AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1999
REGISTRATION NO. 333-79757
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MORTGAGE.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA 6162 65-0435281
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
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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)
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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)
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Copies to:
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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
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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. / /
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.
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<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and 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 JULY 13, 1999
7,500,000 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. We expect the price to be
between $10.00 and $12.00 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 1,125,000 additional shares of common stock to cover over-allotments of
shares.
INVESTING IN THE COMMON STOCK INVOLVES MATERIAL RISKS. SEE "RISK FACTORS" ON
PAGE 6.
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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS MORTGAGE.COM
<S> <C> <C> <C>
Per Share....................... $ $ $
Total........................... $ $ $
</TABLE>
We will deliver the shares of common stock 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
DEUTSCHE BANC 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 represent steps in the mortgage process and show the associated
Mortgage.com service.]
<PAGE>
TABLE OF CONTENTS
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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................................................................................................... 33
MANAGEMENT................................................................................................. 50
CERTAIN TRANSACTIONS....................................................................................... 57
PRINCIPAL STOCKHOLDERS..................................................................................... 59
DESCRIPTION OF CAPITAL STOCK............................................................................... 62
SHARES ELIGIBLE FOR FUTURE SALE............................................................................ 66
UNDERWRITING............................................................................................... 68
NOTICE TO CANADIAN RESIDENTS............................................................................... 70
LEGAL MATTERS.............................................................................................. 71
EXPERTS.................................................................................................... 71
ADDITIONAL INFORMATION..................................................................................... 71
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
</TABLE>
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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.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information that we present more fully in the rest
of this prospectus. You should read the entire prospectus carefully, except
where we state otherwise, all information in this prospectus assumes:
o the conversion of the outstanding convertible note and all shares of
convertible preferred stock into an aggregate of 27,530,306 shares of
common stock upon completion of this offering, assuming an initial public
offering price of $11.00 per share;
o a 7-for-1 split of the common stock prior to completion of this offering;
o no exercise of the underwriters' over-allotment option; and
o redemption of the warrants held by Superior Bank and repayment of the
notes issued in February and April 1999, as described in "Use of
Proceeds."
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
uses 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 other businesses,
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:
o the complexity and inefficiency of the borrowing process,
o time delays related to the manual collection and transfer of information,
and
o 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 to the consumer and through our
more than 50 business clients, including Intuit Lender Services, Mason-McDuffie
Real Estate, GE Capital Mortgage Services, Fleet Mortgage and Century 21 and
Coldwell Banker offices in California. 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 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 preliminary indications of whether the borrower
qualifies for a particular loan;
o Ability to immediately lock-in an interest rate; and
o Constant monitoring of loan status.
3
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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 began
operations in April 1994 and changed our name to Mortgage.com in January 1999.
RECENT FINANCINGS
In May 1999 we issued a convertible note in the principal amount of
$27.5 million to Intuit. The note is convertible prior to the public offering
into 3,208,333 shares of common stock based upon an approximately $8.57
conversion price. The common stock issued upon conversion of the note will
represent approximately 7.1% of the issued and outstanding voting stock. The
proceeds of the sale of the note allowed us to purchase technology and redeem
outstanding warrants.
Also in May 1999, we issued 250,001 shares of convertible non-voting
preferred stock for working capital purposes. The preferred stock will
automatically convert into 1,750,007 shares of common stock upon completion of
this offering. The common stock issued upon conversion of this series of
preferred stock will represent approximately 3.9% of the issued and outstanding
voting stock. The proceeds of the sale of the note were used for general
corporate purposes.
THE OFFERING
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Common stock offered............................................................. 7,500,000 shares
Common stock to be outstanding after the offering................................ 44,778,674 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 June 30, 1999. The
share numbers exclude:
o 12,567,716 shares of common stock issuable upon exercise of options
outstanding under our stock option plan, 3,795,134 of which are
exercisable at a weighted average exercise price of approximately $.97
per share;
o 8,427,944 shares authorized but unissued under our stock option plan; and
o 6,996,080 shares of common stock issuable upon exercise of exercisable
options and warrants outstanding outside of our stock option plan,
6,867,749 of which are exercisable at a weighted average exercise price
of approximately $.96 per share. Of the options and warrants outstanding,
warrants to purchase 128,331 shares of common stock become exercisable
upon completion of this offering at the offering price, assuming an
offering price of $11.00 per share.
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SUMMARY FINANCIAL DATA
(In thousands, except per share data)
We have calculated unaudited pro forma basic and diluted net loss per share
assuming the conversion of the convertible note issued in May 1999 and all
outstanding preferred stock into common stock as if the shares had converted
immediately upon their issuance, but without assuming 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.
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THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1996 1997 1998 1998 1999
------- ------- ------- ------ -------
(UNAUDITED)
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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.............................. (0.56) (0.55) (1.02) (0.09) (0.44)
Shares used in computation of basic and diluted net loss per
share........................................................... 7,924 8,162 8,729 7,686 9,492
Unaudited pro forma net loss attributable to common
shareholders.................................................... $(6,829) $(3,377)
Unaudited pro forma basic and diluted net loss per share.......... $ (0.19) $ (0.09)
Shares used in computation of unaudited pro forma basic and
diluted net loss per share...................................... 36,071 36,834
</TABLE>
The pro forma as adjusted balance sheet data as of March 31, 1999 gives
effect to:
o the receipt of cash proceeds from the issuance of the convertible note
issued in May 1999;
o the receipt of cash proceeds from the issuance of the preferred stock after
March 31, 1999;
o the conversion of the convertible note issued in May 1999 and all
outstanding preferred stock into common stock;
o the sale of 7,500,000 shares of common stock offered at an assumed initial
public offering price of $11.00 per share after deducting underwriting
discounts and commissions and estimated offering expenses;
o the use of a portion of the offering proceeds to repay some of our debt.
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MARCH 31, 1999
DECEMBER 31, -----------------------
------------------- PRO FORMA
1997 1998 ACTUAL AS ADJUSTED
------- -------- -------- -----------
(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 1,680 $ 3,412 $ 6,251 $ 86,826
Working capital (deficit)........................................... 1,353 2,204 6,142 86,767
Total assets........................................................ 81,927 193,438 188,805 269,433
Total long-term debt, net of current portion........................ 0 0 7,623 0
Convertible preferred stock......................................... 11,823 26,473 26,473 0
Stockholders' equity................................................ 3,797 13,136 10,993 101,618
</TABLE>
5
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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 EXPERIENCED LOSSES SINCE INCEPTION, WE EXPECT FUTURE LOSSES AND WE MAY
NOT BECOME PROFITABLE.
We have incurred substantial net losses in every fiscal period since we
began operations. Although we have experienced strong revenue growth in the last
several quarters, we anticipate further quarterly and annual losses until at
least the latter half of 2002.
As of March 31, 1999, we had an accumulated deficit of approximately
$21.3 million. We incurred net losses of nearly $6.1 million for the year ended
December 31, 1998 and approximately $3.2 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.
WE HAVE ONLY OPERATED ONLINE SINCE 1997, SO YOU MAY EXPERIENCE DIFFICULTY IN
EVALUATING OUR PROSPECTS.
We began 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, we have never operated our Internet-related business during a
downturn in the mortgage market and we cannot assure you we will be successful
in such a market.
WE WILL ORIGINATE AND FUND 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 and our revenues will decline.
OUR GAINS AND LOSSES ON SALES OF MORTGAGE LOANS IN THE SECONDARY MARKET ARE
AFFECTED BY RISING INTEREST RATES AND ANY HEDGING STRATEGY WE IMPLEMENT MAY
NOT OFFSET THE RISK.
Our ability to generate net gains on the sale of loans in the secondary
market 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 to protect us against
this risk. Hedging strategies involve buying and selling mortgage-backed
securities so that if interest rates increase and we expect to suffer a loss on
the sale of those loans, our buying and selling of mortgage-backed
6
<PAGE>
securities will offset the loss. An effective hedging strategy is complex and no
hedging strategy can completely eliminate our risk. To the extent that we
implement a hedging strategy but are unable to effectively match our purchases
and sales of mortgage-backed securities with the sale of the loans we originate,
our gains on sales of mortgage loans may be reduced. See "Disclosures About
Market Risk" in the section of this prospectus entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operation."
IF WE ADOPT A HEDGING STRATEGY, WE MAY ALSO CHANGE THE WAY WE SELL LOANS IN THE
SECONDARY MARKET, WHICH WOULD EXPOSE US TO LOSSES IF INTEREST RATES DECLINE
SHARPLY.
If we adopt a hedging strategy to manage our risks, we may also begin
selling more loans on a mandatory delivery basis. Selling on a mandatory
delivery basis means we are required to sell the loans to a secondary market
investor at a price we agree upon, regardless of whether the loans close. This
strategy potentially generates greater revenue for us because secondary market
investors are willing to pay more for this type of commitment. However, it also
exposes us to greater losses if interest rates decline sharply and borrowers
choose not to close on the higher interest rate loans that we promised them
prior to the decline in interest rates.
Any hedging strategy we adopt would help us manage the risk of selling
loans on a mandatory delivery basis. However, as with hedging strategies to
protect us against rising interest rates, no hedging strategy is perfect. To the
extent that we are unable to effectively match our purchases and sales of
mortgage-backed securities with the sale of the loans we originate, the greater
risks associated with loans sold on a mandatory delivery basis may cause us to
lose money on the sale of those loans. See "Disclosures About Market Risk" in
the section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OUR NET INTEREST INCOME IS AFFECTED BY FLUCTUATIONS IN INTERMEDIATE-TERM AND
SHORT-TERM INTEREST RATES.
When intermediate-term interest rates approach or sink below short-term
interest rates, our net interest income is reduced or we suffer net interest
losses. We earn net interest income or suffer net interest losses from the time
we fund a mortgage loan until it is delivered to an investor in the secondary
market. That time period generally consists of 25-40 days. 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). If the intermediate-term rates in the
United States approach the LIBOR rate, our net interest income is reduced or we
suffer net interest losses.
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 and other fluctuations. 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.
Home sales typically peak during the spring and fall seasons and decline in
the summer and winter. Our operating results may fluctuate significantly 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.
OUR BUSINESS HAS GROWN SIGNIFICANTLY IN THE PAST 2 YEARS AND WE MAY HAVE
DIFFICULTY MANAGING THE GROWTH.
We have been experiencing a period of rapid growth that has been placing a
significant strain on our resources. If we fail to manage our growth
effectively, the quality of our services will be impaired and our financial
performance will suffer.
7
<PAGE>
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 ARE UNABLE TO MAINTAIN ADEQUATE FINANCING SOURCES, OUR ABILITY TO
ORIGINATE AND FUND MORTGAGE LOANS WILL BE IMPAIRED AND OUR REVENUES WILL
SUFFER.
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 large lines of credit known as 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 termination of a financing arrangement by 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.
During the first three months of 1999, our relationship with Intuit Lender
Services accounted for approximately 12% of the loans we originated. If Intuit
Lender Services terminated one or both of our agreements, it would have a
negative impact on our online originations and consequently, 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. During portions of
the first half of 1999, we were not meeting the performance standards that
relate to converting applications and inquiries to closed loans. In June, we met
or exceeded the performance standards under our agreement. However, if we fail
to meet the performance standards in the future, Intuit Lender Services may
terminate the agreements.
Intuit Lender Services also may terminate our agreements if there is a
merger or other change of control involving our company and one of Intuit Lender
Services' chief competitors.
