondary Marketing Charges, the technology fee identified
as "Interco Technology Charge" on Appendix A hereto, and other overhead charges
directly related to Division Business. All books and records of the Division
will be open to examination and copying by FMN, Mason-McDuffie and their
respective authorized representatives at all times during normal business hours.
Section 3.4 Budgets and Reports. The Board will develop and adopt prior
to each fiscal year of FMN an overall operating and capital budget for each year
with the approval of Mason-McDuffie. FMN will prepare periodic reports in
accordance with generally accepted accounting principles consistently applied
(including a profit and loss statement, a cash flow statement and a balance
sheet) no less frequently than monthly on actual operations of the Division as
compared with operating plans and budgets. Within 90 days after the end of each
4
<PAGE>
fiscal year, FMN will prepare an annual report in accordance with generally
accepted accounting principles consistently applied (including a profit and loss
statement, a cash flow statement and a balance sheet) of the Division. FMN will
provide such reports to Mason- McDuffie at no cost to Mason-McDuffie or the
Division. Such reports will be prepared by management and will be subject to
review by an independent accounting firm.
Section 3.5 Taxes. Federal, state and local taxes will be calculated as
if the Division operated on a stand-alone basis.
Section 3.6 Acquisition of Additional Division Assets. To the extent
the Division requires additional real or personal property, it will lease such
assets for a term of three (3) years or more, with all costs for the leases
allocated to the Division.
Section 3.7 Cash Distributions. Subject to the existence of legally
available funds therefor, cash distributions of Net Profits from the Division
will be paid quarterly, commencing September 30, 1998, as follows:
(a) twenty percent (20%) to Mason-McDuffie in the form of
dividends on the Preferred Stock, as set forth in the Amended Designation of
Relative Rights, Preferences and Limitations attached hereto as Appendix C (the
"Designation"). The Board shall vote in favor of paying dividends on the
Preferred Stock not less than on a quarterly basis, so long as funds are legally
available therefor; and
(b) eighty percent (80%) to FMN, pursuant to appropriate
transfers from the separate books of the Division to the books of FMN.
Section 3.8 Priority in Distributions. The rights of each Party to
receive cash distributions under Section shall be pari passu with respect to the
rights of the other Party to receive distributions under Section .
ARTICLE 4
Covenants
Section 4.1 Covenants of FMN. FMN covenants and agrees as follows:
(a) Except as otherwise set forth herein, FMN agrees to
provide the following services at no cost to the Division:
(1) all necessary warehouse lines and underlying
equity required to support the warehouse lines.
Notwithstanding the foregoing, any (i) acquisition and
maintenance fees related to warehouse lines used by or made
available to
5
<PAGE>
the Division, (ii) transaction fees related to draws on the
warehouse lines for mortgage loans funded by the Division, and
(iii) the net interest expense or net interest income
resulting from the spread between the interest expense for the
warehouse loans and the interest income from underlying
mortgages (prior to sale to secondary market investors) shall
be charged to the Division;
(2) delivery to Mason-McDuffie of quarterly and
annual financial statements of FMN as soon as practicable
following the end of the respective period, but in no event
later than the time at which such statements are made
available to holders of FMN's common stock. FMN will deliver
to Mason- McDuffie, as soon as practicable following the end
of each calendar month, monthly and year-to-date financial
statements in the form such statements are prepared for use by
management, and monthly statements of Net Profits
substantially in the form set forth as Appendix A.
(3) technology which enhances the Division Business,
including but not limited to use of CLOser(R) for
point-of-sale, Internet access, networking and any other
operating platform for which it is available; provided,
however, expenses relating to local technical support and
training required to implement and use the systems shall be an
expense of the Division;
(4) all licensing and secondary market investor
agreements;
(5) development of programs with investors which
allow for delegated underwriting and the use of automated
underwriting tools;
(6) all central advisory services with regard to
information on insurance, benefits and other human resources
matters; and
(7) all accounting services for the Division,
including placing an FMN employee "on site" in California to
handle accounting services for the Division.
All other services provided by FMN to the Division from time to time shall be an
expense of the Division; provided, however, that all direct charges incurred by
the Division from secondary market investors shall be charged to the Division
and, in lieu of additional secondary marketing costs being passed on to the
Division, FMN will charge the Division a fee (currently budgeted at $265,
subject to fluctuations based on funded loan volume of the Division) per
mortgage loan (the "Secondary Marketing Charge") to cover FMN's secondary
marketing costs. The Parties will review the Secondary Marketing Charge from
time to time, no less frequently than annually, to determine its reasonableness
and the actual cost of all unallocated FMN secondary marketing expenses on a per
loan basis. FMN shall provide Mason-McDuffie with documentation to evidence
unallocated FMN secondary marketing expenses.
6
<PAGE>
(b) To comply with the rules and regulations of all state and
federal regulatory authorities;
(c) To use its best efforts to maintain sufficient net worth
to maintain its relationships with government-sponsored enterprises and
financial institutions to which the Division will sell loans in the secondary
market;
(d) To inform Mason-McDuffie, in a timely manner, of material
business and financial developments relating to the Division; and
(e) In the event of any claim that the use of the technology
provided pursuant to subsection (a)(3) above by the Division infringes on the
intellectual property rights of any third party, FMN shall either modify such
technology to eliminate the infringing use, obtain the right for the Division to
continue to use such technology or obtain a license for comparable technology
for use by the Division, any of the actions in this Section to be at no cost to
the Division.
Section 4.2 Consent of Mason-McDuffie to Amendments to Preferred Stock.
Upon execution of this Agreement, Mason-McDuffie approves and consents to the
Designation, substantially in the form set forth as Appendix C hereto.
ARTICLE 5
Non-Competition
Section 5.1 Non-Competition. Neither FMN, any party under FMN's
control, Mason-McDuffie, nor any party under Mason-McDuffie's control, will
compete with the Division in the conduct of Division Business, either directly
or indirectly, alone or in conjunction with others, in the Territory prior to
termination of this Agreement. For purposes of this Article , the term "compete"
includes acting as a proprietor, owner, shareholder, partner, joint venturer or
other participant in or with a competitor of the Division or as a trustee,
director, officer, employee, agent, representative, consultant, advisor or
independent contractor to or for a competitor of the Division. Without limiting
the generality of the foregoing Mason-McDuffie will not employ loan agents
directly or indirectly, within the Territory, unless otherwise expressly
permitted by this Agreement.
Section 5.2 Confidential and Proprietary Information. Each of FMN,
Mason- McDuffie and their respective Affiliates will only make disclosures of
proprietary or confidential information concerning the Division Business as
shall be authorized by the Executive Committee. Following termination of this
Agreement, neither FMN, Mason- McDuffie nor any of their respective Affiliates
will, directly or indirectly, divulge, disclose,
7
<PAGE>
furnish, communicate or make accessible to any third party who is not authorized
by the other party to receive such information, any client or prospect list,
financial data, sales data, technological information, intellectual property or
any other confidential or proprietary information relating to the other party or
the Division. All files, records, documents, forms, plans, policy and procedures
manuals, client or prospective client lists, written memoranda or similar
materials generated in connection with, and necessary to, the conduct of
Division Business will remain the exclusive property of the Division; provided,
however, Mason- McDuffie shall, upon termination of this Agreement, have a right
to retain copies of all records and documents related to Division Business
generated by loan agents working at Mason- McDuffie-owned offices, offices of
Mason-McDuffie trademark licensees or franchisees, or other Mason-McDuffie
Affiliated entities; further provided, that all records and information, whether
in paper or in electronic form, related to clients of Mason-McDuffie constitute
proprietary information and trade secrets of Mason-McDuffie and that to the
extent Mason- McDuffie elects to allow Division employees or agents to have
access to such information, such information will be provided to the Division
under a confidentiality and proprietary information agreement.
Section 5.3 Enforceability. The parties hereto acknowledge that the
restrictions, prohibitions and other provisions of this Article are reasonable,
fair and equitable in scope, are necessary to protect the legitimate business
interests of the parties, and are a material inducement to the parties to enter
into this Agreement. In the event that the restrictions contained in this
Article are held to be too broad to allow enforcement of such restriction to its
full extent, such restriction shall be enforced to the maximum extent allowed by
law, and the parties hereby consent and agree that such scope may be judicially
modified accordingly in any proceeding brought to enforce such restriction. The
parties acknowledge and agree that the remedy at law for the breach of the
obligations under this Article may be inadequate, and agree and consent that
temporary and/or permanent or injunctive relief may be entered, enjoining a
party from breaching this Agreement.
ARTICLE 6
Restriction on Assignment of Preferred Stock
Section 6.1 Prohibition. Except as otherwise expressly provided in this
Agreement, Mason-McDuffie may not sell, transfer, assign or otherwise dispose
of, voluntarily or involuntarily, all or any part of its Preferred Stock without
prior approval of FMN. Upon a proposed disposition, Mason-McDuffie will first
provide notice of such proposed disposition to FMN, and FMN shall have the right
to approve or disapprove the disposition of Preferred Stock. This restriction
does not include any transfer by operation of law pursuant to a merger,
consolidation or liquidation of Mason-McDuffie or otherwise or any sale of
substantially all of Mason-McDuffie's stock or assets. For purposes hereof, a
transfer includes any transfer or
8
<PAGE>
assignment, whether voluntary or involuntary, and whether for value or not,
whether by sale, exchange, pledge, encumbrance, gift, judicial attachment,
contribution to a trust or other entity or otherwise. The shares of Preferred
Stock bear a conspicuous legend denoting the transfer restrictions set forth in
this Section .
Section 6.2 Remedy for Violation. In the event that Mason-McDuffie
disposes of any of its Preferred Stock in violation of any provisions of this
Article , such disposition will be void.
ARTICLE 7
Conversion Rights
Section 7.1 Upon Initial Public Offering. Upon the Initial Public
Offering and for a period ending 6 months after the closing of the Initial
Public Offering, Mason-McDuffie will have the right to convert not more than 66%
of its Preferred Stock to Common Stock of FMN in accordance with the Designation
attached hereto as Appendix C.
Section 7.2 Upon Change of Control. In the event the Board approves and
recommends to shareholders of FMN a transaction, such as a merger or share
exchange, which upon approval by such shareholders would result in a change of
control of FMN, Mason- McDuffie will have the right to convert not more than 66%
of its Preferred Stock to Common Stock of FMN in accordance with the Designation
attached hereto as Appendix C.
ARTICLE 8
Term and Termination
Section 8.1 Term of Agreement. The term of this Agreement initially
shall be for one year, commencing on July 1, 1998, and shall automatically renew
for one year on each successive July 1 unless sooner terminated pursuant to
Section . This Agreement supersedes the Prior Operating Agreement in its
entirety.
Section 8.2 Termination of Agreement.
(a) Except as otherwise provided herein, this Agreement will
terminate and cease to be effective in the following situations (each an "Event
of Termination") at the times specified in subsections (b), (c) and (d):
(1) Mutual agreement of each of the Parties in
writing to terminate the Agreement;
9
<PAGE>
(2) Upon the bankruptcy or insolvency of FMN;
(3) Upon written notice by Mason-McDuffie to FMN, if
the Board approves payment of a cash distribution to
Mason-McDuffie but fails to actually pay such cash
distribution to Mason-McDuffie, for whatever reason, within 45
days following Board approval;
(4) Upon written notice by Mason-McDuffie to FMN in
the event FMN is no longer approved by any of FNMA, FHMC or
HUD;
(5) Upon written notice by Mason-McDuffie to FMN in
the event FMN fails to meet its obligations to provide all
necessary warehouse lines and underlying equity pursuant to
Section 4.1(a)(1) hereof; or
(6) Upon the bankruptcy or insolvency of
Mason-McDuffie.
(b) Upon termination of this Agreement pursuant to subsections
(a)(1) or (a)(6) of this Section :
(1) For a period of 30 days (the "Initial 30 Day
Period"), the Division will continue to operate under this
Agreement. During the Initial 30 Day Period, each of the
Parties will use its best efforts to plan for an orderly
transition;
(2) Mason-McDuffie and its Affiliates will have the
right during the Initial 30 Day Period to offer employment to
any loan agents or FMN employees who are performing
origination or processing services for the Division. FMN
agrees that such offers do not constitute unlawful business
interference by Mason-McDuffie or its Affiliates. Such
employment with Mason-McDuffie or its Affiliates, if accepted,
could begin no sooner than the first day following the Initial
30 Day Period;
(3) The 60 days following the Initial 30 Day Period
(the "60 Day Period") will be used to wind down this
Agreement, during which time all Revenues and Expenses will
continue to be allocated to the Division in accordance with
this Agreement. The costs of winding down, including lease
obligations and fulfillment of executory contracts, will be an
expense of the Division;
(4) At the end of the 60 Day Period, the Division
will cease to operate under the terms of this Agreement. FMN
will redeem all of the Preferred Stock held by Mason-McDuffie,
in the manner set forth in the Designation attached as
Appendix C hereto. Mason-McDuffie Affiliates have the right to
become members of the First Mortgage Network and FMN agrees to
offer Mason-
10
<PAGE>
McDuffie, its Affiliates, its trademark licensees and its
franchisees such membership under the then-existing terms and
conditions of membership offered to third parties. Upon
redemption of the Preferred Stock, this Agreement shall be of
no further force and effect.
(c) Upon termination of this Agreement under subsection (a)(2)
of this Section , the Division will cease to operate under the terms of this
Agreement. Mason- McDuffie and its Affiliates will have the right to offer
employment to any loan agents or FMN employees who are performing origination or
processing services for the Division. FMN agrees that such offers do not
constitute unlawful business interference by Mason-McDuffie or its Affiliates.
Such employment with Mason-McDuffie or its Affiliates could begin immediately.
As soon as practicable after termination under subsection (a)(2), FMN will
redeem all the Preferred Stock held by Mason-McDuffie, in the manner set forth
in the Designation attached as Appendix C, subject to applicable bankruptcy
laws, rules and regulations. Each Party will cooperate to wind down the Division
as quickly as practicable. Upon redemption of the Preferred Stock, this
Agreement shall be of no further force and effect.
(d) Upon termination of this Agreement under subsections
(a)(3), (a)(4) or (a)(5) of this Section , the Division will immediately cease
to operate under the terms of this Agreement. Mason-McDuffie and its Affiliates
will have the right to offer employment to any loan agents or FMN employees who
are performing origination or processing services for the Division. FMN agrees
that such offers do not constitute unlawful business interference by
Mason-McDuffie or its Affiliates. Such employment with Mason-McDuffie or its
Affiliates could begin immediately. FMN and Mason-McDuffie each will cooperate
to wind down the Division as quickly as practicable. As soon as practicable
after termination, FMN will redeem all the Preferred Stock held by
Mason-McDuffie, in the manner set forth in the Designation attached as Appendix
C. Mason-McDuffie Affiliates have the right to become members of the First
Mortgage Network and FMN agrees to offer Mason-McDuffie, its Affiliates, its
trademark licensees and its franchisees such membership under the then-existing
terms and conditions of membership offered to third parties. The costs of
winding down, including lease obligations and fulfillment of executory contracts
and the redemption of the Preferred Stock will not be an expense of the Division
and will be borne by FMN. Upon redemption of the Preferred Stock, this Agreement
shall be of no further force and effect.
Section 8.3 Assignment of Pipeline; Return of Capital Contributions.
Upon any Event of Termination hereunder, the Company shall assign to
Mason-McDuffie all of the Company's right, title and interest in and to, and the
obligations relating to, the Pipeline. The Company will cooperate with
Mason-McDuffie in transferring the rights and obligations associated with the
Pipeline to any entity designated by Mason-McDuffie. In addition, upon any Event
of Termination under subsections (a)(4) or (a)(6) of Section , the Company shall
return to Mason-McDuffie any unreturned capital contributions paid by
Mason-McDuffie under this Agreement.