THE INTERNET MARKET IS HIGHLY COMPETITIVE AND WE MAY NOT BE ABLE TO SUCCESSFULLY
COMPETE AGAINST INCREASED COMPETITION IN THIS MARKET.
The market for Internet products and services is highly competitive and
there are no substantial barriers to entry. We expect that competition will
continue to intensify. Many of our Internet competitors have more experience
online and have greater brand recognition. We may not be able to successfully
compete in the Internet services market, which would prevent us from effectively
executing our business strategy.
Recent significant entrants into the online mortgage market include E-Loan,
Countrywide and iOwn. In addition, some of our competitors are partnering with
Internet portals such as Yahoo! and America Online.
ADDITIONAL PRICING PRESSURES RESULTING FROM INCREASED ONLINE COMPETITION COULD
REDUCE OUR REVENUES.
Pricing of mortgage loans on the Internet is also highly competitive.
Increased competition in the online arena has forced us and other online
mortgage lenders to reduce our prices to borrowers, thus reducing our revenue.
Pricing to borrowers involves a number of factors, including the interest
rate on the loan, up-front origination fees and fees for processing,
underwriting and document preparation. We have seen the difference between the
price borrowers pay
8
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on 30-year mortgage loans and the price at which we expect to sell the loan drop
from approximately .80% of the principal amount of loans originated in January
to approximately .66% of the principal amount of loans originated in May.
OUR COMPETITORS IN THE MORTGAGE BANKING MARKET ARE OFTEN LARGER, MORE
EXPERIENCED AND HAVE GREATER FINANCIAL RESOURCES THAN WE DO, WHICH WILL MAKE
IT DIFFICULT FOR US TO SUCCESSFULLY COMPETE.
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. Accordingly, we may not be able to successfully compete in
the mortgage banking market. Our competitors may be able to respond more quickly
to take advantage of new or changing opportunities, technologies and customer
requirements. They also may be able to undertake more extensive promotional
activities, offer more attractive terms to borrowers and adopt more aggressive
pricing policies.
A DISCONTINUATION OR REDUCTION IN SECONDARY MARKET PROGRAMS WOULD HURT OUR
FINANCIAL PERFORMANCE.
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 of
or reduction in the operation of those programs or 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 INTERRUPT OUR PLANS FOR
WWW.OPENCLOSE.COM.
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. This is a Web site where mortgage companies
can exchange product and pricing data and borrower information. If Fannie Mae
terminates the agreement, our plans for www.openclose.com would be interrupted,
and possibly discontinued, which could reduce our revenue. Our agreement with
Fannie Mae expires October 14, 2003 and is automatically renewed for one year
terms unless:
o we or Fannie Mae give notice of intention to terminate before the renewal
date;
o we or Fannie Mae terminate the agreement because of a breach by the other
party which remains uncured; or
o Fannie Mae terminates the agreement upon significant changes in our
management, our board of directors or the ownership of our company.
IF INTERNET GROWTH SLOWS OR BORROWERS ARE RELUCTANT TO CONDUCT FINANCIAL
BUSINESS THROUGH THE WEB, WE WILL GENERATE FEWER LOANS ONLINE.
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.
IF THE ECONOMIES OF FLORIDA AND CALIFORNIA EXPERIENCE A DOWNTURN, OUR BUSINESS
MAY BE SIGNIFICANTLY AFFECTED.
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.
9
<PAGE>
Approximately 9.5% of our funded loan volume for the year ended
December 31, 1998 was derived from borrowers or properties in Florida and
approximately 72.3% 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 8.1% and our funded loan volume from California
accounted for approximately 63.0% of our total loan volume.
INTERNET SYSTEM FAILURES AND SECURITY CONCERNS COULD MAKE BORROWERS RELUCTANT TO
USE OUR ONLINE SERVICES.
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 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
to prevent interruption of business in the event of any widespread power or
telecommunications 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.
IF WE ARE UNABLE TO COMPLY WITH MORTGAGE BANKING RULES AND REGULATIONS, OUR
ABILITY TO ORIGINATE AND FUND MORTGAGE LOANS MAY BE RESTRICTED.
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. If we do not comply with these
rules, regulations and requirements, the regulatory agencies may restrict our
ability to originate and fund mortgage loans.
We also must comply with state usury laws. If we fail to comply with these
laws, the states can impose civil and criminal liability and restrict our
ability to operate in those states. In addition, secondary market investors may
demand indemnification or require us to repurchase loans sold in the secondary
market. We also may be subject to class action lawsuits. Any of these events
could impair our ability to originate and fund loans, which would reduce our
revenue.
CHANGES IN REGULATORY REQUIREMENTS OR THE INTERPRETATIONS OF THOSE REQUIREMENTS
COULD INCREASE OUR COSTS OF DOING BUSINESS OR OTHERWISE HURT OUR FINANCIAL
PERFORMANCE.
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 increase our costs of doing
business.
Many states prohibit non-employees of a licensed mortgage company from
conducting business under that licensed mortgage company's name. Our clients
often 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 loans for first mortgages on a home 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.
10
<PAGE>
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 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 in 44 states to originate loans for mortgages that would
be subordinate to first mortgages in a foreclosure proceeding. 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.
Some states require us to obtain prior approval before a change of control
of our company occurs. 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 hurt our business, results
of operations and financial condition.
WE FACE LEGAL UNCERTAINTIES ASSOCIATED WITH THE INTERNET AND ELECTRONIC COMMERCE
WHICH COULD INCREASE OUR COSTS OR REDUCE DEMANDS FOR OUR SERVICES.
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. However, 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 and might
increase our cost of doing business.
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 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 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.
Some 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.
IF WE ARE UNABLE TO ADAPT TO TECHNOLOGICAL CHANGES, OUR ABILITY TO COMPETE ON
THE INTERNET WILL BE IMPAIRED.
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.
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<PAGE>
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 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, we will be unable to successfully compete online.
OUR EFFORTS TO ENHANCE AWARENESS OF THE MORTGAGE.COM BRAND 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 "mortgages.com" "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. If any compromise of our security
occurs, it would injure our reputation, and could impact the success of our
business.
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
techniques we use to protect customer data.
OUR RELIANCE ON THIRD PARTIES FOR DEVELOPMENT AND MAINTENANCE OF INDUSTRY
STANDARD SOFTWARE MAY PUT US AT RISK FOR INTERRUPTIONS OR SLOW DOWNS IN OUR
BUSINESS.
Our products and services rely on software licensed to us by third parties.
If we have to replace third-party software, our business could suffer during the
replacement period.
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 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.
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. However, we may not be able to
12
<PAGE>
adequately protect our intellectual property against infringement, which could
damage our reputation or create brand confusion in the market. Either of those
events could injure our financial performance if it took place on a large enough
scale.
We protect our internally-developed technology 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 increase our losses and depress our
stock price.
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 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 REDUCE OUR
REVENUES.
We rely on third party sources for some of the 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 injure our market position.
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 have received assurances from third parties that
they are Year 2000 compliant, we do not independently verify their Year 2000
13
<PAGE>
compliance. If third parties on whom we rely are not Year 2000 compliant, our
business could be adversely affected later this year.
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 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, we may not be able to effectively execute our business plan.
THE PRICE ESTABLISHED FOR OUR COMMON STOCK IN THIS OFFERING MAY NOT BE SUSTAINED
FOLLOWING THE OFFERING.
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.
INITIAL PUBLIC OFFERINGS OF INTERNET COMPANIES HAVE BEEN PARTICULARLY
SUSCEPTIBLE TO FLUCTUATIONS IN STOCK MARKET PRICES.
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 depress 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 IN THE NET TANGIBLE BOOK VALUE
PER SHARE OF YOUR COMMON STOCK 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 $8.23 per share, based upon an assumed initial offering price of
$11.00 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 44,778,674 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 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................. 1,836,219
90 days after the date
of this prospectus.................... 1,000,675
180 days or more after the date of this
prospectus............................ 34,441,780
</TABLE>
The number of shares of common stock available for sale 180 days or more
after the date
14
<PAGE>
of this prospectus represents approximately 77% of the common stock outstanding
after the offering.
After this offering, we intend to register approximately 21,000,000 shares
of our common stock that we issued or may issue under our stock option plan.
Once we register these shares, they can be freely sold in the public market upon
issuance, subject to the lock-up agreements described above.
WE WILL HAVE BROAD DISCRETION IN THE USE OF THE PROCEEDS FROM THIS OFFERING AND
ANY FAILURE TO APPLY THEM EFFECTIVELY COULD NEGATIVELY IMPACT OUR BUSINESS
PROSPECTS.
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.
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<PAGE>
USE OF PROCEEDS
We estimate that the proceeds we receive after deducting underwriting
discounts, commissions and estimated offering expenses from the sale of the
common stock will be approximately $75,625,000, assuming an initial public
offering price of $11.00 per share. If the underwriters' over-allotment option
is exercised in full, we estimate our net proceeds will be approximately
$87,133,750. 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 approximately $20 million to fund an advertising and promotional
campaign to enhance awareness of our Mortgage.com brand, approximately
$4 million for technology research and development and a significant portion to
expand our funding sources for mortgage loans.
In addition, we expect to use approximately $13 million of the net proceeds
to redeem warrants to purchase 2,100,000 shares of common stock held by Superior
Bank, which we are required to redeem by September 30, 1999 under an agreement
with Superior Bank. We also expect to use the net proceeds to retire the
following debt:
o $2 million to retire 12% notes maturing February 9, 2000;
o $8 million to retire 12% notes maturing February 22, 2001;
o $3 million to retire 12% notes maturing April 19, 2001; and
o $27.5 million to retire 12% convertible notes maturing May 5, 2001.
We used the proceeds of the debt to purchase technology, redeem warrants
from Superior Bank and for general corporate purposes. The holder of the
convertible note may elect, prior to completion of this offering, to convert the
principal amount into 3,208,333 shares of common stock.
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 restrict our ability to pay dividends. Under
our financing arrangements with Bank United and Cooper River Funding, we are
prohibited from paying dividends if we are in default under the agreements or
are otherwise not complying with tangible net worth requirements. Under our
financing arrangement with Residential Funding Corporation, we are prohibited
from declaring and paying dividends in excess of our net after-tax income earned
in any fiscal year, as determined on a fiscal year-to-date basis.
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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 in May 1999 and all outstanding shares of
preferred stock into common stock, and (3) on a pro forma as adjusted basis to
reflect the sale of 7,500,000 shares of common stock offered through this
prospectus at an assumed initial offering price of $11.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. The table does not include 20,995,660 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. 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 and discount.................. $ 7,623 $ 7,623 $ 8,000
Notes payable, net of current portion....................................... 387 387 380
Stockholders equity (deficit):
Common stock, $.01 par value: 210,000,000 shares authorized; 9,539,110
shares issued and outstanding actual; 37,069,416 shares issued and
outstanding pro forma and 44,569,416 shares issued and outstanding pro
forma as adjusted..................................................... 95 321 446
Convertible preferred stock, $.01 par value: 15,000,000 shares authorized;
3,199,073 issued and outstanding actual; 0 shares issued and
outstanding pro forma and pro forma as adjusted........................ 32 0 0
Unearned compensation....................................................... (15,187) (15,187) (15,187)
Additional paid-in capital.................................................. 47,322 47,128 137,628
Accumulated deficit......................................................... (21,269) (21,269) (21,269)
-------- --------- ---------
Total stockholders' equity (deficit)........................................ 10,993 10,993 101,618
-------- --------- ---------
Total capitalization........................................................ $ 19,373 $ 19,373 $109,998
-------- --------- ---------
-------- --------- ---------
</TABLE>
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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 into common stock 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 $1.29 per share.
After giving effect to the sale of 7,500,000 shares of common stock at an
assumed initial public offering price of $11.00 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 $123,559,471, or $2.77
per share. This represents an immediate increase in the pro forma as adjusted
net tangible book value of $1.48 per share to existing stockholders and an
immediate dilution of $8.23 per share to you, as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................................... $11.00
Pro forma net tangible book value per share at March 31, 1999......................... $1.29
Increase per share attributable to new investors...................................... 1.48
-----
Pro forma net tangible book value per share after this offering....................... 2.77
------
Dilution per share to new investors................................................... $ 8.23
------
------
</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 into common stock, and assuming an
initial public offering price of $11.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ 37,069,416 83.2% $ 74,555,209 47.5% $ 2.01
New investors.................................... 7,500,000 16.8 82,500,000 52.5% 11.00
---------- ----- ------------ -----
Totals......................................... 44,569,416 100% $157,055,209 100%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
You will experience additional dilution upon exercise of outstanding
options and warrants. If all outstanding exercisable options and warrants were
exercised immediately following completion of this offering, as if the offering
occurred on March 31, 1999, our pro forma net tangible book value as of
March 31, 1999 would have been $135,264,621, or $2.60 per share. This would
represent an immediate dilution of $8.40 per share to you.
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<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 in May 1999
and all outstanding preferred stock into common stock 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 94 238 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) $(4,434) $(4,485) $(8,943) $ (691)
------- -------- ------- ------- ------- ------
Basic and diluted net loss per share............ $ (0.39) $ (0.16) $ (0.56) $ (0.55) $ (1.02) $(0.09)
Shares used in computation of basic and diluted
net loss per share............................ 5,726 7,924 7,924 8,162 8,729 7,686
Unaudited pro forma basic and diluted net loss
per share attributable to common
shareholders.................................. $ (0.19)
-------
-------
Shares used in computation of unaudited pro
forma basic and diluted net loss per share.... 36,071
-------
-------
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31,
1999
-------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<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............ $ (0.44)
Shares used in computation of basic and diluted
net loss per share............................ 9,492
Unaudited pro forma basic and diluted net loss
per share attributable to common
shareholders.................................. $ (0.09)
-------
-------
Shares used in computation of unaudited pro
forma basic and diluted net loss per share.... 31,878
-------
-------
</TABLE>
19
<PAGE>
The pro forma as adjusted balance sheet data as of March 31, 1999 reflects:
o the receipt of cash proceeds from the issuance of the convertible note
issued in May 1999;
o the receipt of cash proceeds from the issuance of the preferred stock after
March 31, 1999;
o the conversion of the convertible note issued in May 1999 and all
outstanding preferred stock into common stock;
o the sale of 7,500,000 shares of common stock offered through this prospectus
at an assumed initial public offering price of $11.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses; and
o the use of a portion of the offering proceeds to repay some of our debt.
<TABLE>
<CAPTION>
MARCH
31,
1999
DECEMBER 31, -------
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 2,204 6,142
Total assets................................. 3,253 11,684 30,711 81,927 193,438 188,805
Total long-term debt, net of current
portion.................................... -- -- -- -- -- 7,623
Convertible preferred stock.................. 1,000 1,000 8,278 11,823 26,473 26,473
Stockholders' equity......................... 912 347 3,283 3,797 13,136 10,993
<CAPTION>
MARCH 31,
1999
----------
PRO FORMA
AS ADJUSTED
-----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 86,876
Working capital.............................. 86,767
Total assets................................. 269,433
Total long-term debt, net of current
portion.................................... --
Convertible preferred stock.................. --
Stockholders' equity......................... 101,618
</TABLE>
20
<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.
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 began 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. Western America
Mortgage originated $37 million in mortgage loans in the first full quarter
after our acquisition. 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. OnLine Capital originated $100 million in
mortgage loans in the quarter before our acquisition. 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 Internet Web address
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 through our direct-to-consumer channels. We originate mortgages
directly with borrowers through www.mortgage.com and several other Web sites and
through loan counselors stationed at the point-of-sale of homes. We also provide
one or more of these services, or the technology to support these services, to
other mortgage industry participants through our business-to-business channels.
21
<PAGE>
We enable these business clients to efficiently conduct the mortgage process by
providing them with:
o private label mortgage services, where we provide mortgage services that
our clients can market under their own brand names;
o co-branded mortgage services, where we provide mortgage services that we
and our clients jointly market under both of our brand names;
o back office services, where we provide the behind-the-scenes
administrative and operational portions of the mortgage process for our
clients; and
o licenses of our proprietary technology, including CLOser and its Internet
interface.
We have also developed www.openclose.com, a Web site where participating
mortgage lenders, brokers and loan correspondents pay us for the opportunity to
exchange lender product and pricing information, automated underwriting data,
mortgage insurance certificates and borrower application information in an
online 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 do not expect to be
profitable until at least the latter half of 2002. Our plan to achieve
profitability includes:
o a reduction in our costs per loan through economies of scale we achieve
from higher loan volumes;
o increased automation of the loan process; and
22
<PAGE>
o improved terms of sale on loans we sell in the secondary market.
We will be able to realize improved terms on sales in the secondary market
because our negotiating leverage increases as our loan volumes increase. We also
are working to improve our risk management and are considering hedging
strategies to help manage the risk.
We plan to extend our brand position and use 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. Our operations have historically been centered in Florida and
California. This is partially due to the state of our incorporation and the
states where we have acquired businesses, and partially because Florida and
California represent two of the largest real estate markets in the United
States. We intend to use the Internet to expand our geographic scope to every
potential mortgage borrower in the United States.
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;
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.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenue of selected
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 72.3 73.0
Marketing......................................................... 1.3 1.4 3.7 1.2 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 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 processing services,
increased 189% 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 300% 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
24
<PAGE>
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 72.3% 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 1.2% 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.
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,
25
<PAGE>
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, 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 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.
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 some 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
26
<PAGE>
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 446% 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 296% 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.
Loan production and processing fees, net. Total loan production and
processing fees, less amounts paid to third parties for 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.
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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 1.4%
of revenue, from $95,000 in 1996, or 1.3% 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 6.6% of revenue, from $497,000 in 1996, or 6.6% 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 31.1% of revenue, from $3.8 million in 1996, or
50.1% 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 contains 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 earnings in
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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 72.6 80.3 72.3 69.1 69.2 80.1 73.0
Marketing...................... 1.4 1.6 1.4 1.2 1.2 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............... 157.3 131.7 109.5 116.0 105.4 108.9 113.3 134.1 124.2
-------- ------ ------- ------ ------ ------ ------- -------- --------
Net loss......................... (57.3)% (31.7)% (9.5)% (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.
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MORTGAGE.COM TOTAL LOAN VOLUME
(IN MILLIONS)
[Line Chart Appears Here]
<TABLE>
<CAPTION>
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Ended Ended Ended Ended Ended Ended Ended Ended Ended
Mar. 1997 June 1997 Sept. 1997 Dec. 1997 Mar. 1998 June 1998 Sept. 1998 Dec. 1998 Mar. 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$71 $146 $262 $329 $348 $479 $512 $666 $752
</TABLE>
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 issuances 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 in May.
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 $75.0 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
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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.
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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 defers for one year the
application of some of the provisions of Statement of Position 97-2, "Software
Revenue Recognition". Different informal and unauthoritative interpretations of
the 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 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. The FASB has issued an Exposure Draft delaying the effective date of
Statement No. 133 to fiscal years beginning after June 15, 2000.
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.
Management is currently evaluating hedging strategies to protect us against
the risk we incur with sales of mortgage loans in the secondary market when
interest rates rise and fall. We already retain Tuttle & Co., an unaffiliated
advisory firm, to help us manage our interest rate risks. We are considering
engaging Tuttle to also assist us with a hedging strategy. Hedging strategies
involve buying and selling mortgage-backed securities so that if interest rates
increase or decrease sharply and we expect to suffer a loss on the sale of those
loans, our buying and selling of mortgage-backed securities will offset the
loss. We would analyze the probability that a group of loans we have originated
will not close, and try to match our purchases and sales of mortgage-backed
securities to the amount we expect will close.
An effective hedging strategy is complex and no hedging strategy can
completely eliminate our risk. Part of this is because the prices of
mortgage-backed securities do not necessarily move in tandem with the prices of
loans we originate and close. To the extent the two prices do not move in
tandem, our hedging strategy may not work, and we may experience losses on our
sales of mortgage loans in the secondary market. The other key factor is whether
our probability analysis properly estimates the number of loans that will
actually close. To the extent that we implement a hedging strategy but are
unable to effectively match our purchases and sales of mortgage-backed
securities with the sale of the closed loans we have originated, our gains on
sales of mortgage loans will be reduced, or we will experience a net loss on
those sales.
We currently 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
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mandatory delivery basis. Selling on a mandatory delivery basis means we are
required to sell the loans to a secondary market investor at a price we agree
upon, regardless of whether the loans close. This potentially generates greater
revenue for us because secondary market investors are willing to pay more for a
mandatory delivery commitment from us. However, it also exposes us to greater
losses if the loans do not close.
Management is considering selling a greater number of loans on a mandatory
delivery basis so that we can generate greater gains on the sales of loans. Our
hedging strategy of buying and selling mortgage-backed securities would help us
manage the additional risk we would incur when more loans are sold on a
mandatory delivery basis. However, because hedging strategies are not perfect,
our hedging strategy may not completely offset the additional risk, and we may
suffer losses on loans sold on a mandatory delivery basis.
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.
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 have contacted all of our major customers and suppliers of critical
components, equipment and services to determine whether products and services we
obtain from them are Year 2000 compliant. We have been satisfied with their
responses and believe that all critical suppliers and customers comply with Year
2000 requirements. In addition, we have tested critical systems provided by
these suppliers and the systems used by our major clients to provide us with
additional assurance about their Year 2000 readiness. These tests have not
revealed any significant Year 2000 problems.
We have not completed a contingency plan. We expect to complete the
contingency plan by the end of September. However, we believe that our critical
suppliers and major customers are Year 2000 compliant. Our contingency plans
will focus on disruption of third party services which are key to our
operations, particularly telecommunications and electric utility services. We
have inquired of the providers of these
33
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services about their Year 2000 readiness, and have been satisfied with their
responses. Nevertheless, if a critical supplier or major customer turns out not
to be Year 2000 compliant, we could incur substantial costs and experience a
disruption of our business, which potentially would have a negative effect on
our results of operations.
We sometimes warrant 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.
We have budgeted $600,000 for investigating and remedying issues related to
Year 2000 compliance, including the cost of developing contingency plans. To
date, we have spent $400,000 of that budget. 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.
34
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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 82% 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 he is getting the right
mortgage loan, at the right cost, in a timely fashion. In addition, a borrower
must depend 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
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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 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.
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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 use 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.
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 using 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
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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.
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.
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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 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
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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;
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
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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 $930.1 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 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
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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. During
portions of the first half of 1999, we were not meeting the performance
standards that relate to converting applications and inquiries to closed
loans. In June, we met or exceeded the performance standards under our
agreement. However, if we fail to meet the performance standards in the
future, Intuit Lender Services may terminate the agreements, which would
have a negative effect on our online originations and our business as a
whole.