11
<PAGE>
ARTICLE 9
Arbitration
Section 9.1 Arbitration. The Parties agree that any dispute or
controversy arising out of or relating to this Agreement and the Registration
Rights Agreement dated March 15, 1996, between FMN and Mason-McDuffie, but not
relating to any other agreement entered into by or made for the benefit of the
Division, will be determined and settled by binding arbitration in San
Francisco, California. Each party to the dispute will appoint one of the
arbitrators and such two arbitrators will select the third arbitrator. Prior to
the arbitration hearing, the person chosen as the third arbitrator will disclose
to all parties to the dispute any circumstances likely to affect impartiality,
including any bias or financial or personal interest in the result of the
arbitration or any past or present relationship with the parties or their
representatives. Upon the objection of any party to the dispute to said
arbitrator on the basis of such conflict, the two arbitrators will then select a
new third arbitrator who must then make the disclosures required herein. The
process will continue until a neutral third arbitrator is chosen. The procedures
to be followed at the arbitration hearing will be those set out in the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitrator's award will be in writing and will be signed by a majority of the
arbitrators. In their award, the arbitrators will apportion the costs of
arbitration, including, but not limited to, their own fees and expenses, as they
deem appropriate. In addition, the prevailing party will be entitled to
attorney's fees and expenses from the losing party. The arbitrators' award will
be final and binding upon the parties thereto and judgment upon the award may be
entered into any court having jurisdiction thereof. Whenever any action is
required to be taken under this Agreement within a specified period of time and
the taking of such action is materially affected by a matter submitted to
arbitration, such period will automatically be extended by the number of days
plus ten (10) that are taken for the determination of that matter by the
arbitrators.
ARTICLE 10
Miscellaneous
Section 10.1 Specific Performance. The Parties hereby declare and agree
that it is impossible to measure in money the damages which will accrue to a
party hereto by reason of a failure by any Party to perform any of the
obligations set forth in this Agreement. Therefore, any Party may institute any
action or proceeding for specific performance of this Agreement and any person
against whom such action or proceeding is brought hereby waives the claim or
defense therein that such Party has an adequate remedy at law.
Section 10.2 Notices. All notices or other communications to a party
required or permitted by this Agreement will be in writing and will be hand
delivered by messenger or
12
<PAGE>
courier service, telecommunicated, or mailed by registered or certified mail
(postage prepaid), return receipt requested, to the Party at the address set
forth below. Notices will be effective upon receipt if delivered by hand or
telecommunication, or on the second day after a mailing; provided, however, that
if delivery of a notice is refused, the date of delivery will be the date on
which delivery is refused. Notices will be sent to the following:
If to FMN: Mr. Seth S. Werner
First Mortgage Network, Inc.
8751 Broward Blvd.
Fifth Floor
Plantation, FL 33324
With a copy to: Luther F. Sadler, Jr., Esquire
Foley & Lardner
200 North Laura Street
Post Office Box 240
Jacksonville, FL 32201-0240
If to Mason-McDuffie: Mr. A. David Cobo
Mason-McDuffie Real Estate, Inc.
1901 Olympic Boulevard, Third Floor
Walnut Creek, CA 94596
With a copy to: Michael J. Dalton, Esquire
Donahue, Gallagher, Woods & Wood, LLP
300 Lakeside Drive, Suite 1900
Oakland, CA 94612
Section 10.3 Successors. This Agreement will be binding upon and will
inure to the benefit of the Parties and their respective legal representatives,
heirs, successors and assigns, except as expressly otherwise provided herein.
Section 10.4 Assignment. No Party may assign any of its rights or
obligations hereunder to any other person without the prior written consent of
the other Parties.
Section 10.5 Effect and Interpretation. This Agreement will be governed
and construed and enforced in accordance with the laws of the State of Florida
without regard to conflict of law principles thereunder. Captions contained in
this Agreement have been inserted for convenience and in no way define, limit or
extend the scope or intent of any provision of this Agreement. This Agreement
will be interpreted without regard to any presumption or rule requiring
construction against the party causing this Agreement to be drafted.
Section 10.6 Amendment. This Agreement may be amended only by a written
agreement signed by the Party or Parties against whom the enforcement is sought.
This
13
<PAGE>
Agreement together with appendices, the Registration Rights Agreement between
FMN and Mason-McDuffie, the Trademark License Agreement between FMN and
Mason-McDuffie, and the Office Use and Services Agreement between FMN and
Mason-McDuffie constitute the entire understanding between the Parties with
respect to the subject matter hereof, and there are no other agreements,
understandings, restrictions, representations or warranties between the Parties.
Section 10.7 Severability. If any provision of this Agreement, or the
application of a provision to any person or circumstance, is held invalid, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those to which it is held invalid, will not be affected
thereby.
Section 10.8 No Third-Party Rights. The provisions of this Agreement
are for the exclusive benefit of the Parties hereto and no other person,
including without limitation, any creditor of the Division or of any Party, will
have any right or claim by reason of this Agreement or be entitled to enforce
any provision of this Agreement against the Division or any Party.
Section 10.9 Counterparts. This Agreement may be executed in more than
one counterpart, each of which will be deemed an original but all of which
together will constitute one and the same instrument. Execution and delivery
will be deemed to occur in Walnut Creek, California.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the first day of July, 1998.
FIRST MORTGAGE NETWORK, INC.
By:/s/ Seth S. Werner
---------------------------------------
Seth S. Werner, Chief Executive Officer
MASON-McDUFFIE REAL ESTATE,
INC.
By:/s/ A. David Cobo
---------------------------------------
A. David Cobo, Chief Executive Officer
AGREED AND CONSENTED TO:
/s/ John Hogan
- ------------------------------
John Hogan
15
Domain Name Assignment Agreement
This Domain Name Assignment Agreement is made this 1st day of January, 1999
("the Agreement"), by and between First Mortgage Network, Inc., a Florida
Corporation, located at 8751 Broward Boulevard, Plantation, Florida 33324,
hereinafter ("PURCHASER"), and Credit.Com. LLC. a California limited liability
company, located at 87 Stillman Street, San Francisco, California 94107,
hereinafter ("SELLER").
RECITALS
SELLER hereby agrees to sell, transfer and assign, and PURCHASER hereby agrees
to purchase the domain name www.mortgage.com (the "Domain Name") subject to the
terms and conditions of this Agreement.
AGREEMENT
The parties agree as follows:
1. Domain, Name Assignment Agreement.
1.a Assignment of Domain Name. For good and valuable consideration,
payable at Closing as more particularly described herein SELLER hereby
agrees to transfer and assign to PURCHASER at the Closing all of
SELLER'S right, title and interest in and to the Domain Name
"www.mortgage.com" and the registration thereof, together with the
goodwill of the business connected with and symbolized by such Domain
Name, including the trademark and the service mark "mortgage.com" and
any intellectual property rights relating thereto, to the extent any
such trademark, service mark, or intellectual property rights exist.
The transfer and the assignment shall take effect at the Closing as
set forth herein upon PURCHASER'S making the payments provided for in
Sections 4a and 4b.
1.b Cooperation in Transferring Domain Name. SELLER agrees to cooperate
with PURCHASER and to follow PURCHASER'S reasonable instructions in
order to effectuate the transfer of the Domain Name registration in a
timely manner. Specifically, at the Closing SELLER agrees to prepare
and transmit the necessary InterNic Registrant Name Change Agreement
(RNCA) and or to correspond with InterNic to authorize transfer of the
Domain Name, effective as of the Closing Date as hereinafter defined.
1.c Warranty. SELLER warrants and represents that it has unencumbered
rights in the Domain Name, that SELLER property registered the Domain
Name with InterNic without committing fraud or misrepresentation, that
SELLER has the authority to transfer the Domain Name, and, that to the
best of SELLER'S knowledge, the Domain Name does not infringe the
rights of any third party.
1.d Other Foreign Language Versions. The parties hereto agree that if
either party acquires rights to other URL's which are foreign language
versions of mortgage.com, that the acquiring party shall be required
to link such URLs directly to mortgage.com for as long as this
Agreement is in effect.
2. Obligations of SELLER.
SELLER agrees to provide PURCHASER the following during the term of this
Agreement:
2.a SELLER shall provide PURCHASER with a text URL link at a Premium
Location (as defined below), on SELLER'S home page, www.credit.com,
for and to the web site www.mortgage.com. (Premium location is defined
herein as "above the screen cutoff line - i.e., the viewable page area
without scrolling on a typical computer screen").
<PAGE>
Directly underneath such link, SELLER shall provide a web site
description of mortgage.com the content of which shall be provided by
SELLER.
2.b SELLER shall provide PURCHASER with promotional space (445x56 pixels
in size) which will include a banner advertisement for
www.mortgage.com within the Mortgage Directory of the 4credit.com web
site located within the Credit.ComNetwork, (the "Network") and hyper
text markup language (HTML) which will allow visitors to hyperlink to
PURCHASER'S homepage www.mortgage.com.
2.c SELLER shall conduct via its Network member sign in interface, for a
period of two years, two customer surveys for each such year. Each
survey shall consist of no more, than 10 questions. The content of
each survey shall be subject to the SELLER'S reasonable approval.
2.d SELLER shall promote via an email campaign, PURCHASER'S upsell offers
to SELLER'S member database twice per year for a term of two years.
The content of each such email campaign and the PURCHASER'S upsell
offers shall be subject to the SELLER'S reasonable approval.
2.e As may be mutually agreed between the parties, SELLER may (i) offer
and PURCHASER may accept any vacant or remnant banner advertisement
space or special links throughout the Network free of charge to
PURCHASER, (ii) provide imbedded links to www.mortgage.com in contexts
wherever the subject matter references mortgage companies and mortgage
lending on the Network. This linking strategy shall be performed on a
goodwill basis and shall be discussed as an ongoing strategic
component between both parties.
3. Obligations of PURCHASER.
PURCHASER shall provide SELLER the following during the term of this Agreement:
3.a PURCHASER shall provide SELLER with non-hyperlink promotional space
(110x110 pixels in size), located in a Premium Location as described
and defined in Paragraph 2a above on the mortgage.com homepage
designating mortgage.com as a member of the Credit.Com Network.
3.b PURCHASER shall host and provide support for the SELLER'S Network
members Common Gateway Interfaces "CGI's" and "cookies".
3.c PURCHASER shall provide SELLER with promotional space (480x60 pixels
in size) which shall include a banner advertisement and the hyper text
markup language (HTML) provided by SELLER which shall include the HTML
code
A HREF="http://www.credit.com/cgi-bin/redir/site=FMN
/?http://www.credit.com/"> IMG SRC="http://www.credit.com/ads/images
/frm_banner.gif"> /A
and which will allow visitors to hyperlink to
SELLER'S home page, www.credit.com, in a Premium Location as described
and defined in Paragraph 2a above, on the final page displayed to
visitors who have completed the mortgage loan application process on
www.mortgage.com.
3.d PURCHASER agrees to replace, and PURCHASER agrees to cause its
affiliates (as defined in Rule 144 promulgated under the Securities
Act of 1933, as amended) ("Affiliates"), to replace PURCHASER'S
www.loanshop.com web site with www.mortgage.com at all web sites
currently using the loanshop brand, or to point those URLs directly
(no redirects) at mortgage.com. This provision shall include all multi
lender sites owned, operated and/or branded by PURCHASER or any of its
Affiliate entities.
2
<PAGE>
3.e PURCHASER shall be responsible for the cost and execution of all
marketing and sales activities to promote. the mortgage.com brand.
PURCHASER shall have complete responsibility for, and control over,
the development of the mortgage.com site. PURCHASER shall work with a
person designated by SELLER (initially, Todd Meagher) on the
implementation of cookies and CGI's.
3.f PURCHASER on behalf of itself and its Affiliates agrees that it shall
make www.mortgage.com its exclusive online owned, operated and/or
branded web site covering all areas of direct to consumer mortgage
lending, thereby replacing www.loanshop.com which is currently
PURCHASER'S web site for that purpose, and customlending.com which was
to be PURCHASER'S subprime internet mortgage lending web site.
3.g PURCHASER shall have the sole right to use an alternative domain name
other than mortgage.com or add other PURCHASER owned and branded web
sites to mortgage.com, subject to the provisions of this Agreement,
including without limitation, the provisions of paragraphs 4.c. and
4.d. herein.
3.h It is acknowledged and agreed by the parties hereto that (i) SELLER
shall not be entitled to any payments under this Agreement as a result
of fees earned by PURCHASER from loan services performed by PURCHASER
so long as such loans are originated by third parties that are not
PURCHASER, Affiliates of PURCHASER or their respective Affiliates; and
(ii) SELLER is not entitled to any fees generated from third party web
sites created by PURCHASER if those third party web sites are owned by
persons or entities that are not PURCHASER, Affiliates of PURCHASER,
or their respective Affiliates, including without limitation, (a) web
sites that are owned by third party clients (that are not Affiliates
of PURCHASER or PURCHASER'S Affiliates) which are operated on an
outsource or vanity label basis by PURCHASER, (b) any back office
outsourcing contracts, such as for Quickenmortgage lenders for whom
PURCHASER is the outsource provider and where the site is owned by the
third party client (that is not an Affiliate of PURCHASER or
PURCHASER'S Affiliates) and operated in the name of the third party
client, and (c) PURCHASER'S web site www.onlinecap.com (so long as
this PURCHASER broker referral service is a lead generation service
that requires face to face loan officer assistance) and any third
party business acquired in the future by PURCHASER that does not have
representation on or links from mortgage.com.
3.i PURCHASER covenants and agrees that during the term of this Agreement
PURCHASER shall cause the re-registration of the Domain Name with
InterNic: (or any successor organization) for the mutual benefit of
the parties hereto and the PURCHASER shall file all necessary renewals
for the Domain Name. If PURCHASER fails to file any required
application, registration, renewal or amendment necessary to preserve
the registration of the Domain Name with InterNic (or any successor
organization), or if at anytime PURCHASER shall fail to perform its
obligations set forth in the immediately preceding sentence then
PURCHASER shall promptly pay within three (3) business days of such
breach to SELLER the Default Amount as defined below in immediately
available funds. For purposes of this Agreement, the term "Default
Amount" means the dollar amount equal to the difference between (x)
one million eight hundred thousand dollars ($1,800,000) and (y) the
aggregate amount of payments made to SELLER pursuant to Paragraphs 4c
and 4d above plus the Present Value of the Receivables converted under
Section 4.e.
3
<PAGE>
4. Purchase Price.
PURCHASER agrees to pay SELLER as follows:
4.a At Closing, PURCHASER shall issue Twenty Thousand (20,000) shares
(collectively, the "Shares") of its Common Stock, $0.01 par value per
share (the "Common Stock"), to SELLER, representing approximately
0.28% of the issued and outstanding capital stock of PURCHASER as
consideration hereunder. Subject to the rights of first refusal
granted to signatories of the Series B Preferred Stock Purchase
Agreement dated March 29, 1996, as amended, among PURCHASER and such
signatories, SELLER shall have preemptive rights (as governed by the
principles set forth in Section 607.0630(2). Florida Statutes) prior
to an initial public offering.