Our agreements also provide that Intuit Lender Services will send us a
minimum number of loans to process, underwrite and fund. However, Intuit
Lender Services' obligation to deliver a minimum number of loans is
suspended during any period in which we fail to meet the performance
standards relating to converting applications and inquiries to closed
loans.
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.
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. Immediately prior to completion of this offering, our
Western America Mortgage operations will be contained in Western America
Mortgage, Ltd., a partnership of which we will own 51%. Our partner in that
operation will be a wholly-owned subsidiary of Mason-McDuffie Real Estate,
Inc.
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. Our ability to
position Princeton Capital and Advantage Financial loan counselors in those
Century 21 and Coldwell Banker real estate offices is
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a product of a relationship we have with Cendant Mortgage. Cendant has
waived its exclusive rights to market mortgage services in those offices in
favor of us. In the first 3 months of 1999, our relationship with Century
21 and Coldwell Banker offices generated 19.5% of the loans we originated.
Relationship with Chase and the Prudential Real Estate Network. We
recently signed a joint marketing agreement with The Prudential Real Estate
Affiliates, Inc. and Chase Manhattan Mortgage Company that will designate
us as the exclusive recommended provider of Internet lending technology to
real estate brokers and sales associates in the Prudential Real Estate
Network. Chase will market its traditional mortgage services and our
technology-based services to the more than 600 member companies of the
Prudential Real Estate Network, which have more than 1,500 offices
throughout the country.
Each member of the Prudential Real Estate Network has the option of
whether or not to use our services. Some of these members already have
mortgage relationships with other companies and may not switch to our
services. However, members that select our services can use a centralized
private-label Web site which we will design and maintain for the Prudential
relationship. They also will have the benefit of our call centers and our
processing, underwriting and closing services. Chase will be the servicer
for many of the loans originated using our services. Under a separate
services agreement, we will receive a flat fee from Chase for each loan
closed through the Web site or the call centers.
The joint marketing agreement and the services agreement each lasts
for three years, subject to extension by the parties. Prudential and Chase
each have the right to cancel the joint marketing agreement after
18 months if Chase is unable to successfully market its services and our
services to members of the Prudential Real Estate Network or if borrower
satisfaction is low. We also have the right to cancel the joint marketing
agreement after 18 months on the same conditions. We have not yet begun
providing services under these agreements and we have generated no revenue
at this time from the relationships. We expect to begin providing services
under these agreements within the next 60 days.
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. 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 June 30, 1999, eight mortgage banks 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.
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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.
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
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)
Pickford Realty (doing business as Prudential
California Realty in southern California)
Southtrust Bank
Superior Bank FSB
Each of the listed clients accounted for at least $2.0 million in loan
originations in the first three months of 1999. Our relationship with
Mason-McDuffie Real Estate accounted for 10% or more of our loans originated in
the first three months 1999. Our relationship with Intuit Lender Services
accounted for approximately 12.8% of the mortgage loans we originated in the
first three months of 1999. Through Cendant Mortgage we have developed
relationships with Century 21 and Coldwell Banker offices that in the aggregate
accounted for approximately 19.7% of the mortgage loans we originated in the
first three months of 1999. Superior Bank accounted for approximately $1.6
million in management, technology and other fees 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:
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<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 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
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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.
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
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<PAGE>
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 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.
We are considering selling a greater number of loans in pools on a
mandatory delivery basis. If we do so, we will employ a hedging strategy to help
manage the additional risks associated with pooling loans and selling them on a
mandatory delivery basis.
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.
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
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<PAGE>
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 software, which we
license from Fannie Mae. Our Desktop Underwriter 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.
[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.]
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<PAGE>
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. The mortgage.com logo,
"Openclose" and "SmartQuote" are also our trademarks and service marks. Other
trademarks and service marks in this prospectus are the property of their
holders. We also have registered the Internet domain names "mortgage.com,"
"openclose.com," "realoans.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 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.
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
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<PAGE>
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 specific information 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 specified 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 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.
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
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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 June 30, 1999, we had 720 full-time employees. 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. Approximately one-half of the
people who enter the training program become permanent hires. To date, our
attrition rate has been low for personnel who emerge from the training program.
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 and graduate from these training programs may become
more difficult. Although our training program is designed to allow us to
implement qualified personnel quickly, 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 have entered into a lease agreement to obtain approximately 110,000
square feet of additional office space in Sunrise, Florida. We have an option to
expand the space by 50,000 square feet. Our executive offices and call centers
will be relocated to this new facility in November 1999 at a cost of
approximately $1 million.
LEGAL PROCEEDINGS
We are not a party to any material litigation.
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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................................. 49 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
C. Toms Newby, III(4)........................... 32 Nominated Director
John T. Rodgers................................. 37 Executive Vice President
B. Anderson Young............................... 48 Chief Information Officer
</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.
(4) Mr. Newby has been nominated for election as a director and we anticipate he
will be elected later this year.
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
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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 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.
C. Toms Newby, III has been nominated for election as a director.
Mr. Newby has been a general partner in Technology Crossover Ventures, one of
our principal stockholders, since July 1998. From April 1996 to June 1998,
Mr. Newby was an associate at Technology Crossover Ventures. From July 1994
through April 1996, he was an investment banker at Montgomery Securities.
Mr. Newby currently serves on the boards of directors of several 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.
B. Anderson Young will begin his duties as Chief Information Officer in
August. From September 1998 through July 1999, Mr. Young has been the New
Product Manager at London Bridge Group, Ltd., a firm that provides mortgage
software systems. From May 1997 to September 1998, he was a Vice President,
Mortgage Servicing Systems, and a Vice President, Development, at Checkfree
Software Systems, before its mortgage unit was sold to London Bridge. From March
1994 to May 1997, Mr. Young was Senior Vice President of Front End Systems and
InterChange Architecture at Alltel Information Systems (formerly Computer Power,
Inc.). Prior to that he was a private consultant for such companies as General
Electric and Temple-Inland Mortgage.
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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.
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 $100,000 350,000 $ 26,165(1)
David Larson, Executive Vice President.................... 190,000 100,000 350,000 53,841(2)
John J. Hogan, Executive Vice President................... 161,347 100,000 140,000 22,248(3)
John Buscema, Executive Vice President.................... 161,465 10,000 38,500 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
54
<PAGE>
$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, or in some circumstances prior to 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 or his bonus for the
current year. 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
without good reason 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 for good reason 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 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. 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
350,000 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
55
<PAGE>
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 except without cause
or by constructive discharge, 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 175,000
shares of common stock at a price of approximately $.71 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 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.
Our employment arrangement with B. Anderson Young makes him chief
information officer effective in July 1999. His base salary is $175,000. He is
entitled to annual bonuses based merit. In connection with beginning employment
with us, he received a relocation advance and a sale of residence allowance. If
he voluntarily leaves or is terminated for cause within three years of beginning
employment, he is required repay to us a pro rata portion of the advance and the
allowance. Also, if he is terminated for any reason, he is prohibited from
competing with us or soliciting our employees or any of our clients 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 sometimes 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.
56
<PAGE>
During the period from October 1998 to May 1999, the compensation committee
granted options with exercise prices subsequently determined to be below fair
market value at the date of grant. To determine the fair market value of the
stock, Mortgage.com's management analyzed equity financing transactions, recent
value-creating events and activities, and relevant market and industry
developments. Management assigned weighting factors to each event on a scale of
1 through 10 to create a distribution of value-creating events over the period
from October 1998 through May 1999. It combined these events with its growth in
Internet loan orginations to determine the fair market value of the common stock
for each of the months analyzed. The difference between the estimated fair
market value and the exercise price of these options has been classified as
unearned compensation in the stockholders equity section of our balance sheet
and is amortized as compensation expense over the vesting period.
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 20,995,660 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 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.
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.................. 350,000 8.0% $ 1.64 $1.64 5/20/08 -- $ 361,614 $ 916,402
David Larson................. 350,000 8.0 1.64 1.64 5/20/08 -- 361,614 916,402
John J. Hogan................ 140,000 3.2 1.64 2.14 10/31/08 $ 70,000 258,668 548,123
John Buscema................. 21,000 0.5 1.07 1.64 5/20/08 12,000 33,697 66,984
John Buscema................. 17,500 0.4 1.64 2.14 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 4,400,669 shares of common stock
granted under the stock option plan in 1998.
(Footnotes continued on next page)
57
<PAGE>
(Footnotes continued from previous page)
(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 1,050,000 shares of common stock at an exercise price of
approximately $2.14 per share. In April 1999, we granted to a named executive
officer options to purchase 105,000 shares of common stock at an exercise price
of approximately $4.29 per share. The Board of Directors increased the exercise
price based on Mortgage.com's increased online presence, the price associated
with a recently completed financing and other value-adding business
developments.
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 anassumed initial public offering price of $11.00.
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.............................................. 350,000 350,000 $ 3,575,000 $ 3,275,000
David Larson............................................. 210,000 1,190,000 2,085,000 11,615,000
John J. Hogan............................................ 175,000 140,000 1,737,500 1,310,000
John Buscema............................................. 73,500 87,500 738,750 864,750
John T. Rodgers.......................................... -- -- -- --
</TABLE>
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. Seth
Werner is our President and Chief Executive Officer. Mr. Green and Mr. Lee are
each partners in one or more of our principal stockholders. For more information
on Mr. Green's and Mr. Lee's transactions with us, please see the next page.
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.
58
<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 seven shares
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. Each of
these entities is a principal shareholder. Director Stephen Green is a principal
in Canaan and director Michael K. Lee is a principal in Dominion. In connection
with this sale, we issued warrants to purchase an aggregate of 466,669 shares of
our common stock at an exercise price of approximately $1.07 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 individually 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 252,000
shares of our common stock at an exercise price of approximately $1.64 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 Ventures, each of
whom are principal shareholders. C. Toms Newby, III, a nominee for election as a
director, is a principal in Technology Crossover Ventures. In connection with
that sale we issued warrants to purchase an aggregate of 46,676 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 373,408 shares of common stock at an exercise price equal to the
initial public offering price in this offering. The number of shares subject to
the warrants described in this paragraph will be reduced to an aggregate of
95,278 shares in accordance with formulas contained in the 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 approximately $8.57 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 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.
59
<PAGE>
In May 1999, we agreed with Superior Bank to redeem their warrants to
purchase 2,800,000 shares of common stock with exercise prices of approximately
$.71 per share and a warrant to purchase 700,000 shares of common stock with an
exercise price of approximately $1.07 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 and on June 30, 1999 paid another $6 million. The
remainder is 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 130,550 shares
of our common stock at an exercise price of approximately $1.64 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 $793,000. We accounted for this acquisition under the purchase
method of accounting. 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 700,000 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.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of June 30, 1999, and as adjusted as if the
convertible note and all of the preferred stock 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 45 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
o 9,748,368 shares of common stock outstanding as of June 30, 1999;
o 27,530,306 shares of common stock issuable upon conversion of the
convertible note and preferred stock; and
o the shares of common stock subject to options or warrants held by that
person that are currently exercisable within 60 days after June 30, 1999.
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)......................................... 8,578,482 22.6% 16.1%
Canaan Partners(2)........................................... 8,502,406 22.4 15.9
Intuit Inc.(3)............................................... 6,910,516 18.5 13.4
Michael K. Lee(4),(5)........................................ 6,192,237 16.4 12.1
Dominion Ventures(5)......................................... 6,161,808 16.3 12.1
Technology Crossover Ventures(6)............................. 4,819,333 12.9 9.7
Superior Bank, FSB(7)........................................ 2,100,000 5.3 *
Seth S. Werner(8)............................................ 1,802,500 4.8 3.9
George A. Naddaff(9)......................................... 1,627,185 4.2 3.5
John Hogan(10)............................................... 1,163,176 3.1 2.5
David Larson(11)............................................. 490,000 1.3 1.1
John T. Rodgers(12).......................................... 248,927 * *
John Buscema(13)............................................. 242,200 * *
C. Toms Newby, III(14)....................................... 4,819,333 12.9 9.7
B. Anderson Young............................................ 0 * *
All directors and executive officers as a group
(11 persons)............................................... 25,164,042 61.7 36.0
</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 390,383 shares beneficially owned by Canaan Capital Limited
Partnership; 3,258,108 shares beneficially owned by Canaan Capital Offshore
Limited Partnership, C.V.; 362,131 shares beneficially owned by Canaan
Ventures II Limited Partnership; 571,200 shares beneficially owned by
Canaan Ventures II Offshore, C.V.; and 3,332,707 shares beneficially owned
by Canaan Equity, L.P. Canaan
(Footnotes continued on next page)
61
<PAGE>
(Footnotes continued from previous page)
Equity, L.P. also holds warrants to purchase common stock in the following
amounts and at the following prices: (a) 4,546 at the initial public
offering price; and (b) 583,331 at approximately $1.07 per share. The
address for each of these entities is 105 Rowayton Avenue, Rowayton,
Connecticut 06853.
(3) Includes 3,652,173 shares of common stock beneficially owned by Intuit
Inc., 3,208,333 shares of common stock issuable to Intuit upon conversion
of the 12% Senior Subordinated Convertible Notes due May 5, 2001 and
warrants to purchase 50,010 shares of common stock at the initial public
offering price. 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 5,366,851 shares beneficially owned by Dominion Fund III and
408,338 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 130,550 shares of common
stock at approximately $1.64 per share upon closing of this offering.
Dominion Fund III also holds warrants to purchase 233,338 shares of common
stock at approximately $1.07 per share. Dominion Fund IV, L.P. holds
warrants to purchase 22,731 shares of common stock at the initial public
offering price. 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 1,802,913 shares beneficially owned by Technology Crossover
Ventures II, L.P. and warrants to purchase 10,874 shares of common stock at
the initial public offering price; 58,569 shares beneficially owned by TCV
II, V.O.F. and warrants to purchase 213 shares of common stock at the
initial public offering price; 1,386,105 shares beneficially owned by TCV
II (Q), L.P. and warrants to purchase 5,016 shares of common stock at the
initial public offering price; 245,987 shares beneficially owned by TCV II
Strategic Partners, L.P. and warrants to purchase 892 shares of common
stock at the initial public offering price; 275,268 shares beneficially
owned by Technology Crossover Ventures II, C.V. and warrants to purchase
996 shares of common stock at the initial public offering price (the
foregoing five entities, collectively, the "TCV II Funds"); 7,497 shares
beneficially owned by TCV III (GP); 35,609 shares beneficially owned by
TCV III L.P.; 946,526 shares beneficially owned by TCV III (Q), L.P.; and
42,868 shares beneficially owned by TCV III Strategic Partners, L.P. (the
latter four entities, collectively, the "TCV III Funds" and, together with
the TCV II Funds, the "TCV Funds"). The TCV II Funds also have an option to
purchase from the underwriters at the initial public offering price per
share, that number of shares of our common stock equal to $3 million
divided by the mid-point of the price range per share as set forth on the
cover of this prospectus. 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 II Funds, and Technology Crossover
Management III, L.L.C. ("TCM III"), the general partner of each of the
TCV III Funds. Consequently, TCM II may be deemed to beneficially own all
shares held by the TCV II Funds, TCM III may be deemed to beneficially own
all shares held by the TCV III Funds and Messrs. Hoag and Kimball may each
be deemed to beneficially own all of the shares held by the TCV Funds.
TCM II, TCM III and Messrs. Hoag and Kimball each disclaim beneficial
ownership of such shares, except to the extent of their respective
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 2,100,000 shares of common stock issuable pursuant to presently
exercisable warrants. A portion of the net proceeds of this offering is
expected to be used to repurchase the remaining warrants
(Footnotes continued on next page)
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<PAGE>
(Footnotes continued from previous page)
for an aggregate price of $13 million. The address for Superior Bank, FSB
is One Lincoln Centre, Oakbrook Terrace, Illinois 60181.
(8) Consists of 1,382,500 shares of common stock beneficially owned by The Seth
Werner Revocable Trust dated October 1, 1996, presently exercisable options
to purchase 350,000 shares of common stock at approximately $.79 per share
and presently exercisable options to purchase 70,000 shares of common stock
at approximately $1.64 per share.
(9) Consists of 509,089 shares of common stock, presently exercisable warrants
to purchase 350,000 shares of common stock at approximately $.71 per share,
presently exercisable warrants to purchase 256,032 shares of common stock
at approximately $1.14 per share, presently exercisable warrants to
purchase 256,032 shares of common stock at $1.50 per share and presently
exercisable warrants to purchase 256,032 shares of common stock at
approximately $1.86 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 988,176 shares of common stock and presently exercisable
options to purchase 175,000 shares of common stock at approximately $1.07
per share.
(11) Consists of presently exercisable options to purchase 420,000 shares of
common stock at approximately $.79 per share and presently exercisable
options to purchase 70,000 shares of common stock at approximately $1.64
per share.
(12) Consists of 192,780 shares of common stock and presently exercisable
warrants to purchase 56,147 shares of common stock at approximately $1.07
per share.
(13) Consists of presently exercisable warrants to purchase 140,000 shares of
common stock at approximately $.71 per share, presently exercisable options
to purchase 42,000 shares of common stock at approximately $.79 per share
and presently exercisable options to purchase 60,200 shares of common stock
at approximately $1.07 per share.
(14) Mr. Newby has been nominated for election as a director. He is a member of
TCM II, which is the general partner of the TCV Funds. Mr. Newby has
neither voting nor dispositive power over shares held by the TCV Funds.
Mr. Newby disclaims beneficial ownership of those shares. Nevertheless,
through his interest in TCM II, Mr. Newby has a pecuniary interest in the
shares held by the TCV Funds.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue up to 210,000,000 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, 9,748,368 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
o the number of shares and name of the series,
o the voting powers of the series, including the right to elect directors, if
any,
o the dividend rights and preferences, if any,
o redemption terms, if any,
o liquidation preferences and the amounts payable on liquidation or dissolution,
o the terms upon which such series may be converted into any other series or
class of our stock, including the common stock and
o 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 will automatically convert into
an aggregate of 24,321,973 shares of common stock upon closing of this offering.
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<PAGE>
OPTIONS AND WARRANTS
As of June 30, 1999, 12,567,716 options were outstanding under our stock
option plan and 8,427,944 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 June 30, 1999 and except
as noted below are presently exercisable for shares of common stock:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF SHARES PURCHASABLE PRICE(4)
- ---------------------------- ----------------
<S> <C>
3,307,500(1) $ 0.71
437,388 0.79
1,972,215(2) 1.07
256,032 1.14
256,032 1.50
382,550(3) 1.64
256,032 1.86
128,331 11.00(5)
</TABLE>
- ------------------
(1) Includes warrants to purchase 1,400,000 shares of common stock held by
Superior Bank which we will redeem from the net proceeds of this offering.
(2) Includes warrants to purchase 700,000 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 130,550 shares of
common stock at approximately $1.64 per share upon closing of this offering.
(4) Rounded to the nearest cent.
(5) Assuming the mid-point of the price range. The number and exercise price of
options and warrants in
this category float with the initial public offering price.
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.
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 the board of directors approves the control share
acquisition or the holders of a majority of the corporation's voting shares
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
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<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 other specified 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 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,
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<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 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 Continental Stock Transfer &
Trust Company, New York, New York.
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<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 44,778,674
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 June 30, 1999. Of these shares, the 7,500,000 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 37,278,674 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% of the outstanding shares of common stock of the
company or 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 a large number of 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.
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<PAGE>
The 37,278,674 shares that are "restricted securities" 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......................................................... 1,836,219
90 days after the date
of this prospectus............................................................ 1,000,675
180 days or more after the date of this prospectus.............................. 34,441,780
</TABLE>
After this offering, we intend to file registration statements covering
approximately 21,000,000 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.
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<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, Deutsche Bank Securities Inc. and U.S. Bancorp
Piper Jaffray Inc. 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...........................................
Deutsche Bank Securities Inc.....................................................
U.S. Bancorp Piper Jaffray Inc...................................................
---------
Total....................................................................... 7,500,000
---------
---------
</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 1,125,000
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
70
<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 7,500,000 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 272,727
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.
71
<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, 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.
72
<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 but has not participated in the preparation of this prospectus.
Securities law 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. 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.
73
<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.
Ft. Lauderdale, Florida
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 210,000,000
shares, issued and outstanding 9,398,270, 7,690,270
and 9,539,110 shares at December 31, 1998 and 1997
and March 31, 1999, respectively................... 93,983 76,903 95,391
Unearned compensation................................. (631,000) -- (15,187,000)
Additional paid-in capital............................ 31,531,555 14,762,575 47,321,589
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............................ $ (1.02) $ (0.55) $ (0.56) $ (0.44) $ (0.09)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</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 $72,233 $ 3,784,305 $ -- $(3,512,134) $ -- $ 346,656
Issuance of preferred stock... 12,273 -- 6,698,413 -- -- -- 6,710,686
Issuance of common stock...... -- 7,000 527,024 -- -- -- 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 79,233 11,269,742 -- (7,530,309) (550,000) 3,283,191
Issuance of preferred stock... 4,727 -- 3,495,273 -- -- -- 3,500,000
Issuance of common stock...... -- 5,020 532,490 -- -- -- 537,510
Issuance of common stock
warrants.................... -- -- 7,720 -- -- -- 7,720
Retirement of treasury
stock....................... -- (7,350) (542,650) -- -- 550,000 --
Net loss...................... -- -- -- -- (3,531,866) -- (3,531,866)
------- ------- ----------- ------------ ------------ --------- ------------
Balance at December 31, 1997.... 19,252 76,903 14,762,575 -- (11,062,175) -- 3,796,555
Issuance of preferred stock... 12,739 -- 14,208,914 -- -- -- 14,221,653
Issuance of common stock...... -- 17,080 1,812,921 -- -- -- 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 93,983 31,531,555 (631,000) (17,890,360) -- 13,136,169
Costs ascribed to issuance of
preferred stock............. -- -- (1,538) -- -- -- (1,538)
Issuance of common stock...... -- 1,408 645,492 -- -- -- 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 $95,391 $47,321,589 $(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 46,676 and 186,704, respectively, of common
stock warrants which are convertible to common stock at $4.29 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 140,000 shares of common stock at $4.61 per share.
During the three months ended March 31, 1999 (unaudited), an employee
exercised stock options for 840 shares of common stock at $1.07 per share.