In connection with the issuance of the Shares of Common Stock, SELLER
represents, and warrants that (i) it is an "accredited investor"
(within the meaning of Regulation D of the Securities Act of 1933, as
amended (the "Act"); (ii) it is aware that such Common Stock will be
"restricted securities" subject to transfer restriction, and will not
be registered under the Securities Act of 1933, as amended; (iii) such
Common Stock is being acquired solely for SELLER'S own account for
investment and is not being purchased for resale, fractionalization or
distribution; and (iv) it has no contract, undertaking, agreement or
arrangement with any person to sell, transfer or pledge such Common
Stock, or any part thereof and it has no present plan to enter into
any such contract, undertaking, agreement or arrangement. SELLER
agrees not to dispose of the Shares of Common Stock or any interest
therein, unless and until such Common Stock has been validly
registered under the Act and all applicable state securities laws or
transfers are permitted under Rule 144 of the Securities Act of 1933,
as amended, or PURCHASER has been furnished an opinion of counsel
reasonably safisfactory to PURCHASER that the intended disposition
does not violate the Act or the rules and regulations of the
Securities and Exchange Commission thereunder, nor any applicable
state securities laws. PURCHASER shall provide SELLER with
registration rights to the extent set forth in the Registraton Rights
Agreement attached hereto as Exhibit A.
4.b At Closing, Two Hundred Thousand Dollars ($200,000.00) via wire
transfer in immediately available funds to an account designated by
SELLER.
4.c Commencing on the Closing Date, PURCHASER shall pay SELLER Fifty
Dollars ($50.00) per loan funded through www.mortgage.com, or any
other PURCHASER owned, operated or branded consumer direct web sites
originating residential mortgage loans of any kind (excluding web
sites excluded from this Agreement), and excluding any loans pursuant
to which the SELLER is entitled to receive a fee pursuant to paragraph
5 below, up to a cap of Three Hundred Thousand Dollars ($300,000.00)
(the "Funded Cap"). Payment under this Paragraph 4c shall be paid to
SELLER on a monthly basis in arrears and are due on the fifteenth
(15th) day of each calendar month.
4.d Once the Funded Cap has been reached, PURCHASER shall pay SELLER
Fifty-Dollars ($50.00) per each loan funded through the
www.mortgage.com web site or any other PURCHASER owned, operated or
branded consumer direct web sites dealing with residential mortgage
loans of any kind (excluding web sites excluded from this Agreement)
in excess of six thousand (6,000) loans per year (or prorata portion
thereof) and excluding any loans pursuant to which the SELLER is
entitled to receive a fee pursuant to paragraph 5 below, up to a
cumulative cap of One Million Five Hundred Thousand Dollars
($1,500,000.00) (the "Additional Cap"). Payment under this Paragraph
4d shall be paid to SELLER on a monthly basis in arrears and are due
on the fifteenth (15th) day of each calendar month after the 6,000
loan level is reached as set forth above.
4
<PAGE>
4.e Upon the first fully underwritten, firm commitment public offering
pursuant to an effective registration statement (other than any
registration statement on any form not permitting registration of
securities offered by selling security holders) under the Act,
covering the offer and sale by PURCHASER of Common Stock (an "IPO"),
SELLER shall have the right to convert receivables that may be earned
pursuant to Paragraphs 4c and 4d (the "Receivables"), into Common
Stock of PURCHASER. The Receivables shall be appraised by an
independent appraiser (the "Independent Appraiser") who assesses the
present value or the stream of Receivables expected to be received by
SELLER under the terms of this Agreement after the conversion, taking
into account such factors as the Independent Appraiser deems necessary
(the "Present Value of the Receivables"). SELLER shall have the right
to convert any percentage of the Present Value of the receivables from
zero to one hundred percent (0% to 100%), at SELLER'S option.
PURCHASER shall give SELLER notice of the IPO by registered mail,
mailed not less than 60 days prior to the date the registration
statement is expected to be filed with the Securities and Exchange
Commission, at the address set forth in Section 13g. In order to
convert the Receivables into Common Stock, SELLER shall provide to the
Company written notice that SELLER elects to convert that percentage
of the Receivables as is identified in such notice. Such notice will
also state the name(s) and address(es) in which SELLER wishes the
certificate(s) of Common Stock issuable upon conversion and will
designate an Independent Appraiser to perform the appraisal
contemplated in this Section 4.e. The Independent Appraiser selected
by SELLER shall be instructed to complete the required appraisal of
the receivables within thirty (30) days of his appointment. PURCHASER
and SELLER shall, promptly and without delay, supply all information
necessary to allow the Independent Appraiser to perform the appraisal.
The Present Value of the receivables, as determined by the Independent
Appraiser, shall be final and binding upon PURCHASER and SELLER,
absent manifest error.
Conversion will be deemed to have been effected as of the opening of
business on the day on which the closing with respect to the IPO is
held, and such date is referred to herein as the "IPO Conversion
Date." On the IPO Conversion Date, SELLER shall be entitled to receive
that number of shares of Common Stock as is equal to (a) the Present
Value of the Receivables multiplied by the percentage of the
Receivables being converted, divided by (b) the price per share at
which the Common Stock is being offered to the public in the IPO.
PURCHASER shall issue and deliver to SELLER a certificate or
certificates for the number of full shares of Common Stock to which
SELLER is entitled pursuant to this subsection. The person in whose
name the certificate or certificates for Common Stock are to be issued
shall be deemed to have become a holder of record of the Common Stock
on the IPO Conversion Date. No fractional shares shall be issued upon
conversion of the receivables into Common Stock and the number of
shares of Common Stock shall be rounded to the nearest whole share.
Notwithstanding anything in this Agreement to the contrary, if SELLER
converts any portion of its receivables on the IPO Conversion Date, it
shall not have the right to convert any receivables at any time after
the IPO Conversion Date.
In the event, SELLER converts 100% of the Receivables into Common
Stock, then the Security Interest (as defined below) granted in the
Domain Name pursuant to the Security Agreement (as defined below)
shall terminate.
In the event SELLER converts less than 100% of the Receivables into
Common Stock, then PURCHASER shall have a one-time option to pay to
SELLER, in cash, the difference between the Present Value of the
Receivables converted (i.e., the
5
<PAGE>
Present Value of the Receivables multiplied by the percentage of
Receivables being converted) and the Present Value of the Receivables.
If the PURCHASER elects to make such a payment, then upon payment
PURCHASER'S payment obligations under Paragraphs 4c and 4.d. shall be
satisfied in full. In the event PURCHASER does not so elect, and if
the Funded Cap has not been reached on or prior to the IPO Conversion
Date, then the Present Value of the Receivables converted (i.e., the
Present Value of the Receivables multiplied by the percentage of
Receivables being converted) shall be applied first to reduce the
Funded Cap (after reducing the Funded Cap by amounts previously paid
by PURCHASER under Section 4.c. prior to the IPO Conversion Date), and
then shall be applied to reduce the Additional Cap. In the event
PURCHASER does not so elect and the Funded Cap has been reached on or,
prior to the IPO Conversion Date, then the Present Value of the
Receivables converted (i.e., the Present Value of the Receivables
multiplied by the percentage of Receivables being converted), shall be
applied to reduce the Additional Cap.
4.f Any Common Stock received by the SELLER pursuant to this Agreement,
whether at the Closing or subsequent to the Closing shall be included
in the Registration Rights Agreement attached hereto as Exhibit A (the
"Registration Rights Agreement").
4-g PURCHASER hereby grants to SELLER a first priority, and assuming
proper filing by SELLER of a UCC-1 financing statement with the
Secretary of State of Florida, a fully perfected, security interest in
the Domain Name to secure payment of all amounts due to the SELLER
pursuant to Sections 4.a, 4.b, 4.c, 4.d and 4e above (the "Security
Interest") in accordance with the Security Agreement attached hereto
as Exhibit A (the "Security Agreement"). PURCHASER shall reasonably
cooperate with SELLER in preparing and executing necessary
documentation, including financing statements, to evidence and perfect
SELLER's Security Interest On full payment of all amounts due to the
SELLER pursuant to Sections 4.a, 4.b, 4.c, 4.d and 4e above under the
terms of this Agreement the Security Interest shall expire and the
SELLER'S Security Interest shall terminate. Following termination of
the Security Interest SELLER shall have no further interest in or
right to the Domain Name.
In the event that PURCHASER breaches any of its obligations contained
in this Agreement, the Registration Rights Agreement, or the Security
Agreement, then SELLER shall deliver a written notice to PURCHASER
setting forth in reasonable detail the nature of PURCHASER'S breach.
Upon receipt of such notice, PURCHASER shall have sixty (60) days to
cure its breach. If PURCHASER shall fail to cure its breach within
such sixty (60) days period, then, without any further action by any
party hereto PURCHASER shall return to SELLER the Domain Name (and in
connecton therewith, PURCHASER shall execute and deliver to SELLER any
and all documentation reasonably requested by SELLER to effectuate
such return of the Domain Name to SELLER including, without
limitation, a Registrant Name Change Agreement (RNCA)) free and clear
of any and all security interests, liens or other encumbrances or
restrictions of any nature (other than the Security Interest provided
for in this Section 4.g), (collectively, an "Encumbrance,") within
three (3) business days; and (ii) SELLER shall have the right, but not
the obligation, to terminate the executory portions of this Agreement
by delivering an additional written notice to PURCHASER at any time
up until the sixtieth (60th) day after PURCHASER shall have returned
the Domain Name. Notwithstanding any provision contained herein to the
contrary. If PURCHASER fails to return the Domain Name free and clear
of any and all Encumbrances, within the time period specified in (i)
above, and SELLER has to take legal action to enforce the provisions
of this Section 4.g, then PURCHASER'S payment obligations shall be
satisfied hereunder by returning the Domain Name to SELLER, paying
SELLER $100,000 as liquidated damages, and paying the reasonable legal
fees and expenses of SELLER in connection with such legal action. If
PURCHASER complies with this Section 4.g., SELLER shall have no right
to claim
6
<PAGE>
any deficiency with respect to amounts owed under this Section 4.
Upon satisfaction of PURCHASER'S payment obligations under this
Section 4, the Security Interest granted pursuant to the Security
Agreement shall terminate.
4.h. Any amounts required to be paid by PURCHASER to SELLER pursuant to
this Agreement shall bear interest from its due date at the rate of
18% per annum for each day that such payment is not made.
5. Marketing Agreement
The marketing, promoting and advertising of www.mortgage.com by SELLER via
its Network is valued at Two Million Five Hundred Thousand Dollars
($2,500,000.00) per year. PURCHASER shall pay SELLER on a monthly basis
under the fee schedule set forth below for all loans resulting from the
marketing, promoting and advertising of www.mortgage.com by SELLER via its
Network, or any other SELLER controlled site, to www.mortgage.com or any
other PURCHASER owned site. Such fees shall not exceed Two Million Five
Hundred Thousand Dollars ($2,500,000.00) during any 12 month period
commencing on the date of closing of this Agreement, and the amounts
payable pursuant to this Section 5 shall expire ten years from the date
hereof.
5.a Two Hundred Seventy Five Dollars ($275.00) per funded first
lien loan which does not conform to both Freddie Mac and Fannie
Mae credit underwriting guidelines which includes sub prime; and,
5.b Two Hundred Dollars ($200.00) per funded first lien loan
which meets both Freddie Mac and Fannie Mae underwriting
guidelines; and,
5.c Fifty Dollars ($50.00) per funded second lien Home Equity or
Line of Credit loan.
6. Accounting.
PURCHASER shall keep reasonable, detailed and accurate records in
connection with its respective performance under this Agreement (including
without limitation, records in relation to submitted applications, Server
Logs and revenue calculation), and shall permit SELLER and SELLER'S
representatives access to such records upon reasonable notice.
When PURCHASER shall remit its monthly payments to SELLER, pursuant to
Sections 4.c, 4.d or Section 5 PURCHASER shall provide a schedule detailing
the following information for the subject month;
6.a. unique file identifier code or reference number for each
application;
6.b. the date of each application;
6.c. the total number of submitted applications;
6.d. the method of the application submission (i.e., online, mail
fax, telephone, etc.);
6.e. the total number of funded loans and dates of closing; and,
6.f. each loan will be coded only in one of two ways, either as
sourced from credit.com, or Other.
SELLER or its independent outside accountants, attorneys, or other
representatives shall have the right, at its expense, upon not less than
five (5) business days' written notice and during PURCHASER'S normal
business hours, disrupting as little as possible PURCHASER'S business
operations, to inspect and audit the books and records of PURCHASER
relating to this Agreement, for the purpose of verifying any reports,
information or payments due to SELLER under this Agreement. If such audit
shows that any of PURCHASER'S reports understated the actual amounts due to
SELLER by more than five percent (5%), then PURCHASER shall immediately pay
SELLER the amount determined to be due and all
<PAGE>
(iv) Security Interest - The Security Interest constitutes a first
priority, and assuming proper filing by SELLER of a UCC-1 financing
statement with the Secretary of State of Florida. a perfected, Security
Interest in favor of SELLER as further provided in the Security Agreement.
9. Closing.
9.a. Conditions to PURCHASER'S Obligation to Close. The PURCHASER'S
obligations to consummate the transactions contemplated by this
Agreement at the Closing are subject to completion of the following:
9.a.1. Transfer of Domain Name. SELLER shall have delivered to
PURCHASER all documents necessary to cause the Domain Name and the
registration thereof, together with the goodwill of the business
connected with and symbolized by such Domain Name, including the
trademark and the service mark "mortgage.com" and any intellectual
property rights relating thereto (to the extent any such trademark,
service mark, or intellectual property rights exist) to be
transferred from SELLER to PURCHASER. Such documents shall contain no
omissions and shall be fully executed by authorized officers of
SELLER, such that the only remaining step to be taken by PURCHASER to
accomplish the transfer of the Domain Name and the registration
therefor from SELLER to PURCHASER is the PURCHASER'S filing of such
documents with the appropriate third parties.
9.a.2. Representations, Warranties and Covenants. The obligations of
SELLER required to be performed by SELLER hereunder at or prior to the
date of Closing shall have been performed and complied with in all
material respects, and the representations and warranties of SELLER
set forth in this Agreement shall be true and correct in all respects
as of the date of Closing as though made on and as of the date of
Closing.
9.a.3. Consent to Registration Rights Agreement PURCHASER shall have
received from existing registration rights holders all necessary
consents to the Registration Rights Agreement.
9.b Conditions to SELLER'S Obligation to Close. The SELLER'S obligations
to consummate the transactions contemplated by this Agreement at the
Closing are subject to completion of the following:
9.b.1. Execution and Delivery of Security Agreement and Registration
Rights Agreement PURCHASER shall have executed and delivered to SELLER
the Security Agreement and the UCC-1 financing statements referenced
therein and shall have granted to SELLER a first priority, and
assuming proper filing by SELLER of a UCC-1 financing statements with
the Secretary of State of Florida, a fully perfected, Security
Interest in the Domain Name; and the SELLER shall have executed and
delivered to SELLER the Registration Rights Agreement.
9.b.2 Payment of Purchase Price and Delivery of Shares. The SELLER
shall have received the two hundred thousand dollar payment from
PURCHASER referenced in Section 4b and SELLER shall have received the
20,000 Shares of Common Stock of PURCHASER referenced in Section 4a.
9
<PAGE>
9.b.3. Representations, Warranties and Covenants. The obligations of
PURCHASER required to be performed by PURCHASER hereunder at or prior
to the date of Closing shall have been performed and complied with in
all material respects, and the representations and warranties of
PURCHASER set forth in this Agreement shall be true and correct in all
respects as of the date of Closing as though made on and as of the
date of Closing.
9.b.4. Consent to Registration Rights Agreement. PURCHASER shall have
received from existing registration rights holders all necessary
consents to the Registration Rights Agreement.