During June 1998, the Company issued 308,000 shares of common stock at
a value of $1.07 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 700,000 shares of
common stock at a price of $1.07 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 501,676 shares of
common stock at a price of $1.07 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 700,000 shares of common stock
at a price of $1.07. 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 1,134,182 shares of common stock to employees at a price
of $1.64 per share. The fair value of stock options was esimated to be
greater than the issue price of $1.64. 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 735,000 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 140,000 shares of common stock at a value of $4.61 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
700,000 shares of common stock at $1.07 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 250,838
shares of common stock and $255,672 in cash. An additional 250,838 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 700,000
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 contingencies were satisfied.
These contract contingencies also affect the ultimate collectibility of the
note. The note becomes due on or before November 30, 2006 and bears interest at
5% and interest payments have been collected as due. The note is included in
accounts and notes receivable on the balance sheet at December 31, 1998 and 1997
at its discounted net present value and, due to the contingencies affecting
collectibility, has been fully reserved for 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 466,669 shares of the Company's
common stock at a price of $1.07 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.............. 8,729 8,162 7,924 9,492 7,686
------- ------- ------- ------- -------
Net loss per share--basic and diluted................... $ (1.02) $ (0.55) $ (0.56) $ (0.44) $ (0.09)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</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, and
management continued to further refine the methodology used in determining the
estimated fair value of its common stock. 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 5. 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 46,676 and 186,704,
respectively of common stock warrants that are convertible to common stock at
$4.29 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 $2.14 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 140,000 shares of common stock at a
value of $4.61 per share in connection with the acquisition of the Internet
domain name www.mortgage.com as described in note 1(c).
Options to purchase 840 shares of common stock were exercised during the
three-month period ending March 31, 1999.
During April 1998, the Company issued 700,000 shares of common stock at a
value of $1.07 per share in connection with the acquisition of RM Holdings, Inc.
as described in note 1(c).
During March 1998, the Company issued 700,000 shares of common stock at a
value of $1.07 per share in accordance with the contingent consideration
agreement as described in note 1(c).
During June 1998, the Company issued 308,000 shares of common stock at a
value of $1.07 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 501,676 shares of common stock at a value
of $1.07 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, 175,000 common stock
warrants converted to common stock options at $0.71 per share.
In connection with certain operational and capital transactions, the
Company issued 1,117,650, 350,000, 2,541,000 and 233,380 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 8,143,298 and 8,201,678 shares, respectively, with
exercise prices on the warrants ranging from $0.71 to $4.29 per share. The
Company has agreed to repurchase 3,500,000 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 700,000 of these warrants and
expects to repurchase the remaining 2,800,000 warrants by June 30, 1999.
(d) Other
During 1997, the Company retired 735,000 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.................................... 7,923,594 1,452,507 6,675,648 --
Issuance of common stock...................................... 501,676 -- -- --
Issuance of preferred stock................................... -- 472,668 -- --
stock warrants granted........................................ -- -- 350,000 --
Preferred stock warrants granted.............................. -- -- -- --
Retirement of treasury stock.................................. (735,000) -- -- --
--------- --------- --------- -------
Balance at December 31, 1997.................................... 7,690,270 1,925,175 7,025,648 --
Issuance of common stock...................................... 1,708,000 -- -- --
Issuance of preferred stock................................... -- 1,273,898 -- --
Common stock warrants granted................................. -- -- 1,099,000 --
Preferred stock warrants granted.............................. -- -- -- 18,650
--------- --------- --------- -------
Balance at December 31, 1998.................................... 9,398,270 3,199,073 8,124,648 18,650
Issuance of common stock...................................... 140,840 -- -- --
Common stock warrants granted................................. -- -- 233,380 --
Warrants converted to options................................. -- -- (175,000) --
--------- --------- --------- -------
Balance at March 31, 1999 (unaudited)........................... 9,539,110 3,199,073 8,183,028 18,650
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
(15) STOCK OPTION PLANS
The Company's 1996 Employee Stock Option Plan (the "Plan") covered
2,450,000 shares of the Company's common stock and has been amended in 1997 and
1998 to include a total of 8,330,000 shares. Subsequent to 1998, the Plan was
amended to increase the total shares to 11,130,000. 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 420,000 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..................................................................... 2,744,000 0.79
Exercised................................................................... -- --
Forfeited................................................................... (122,500) 0.79
---------- -------
Outstanding at December 31, 1996.............................................. 2,621,500 0.79
Granted..................................................................... 1,631,000 1.07
Exercised................................................................... -- --
Forfeited................................................................... (343,700) 0.91
---------- -------
Outstanding at December 31, 1997.............................................. 3,908,800 0.90
Granted..................................................................... 4,400,739 1.47
Exercised................................................................... -- --
Forfeited................................................................... (462,875) 1.16
---------- -------
Outstanding at December 31, 1998.............................................. 7,846,664 1.21
Granted..................................................................... 4,545,072 2.16
Exercised................................................................... (840) 1.07
Forfeited................................................................... (103,320) 1.95
---------- -------
Outstanding at March 31, 1999 (unaudited)..................................... 12,287,576 $ 1.53
---------- -------
---------- -------
</TABLE>
Weighted-average fair value of options granted during 1998, 1997, 1996 and
1999 (unaudited) were $0.37, $0.10, $0.04, and $3.43, 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>
$0.79-1.64 7,846,664 9.26 years $ 1.21 2,793,819 $ 0.89
</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>
$0.79-1.07 3,908,800 9 years $ 0.90 1,631,000 $ 0.91
</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>
$0.79 2,621,500 7.8 years $ 0.79 1,039,514 $ 0.79
</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>
$ 0.79 2,299,500 7.4 years $ 0.79 2,132,900 $ 0.79
1.07 2,805,152 8.5 years 1.07 1,284,500 1.07
1.64 3,068,352 9.0 years 1.64 125,104 1.64
2.14 4,044,572 9.9 years 2.14 3,780 2.14
4.29 70,000 9.9 years 4.29 -- 4.29
</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........... $1.07-3.63 $0.71 $0.71 $4.61-6.06
</TABLE>
The Black-Scholes Model was used in estimating the fair market value of
options and warrants. An expected volatility of .001 was used 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....... $ (1.02) $ (0.55) $ (0.56) $ (0.44)
Basic and diluted net loss per share--as adjusted....... $ (1.04) $ (0.55) $ (0.56) $ (0.47)
</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.
F-31
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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.
(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.
The Company has contacted all major customers and critical suppliers of
components, equipment and services to determine whether their products and
services are Year 2000 compliant. In addition, the Company has performed testing
of the systems of critical suppliers and major customers to provide additional
assurance of their readiness. These tests have not revealed any significant
problems handling dates after December 31, 1999. Based on the results of this
testing and responses to inquiries, management believes that critical suppliers
to and major customers of the Company are Year 2000 compliant. However, should
one or more of these entities prove not to be compliant, it could have a
significant adverse effect on the Company's operations. Accordingly, management
is currently in the process of developing contingency plans which are expected
to be complete by the end of September. These contingency plans will focus on
disruption of third party services which are key to the Company's operations,
particularly telecommunications and electric utility services.
The Company has budgeted $600,000 for investigating and remedying issues
related to Year 2000 compliance, including the cost of developing contingency
plans. To date, the Company has spent $400,000 on these efforts and plans to
meet their original budget estimates.
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.
F-32
<PAGE>
MORTGAGE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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-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, 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-34
<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-35
<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-36
<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................... $ (0.12) $(0.16) $ (0.23) $ (0.51)
------- ------ -------- -------
------- ------ -------- -------
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................... $ (0.16) $(0.15) $ (0.10) $ (0.14)
------- ------ -------- -------
------- ------ -------- -------
</TABLE>
F-37
<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>
[LOGO] mortgage.com
THE EASIEST WAY HOME
<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.................................. 5,000
Transfer agent expenses and fees............................ 15,000
Printing and engraving...................................... 200,000
Accountants' fees and expenses.............................. 375,000
Legal fees and expenses..................................... 425,000
Miscellaneous............................................... 32,116
----------
TOTAL.................................................. $1,100,000
----------
----------
</TABLE>
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.
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. The
information in this Item has not been adjusted for the proposed 7-for-1 stock
split of the common stock.
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. We undertook this transaction to
raise funds for general working capital purposes. 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
II-1
<PAGE>
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. We undertook
this transaction to raise funds for general working capital purposes. 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. We
undertook this transaction to raise funds for general working capital purposes
and to retire debt. 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. We undertook
this transaction to raise funds for general working capital purposes. 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, 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.
II-2
<PAGE>
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. We undertook this transaction to
raise funds for general working capital purposes and to retire debt. 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. We undertook this
transaction to raise funds for general working capital purposes in the event
funds were unavailable in the public market. 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. We
undertook this transaction to raise funds for general working capital purposes
in the event funds were unavailable in the public market. 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. We undertook this transaction to raise funds for general
working capital purposes in the event funds were unavailable in the public
market. 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.
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. We undertook this
transaction to retire debt.
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. We undertook this transaction
for general working capital purposes and to purchase technology and redeem
warrants. The purchase and sale was exempt
II-3
<PAGE>
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. We undertook this
transaction to raise funds for general working capital purposes in the event
funds were unavailable in the public market. 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> <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
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
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
4.9 -- Recapitalization Agreement and Plan of Reorganization between the Registrant and Mason-McDuffie
Real Estate, Inc.
5.1 -- Legal Opinion of Foley & Lardner as to legality of securities
10.1 -- Employment Agreement between the Registrant and Seth S. Werner dated January 1, 1999
10.2 -- Employment Agreement between the Registrant and John J. Hogan dated May 28,1999
10.3 -- Amended and Restated Employment Agreement between the Registrant and David Larson dated May 28, 1999
10.4 -- Letter re Employment of John T. Rodgers dated May 26, 1999
(a) Noncompetition Agreement between the Registrant and John T. Rodgers dated May 26, 1999
10.5 -- Noncompetition Agreement between the Registrant and John Buscema dated May 24, 1999
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 200,000 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
10.16* -- Atlanta Internet Bank Mortgage Center Mortgage Loan Origination, Processing, Purchase and Sale
Agreement between Registrant and Atlanta Internet Bank 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)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
(a) Second Amendment to Warehousing Credit and Security Agreement dated as of July 1, 1999
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)
(e) Letter dated July 9, 1999
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 -- Agreement Regarding Creation of Western America Mortgage, Ltd. dated as of July 8, 1999, among the
Registrant, FMN Management Company, Inc., Western America Mortgage, Ltd., Amcalfund, Inc. and
Mason-McDuffie Real Estate, Inc.
(a) Western America Mortgage, Ltd. Limited Partnership Agreement among FMN Management Company,
Inc. and Amcalfund, Inc.
(b) Office Use and Services Agreement between Mason-McDuffie Real Estate, Inc. and Western America
Mortgage, Ltd.
(c) Noncompetition and Option Agreement between Western America Mortgage, Ltd., Amcalfund, Inc.,
FMN Management Company, Inc. 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
(a) Amendment Number One to Domain Name Assignment Agreement dated June 30, 1999.
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
10.35 -- Waiver Agreement dated December 28, 1998, between Cendant Mortgage and Mortgage.com.
10.36 -- B. Anderson Young -- Terms of Offer of Employment
(a) Non-Competition Agreement for B. Anderson Young
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>
- ------------------
* Previously filed.
+ Some portions of these exhibits are omitted pursuant to a confidential
treatment request filed with the SEC.
II-6
<PAGE>
(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.
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-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF PLANTATION, STATE OF FLORIDA, ON JULY 13, 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 AMENDMENT
TO THE REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ SETH S. WERNER Chairman of the Board, President and Chief July 13, 1999
- ------------------------------------------ Executive Officer
Seth S. Werner
/s/ JOHN HOGAN Executive Vice President and Director July 13, 1999
- ------------------------------------------
John Hogan
/s/ DAVID W. LARSON Executive Vice President and Director July 13, 1999
- ------------------------------------------
David W. Larson
/s/ GEORGE A. NADDAFF Vice-Chairman of the Board July 13, 1999
- ------------------------------------------
George A. Naddaff
/s/ EDWIN JOHNSON Senior Vice President, Chief Financial July 13, 1999
- ------------------------------------------ Officer and Chief Accounting Officer
Edwin Johnson
/s/ STEPHEN GREEN Director July 13, 1999
- ------------------------------------------
Stephen Green
/s/ MICHAEL K. LEE Director July 13, 1999
- ------------------------------------------
Michael K. Lee
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <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
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
4.9 -- Recapitalization Agreement and Plan of Reorganization between the Registrant and Mason-McDuffie
Real Estate, Inc.
5.1 -- Legal Opinion of Foley & Lardner as to legality of securities
10.1 -- Employment Agreement between the Registrant and Seth S. Werner dated January 1, 1999
10.2 -- Employment Agreement between the Registrant and John J. Hogan dated May 28, 1999
10.3 -- Amended and Restated Employment Agreement between the Registrant and David Larson dated May 28, 1999
10.4 -- Letter re Employment of John T. Rodgers dated May 26, 1999
(a) Noncompetition Agreement between the Registrant and John T. Rodgers dated May 26, 1999
10.5 -- Noncompetition Agreement between the Registrant and John Buscema dated May 24, 1999
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)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
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 200,000 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
10.16* -- Atlanta Internet Bank Mortgage Center Mortgage Loan Origination, Processing, Purchase and Sale
Agreement between Registrant and Atlanta Internet Bank 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
(a) Second Amendment to Warehousing Credit and Security Agreement dated as of July 1, 1999
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)
(e) Letter dated July 9, 1999
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
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
10.29 -- Agreement Regarding Creation of Western America Mortgage, Ltd. dated as of July 8, 1999, among the
Registrant, FMN Management Company, Inc., Western America Mortgage, Ltd., Amcalfund, Inc. and
Mason-McDuffie Real Estate, Inc.
(a) Western America Mortgage, Ltd. Limited Partnership Agreement among FMN Management Company,
Inc. and Amcalfund, Inc.
(b) Office Use and Services Agreement between Mason-McDuffie Real Estate, Inc. and Western America
Mortgage, Ltd.
(c) Noncompetition and Option Agreement between Western America Mortgage, Ltd., Amcalfund, Inc.,
FMN Management Company, Inc. 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
(a) Amendment Number One to Domain Name Assignment Agreement dated June 30, 1999.
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
10.35 -- Waiver Agreement dated December 28, 1998, between Cendant Mortgage and Mortgage.com.
10.36 -- B. Anderson Young -- Terms of Offer of Employment
(a) Non-Competition Agreement for B. Anderson Young
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>
* Previously filed.
+ Some protions of these exhibits are omitted pursuant to a confidential
treatment request filed with the SEC.
TH&T DRAFT
6/14/99
[Insert Number of Shares]
Mortgage.com, Inc.
Common Stock, $.01 par value
UNDERWRITING AGREEMENT
----------------------
[Insert date]
Credit Suisse First Boston Corporation
BT Alex Brown
Piper Jaffray, INC.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Mortgage.com, Inc., a Florida corporation ("Company"),
proposes to issue and sell ________________ shares ("Firm Securities") of its
common stock, $.01 par value per share ("Securities") and also proposes to issue
and sell to the Underwriters, at the option of the Underwriters, an aggregate of
not more than _____________ additional shares ("Optional Securities") of its
Securities as set forth below. The Firm Securities and the Optional Securities
are herein collectively called the "Offered Securities". The Company hereby
agrees with the several Underwriters named in Schedule A hereto ("Underwriters")
as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-79757) relating to the
Offered Securities, including a form of prospectus, has been filed with
the Securities and Exchange Commission ("Commission") and either (i)
has been declared effective under the Securities Act of 1933 ("Act")
and is not proposed to be amended or (ii) is proposed to be amended by
amendment or post-effective amendment. If such registration statement
("initial registration statement") has been declared effective, either
(i) an additional registration statement ("additional registration
statement") relating to the Offered Securities may have been filed with
the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act
and, if so filed, has become effective upon filing pursuant to such
Rule and the Offered Securities all have been duly registered under the
Act pursuant to the initial registration statement and, if applicable,
the additional registration statement or (ii) such an additional
registration statement is proposed to be filed with the Commission
pursuant to Rule 462(b) and will become effective upon filing pursuant
to such Rule and upon such filing the Offered Securities will all have
been duly registered under the Act pursuant to the initial registration
statement and such additional
<PAGE>
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration
statement has been filed and the Company does not propose to amend it,
and if any post-effective amendment to either such registration
statement has been filed with the Commission prior to the execution and
delivery of this Agreement, the most recent amendment (if any) to each
such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c)
("Rule 462(c)") under the Act or, in the case of the additional
registration statement, Rule 462(b). For purposes of this Agreement,
"Effective Time" with respect to the initial registration statement or,
if filed prior to the execution and delivery of this Agreement, the
additional registration statement means (i) if the Company has advised
the Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement,
or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared effective by
the Commission. If an additional registration statement has not been
filed prior to the execution and delivery of this Agreement but the
Company has advised the Representatives that it proposes to file one,
"Effective Time" with respect to such additional registration statement
means the date and time as of which such registration statement is
filed and becomes effective pursuant to Rule 462(b). "Effective Date"
with respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its
Effective Time, including all information contained in the additional
registration statement (if any) and deemed to be a part of the initial
registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form
on which it is filed and including all information (if any) deemed to
be a part of the initial registration statement as of its Effective
Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is
hereinafter referred to as the "Initial Registration Statement". The
additional registration statement, as amended at its Effective Time,
including the contents of the initial registration statement
incorporated by reference therein and including all information (if
any) deemed to be a part of the additional registration statement as of
its Effective Time pursuant to Rule 430A(b), is hereinafter referred to
as the "Additional Registration Statement". The Initial Registration
Statement and the Additional Registration Statement are herein referred
to collectively as the "Registration Statements" and individually as a
"Registration Statement". The form of prospectus relating to the
Offered Securities, as first filed with the Commission pursuant to and
in accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no
such filing is required) as included in a Registration Statement, is
hereinafter referred to as the "Prospectus". No document has been or
will be prepared or distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all respects to the requirements of
the Act and the rules and regulations of the Commission ("Rules and
Regulations") and did not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements
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<PAGE>
therein not misleading, (ii) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed,
or will conform, in all respects to the requirements of the Act and the
Rules and Regulations and did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit,
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading and (iii) on the date of
this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus
will conform, in all respects to the requirements of the Act and the
Rules and Regulations, and neither of such documents includes, or will
include, any untrue statement of a material fact or omits, or will
omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement: on the Effective Date of
the Initial Registration Statement, the Initial Registration Statement
and the Prospectus will conform in all respects to the requirements of
the Act and the Rules and Regulations, neither of such documents will
include any untrue statement of a material fact or will omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or
the Prospectus based upon written information furnished to the Company
by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information
is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Florida,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification and the failure to be so qualified would have a material
adverse effect on the condition (financial or other), business,
prospects, properties or results of operations of the Company and its
subsidiaries, taken as a whole ("Material Adverse Effect").
(d) Each subsidiary of the Company has been duly incorporated and
is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus; and each subsidiary of the Company is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification and the failure to
be so qualified would have a Material Adverse Effect; all of the issued
and outstanding capital stock of each subsidiary of the Company has
been duly authorized and validly issued and is fully paid and
nonassessable; and the capital stock of each subsidiary owned by the
Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
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<PAGE>
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered
Securities will have been, validly issued, fully paid and nonassessable
and will conform to the description thereof contained in the
Prospectus; and the stockholders of the Company have no preemptive
rights with respect to the Securities.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that
would give rise to a valid claim against the Company or any Underwriter
for a brokerage commission, finder's fee or other like payment in
connection with this offering.
(g) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Act with respect
to any securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Act, except for agreements, the requirements of
which have been waived with respect to the Registration Statement prior
to the filing of the Registration Statement.
(h) The Offered Securities have been approved for listing on
Nasdaq Stock Market's National Market.
(i) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement, and
the issuance and sale of the Offered Securities, will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company
or any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or
any such subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject, or the charter or by-laws of
the Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and
delivered by the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and
all other properties and assets owned by them, in each case free from
liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made thereof
by
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<PAGE>
them; and except as disclosed in the Prospectus, the Company and its
subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere
with the use made or to be made thereof by them.
(m) Except as disclosed in the Registration Statement, the Company
and its subsidiaries possess adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies necessary
to conduct the business now operated by them and have not received any
notice of proceedings relating to the revocation or modification of any
such certificate, authority or permit that, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a Material Adverse Effect.
(o) The Company and its subsidiaries own, possess or can acquire
on reasonable terms, adequate trademarks, trade names and other rights
to inventions, know-how, patents, copyrights, confidential information
and other intellectual property (collectively, "intellectual property
rights") necessary to conduct the business now operated by them, or
presently employed by them, and have not received any notice of
infringement of or conflict with asserted rights of others with respect
to any intellectual property rights that, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect.
(p) Except as disclosed in the Prospectus, neither the Company nor
any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any
real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and the Company is not aware
of any pending investigation which might lead to such a claim.
(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect, or
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no
such actions, suits or proceedings are threatened or, to the Company's
knowledge, contemplated.
(r) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of
the Company and its consolidated subsidiaries as of the dates shown and
their results of operations and cash flows for the
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<PAGE>
periods shown, and, except as otherwise disclosed in the Prospectus,
such financial statements have been prepared in conformity with the
generally accepted accounting principles in the United States applied
on a consistent basis and the schedules included in each Registration
Statement present fairly the information required to be stated therein.
(s) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there
has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole, and, except as
disclosed in or contemplated by the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(u) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes and the
Company agrees to comply with such Section if prior to the completion
of the distribution of the Offered Securities it commences doing such
business.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $________ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, against payment of the purchase price in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC")
drawn to the order of the Company at the office of ________________________, at
10:00 A.M., New York time, on _________________, or at such other time not later
than seven full business days thereafter as CSFBC and the Company determine,
such time being herein referred to as the "First Closing Date". For purposes of
Rule 15c6-1 under the Securities Exchange Act of 1934, the First Closing Date
(if later than the otherwise applicable settlement date) shall be the settlement
date for payment of funds and delivery of securities for all the Offered
Securities sold pursuant to the offering. The certificates for the Firm
Securities so to be delivered will be in definitive form, in such denominations
and registered in such names as CSFBC requests and will be made available for
checking and packaging at such location as CSFBC shall reasonably request at
least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to
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<PAGE>
purchase such Optional Securities. Such Optional Securities shall be purchased
for the account of each Underwriter in the same proportion as the number of
shares of Firm Securities set forth opposite such Underwriter's name bears to
the total number of shares of Firm Securities (subject to adjustment by CSFBC to
eliminate fractions) and may be purchased by the Underwriters only for the
purpose of covering over-allotments made in connection with the sale of the Firm
Securities. No Optional Securities shall be sold or delivered unless the Firm
Securities previously have been, or simultaneously are, sold and delivered. The
right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to
the order of the Company, at the above office of ___________________. The
certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at such
location as CSFBC shall reasonably request at a reasonable time in advance of
such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance
with subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of
the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and
an additional registration statement is necessary to register a portion
of the Offered Securities under the Act but the Effective Time thereof
has not occurred as of such execution and delivery, the Company will
file the additional registration statement or, if filed, will file a
post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time,
on the date of this Agreement or, if earlier, on or prior to the time
the Prospectus is printed and distributed to any Underwriter, or will
make such filing at such later date as shall have been consented to by
CSFBC.