9.c. Place and Date of Closing. After satisfactory completion of the
enumerated conditions above, the Closing shall take place at the
California offices of the SELLER no earlier than January 4, 1999 nor
later than 5:00 p.m. Eastern time on January 15, 1999. In the event
the Closing does not take place by 5:00 p.m. Eastern time on January
15, 1999, then this Agreement shall terminate and the rights and
obligations of the parties to this Agreement shall be of no further
force and effect provided that no party hereunder shall be relieved of
any breach of this Agreement occurring prior to such termination date.
At Closing, each party shall deliver to the other such payments,
documents, certificates, consents, approvals and waivers that shall be
reasonably necessary to consummate the obligations of the parties
hereunder.
10. Expenses.
Except as specified in the last paragraph of Article 6 and Section 16, each
party to this Agreement shall bear all of his or its expenses incurred in
the performance hereof, regardless of whether the transactions contemplated
herein are consummated.
11. Cooperation.
The parties agree that after Closing they shall provide reasonable
cooperation with respect to the matters that are subject to this Agreement.
12. Confidentiality and Public Relations.
12.a. Each party will not without the consent of the other, disclose the
provisions contained herein to any third parties (other than as may be
required by law, in connection with legal or administrative
proceedings, or to attorneys, accountants, and consultants they may
have retained to represent them in connection herewith), and this
provision shall survive the Closing. There will be no public
announcement of this Agreement except as provided below.
12.b In the initial press release announcing the acquisition of the
mortgage.com URL, PURCHASER shall identify the SELLER as Credit.Com,
L.L.C. and the www.mortgage.com website as a Credit.Com Network
affiliate site. Subsequent public relations and advertising related to
mortgage.com shall be strictly under the control and approval of
PURCHASER, as to timing and content, including any announcements
related to this transaction, which is otherwise to be strictly
confidential.
13. Miscellaneous.
13.a Choice of Law. This Agreement shall be construed in accordance with
the laws of the State of Florida.
13.b Venue. The parties agree that all actions or proceedings arising in
connection with this Agreement shall be tried and litigated
exclusively in the federal (if permitted by law and a
10
<PAGE>
party elects to file an action in federal court) courts located in the
County of Broward. This choice of venue is intended by the parties to
be mandatory and not permissive in nature, and to preclude the
possibility of litigation between the parties with respect to, or
arising out of, this Agreement in any jurisdiction other than that
specified in this Section. Each party waives any right it may have to
assert the doctrine of forum non-conveniens or similar doctrine or to
object to venue with respect to any proceeding brought in accordance
with this Secton.
13.c Indemnity. Each party hereto will indemnify, defend and hold harmless
the other party hereto from and against losses incurred through claims
of third persons or arising from breach by any party hereto of such
party's representafions, warranties or covenants, contained in this
Agreement.
13.d Agreement Drafted By All Parties. This Agreement is the result of
arm's length negotiations between the parties and shall be construed
to have been drafted by all parties such that any ambiguities in this
Agreement shall not be construed against either party.
13.e Section Headings. The section headings contained herein are for
convenience in reference and are not intended to define or limit the
scope of any provision of this Agreement.
13.f Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and will
become effective and binding upon the parties as of the execution date
at such time as all the signatories hereto have signed a counterpart
of this Agreement.
13.g Notices.
13.g.1 Any notices required or permitted to be given hereunder by
either party to the other shall be given in writing: (1) by personal
delivery; (2) by electronic facsimile with confirmation sent by United
States first class registered or certified mail, postage prepaid
return receipt requested; (3) by bonded courier or by a nationally
recognized overnight delivery company; or (4) by United States first
class registered or certified mail, postage prepaid, return receipt
requested, in each case, addressed to the parties as follows (or to
such other addresses as the parties may request in writing by notice
given pursuant to this section):
TO: PURCHASER
Seth Werner, Chairman & CEO
First Mortgage Network Inc.
8751 Broward Boulevard - Fifth Floor
Plantation, FL 33324
And
TO: SELLER
Adam Levin, Chairman & CEO
Credit.Com, L.L.C.
87 Stillman Street
San Francisco, CA 94107
13.g.2 Notices shall be deemed received on the earliest of personal
delivery, upon delivery by electronic facsimile with confirmation from
the transmitting machine that the transmission was completed,
twenty-four (24) hours following deposit with a bonded
11
<PAGE>
courier or overnight delivery company; or seventy-two (72) hours
following deposit in the U.S. Mail as required herein.
14. Entire Agreement. This Agreement contains the entire agreement between the
parties with respect to the subject matter of this Agreement, and it
supersedes all other prior and contemporary agreements, understandings, and
commitments between the parties with respect to the subject matter of this
Agreement
15. Successors and Assigns. This Agreement is binding on and shall inure to the
benefit of the respective successors and/or assigns of the parties.
16. Attorney's Fees. In the event either party files suit to enforce any of the
terms hereof, the prevailing party shall be entitled to an award of all
reasonable attorney's fees and court costs.
17. Signatures.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the dates written below:
First Mortgage Network, Inc.
/s/ John J. Hogan 12/24/98
- --------------------------------------------------- ----------
John J. Hogan, Executive Vice President Date
Credit.Com, L.L.C.
/s/ Todd Meagher 1-6-99
- --------------------------------------------------- ----------
Todd Meagher, President and Chief Operating Officer Date
12
INTUIT LENDER SERVICES, INC.
SUBPRIME AGREEMENT FOR DISTRIBUTION, MARKETING, FACILITIES,
AND SERVICES
This SUBPRIME AGREEMENT FOR DISTRIBUTION, MARKETING, FACILITIES, AND
SERVICES (the "Agreement") is entered into as of May 26, 1999, between INTUIT
LENDER SERVICES, INC., a Delaware corporation with its principal place of
business at 2535 Garcia Avenue, Mountain View, CA 94043 ("ILSI"), and
MORTGAGE.COM, INC. (FORMERLY FIRST MORTGAGE NETWORK, INC.), a Florida
corporation with its principal place of business at 8751 Broward Blvd,
Plantation, FL, 33324 ("MC").
WITNESSETH:
-----------
WHEREAS, ILSI owns and operates the QuickenMortgage(R) website located
at (the "Website"), through which consumers can shop for mortgage loans,
prequalify and apply for such mortgage loans with various lenders online (the
"Participating Lenders");
WHEREAS, ILSI would like to begin offering subprime mortgage loans to
its customers through the Website, and MC has agreed to provide loan
underwriting, origination support and funding services for the Subprime Loans
originated by ILSI (as defined in Section 9.11 hereof) for sale in the secondary
market to Participating Lenders and other lenders;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
ARTICLE I
ILSI SERVICES AND FACILITIES
ILSI shall perform the following services and provide the following
facilities in connection with Subprime Loans:
1.1 Inquiry. Through a simple question-and-answer format, ILSI shall
collect information consisting of the name, address, income, assets and
liabilities of potential borrowers. Alternatively, potential borrowers may
supply a subset of the above information to ILSI by telephone or through e-mail.
(The information obtained at this stage is called an "Inquiry" or, if more than
one, "Inquiries").
1.2 Prequalifications. Using the information gathered during the
Inquiry stage, as well as additional information that may be gathered on the
Website, and using its proprietary or licensed software, ILSI shall (i) analyze
the prospective borrower's income and debt, (ii) educate the prospective
borrower about the homebuying and financing process, (iii) advise the
prospective borrower about different types of loans available through the
Website, and (iv) prequalify or preapprove the prospective borrower for the loan
or loans chosen by him or her ("Prequalification" or, if more than one,
"Prequalifications"). Other services shall be provided as part of
Prequalification; these services may be accessed by the prospective borrower at
his or her option, and include linkages to the Participating Lenders' home pages
and websites and linkages to other websites related to mortgage financing.
1
<PAGE>
1.3 Application. Following Inquiry and/or Prequalification, ILSI shall
(i) assist the prospective borrower in understanding and clearing any credit
problems; (ii) assist the prospective borrower in completing an abbreviated loan
application form; (iii) provide the initial good faith estimate of closing costs
("GFE") and other required federal and state disclosures; (iv) provide a contact
point during the loan application process for the prospective borrower to check
the progress of the loan application; (v) identify for prospective borrowers the
necessary financial documentation to be assembled in support of the application;
(vi) collect credit card information to facilitate the ordering of property
appraisals and consumer credit reports (if deemed appropriate); (vii) provide
facilities and software to enable ILSI and MC to obtain credit reports online
(collectively "Application"). ILSI shall transmit the loan application
information gathered during the Inquiry through Application stages to MC for
further processing as described in Article II below.
1.4 Software Support. ILSI shall provide various facilities including
software engineering and operations resources to assist the parties in
performing the services described in this Agreement, including, without
limitation, (i) building an interface between MC and the Website; (ii) building
an interface between the MC CLOser(R) system, which is described in Section
2.5(a) (the "MC CLOser(R)"), and the Website database; (iii) providing a means
for MC to access loan products and pricing on the Website or through a similar
web-based application created by ILSI; (iv) building and maintaining
communication tools to enable loan processors to communicate efficiently with
loan applicants; and (v) developing, maintaining and continuing to enhance other
software productivity tools as needed for the optimal operation of the loan
origination, borrower counseling, loan processing and loan underwriting efforts
of ILSI and MC.
1.5 Customer Support. ILSI shall provide customer support through the
Website and call centers for prospective borrowers who have questions about the
site and other general questions that are not specific to any loan. ILSI will
provide, through the Website and/or other means, in its discretion, customer
disclosures concerning the participation of MC in Subprime Loan transactions as
it deems necessary and desirable to fully comply with all legal obligations
applicable to the Website and the parties, including affiliated business
arrangement disclosures under RESPA, and disclosures concerning the source of
funding of Subprime Loans.
1.6 Employee and Software Sharing. ILSI and MC shall share employees
and software tools as appropriate for processing loan applications, including,
without limitation, employees and tools to order and analyze flood
certifications, inspections, engineering reports, property appraisals and credit
reports.
1.7 Subprime Marketing. ILSI shall use commercially reasonable efforts
to specifically advertise and market the Subprime Loans, using such methods and
distribution channels as it deems advisable, to increase the number of customers
using the
2
<PAGE>
Website to find Subprime Loans. To the extent feasible, as provided in Section
5.2 of this Agreement, no other Subprime services shall be advertised on the
Website or on Quicken.com or other "Quicken" websites that are owned and
operated by Intuit, Inc. without the consent of MC. Such consent shall not be
unreasonably withheld. ILSI shall not offer first lien Subprime Loans in
principal amounts less than $40,000.
1.8 Customer Information. ILSI shall develop and market articles and
calculators specifically designed for Subprime Loan customers. ILSI shall
regularly update and refine the information it provides to customers of Subprime
Loans.
1.9 Debt Counseling. ILSI shall offer online debt counseling services
to assist all ILSI customers and particularly customers of Subprime Loans.
1.10 Debt Consolidation. ILSI shall upgrade its online and call center
customer support services to include providing advice to customers on debt
consolidation, calculators to compare payments and recommendations on Subprime
Loan programs.
ARTICLE II
MC'S SERVICES AND FACILITIES
In connection with Subprime Loans that are transmitted to MC, MC shall
perform the following services and provide the following facilities:
2.1 Status Updates. Subprime Loans may be transmitted to MC for further
processing at any stage of the application process. Thus, either or both MC and
ILSI may conduct specific processing tasks for Subprime Loans prior to closing
and funding; however, the parties agree to work together to ensure that the
services provided are not duplicative. Once a Subprime Loan has been transmitted
to MC, MC shall update the processing system and the Website database with the
status of the loan processing as agreed between ILSI and MC but at a minimum
wherever indicated below. Furthermore, MC shall notify the borrower of all
status changes as they occur and update the Website with such status changes and
transmit electronic messages to borrowers.
2.2 Origination. The parties acknowledge and agree that an essential
element of successful loan origination, particularly online loan origination via
the Website, involves making timely contact with prospective borrowers. To that
end, earlier and faster initial and subsequent communications between the loan
originator and the prospective borrower are more likely to result in completed
applications and eventual closed loans. The parties therefore agree that time is
of the essence in all processing tasks involving communications with prospective
borrowers, and that prompt communications are an essential element of the
origination task for which MC is engaged. MC shall maintain its status as an
approved loan correspondent of the Participating Lenders, and shall demonstrate
and confirm that status to ILSI upon request.
MC shall perform the following origination services with respect to
Subprime Loan applications or Inquiries that are transmitted to MC by ILSI:
3
<PAGE>
(a) Response to Prospective Borrowers. Respond to Submissions by
prospective borrowers and finalize loan applications as appropriate for each
Stage described in (i) to (iii) below:
(i) Inquiry Stage. Respond to Inquiries submitted through the
Website or ILSI call centers. If prequalification was not requested through the
Website, analyze Inquiry data, send out prequalification notices and encourage
borrower to submit an application;
(ii) Prequalification Stage. Send out prequalification notices
to prospective borrowers; provide those prospective borrowers who prequalified
for a particular loan or loans through the Website with personalized on-line
prequalification letters; follow up with prospective borrowers; and encourage
them to submit an application for the selected Subprime Loan. Where the borrower
has selected a Subprime Loan that is not appropriate for the borrower, assist
the borrower in choosing a different Subprime Loan;
(iii) Application Stage. Confirm to the prospective borrowers
the receipt of the Application and assist him or her in finalizing the
application as needed.
(b) Re-Qualify, Verify, Amend or Modify Information. At the request of
a prospective borrower, re-qualify the prospective borrower for the same or
another loan, based on change of circumstances, change of preferences, or for
other reasons, and answer questions concerning information submitted on
Prequalification or Application screens.
(c) Credit Report Ordering/Review. Check credit history of borrower as
appropriate, including review of any credit scoring data.
(d) Commitments. Prepare and send out commitment letters in the name of
the creditor, and/or collect commitment fees, application fees or deposits
toward closing costs, as appropriate.
(e) Loan Application Package Preparation. Prepare completed loan
application packages and send them to borrowers via overnight courier,
electronically, or other means. The loan application package shall include all
data provided by borrowers, itemization of information outstanding, including,
without limitation, Form 1003, GFE, disclosures, Truth-in-Lending statements and
other disclosures required by law to be furnished by creditors, and
instructions.
(f) Borrower Support. Answer any borrower questions concerning the loan
application package and the Subprime Loan.
(g) Transfer to Processing. Ensure that transmission of Subprime Loans
from ILSI to MC (and within teams at MC) is a smooth process from the
perspective of the prospective borrower, with the required degree of
communication between all parties.
4
<PAGE>
2.3 Processing and Underwriting. MC shall process and arrange for
underwriting for all Subprime Loan applications.
(a) Processing. In connection with processing, MC shall provide the
following services:
(i) Appraisal. MC shall engage an appraisal firm and ensure
that the property appraisal is performed in a timely manner. MC's call center
representative shall update the processing system and the Website database with
the status of the appraisal;
(ii) Verifications. MC shall maintain frequent contact with
the loan applicant to collect verifications of employment (VOE), income (VOI),
assets, and debt, including mortgage debt (VOM). MC shall update the processing
system, the Website database and the loan application data with the status of
all verifications;
(iii) Underwriting. MC or its designee shall underwrite the
completed loan package and update the processing system and the Website database
with the underwriting decision. MC shall call the applicant to inform him/her of
the underwriting decision. MC shall send the loan applicant an adverse action
letter under the Equal Credit Opportunity Act ("ECOA") if appropriate;
(iv) Flood, Tax, Ancillary Services. MC shall order flood
certifications, tax service and other ancillary services as needed. MC shall
update the processing system and the Website database with the status of such
services;
(v) Title. MC shall assist borrowers to engage a reputable
title firm and follow through to ensure that the title search is completed and
insurance is issued. MC shall update the processing system and Website database
with the status of title and insurance;
(vi) Escrow. MC shall engage a reputable escrow firm and
arrange for escrow services pending closing and sale of Subprime Loans as
described below. MC shall update the processing system and Website database with
the status of the escrow.
(b) Pricing of Ancillary Services. MC shall obtain pricing for the
ancillary services listed in Section 2.3(a) and any other third party services
required, which pricing is at least as competitive, for a comparably priced
loan, as the aggregate fees charged by the Index Group of lenders as defined in
Appendix A to this Agreement, for similar services. MC further agrees that it
will pass through to the borrowers third party fees that are customarily
reimbursed by borrowers with no mark-up of any kind, nor will MC receive
directly or indirectly any monetary or in-kind benefit from the providers of
such ancillary services, except as described in Section 2.3(c) below. ILSI and
MC will cooperate with each other to negotiate the lowest pricing for such
ancillary services without jeopardizing the quality of service to the borrower
or to the lenders who require such services.
(c) Negotiating Loan Pricing. MC shall use its best efforts to
negotiate the
5
<PAGE>
lowest correspondent pricing available from Participating Lenders. ILSI shall
cooperate with MC in this effort. In addition, in order to qualify for payments
for shortfalls in Submissions, as described in Section 3.2, MC shall maintain
pricing spreads and fees to borrowers that are typical within the Subprime
industry. If the parties cannot reach agreement on what is considered typical
pricing spreads or fees, they shall hire an independent third party to make the
determination. Both parties agree that such determination shall be binding upon
them.
2.4 Packaging, Funding and Closing. MC shall operate initially under
this Agreement as a loan correspondent with warehouse lines of credit available
for loan funding. In that capacity, MC shall provide the following services with
respect to Subprime Loans:
(a) Packaging. MC shall package, process, and underwrite Subprime
Loans.
(b) Funding. MC shall use its own funding sources to close and fund
Subprime Loans in MC's name as original payee/mortgagee. For all Subprime Loans
which will be funded and closed by MC, MC shall disclose to the borrower prior
to the borrower's binding commitment for the loan (or at an earlier time, as
required by law and in the mutual judgment of ILSI and MC) the name of the
servicer to whom the loan will be transferred.
(c) Closing. MC shall coordinate and perform or arrange for the closing
of Subprime Loans, and where appropriate, the placement of loan funds in escrow
pending closing and/or sale.
(d) Selling. Subprime Loans closed and funded in MC's name shall be
sold by MC to the appropriate Participating Lender or other lender. MC will be
responsible for coordinating the sale, collecting the proceeds, and other tasks
involved in the sale. Nothing in this Agreement may be construed to preclude
ILSI from processing, closing and funding mortgage loans in its own name in the
future, as a correspondent lender or as an originator or broker of loans for
wholesale lenders, but such activities will not relieve ILSI of its obligations
under this Agreement.
2.5 Facilities. MC shall provide the following facilities to ILSI in
connection with Subprime Loans:
(a) MC CLOser(R) System. MC shall install the MC CLOser(R) in ILSI
offices and on its computer networks and shall train ILSI personnel in ILSI
offices in its use. MC CLOser(R) is MC's proprietary loan origination, pricing,
locking, pipeline management and status reporting system. As used in this
Agreement, MC CLOser(R) includes interfaces with automated underwriting and
credit evaluation functions and integration with MC's Internet site. During the
term of this Agreement, ILSI will have a royalty-free worldwide license to use
MC CLOser(R) in connection with the origination and processing of Subprime Loans
under the terms of this Agreement and in connection with any other loans for
which MC receives compensation as described in Article IV. This licensed use of
MC CLOser(R) by ILSI shall not apply to any loans processed, closed and funded
by
6
<PAGE>
ILSI without the participation and compensation of MC as described in Section
2.4(d), or other compensation arrangement agreed upon by the parties.
(b) Engineering and Other Resources. MC shall coordinate all tasks
related to the integration of the MC systems, including CLOser(R), with the
Website. MC will dedicate a minimum of one full-time person to this effort. MC
shall further provide such additional staff as are needed from time to time to
work with ILSI as quickly and efficiently as reasonably possible to achieve the
development and operational objectives agreed to by the parties. The parties
shall work together to determine the tasks to be performed, the staffing needed
and the timing of completion of the tasks.
(c) Security. MC shall maintain ICSA E-Commerce security standards on
all data transmissions involving Subprime Loans at all times.
2.6 Agreement with Participating Lenders. MC shall use its best efforts
to enter into arrangements with Participating Lenders for the purchase of
Subprime Loans originated through the Website in accordance with this Agreement.
To the extent that MC charges participation fees to other lenders, ILSI and MC
shall share such fees on a 50/50 basis.
2.7 Use of Name "FMN" and "First Mortgage Network" on Website. MC shall
take all necessary action to file the trade names "FMN" and "First Mortgage
Network" in the appropriate jurisdictions, and otherwise maintain its ownership,
right and license to use such names in connection with MC products and services.
MC shall cooperate with ILSI in identifying MC products and services on the
Website, through "Quicken"-related portals, co-branded sites and in other media
and communications with consumers in connection with "Quicken" as "FMN" and/or
"First Mortgage Network" products and services.
ARTICLE III
OPERATIONS AND STANDARDS
3.1 Timing of Offering Subprime Loans. The parties shall work together
to begin offering Subprime Loans under the terms of this Agreement by May 31,
1999, or as soon thereafter as practicable (the "Commencement Date"). The first
contract year under this Agreement with respect to Subprime Loans shall begin on
the Commencement Date and end on the date 12 months following the Commencement
Date. The successive contract years under this Agreement shall begin and end on
such dates of the following years (each, a "Contract Year").
3.2 [Redacted]
3.3 [Redacted]
7
<PAGE>
(b) The above ratios will be reviewed by the parties after six (6)
months following the Commencement Date (or such other time periods determined by
the parties). During the six (6) month review, the parties agree to negotiate in
good faith to agree on appropriate ratios. The parties may further adjust such
ratios from time to time by agreement in writing.
(c) If MC does not achieve the agreed-upon conversion ratios for three
(3) consecutive months (based upon a blended average of the categories), then,
upon written notice from ILSI, MC shall have ninety (90) days to cure the
shortfall. Cure shall be effected by MC's achieving the blended average
conversion ratios during the ninety (90) day cure period. If the shortfall
continues after the end of the cure period, ILSI shall have the right to
terminate this Agreement in accordance with Article VIII below.
3.4 Service Levels for Subprime Loans. MC shall perform the following
customer services in connection with Subprime Loans:
(a) Customer Survey. The parties shall design a mutually
acceptable customer survey and establish minimum goals for customer
satisfaction. MC shall transmit the survey to all borrowers at the time of
closing of Subprime Loans. The parties will develop and implement process
improvements to address instances of failure to meet customer satisfaction
goals.
(b) Quality Control Standards. The parties shall cooperate
with each other to develop mutually acceptable quality control standards for
Subprime Loans, which the parties shall work together to maintain. The parties
will develop and implement process improvements to address instances of failure
to meet minimum quality control standards.
(c) Amount of Time to Close Loans. [Redacted]
If MC fails to achieve the above service levels for two (2) consecutive
months, then upon written notice from ILSI, MC shall take reasonable measures to
improve service levels within 15 days and shall cure such failure within an
additional 45 days. Furthermore, if ILSI identifies a pattern of material
problems resulting from MC conduct, which problems have resulted in specific
instances of customer complaints, then upon written notice from ILSI, MC shall
take reasonable measures to improve service levels within 15 days and shall cure
the underlying problems within 45 days.
If the service shortfall is not cured to ILSI's satisfaction during the
cure period, then, notwithstanding any other term of this Agreement to the
contrary, ILSI shall have
8
<PAGE>
the right to terminate this Agreement in accordance with Article VIII of this
agreement.
(d) Customer Service Commitment. ILSI and MC agree that
excellent customer service represents one of the foundations for building a
successful business and is a consideration for this Agreement. To that end, the
parties agree to the following customer service standards:
MC shall deliver customer service performance at least equal to the
service level standards delivered by the average of the two lenders on the
Website determined to have the highest customer service levels (defined as
lowest ratio of complaints to applications) ("High Service Standard"). The two
lenders whose customer service levels are averaged to determine the High Service
Standard shall be selected from among the four lenders on the Website with the
highest application volume. The High Service Standard will be measured monthly,
and will be determined by the ratio of customer complaints received (and found
in ILSI's reasonable judgement to result from lender actions) regarding a
specific lender to the total applications taken by that lender during the month.
If MC's customer service fails to meet the High Service Standard for
two (2) consecutive months, then upon written notice from ILSI, MC shall take
reasonable measures to improve service levels within 15 days and shall cure such
failure to meet the High Service Standard within an additional 45 days; provided
however, that if ILSI identifies a pattern of material problems resulting from
MC conduct, which problems have resulted in specific instances of customer
complaints, then upon written notice from ILSI, MC shall take reasonable
measures to improve service levels within 15 days and shall cure the underlying
problems within 45 days.
If the service shortfall is not cured during the cure period, then,
notwithstanding any other term of this Agreement to the contrary, ILSI shall
have the right to terminate this Agreement in accordance with Article VIII of
this agreement.
For purposes of this section a problem shall not be deemed to be
material if the specific events complained of occur in fewer than 2% of loan
applications taken by MC. The provisions of this Section 3.5(d) shall not apply
during any period where actual loan conversion ratios exceed the capacity levels
established and agreed to by the parties, as described in Section 3.3.
3.5 Improving Processing Time. ILSI and MC shall work together and with
GHR to integrate their respective technologies in order to improve processing,
underwriting and closing processes. The parties shall work with each other and
GHR to improve the quality and nature of the back office services so as to
reduce the time, cost and difficulty to the customer of obtaining a Subprime
Loan.
ARTICLE IV
COMPENSATION
4.1 Federal and State Law. The compensation structure set forth below
9
<PAGE>
reflects the intent of the parties but is subject to change, by mutual agreement
of the parties, to comply with applicable federal and state laws and
regulations.
4.2 [Redacted]
4.3 Fees for ILSI's Services and Facilities. [Redacted]
ILSI's services and facilities, as described in the Agreement shall
include, without limitation, educating the customer on the home buying and
financing process through various articles and chat services on the Website,
providing calculators for the customer to determine appropriate loan products
available, taking customer information and compiling the information into an
application, analyzing the customer's income and debt and pre-qualifying the
customer for Subprime Loans, providing disclosures, and assisting the borrower
in understanding and clearing credit problems, including debt consolidation
advice, and related services and facilities contemplated by this Agreement.
ARTICLE V
EXCLUSIVITY
5.1 Multi-Lender Mortgage Sites. [Redacted]
5.2 Exclusivity with Respect to Subprime Loans. [Redacted]
10
<PAGE>
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 Representations and Warranties of MC. MC represents and warrants
that the following is true and correct and shall remain true and correct during
the Term:
(a) Authority. MC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida with full
corporate power and authority to transact any and all business contemplated by
this Agreement and it possesses all requisite authority, power, licenses,
permits and franchises to conduct its business as presently conducted. Its
execution, delivery and compliance with its obligations under the terms of this
Agreement are not prohibited or restricted by any government agency. MC has
taken all necessary action to authorize its execution, delivery and performance
of this Agreement.
(b) Conflict with Existing Laws or Contracts. The execution
and delivery of this Agreement and the performance of its obligations hereunder
by MC will not (i) conflict with or violate (A) MC's Certificate of
Incorporation or By-laws, or (B) any provision of any law or regulation or any
decree, demand or order to which MC is subject, or (ii) conflict with or result
in a breach of or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under any of the terms, conditions
or provisions of any agreement or instrument to which MC is a party or by which
it is bound or any order or decree applicable to MC or result in the creation or
imposition of any lien on any of its assets or property.
(c) Licenses and Consents. MC has obtained all necessary or
required governmental licenses, permits, approvals, and consents for the
transactions contemplated by this Agreement. No consent, approval, authorization
or order of any court or governmental agency or body is required for the
execution, delivery and performance by MC of or compliance by MC with this
Agreement, or if required, such approval has been obtained or will be obtained
prior to the date of this Agreement.
(d) Legal Action Against MC. There is no claim, action, suit,
proceeding or investigation pending or, to the best of MC's knowledge,
threatened against MC or against any of its principal officers, directors or key
employees, which, either in any one instance or in the aggregate, may result in
any adverse change in the business, operations, financial condition, properties
or assets of MC, or in any impairment of the
11
<PAGE>
right or ability of MC to carry on its business substantially as now conducted
through its existing management group, or in any material liability on the part
of MC, or which would draw into question the validity of this Agreement or any
of the other instruments, documents or agreements entered into by MC in
connection with this Agreement, or of any action taken or to be taken in
connection with the obligations of MC contemplated therein, or which would be
likely to impair the ability of MC to perform the terms of this Agreement.
(e) Binding on MC; Enforceability. This Agreement, assuming
due authorization, execution and delivery hereof, and all the obligations of MC
hereunder, constitute the valid and binding obligations of MC, enforceable
against MC in accordance with the terms hereof, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the enforcement of creditors' rights in general and by
general equity principles (regardless of whether such enforcement is considered
in a proceeding in equity or at law).
(f) Compliance With Laws. MC has complied and will continue to
comply with all applicable federal and state laws and regulations in its
business operations, in the loan origination activities proposed to be
conducted, and in the performance of this Agreement. In particular, MC
represents and warrants that its loan origination, processing and underwriting
systems, including, without limitation, the MC CLOser(R), comply with applicable
state and federal laws and regulations, including, without limitation, the Fair
Housing Act, Truth-in-Lending Act, and ECOA. MC will not seek to hold ILSI
liable in any action prosecuted against MC by a borrower, government agency, or
other party which alleges non-compliance with the laws applicable to originators
of mortgage loans, provided that neither the bad faith or wilful misconduct of
ILSI materially contributed to the circumstances giving rise to the claim
against MC. MC will maintain errors and omissions insurance, fidelity bonds and
similar financial instruments designed to protect those with whom it deals in
the origination of mortgage loans, in commercially reasonable amounts, and to
provide evidence of such instruments to ILSI upon request. ILSI will be a named
or additional insured in such policies and instruments. The types and amounts of
insurance, bonds and other financial instruments maintained by MC will be
subject to approval and upward revision by ILSI in its reasonable discretion, as
the volume of MC activity subject to this Agreement increases.
MC represents on behalf of its officers, directors, and key employees
that none of these individuals are currently in violation of any federal, state
or other law or regulation applicable to them in their professional capacities
as mortgage bankers, mortgage brokers, or any other regulated field or
occupation, except as disclosed to ILSI in writing in connection with this
Agreement, and that there is no pending legal, administrative or similar action
pending against any of them that would affect their ability to perform their
obligations to MC or to the Participating Lenders, or to ILSI hereunder.
6.2 Representations and Warranties of ILSI. ILSI represents and
warrants that the following is true and correct and shall remain true and
correct during the Term:
(a) Authority. ILSI is a corporation duly organized, validly
existing
12
<PAGE>
and in good standing under the laws of the State of Delaware with full corporate
power and authority to transact any and all business contemplated by this
Agreement and it possesses all requisite authority, power, and material
licenses, permits and franchises to conduct its business, and to execute,
deliver and comply with its obligations under this Agreement. The execution of
this Agreement and its delivery and the performance by ILSI of its obligations
under this Agreement are not prohibited or restricted by any government agency.
ILSI has taken all necessary action to authorize the execution, delivery and
performance of this Agreement.
(b) Conflict with Existing Laws or Contracts. The execution
and delivery of this Agreement and the performance of its obligations hereunder
by ILSI will not (i) conflict with or violate (A) ILSI's Certificate of
Incorporation or By-laws, or (B) any provision of any law or regulation or any
decree, demand or order to which ILSI is subject, or (ii) conflict with or
result in a breach of or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under any of the terms,
conditions or provisions of any agreement or instrument to which ILSI is a party
or by which it is bound or any order or decree applicable to ILSI or result in
the creation or imposition of any lien on any of its assets or property.
(c) Licenses and Consents. ILSI, in connection with
performance of its duties under this agreement, has obtained or will obtain all
necessary or required governmental licenses and consents requisite for the
transactions contemplated by this Agreement. No consent, approval, authorization
or order of any court or governmental agency or body is required for the
execution, delivery and performance by ILSI of or compliance by ILSI with this
Agreement, or if required, such approval has been obtained prior to the date of
this Agreement.
(d) Legal Action Against ILSI. There is no claim, action,
suit, proceeding or investigation pending or, to the best of ILSI's knowledge,
threatened against ILSI, which, either in any one instance or in the aggregate,
may result in any material adverse change in the business, operations, financial
condition, properties or assets of ILSI, or in any material impairment of the
right or ability of ILSI to carry on its business substantially as now
conducted, or in any material liability on the part of ILSI, or which would draw
into question the validity of this Agreement, or any of the other instruments,
documents or agreements entered into by ILSI in connection with this Agreement,
or of any action taken or to be taken in connection with the obligations of ILSI
contemplated therein, or which would be likely to impair materially the ability
of ILSI to perform under the terms of this Agreement.
(e) Binding on ILSI; Enforceability. This Agreement, assuming
due authorization, execution and delivery hereof, and all the obligations of
ILSI hereunder, constitute the valid and binding obligations of ILSI,
enforceable against ILSI in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting the enforcement of creditors' rights in general
and by general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
13
<PAGE>
(f) Compliance With Laws. ILSI has complied and will continue
to comply with all applicable federal and state laws and regulations in its
business operations, in the operation of the Website, and in the performance of
this Agreement.
6.3 Covenants.
----------
(a) Compliance with Laws. MC and ILSI covenant to each other
that they will comply with all applicable federal and state laws and regulations
in performing their respective obligations under this Agreement. Any successful
challenge of any particular provision of this Agreement, including the
compensation provisions, by any governmental authority, will, at the option of
either party hereto, constitute sufficient cause for termination of this
Agreement if the Agreement and its purposes cannot be reasonably effectuated
without the challenged provision or term.
(b) Continuing Obligations of the Parties. The parties shall
cooperate with each other in the performance of this Agreement until the
termination hereof. Neither party shall take any action or refrain from taking
any action which would jeopardize or compromise the performance of the Website
or MC's systems or which would hinder the performance by the parties of their
respective services to the Participating Lenders and to their customers. Each
party shall promptly forward to the other all notices, claims, letters,
documents and other information received by such party which are relevant to the
performance of this Agreement. The parties shall provide to each other all
information and documentation regarding their respective products and services
which are necessary or relevant to the performance of the transactions
contemplated by this Agreement.
(c) MC's Books and Records. MC shall make all material books
and records pertaining to the services and facilities provided under this
Agreement, including without limitation, records and reports on Inquiries,
Prequalifications and Applications that are initiated through the Website and
any other services and facilities provided to ILSI, available for inspection at
MC's offices or any other mutually convenient location upon five (5) days prior
notice by ILSI.
(d) Further Assurances. At any time, and from time to time
after the execution of this Agreement, upon the reasonable request of a party
hereto, and at the expense of such party, the other party shall do, execute,
acknowledge and deliver, and shall cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably required in order to
enable the parties to perform their respective obligations hereunder and carry
out the terms of this Agreement.
ARTICLE VII
INDEMNIFICATION
7.1. General Indemnification by ILSI. ILSI shall indemnify MC and any
directors, officers, employees or agents of MC (collectively, "MC Indemnified
Parties")
14
<PAGE>
and hold each of them harmless from and against any and all claims, losses,
damage, penalties, fines, forfeitures, reasonable legal fees and expenses
(including attorneys' fees) and related costs, expenses of litigation,
judgments, and any other costs, fees and expenses (each, a "Liability" and
collectively "Liabilities") that were caused by or resulted from a breach of any
of ILSI's representations, warranties, covenants and agreements contained in
this Agreement or by ILSI's willful misfeasance, bad faith or gross negligence
in the performance of or failure to perform as provided in this Agreement.
7.2. General Indemnification by MC. MC shall indemnify ILSI and any
directors, officers, employees or agents of ILSI (collectively, "ILSI
Indemnified Parties") and hold each of them harmless from and against any and
all Liabilities that were caused by or resulted from a breach of any of MC's
representations, warranties, covenants and agreements contained in this
Agreement or by MC's willful misfeasance, bad faith or gross negligence in the
performance of or failure to perform as provided in this Agreement. Further, MC
shall indemnify the ILSI Indemnified Parties for losses, damages or Liabilities
resulting from MC's failure to adhere to commercially reasonable standards and
any applicable canons of ethics in the origination, processing or funding of
mortgage loans. The indemnification based on the professional conduct of MC
shall not be limited to willful acts, bad faith or gross negligence.
7.3 Survival of Indemnifications. MC's and ILSI's respective
obligations to indemnify any ILSI Indemnified Party or any MC Indemnified Party
will survive the expiration or termination of this Agreement by either party for
any reason.
7.4 Notice of Claims. Each party shall promptly notify the other in
writing of any and all litigation and claims known to such party made against it
or the other party in connection with this Agreement.
ARTICLE VIII
TERM AND TERMINATION
8.1 Term. This Agreement shall remain in effect for three Contract
Years following the Commencement Date (the "Initial Term"). Thereafter this
Agreement may be renewed for successive three Contract Year terms unless either
party notifies the other at least 30 days prior to the end of a term that it is
terminating the Agreement at the end of the current term. The Initial Term,
together with any successive terms shall be referred to herein as the "Term."
8.2 Termination. This Agreement may be terminated by written notice of
either party prior to the end of the Term due to one of the following Events of
Default, after giving the defaulting party the applicable notice and opportunity
to cure set forth below:
(a) Breach of the Agreement. If a party breaches a material term or
condition of this Agreement, the non-defaulting party must give the defaulting
party written notice of the breach. If the breach is of a monetary nature, the
defaulting party will have five (5)
15
<PAGE>
business days to cure the default. Otherwise, the defaulting party will have
thirty (30) days to cure the default. The non-defaulting party may terminate
this Agreement at the expiration of the applicable cure period if the breach is
not cured within the given cure period.
(b) Change in Control. If MC merges with, or is acquired by, a third
party, and, in the reasonable opinion of ILSI, such change in control materially
adversely affects MC's ability to perform under this Agreement, then ILSI may
terminate this Agreement after giving three (3), months' prior written notice.
This provision shall specifically exclude mergers in which MC is the surviving
entity.
(c) Change in Financial Condition. If MC undergoes a material change in
financial condition such that it is unable to meet its obligations under this
Agreement, ILSI may terminate this Agreement if, after giving MC written notice
and a 15-day opportunity to cure, MC's financial condition has not been restored
to the extent that it can perform its obligations hereunder; provided, however,
that if the adverse change in MC's financial condition results in MC's failure
to fund loans as and when scheduled for three (3) consecutive days, ILSI may
thereafter immediately terminate this Agreement and at its option, seek
alternative funding for the affected loans.
(d) Performance. If MC does not meet its minimum requirements for
closing Subprime Loans as set forth in Section 3.3 of this Agreement, ILSI shall
notify MC in writing of the shortfall. MC shall have ninety (90) days after
notice to cure the shortfall. If MC has failed to cure the shortfall during that
period, then ILSI may terminate this Agreement after six (6) months' prior
written notice.
(e) [Redacted]
(f) Bankruptcy. In the event of the occurrence of any of the following
events, the non-defaulting party may terminate this Agreement immediately upon
giving prior written notice to the defaulting party:
(i) the commencement of any bankruptcy, insolvency,
reorganization, dissolution, liquidation of debt, receivership or
conservatorship proceeding or other similar proceeding under federal or state
bankruptcy, debtors relief, bank regulatory or other law by or against either
party; or
(ii) the appointment of a receiver, conservator, trustee or
similar officer to take charge of, a substantial part of the property of either
party.
ARTICLE IX
MISCELLANEOUS
16
<PAGE>
9.1 Notices. Any written notice required or permitted to be given to the parties
hereunder shall be addressed as follows:
If to ILSI: Intuit Lender Services, Inc.
2535 Garcia Avenue
Mountain View, CA 94043
Tel: (619) 784-1214
Fax: (619) 784-1244
Attention: Carl Reese, President
[email protected]
with a copy to:
Andrea Lee Negroni, Esq.
Negroni & Winston PLLC
1156 Fifteenth Street, N.W.
Suite 1105
Washington, D.C. 20005
Tel: 202-887-1610
Fax: 202-887-1902
[email protected]
If to MC:
Seth Werner, Chairman
Mortgage.com, Inc.
8751 Broward Blvd
Plantation, FL 33324
Tel: (954) 452-0000
Fax: (954) 472-0800
E-mail address [email protected]
with a copy to:
Michael Brenner, General Counsel
Mortgage.com, Inc.
8751 Broward Blvd
Plantation, FL 33324
Tel: (954) 452-0000
Fax: (954) 472-0800
E-mail address: [email protected]
All notices shall be in writing and delivered in person or shall be
sent by registered or certified mail, return receipt requested, and shall be
deemed effective, three days after the same is mailed as provided above with
postage prepaid. Notice sent by any other method shall be effective only upon
actual receipt.
17
<PAGE>
9.2 Assignment; Contracting. Neither party may assign its rights or
obligations hereunder, by operation of law or otherwise, without the express
written consent of the other, except that (i) either party may assign any of its
obligations or rights, in whole or in part, to any parent, affiliate or
subsidiary of such party, and (ii) the acquisition of all or substantially all
of the voting securities of a party by merger or otherwise, shall not constitute
an assignment of its rights or obligations hereunder. Any attempted assignment
in violation of the foregoing will be null and void. Subject to the foregoing,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
9.3 [Redacted]
9.4 Waiver. No term or provision hereof will be deemed waived, and no
variation of terms or provisions hereof shall be deemed consented to, unless
such waiver or consent shall be in writing and signed by the party against whom
such waiver or consent is sought to be enforced. Any delay, waiver or omission
by ILSI or MC to exercise any right or power arising from any breach or default
of the other party in any of the terms, provisions or covenants of this
Agreement shall not be construed to be a waiver by ILSI or MC of any subsequent
breach or default of the same or other terms, provisions or covenants on the
part of either party.
9.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of California, without respect to its conflicts of law
principles.
9.6 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto relating to the subject matter hereof, except where
expressly noted herein, and all prior negotiations, agreements and
understandings, whether oral or written, are superseded or canceled hereby.
9.7 Modification. This Agreement may not be amended or modified except
in a written document signed by both parties.
9.8 Severability. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void, this Agreement shall be construed as
if not containing that
18
<PAGE>
provision, and the rest of the Agreement shall remain in full force and effect,
and the rights and obligations of the parties hereto shall be construed and
enforced accordingly.
9.9 Independent Contractor. MC, in performance of this Agreement, is
acting as an independent contractor, is not the partner, joint venturer or agent
of ILSI and has no authority to act on behalf of ILSI except as necessary or
desirable to carry out MC's obligations under this Agreement. The parties shall
each be responsible for payment of their respective taxes and assessments
incurred in connection with performance of this Agreement. Neither party's
employees are eligible for employee benefits of the other party.
9.10 Confidentiality. Each party agrees to keep all information related
to the other party confidential, as provided in the Non-Disclosure Agreement
dated April 29, 1998. The parties further agree that the business strategy,
marketing plans and product specifications of either party disclosed in
connection with this transaction, as well as the terms of this Agreement, are
confidential and shall not be used by the other party or disclosed by such other
party to third parties unless such information is (i) required to effect the
transactions contemplated herein, (ii) in the public domain or already in the
possession of a party prior to the disclosure to it by the other party
(including information received lawfully from third parties without an
obligation of confidentiality); or (iii) required by law or regulation to be
disclosed.
9.11 Definitions. Except where otherwise defined herein, capitalized
terms used in this Amendment shall have the meaning set forth below.
(a) The term "Submission" shall mean any Inquiry through the Website or
call centers, any Prequalification or Application.
(b) The term "Subprime" shall mean having an investment grade of "B" or
below.
(c) The term "Subprime Loans" shall mean residential mortgage
loans, which are Subprime and are offered by ILSI through the Website
or through portals, other co-branded sites or call centers.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
signed and delivered by its duly authorized officer as of the date first written
above.
INTUIT LENDER SERVICES, INC.
By: /s/ [illegible]
------------------------------------
Name: [illegible]
----------------------------------
Title: President & CEO
---------------------------------
MORTGAGE.COM, INC.
By: /s/
-----------------------------------
Name: John D. Rodgers
---------------------------------
Title: President, Consumer DirectGroup
--------------------------------
20
<PAGE>
APPENDIX A
INDEX OF RATES OF LENDERS
[Redacted]
21
<PAGE>
APPENDIX B
[Redacted]
DIRECTOR INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made as of the __ day of ___1999, by
and between:
MORTGAGE.COM, INC., a Florida corporation, with its principal office
and place of business at 8751 Broward Boulevard, Fifth Floor, Plantation,
Florida 33324 (the "Corporation"), and
________, a resident of ("Director") whose residence address is:
_____________________________
_____________________________
_____________________________
Background
The Corporation desires that Director serve as a member of the Board of
Directors of the Corporation. Director has indicated that he will be willing to
serve in that capacity set forth above, on the condition that he be indemnified
as provided in this Agreement.
NOW, THEREFORE, in consideration of the premises and as an inducement
to Director to accept the positions described above as well as any other
additional positions as may be mutually agreed upon by the Corporation and
Director, the Corporation hereby covenants and agrees with Director, as follows:
1. Definitions. For purposes of this Agreement:
a. "Expenses" include all expenses actually and reasonably
incurred with respect to a Proceeding, including, without limitation,
fees, expenses and disbursements of attorneys, accountants, financial
consultants and other professionals.
b. "Liabilities" includes obligations to pay a judgment,
settlement, penalty, fine or tax (including, without limitation, any
withholding or employment tax and any excise tax assessed with respect
to the Corporation, any Subsidiary, any employee benefit plan or any
other enterprise as to which Director is or was serving in an Official
Capacity), together with any obligation to pay interest thereon.
c. "Proceeding" includes any threatened, asserted, pending or
completed claim, action, suit or other type of proceeding, whether
civil, criminal, administrative or investigative, whether formal or
informal, including, without limitation, any arbitration proceeding or
other proceeding for the resolution of any claim or dispute and any
privately conducted negotiations, and including, without limitation,
any settlement, hearing, trial or appeal of any of the foregoing.
d. "Serving in an Official Capacity" includes (i) serving as a
director, officer, employee or agent of the Corporation or any
Subsidiary or (ii) serving at the request of the Corporation or any
1
<PAGE>
Subsidiary as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
including any employee benefit plan.
e. "Subsidiary" means any corporation or other entity directly
or indirectly controlled by the Corporation which now exists or may
hereafter be formed.
2. Statutory Indemnification. The Corporation hereby agrees to
indemnify and hold harmless Director to the fullest extent permitted or required
by the provisions of Chapter 607 of the Florida Statutes, as amended, or the
laws of the state of incorporation of any successor to the Corporation, and to
cause any Subsidiary to indemnify and hold harmless Director to the fullest
extent permitted or required by the provisions of the laws of its jurisdiction
of incorporation against any Liability or Expense incurred by Director by reason
of the fact that Director is or was Serving in an Official Capacity. The
Corporation agrees that such obligation shall be to the fullest extent required
or permitted by any subsequent amendment to any of such provisions of the
Florida Statutes or by any other applicable statutory provisions permitting or
requiring such indemnification which are adopted after the date of this
Agreement (but in the case of any amendment or subsequent statutory provisions,
only to the extent that such amendment or provisions permit or require broader
or more extensive indemnification rights than prior thereto).
3. Additional Indemnification. Subject only to the exclusions set forth
in this Section 3, the Corporation further agrees to indemnify and hold harmless
and to cause any Subsidiary to indemnify and hold harmless Director against any
and all Liabilities and Expenses incurred by Director in connection with any
Proceeding to which Director is or was a party or is threatened to be made a
party or in which Director is called to testify as a witness or deponent by
reason of the fact that Director is or was Serving in an Official Capacity.
Director shall not be entitled to any indemnification pursuant to this Section 3
if a judgment or other final adjudication establishes that any act or omission
of Director was material to the cause of action so adjudicated and that such act
or omission constituted:
a. A criminal violation, unless Director had reasonable cause
to believe that Director's conduct was lawful or had no reasonable
cause to believe that such conduct was unlawful;
b. A transaction from which Director derived an improper
personal benefit;
c. An act or omission giving rise to liability for an unlawful
distribution under Section 607.0834, Florida Statutes, or any successor
provision; or
d. Wilful misconduct or a conscious disregard for the best
interests of the Corporation (or any Subsidiary or any other enterprise
as to which Director is or was Serving in an Official Capacity).
4. Advance of Expenses; Partial Indemnification. The Corporation shall
advance or cause any Subsidiary to advance Expenses incurred by Director in
defending any Proceeding for which Director may be entitled to indemnification
hereunder, provided that the Corporation or any Subsidiary shall not be required
to advance any sums for such Expenses if the Board of Directors of the
Corporation or the Board of Directors of any Subsidiary, as the case may be,
makes a preliminary good faith determination that Director engaged in willful
misconduct or acted with a conscious disregard for the best interests of the
Corporation or any Subsidiary, as the case may be (but no such determination by
the Board of Directors of any Subsidiary alone shall have any effect upon the
obligations of the Corporation under this Agreement without such a determination
by the Board of Directors of the Corporation). Director hereby agrees to repay
2
<PAGE>
any such advances of Expenses made hereunder with respect to a matter if
Director is ultimately found not to be entitled to indemnification hereunder
with respect to such matter. If Director is entitled under any provision of this
Agreement to indemnification by the Corporation for some or a portion of any
Expense or Liability but not entitled to indemnification for all of the total
amount thereof, the Corporation shall indemnify Director for such portion
thereof to which Director is entitled.
5. Obligations of Corporation and Subsidiary; Separate Obligations. It
is the intention of the parties that Director be entitled to indemnification to
the broadest possible extent allowed by law. Accordingly, any ambiguity in this
Agreement shall be construed in favor of indemnification. Furthermore, in the
event that applicable law would not permit or require indemnification as to a
Liability or Expense but Florida law would, or vice versa, or in the event that
a Liability or Expense would be indemnifiable under both laws but the law of one
would permit or require broader indemnification than the other, Director shall
be indemnified pursuant to the law that will provide maximum indemnification.
The obligations of the Corporation under this Agreement are separate,
independent and primary obligations of the Corporation, and may be enforced
directly against the Corporation without any necessity for joining any
Subsidiary or any other enterprise as to which Director is or was Serving in an
Official Capacity, for recovering or seeking to enforce any judgment against any
Subsidiary or such other enterprise, or for otherwise seeking to recover from or
out of the assets of any Subsidiary or any such other enterprise, whether or not
any Subsidiary or any such other enterprise has assets sufficient for such
recovery.
6. Notification of Defense of Claim. Promptly after receipt by Director
of the notice of the commencement of any Proceeding (including any threat
thereof) as to which Director may be entitled to indemnification hereunder,
Director shall notify the Corporation in writing of the commencement thereof.
Failure to so notify the Corporation shall not relieve the Corporation from any
obligation hereunder except to the extent that it may suffer material prejudice
by reason of such failure. With respect to any such Proceeding as to which
Director notifies the Corporation of the commencement thereof:
a. The Corporation shall be entitled to participate therein at
its own expense.
b. Except as otherwise provided below, the Corporation shall
be entitled to assume the defense thereof on behalf of Director, with
counsel satisfactory to Director and the Corporation. Director shall
have the right to employ separate counsel in such Proceeding, and the
fees, expenses and disbursements of Director's own separate counsel
incurred after written notice from the Corporation to Director of its
assumption of the defense thereof and after the full assumption of such
defense by counsel engaged by the Corporation and satisfactory to
Director, shall be the expense of Director except (i) if the employment
of counsel by Director has been authorized in writing by the
Corporation, or (ii) if Director shall have reasonably concluded that
there may be a conflict of interest between Director and the
Corporation with respect to the defense of such action, or (iii) if any
fees, expenses and disbursements of Director's own separate counsel are
incurred in connection with familiarizing or providing assistance to
counsel employed by the Corporation, in which case the fees, expenses
and disbursements of Director's own separate counsel shall be paid by
the Corporation. The Corporation shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Corporation or
as to which Director shall have made the conclusion provided for in
(ii) above.
3
<PAGE>
c. The Corporation shall not be obligated to indemnify Director under this
Agreement for any amounts paid in settlement of any Proceeding effected
without its written consent. The Corporation shall not settle any
action or claim in any manner which would impose any penalty,
limitation, Liability or Expense on Director for which Director is not
entitled to indemnification hereunder, without Director's written
consent.
7. Insurance. Nothing in this Agreement shall be deemed to require the
Corporation to indemnify Director to the extent that insurance proceeds under
any policy of policies of insurance carried by the Corporation, any Subsidiary
or any affiliate of the Corporation are available to satisfy any Liability or
Expense incurred by Director by reason of the fact that Director is or was
Serving in an Official Capacity. In the event the Corporation maintains policies
of directors and officers liability insurance, Director shall be named as an
insured in such manner as to provide Director the same rights and benefits as
are accorded to the most favorably insured of the Corporation's directors.
8. No Third Party Beneficiaries. This Agreement is not intended for the
benefit of and shall not create any rights in favor of any third parties, it
being the intent of the parties that this Agreement be solely for the benefit of
Director, Director's heirs and personal representatives, in the event that
Director incurs any Liability or Expense for which Director is entitled to
indemnification hereunder.
9. Miscellaneous. This Agreement shall continue in force during the
period that Director is Serving in an Official Capacity and shall continue
thereafter so long as Director shall be subject to any possible claim or
Proceeding by reason of the fact that Director was Serving in an Official
Capacity. Director shall be entitled to reimbursement from the Corporation for
the fees, expenses and disbursements of counsel reasonably incurred by Director
in enforcing Director's rights under this Agreement. In the event that any
provision of this Agreement is held to be void or unenforceable, the remaining
provisions shall not be affected thereby. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
personal representatives and successors. This Agreement is not assignable by
either party. No amendment or modification to this Agreement shall be effective
unless made in a writing signed by the party against whom enforcement is sought.
MORTGAGE.COM, INC.
By: ______________________________________________
Seth S. Werner, President and Chief Executive
Officer
__________________________________________________
4
DIRECTOR/OFFICER INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made as of the __ day of ____ 1999,
by and between:
MORTGAGE.COM, INC., a Florida corporation, with its principal office
and place of business at 8751 Broward Boulevard, Fifth Floor, Plantation,
Florida 33324 (the "Corporation"), and
___________, a resident of the State of Florida ("Director") whose
residence address is:
__________________________________
__________________________________
__________________________________
Background
The Corporation desires that Director serve as a member of the Board of
Directors of the Corporation. Director has indicated that he will be willing to
serve in that capacity set forth above, on the condition that he be indemnified
as provided in this Agreement. The Corporation also desires that Director serve
as an executive officer of the Corporation, and such service shall also be on
the condition that Director be indemnified as provided in this Agreement.
NOW, THEREFORE, in consideration of the premises and as an inducement
to Director to accept the positions described above as well as any other
additional positions as may be mutually agreed upon by the Corporation and
Director, the Corporation hereby covenants and agrees with Director, as follows:
1. Definitions. For purposes of this Agreement:
a. "Expenses" include all expenses actually and reasonably
incurred with respect to a Proceeding, including, without limitation,
fees, expenses and disbursements of attorneys, accountants, financial
consultants and other professionals.
b. "Liabilities" includes obligations to pay a judgment,
settlement, penalty, fine or tax (including, without limitation, any
withholding or employment tax and any excise tax assessed with respect
to the Corporation, any Subsidiary, any employee benefit plan or any
other enterprise as to which Director is or was serving in an Official
Capacity), together with any obligation to pay interest thereon.
c. "Proceeding" includes any threatened, asserted, pending or
completed claim, action, suit or other type of proceeding, whether
civil, criminal, administrative or investigative, whether formal or
informal, including, without limitation, any arbitration proceeding or
other proceeding for the resolution of any claim or dispute and any
privately conducted negotiations, and including, without limitation,
any settlement, hearing, trial or appeal of any of the foregoing.
<PAGE>
d. "Serving in an Official Capacity" includes (i) serving as a
director, officer, employee or agent of the Corporation or any
Subsidiary or (ii) serving at the request of the Corporation or any
Subsidiary as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
including any employee benefit plan.
e. "Subsidiary" means any corporation or other entity directly
or indirectly controlled by the Corporation which now exists or may
hereafter be formed.
2. Statutory Indemnification. The Corporation hereby agrees to
indemnify and hold harmless Director to the fullest extent permitted or required
by the provisions of Chapter 607 of the Florida Statutes, as amended, or the
laws of the state of incorporation of any successor to the Corporation, and to
cause any Subsidiary to indemnify and hold harmless Director to the fullest
extent permitted or required by the provisions of the laws of its jurisdiction
of incorporation against any Liability or Expense incurred by Director by reason
of the fact that Director is or was Serving in an Official Capacity. The
Corporation agrees that such obligation shall be to the fullest extent required
or permitted by any subsequent amendment to any of such provisions of the
Florida Statutes or by any other applicable statutory provisions permitting or
requiring such indemnification which are adopted after the date of this
Agreement (but in the case of any amendment or subsequent statutory provisions,
only to the extent that such amendment or provisions permit or require broader
or more extensive indemnification rights than prior thereto).
3. Additional Indemnification. Subject only to the exclusions set forth
in this Section 3, the Corporation further agrees to indemnify and hold harmless
and to cause any Subsidiary to indemnify and hold harmless Director against any
and all Liabilities and Expenses incurred by Director in connection with any
Proceeding to which Director is or was a party or is threatened to be made a
party or in which Director is called to testify as a witness or deponent by
reason of the fact that Director is or was Serving in an Official Capacity.
Director shall not be entitled to any indemnification pursuant to this Section 3
if a judgment or other final adjudication establishes that any act or omission
of Director was material to the cause of action so adjudicated and that such act
or omission constituted:
a. A criminal violation, unless Director had reasonable cause
to believe that Director's conduct was lawful or had no reasonable
cause to believe that such conduct was unlawful;
b. A transaction from which Director derived an improper
personal benefit;
c. An act or omission giving rise to liability for an unlawful
distribution under Section 607.0834, Florida Statutes, or any successor
provision; or
d. Wilful misconduct or a conscious disregard for the best
interests of the Corporation (or any Subsidiary or any other enterprise
as to which Director is or was Serving in an Official Capacity).
4. Advance of Expenses; Partial Indemnification. The Corporation shall
advance or cause any Subsidiary to advance Expenses incurred by Director in
defending any Proceeding for which Director may be entitled to indemnification
hereunder, provided that the Corporation or any Subsidiary shall not be required
to advance any sums for such Expenses if the Board of Directors of the
Corporation or the Board of Directors of any Subsidiary, as the case may be,
makes a preliminary good faith determination that Director engaged in willful
misconduct or acted with a conscious disregard for the best interests of the
Corporation or any Subsidiary, as the case may be (but no such determination by
2
<PAGE>
the Board of Directors of any Subsidiary alone shall have any effect upon the
obligations of the Corporation under this Agreement without such a determination
by the Board of Directors of the Corporation). Director hereby agrees to repay
any such advances of Expenses made hereunder with respect to a matter if
Director is ultimately found not to be entitled to indemnification hereunder
with respect to such matter. If Director is entitled under any provision of this
Agreement to indemnification by the Corporation for some or a portion of any
Expense or Liability but not entitled to indemnification for all of the total
amount thereof, the Corporation shall indemnify Director for such portion
thereof to which Director is entitled.
5. Obligations of Corporation and Subsidiary; Separate Obligations. It
is the intention of the parties that Director be entitled to indemnification to
the broadest possible extent allowed by law. Accordingly, any ambiguity in this
Agreement shall be construed in favor of indemnification. Furthermore, in the
event that applicable law would not permit or require indemnification as to a
Liability or Expense but Florida law would, or vice versa, or in the event that
a Liability or Expense would be indemnifiable under both laws but the law of one
would permit or require broader indemnification than the other, Director shall
be indemnified pursuant to the law that will provide maximum indemnification.
The obligations of the Corporation under this Agreement are separate,
independent and primary obligations of the Corporation, and may be enforced
directly against the Corporation without any necessity for joining any
Subsidiary or any other enterprise as to which Director is or was Serving in an
Official Capacity, for recovering or seeking to enforce any judgment against any
Subsidiary or such other enterprise, or for otherwise seeking to recover from or
out of the assets of any Subsidiary or any such other enterprise, whether or not
any Subsidiary or any such other enterprise has assets sufficient for such
recovery.
6. Notification of Defense of Claim. Promptly after receipt by Director
of the notice of the commencement of any Proceeding (including any threat
thereof) as to which Director may be entitled to indemnification hereunder,
Director shall notify the Corporation in writing of the commencement thereof.
Failure to so notify the Corporation shall not relieve the Corporation from any
obligation hereunder except to the extent that it may suffer material prejudice
by reason of such failure. With respect to any such Proceeding as to which
Director notifies the Corporation of the commencement thereof:
a. The Corporation shall be entitled to participate therein at
its own expense.
b. Except as otherwise provided below, the Corporation shall
be entitled to assume the defense thereof on behalf of Director, with
counsel satisfactory to Director and the Corporation. Director shall
have the right to employ separate counsel in such Proceeding, and the
fees, expenses and disbursements of Director's own separate counsel
incurred after written notice from the Corporation to Director of its
assumption of the defense thereof and after the full assumption of such
defense by counsel engaged by the Corporation and satisfactory to
Director, shall be the expense of Director except (i) if the employment
of counsel by Director has been authorized in writing by the
Corporation, or (ii) if Director shall have reasonably concluded that
there may be a conflict of interest between Director and the
Corporation with respect to the defense of such action, or (iii) if any
fees, expenses and disbursements of Director's own separate counsel are
incurred in connection with familiarizing or providing assistance to
counsel employed by the Corporation, in which case the fees, expenses
and disbursements of Director's own separate counsel shall be paid by
the Corporation. The Corporation shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Corporation or
as to which Director shall have made the conclusion provided for in
(ii) above.
3
<PAGE>
c. The Corporation shall not be obligated to indemnify
Director under this Agreement for any amounts paid in settlement of any
Proceeding effected without its written consent. The Corporation shall
not settle any action or claim in any manner which would impose any
penalty, limitation, Liability or Expense on Director for which
Director is not entitled to indemnification hereunder, without
Director's written consent.
7. Insurance. Nothing in this Agreement shall be deemed to require the
Corporation to indemnify Director to the extent that insurance proceeds under
any policy of policies of insurance carried by the Corporation, any Subsidiary
or any affiliate of the Corporation are available to satisfy any Liability or
Expense incurred by Director by reason of the fact that Director is or was
Serving in an Official Capacity. In the event the Corporation maintains policies
of directors and officers liability insurance, Director shall be named as an
insured in such manner as to provide Director the same rights and benefits as
are accorded to the most favorably insured of the Corporation's directors.
8. No Third Party Beneficiaries. This Agreement is not intended for the
benefit of and shall not create any rights in favor of any third parties, it
being the intent of the parties that this Agreement be solely for the benefit of
Director, Director's heirs and personal representatives, in the event that
Director incurs any Liability or Expense for which Director is entitled to
indemnification hereunder.
9. Miscellaneous. This Agreement shall continue in force during the
period that Director is Serving in an Official Capacity and shall continue
thereafter so long as Director shall be subject to any possible claim or
Proceeding by reason of the fact that Director was Serving in an Official
Capacity. Director shall be entitled to reimbursement from the Corporation for
the fees, expenses and disbursements of counsel reasonably incurred by Director
in enforcing Director's rights under this Agreement. In the event that any
provision of this Agreement is held to be void or unenforceable, the remaining
provisions shall not be affected thereby. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
personal representatives and successors. This Agreement is not assignable by
either party. No amendment or modification to this Agreement shall be effective
unless made in a writing signed by the party against whom enforcement is sought.
MORTGAGE.COM, INC.
By: ________________________________________
John J. Hogan, Executive Vice President
____________________________________________
4
OFFICER INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made as of the __ day of ___ 1999, by
and between:
MORTGAGE.COM, INC., a Florida corporation, with its principal office
and place of business at 8751 Broward Boulevard, Fifth Floor, Plantation,
Florida 33324 (the "Corporation"), and
_________, a resident of the State of Florida ("Officer") whose
residence address is:
_____________________
_____________________
_____________________
Background
The Corporation desires that Officer serve as an executive officer of
the Corporation. Officer has indicated that he will be willing to serve in that
capacity set forth above, on the condition that he be indemnified as provided in
this Agreement.
NOW, THEREFORE, in consideration of the premises and as an inducement
to Officer to accept the positions described above as well as any other
additional positions as may be mutually agreed upon by the Corporation and
Officer, the Corporation hereby covenants and agrees with Officer, as follows:
1. Definitions. For purposes of this Agreement:
a. "Expenses" include all expenses actually and reasonably
incurred with respect to a Proceeding, including, without limitation,
fees, expenses and disbursements of attorneys, accountants, financial
consultants and other professionals.
b. "Liabilities" includes obligations to pay a judgment,
settlement, penalty, fine or tax (including, without limitation, any
withholding or employment tax and any excise tax assessed with respect
to the Corporation, any Subsidiary, any employee benefit plan or any
other enterprise as to which Officer is or was serving in an Official
Capacity), together with any obligation to pay interest thereon.
c. "Proceeding" includes any threatened, asserted, pending or
completed claim, action, suit or other type of proceeding, whether
civil, criminal, administrative or investigative, whether formal or
informal, including, without limitation, any arbitration proceeding or
other proceeding for the resolution of any claim or dispute and any
privately conducted negotiations, and including, without limitation,
any settlement, hearing, trial or appeal of any of the foregoing.
d. "Serving in an Official Capacity" includes (i) serving as a
director, officer, employee or agent of the Corporation or any
Subsidiary or (ii) serving at the request of the Corporation or any
<PAGE>
Subsidiary as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
including any employee benefit plan.
e. "Subsidiary" means any corporation or other entity directly
or indirectly controlled by the Corporation which now exists or may
hereafter be formed.
2. Statutory Indemnification. The Corporation hereby agrees to
indemnify and hold harmless Officer to the fullest extent permitted or required
by the provisions of Chapter 607 of the Florida Statutes, as amended, or the
laws of the state of incorporation of any successor to the Corporation, and to
cause any Subsidiary to indemnify and hold harmless Officer to the fullest
extent permitted or required by the provisions of the laws of its jurisdiction
of incorporation against any Liability or Expense incurred by Officer by reason
of the fact that Officer is or was Serving in an Official Capacity. The
Corporation agrees that such obligation shall be to the fullest extent required
or permitted by any subsequent amendment to any of such provisions of the
Florida Statutes or by any other applicable statutory provisions permitting or
requiring such indemnification which are adopted after the date of this
Agreement (but in the case of any amendment or subsequent statutory provisions,
only to the extent that such amendment or provisions permit or require broader
or more extensive indemnification rights than prior thereto).
3. Additional Indemnification. Subject only to the exclusions set forth
in this Section 3, the Corporation further agrees to indemnify and hold harmless
and to cause any Subsidiary to indemnify and hold harmless Officer against any
and all Liabilities and Expenses incurred by Officer in connection with any
Proceeding to which Officer is or was a party or is threatened to be made a
party or in which Officer is called to testify as a witness or deponent by
reason of the fact that Officer is or was Serving in an Official Capacity.
Officer shall not be entitled to any indemnification pursuant to this Section 3
if a judgment or other final adjudication establishes that any act or omission
of Officer was material to the cause of action so adjudicated and that such act
or omission constituted:
a. A criminal violation, unless Officer had reasonable cause
to believe that Officer's conduct was lawful or had no reasonable cause
to believe that such conduct was unlawful;
b. A transaction from which Officer derived an improper
personal benefit;
c. An act or omission giving rise to liability for an unlawful
distribution under Section 607.0834, Florida Statutes, or any successor
provision; or
d. Wilful misconduct or a conscious disregard for the best
interests of the Corporation (or any Subsidiary or any other enterprise
as to which Officer is or was Serving in an Official Capacity).
4. Advance of Expenses; Partial Indemnification. The Corporation shall
advance or cause any Subsidiary to advance Expenses incurred by Officer in
defending any Proceeding for which Officer may be entitled to indemnification
hereunder, provided that the Corporation or any Subsidiary shall not be required
to advance any sums for such Expenses if the Board of Officers of the
Corporation or the Board of Officers of any Subsidiary, as the case may be,
makes a preliminary good faith determination that Officer engaged in willful
misconduct or acted with a conscious disregard for the best interests of the
Corporation or any Subsidiary, as the case may be (but no such determination by
the Board of Officers of any Subsidiary alone shall have any effect upon the
obligations of the Corporation under this Agreement without such a determination
by the Board of Officers of the Corporation). Officer hereby agrees to repay any
2
<PAGE>
such advances of Expenses made hereunder with respect to a matter if Officer is
ultimately found not to be entitled to indemnification hereunder with respect to
such matter. If Officer is entitled under any provision of this Agreement to
indemnification by the Corporation for some or a portion of any Expense or
Liability but not entitled to indemnification for all of the total amount
thereof, the Corporation shall indemnify Officer for such portion thereof to
which Officer is entitled.
5. Obligations of Corporation and Subsidiary; Separate Obligations. It
is the intention of the parties that Officer be entitled to indemnification to
the broadest possible extent allowed by law. Accordingly, any ambiguity in this
Agreement shall be construed in favor of indemnification. Furthermore, in the
event that applicable law would not permit or require indemnification as to a
Liability or Expense but Florida law would, or vice versa, or in the event that
a Liability or Expense would be indemnifiable under both laws but the law of one
would permit or require broader indemnification than the other, Officer shall be
indemnified pursuant to the law that will provide maximum indemnification. The
obligations of the Corporation under this Agreement are separate, independent
and primary obligations of the Corporation, and may be enforced directly against
the Corporation without any necessity for joining any Subsidiary or any other
enterprise as to which Officer is or was Serving in an Official Capacity, for
recovering or seeking to enforce any judgment against any Subsidiary or such
other enterprise, or for otherwise seeking to recover from or out of the assets
of any Subsidiary or any such other enterprise, whether or not any Subsidiary or
any such other enterprise has assets sufficient for such recovery.
6. Notification of Defense of Claim. Promptly after receipt by Officer
of the notice of the commencement of any Proceeding (including any threat
thereof) as to which Officer may be entitled to indemnification hereunder,
Officer shall notify the Corporation in writing of the commencement thereof.
Failure to so notify the Corporation shall not relieve the Corporation from any
obligation hereunder except to the extent that it may suffer material prejudice
by reason of such failure. With respect to any such Proceeding as to which
Officer notifies the Corporation of the commencement thereof:
a. The Corporation shall be entitled to participate therein at
its own expense.
b. Except as otherwise provided below, the Corporation shall
be entitled to assume the defense thereof on behalf of Officer, with
counsel satisfactory to Officer and the Corporation. Officer shall have
the right to employ separate counsel in such Proceeding, and the fees,
expenses and disbursements of Officer's own separate counsel incurred
after written notice from the Corporation to Officer of its assumption
of the defense thereof and after the full assumption of such defense by
counsel engaged by the Corporation and satisfactory to Officer, shall
be the expense of Officer except (i) if the employment of counsel by
Officer has been authorized in writing by the Corporation, or (ii) if
Officer shall have reasonably concluded that there may be a conflict of
interest between Officer and the Corporation with respect to the
defense of such action, or (iii) if any fees, expenses and
disbursements of Officer's own separate counsel are incurred in
connection with familiarizing or providing assistance to counsel
employed by the Corporation, in which case the fees, expenses and
disbursements of Officer's own separate counsel shall be paid by the
Corporation. The Corporation shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Corporation or
as to which Officer shall have made the conclusion provided for in (ii)
above.
3
<PAGE>
c. The Corporation shall not be obligated to indemnify Officer
under this Agreement for any amounts paid in settlement of any
Proceeding effected without its written consent. The Corporation shall
not settle any action or claim in any manner which would impose any
penalty, limitation, Liability or Expense on Officer for which Officer
is not entitled to indemnification hereunder, without Officer's written
consent.
7. Insurance. Nothing in this Agreement shall be deemed to require the
Corporation to indemnify Officer to the extent that insurance proceeds under any
policy of policies of insurance carried by the Corporation, any Subsidiary or
any affiliate of the Corporation are available to satisfy any Liability or
Expense incurred by Officer by reason of the fact that Officer is or was Serving
in an Official Capacity. In the event the Corporation maintains policies of
directors and officers liability insurance, Officer shall be named as an insured
in such manner as to provide Officer the same rights and benefits as are
accorded to the most favorably insured of the Corporation's directors.
8. No Third Party Beneficiaries. This Agreement is not intended for the
benefit of and shall not create any rights in favor of any third parties, it
being the intent of the parties that this Agreement be solely for the benefit of
Officer, Officer's heirs and personal representatives, in the event that Officer
incurs any Liability or Expense for which Officer is entitled to indemnification
hereunder.
9. Miscellaneous. This Agreement shall continue in force during the
period that Officer is Serving in an Official Capacity and shall continue
thereafter so long as Officer shall be subject to any possible claim or
Proceeding by reason of the fact that Officer was Serving in an Official
Capacity. Officer shall be entitled to reimbursement from the Corporation for
the fees, expenses and disbursements of counsel reasonably incurred by Officer
in enforcing Officer's rights under this Agreement. In the event that any
provision of this Agreement is held to be void or unenforceable, the remaining
provisions shall not be affected thereby. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
personal representatives and successors. This Agreement is not assignable by
either party. No amendment or modification to this Agreement shall be effective
unless made in a writing signed by the party against whom enforcement is sought.
MORTGAGE.COM, INC.
By:______________________________________________
Seth S. Werner, President and Chief Executive
Officer
_________________________________________________
4
SUBSIDIARIES OF MORTGAGE.COM, INC.
SUBSIDIARY JURISDICTION
First Mortgage Network of California, Inc. California
FMN Collinsville Corp. Florida
FMN Management Company, Inc. Florida
1347939 Ontario Inc. Ontario, Canada
Western America Mortgage, Ltd. Florida
Ex-23.1
Accountant's Consent
The Board of Directors
Mortgage.com., Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG LLP
Fort Lauderdale, Florida
May 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 3,412
<SECURITIES> 0
<RECEIVABLES> 184,284
<ALLOWANCES> 6,468
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,297
<DEPRECIATION> 2,031
<TOTAL-ASSETS> 193,438
<CURRENT-LIABILITIES> 0
<BONDS> 100
0
32
<COMMON> 13
<OTHER-SE> 13,091
<TOTAL-LIABILITY-AND-EQUITY> 193,438
<SALES> 0
<TOTAL-REVENUES> 35,691
<CGS> 0
<TOTAL-COSTS> 41,423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 345
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,078)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,078)
<EPS-BASIC> (7.17)
<EPS-DILUTED> (7.17)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 1,680
<SECURITIES> 0
<RECEIVABLES> 83,102
<ALLOWANCES> 5,938
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,278
<DEPRECIATION> 939
<TOTAL-ASSETS> 81,927
<CURRENT-LIABILITIES> 0
<BONDS> 2,500
0
20
<COMMON> 11
<OTHER-SE> 3,766
<TOTAL-LIABILITY-AND-EQUITY> 81,927
<SALES> 0
<TOTAL-REVENUES> 16,474
<CGS> 0
<TOTAL-COSTS> 19,873
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 133
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,532)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,532)
<EPS-BASIC> (3.85)
<EPS-DILUTED> (3.85)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 7,516
<CGS> 0
<TOTAL-COSTS> 11,290
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 244
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,018)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,018)
<EPS-BASIC> (3.92)
<EPS-DILUTED> (3.92)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 6,251
<SECURITIES> 0
<RECEIVABLES> 168,841
<ALLOWANCES> 409
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,065
<DEPRECIATION> 2,468
<TOTAL-ASSETS> 188,805
<CURRENT-LIABILITIES> 0
<BONDS> 9,723
0
32
<COMMON> 14
<OTHER-SE> 10,947
<TOTAL-LIABILITY-AND-EQUITY> 188,805
<SALES> 0
<TOTAL-REVENUES> 13,215
<CGS> 0
<TOTAL-COSTS> 16,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 121
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,198)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,198)
<EPS-BASIC> (3.05)
<EPS-DILUTED> (3.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 6,819
<CGS> 0
<TOTAL-COSTS> 7,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (370)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (370)
<EPS-BASIC> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
05/20/99
David W. Larson
President
First Mortgage Network, Inc.
8751 Broward Blvd.
Fifth Floor
Plantation, Fl 33324
Dear David:
We have received your request to exercise your option to renew the term of our
agreements; 1.Mortgage Loan Processing Agreement, First Mortgage Network, Inc.
and Atlanta Internet Bank, FSB, April 1, 1998. 2. License, Staffing: Purchase
and Sale Agreement between First Mortgage Network, Inc. and Atlanta Internet
Bank, Inc. dated April 1, 1998-and 3. Atlanta Internet Bank Mortgage Center
Mortgage Loan Origination, Processing, Purchase and Sale Agreement.
We are happy to extend these contracts provided that we can synchronize all
three agreements with regard to term. If this is acceptable to you, please
provide the following change in the Mortgage Loan Origination, Processing,
Purchase, and Sale Agreement:
Under section 4 add the following language:
"This Agreement may be terminated with or without cause by LENDER upon sixty
(60) days written notice to the PROCESSOR."
Thank you for extending our valuable relationships.
Sincerely,
/s/ Jeff Watson
- -----------------------------
Jeff Watson
Chief Lending Officer
Acknowledged and Accepted:
/s/ Jack Rodgers
- -----------------------------
Jack Rodgers, President
Mortgage.Com, Inc., CDG