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<PAGE>
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any)
or the Prospectus and will not effect such amendment or supplementation
without CSFBC's consent; and the Company will also advise CSFBC
promptly of the effectiveness of each Registration Statement (if its
Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration
Statement or the Prospectus and of the institution by the Commission of
any stop order proceedings in respect of a Registration Statement and
will use its reasonable best efforts to prevent the issuance of any
such stop order and to obtain as soon as possible its lifting, if
issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of
which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act,
the Company will promptly notify CSFBC of such event and will promptly
prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent
to, nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section
6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to
its securityholders an earnings statement covering a period of at least
12 months beginning after the Effective Date of the Initial
Registration Statement (or, if later, the Effective Date of the
Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include
all exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be
delivered under the Act in connection with sales by any Underwriter or
dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other documents shall be so furnished as
soon as available. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution; provided, however, that
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<PAGE>
the Company shall not be obliged to file any general consent to
service of process or to qualify as a foreign corporation or as a
securities dealer in any jurisdiction or to subject itself to taxation
in respect of doing business in any jurisdiction in which it is not
otherwise so subject.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year,
a copy of its annual report to stockholders for such year; and the
Company will furnish to the Representatives (i) as soon as available, a
copy of each report and any definitive proxy statement of the Company
filed with the Commission under the Securities Exchange Act of 1934 or
mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance
of its obligations under this Agreement, for any filing fees and other
expenses (including reasonable fees and disbursements of counsel)
incurred in connection with qualification of the Offered Securities for
sale under the laws of such jurisdictions as CSFBC designates and the
printing of memoranda relating thereto, for the filing fee incident to,
and the reasonable fees and disbursements of counsel to the
Underwriters in connection with, the review by the National Association
of Securities Dealers, Inc. of the Offered Securities, for any travel
expenses of the Company's officers and employees and any other expenses
of the Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities and for expenses
incurred in distributing preliminary prospectuses and the Prospectus
(including any amendments and supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make
any such offer, sale, pledge, disposition or filing, without the prior
written consent of CSFBC, except issuances of Securities pursuant to
the conversion or exchange of convertible or exchangeable securities or
the exercise of warrants or options, in each case outstanding on the
date hereof, grants of employee stock options pursuant to the terms of
a plan in effect on the date hereof, or issuances of Securities
pursuant to the exercise of such options.
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if
the Effective Time of the Initial Registration Statement is subsequent
to
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<PAGE>
the execution and delivery of this Agreement, shall be prior to the
filing of the amendment or post-effective amendment to the registration
statement to be filed shortly prior to such Effective Time), of KPMG
confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a
review of interim financial information as described in
Statement of Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements included in
the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the
Company who have responsibility for financial and accounting
matters and other specified procedures, nothing came to their
attention that caused them to believe that:
(A) the unaudited financial statements
included in the Registration Statements do not comply
as to form in all material respects with the
applicable accounting requirements of the Act and the
related published Rules and Regulations or any
material modifications should be made to such
unaudited financial statements for them to be in
conformity with generally accepted accounting
principles;
(B) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of such letter, there
was any change in the capital stock or any increase
in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the
date of the latest available balance sheet read by
such accountants, there was any decrease in
consolidated net current assets or net assets, as
compared with amounts shown on the latest balance
sheet included in the Prospectus; or
(C) for the period from the closing date of
the latest income statement included in the
Prospectus to the closing date of the latest
available income statement read by such accountants
there were any decreases, as compared with the
corresponding period of the previous year, in
consolidated net sales, or net operating income, or
in the total or per share amounts of consolidated
income before extraordinary items or net income,
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<PAGE>
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such
letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
(in each case to the extent that such dollar amounts,
percentages and other financial information are derived from
the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and
other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to
be in agreement with such results, except as otherwise
specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration is subsequent to such
execution and delivery, "Registration Statements" shall mean the
Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the
post-effective amendment to be filed shortly prior to its Effective
Time, and (iii) "Prospectus" shall mean the prospectus included in the
Registration Statements.
(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or such later date as shall
have been consented to by CSFBC. If the Effective Time of the
Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by CSFBC. If the Effective Time of
the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with
the Commission in accordance with the Rules and Regulations and Section
5(a) of this Agreement. Prior to such Closing Date, no stop order
suspending the effectiveness of a Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives,
shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as one enterprise which, in the
reasonable judgment of a majority in interest of the Underwriters
including the Representatives, is material and adverse and makes it
impractical or inadvisable to proceed with completion
-11-
<PAGE>
of the public offering or the sale of and payment for the Offered
Securities; (ii) any material suspension or material limitation of
trading in securities generally on the New York Stock Exchange, or any
setting of minimum prices for trading on such exchange, or any
suspension of trading of any securities of the Company on any exchange
or in the over-the-counter market; (iii) any banking moratorium
declared by U.S. Federal or New York authorities; or (iv) any outbreak
or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the reasonable
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable
to proceed with completion of the public offering or the sale of and
payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated
such Closing Date, of Foley & Lardner, counsel for the Company, to the
effect that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the
State of Florida, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business
as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification and
the failure to be so qualified would not have a Material
Adverse Effect;
(ii) The Offered Securities delivered on such Closing
Date and all other outstanding shares of the Common Stock of
the Company have been duly authorized and validly issued, are
fully paid and nonassessable and conform to the description
thereof contained in the Prospectus; and the stockholders of
the Company have no preemptive rights with respect to the
Securities;
(iii) There are no contracts, agreements or
understandings known to such counsel between the Company and
any person granting such person the right to require the
Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned
by such person or to require the Company to include such
securities in the securities registered pursuant to the
Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the
Company under the Act, except for agreements, the requirements
of which have been waived with respect to the Registration
Statement prior to the filing of the Registration Statement;
(iv) No consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court
is required for the consummation of the transactions
contemplated by this Agreement in connection with the issuance
or sale of the Offered Securities by the Company, except such
as have been obtained and made under the Act and such as may
be required under state securities laws;
(v) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities
will not result in a breach or violation
-12-
<PAGE>
of any of the terms and provisions of, or constitute a default
under, any statute of the United States or the State of
Florida, or, to such counsel's knowledge, any rule, regulation
or order of any governmental agency or body or any court
having jurisdiction over the Company or any subsidiary of the
Company or any of their properties, or, to such counsel's
knowledge, any agreement or instrument to which the Company or
any such subsidiary is a party or by which the Company or any
such subsidiary is bound or to which any of the properties of
the Company or any such subsidiary is subject, or the charter
or by-laws of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and
sell the Offered Securities as contemplated by this Agreement;
(vi) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in
such opinion, the Additional Registration Statement (if any)
was filed and became effective under the Act as of the date
and time (if determinable) specified in such opinion, the
Prospectus either was filed with the Commission pursuant to
the subparagraph of Rule 424(b) specified in such opinion on
the date specified therein or was included in the Initial
Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the
knowledge of such counsel, no stop order suspending the
effectiveness of a Registration Statement or any part thereof
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act, and
each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective
effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and
Regulations; such counsel has no reason to believe that any
part of a Registration Statement or any amendment thereto, as
of its effective date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its
issue date or as of such Closing Date, contained any untrue
statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statements
and Prospectus of statutes, legal and governmental proceedings
and contracts and other documents are accurate and fairly
present the information required to be shown; and such counsel
does not know of any legal or governmental proceedings
required to be described in a Registration Statement or the
Prospectus which are not described as required or of any
contracts or documents of a character required to be described
in a Registration Statement or the Prospectus or to be filed
as exhibits to a Registration Statement which are not
described and filed as required; it being understood that such
counsel need express no opinion as to the financial statements
or other financial data contained in the Registration
Statements or the Prospectus; and
(vii) This Agreement has been duly authorized,
executed and delivered by the Company.
-13-
<PAGE>
(e) The Representatives shall have received from Testa,
Hurwitz & Thibeault, LLP, counsel for the Underwriters, such opinion or
opinions, dated such Closing Date, with respect to the incorporation of
the Company, the validity of the Offered Securities delivered on such
Closing Date, the Registration Statements, the Prospectus and other
related matters as the Representatives may require, and the Company
shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(f) The Representatives shall have received a certificate,
dated such Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that: the representations and warranties of
the Company in this Agreement are true and correct; the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder at or prior to such Closing
Date; no stop order suspending the effectiveness of any Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule
462(b), including payment of the applicable filing fee in accordance
with Rule 111(a) or (b) under the Act, prior to the time the Prospectus
was printed and distributed to any Underwriter; and, subsequent to the
date of the most recent financial statements in the Prospectus, there
has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole except as set forth
in or contemplated by the Prospectus or as described in such
certificate.
(g) The Representatives shall have received a letter, dated
such Closing Date, of KPMG which meets the requirements of subsection
(a) of this Section, except that the specified date referred to in such
subsection will be a date not more than three days prior to such
Closing Date for the purposes of this subsection.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon 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, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided,
-14-
<PAGE>
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below; and provided, further,
that with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary prospectus the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Offered Securities concerned, to the extent that a
prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Offered Securities to such person, a copy of
the Prospectus if the Company had previously furnished copies thereof to such
Underwriter.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: (i) the table under the first paragraph under the caption
"Underwriting", (ii) the concession and reallowance figures appearing in the
[fourth] paragraph under the caption "Underwriting" and (iii) the information
contained in the [sixth and eighth] paragraphs under the caption "Underwriting."
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not
-15-
<PAGE>
be liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement (i) includes
an unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act by
or on behalf of an indemnified party.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or
-16-
<PAGE>
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date, CSFBC may make arrangements satisfactory to the
Company for the purchase of such Offered Securities by other persons, including
any of the Underwriters, but if no such arrangements are made by such Closing
Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Offered
Securities that such defaulting Underwriters agreed but failed to purchase on
such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of shares of Offered Securities with respect to which such
default or defaults occur exceeds 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date
and arrangements satisfactory to CSFBC and the Company for the purchase of such
Offered Securities by other persons are not made within 36 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company, except as provided in Section 9
(provided that if such default occurs with respect to Optional Securities after
the First Closing Date, this Agreement will not terminate as to the Firm
Securities or any Optional Securities purchased prior to such termination). As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (ii), (iii) or (iv) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at 8751 Broward Boulevard,
5th Floor, Plantation, Florida, 33324, Attention: Chief Financial Officer;
provided, however, that any notice to an Underwriter pursuant to Section 7 will
be mailed, delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
-17-
<PAGE>
12. Representation of Underwriters. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to
principles of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
-18-
<PAGE>
If the foregoing is in accordance with the Representatives' understanding of our
agreement, kindly sign and return to the Company one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
MORTGAGE.COM, INC.
By:___________________________
[Insert title]
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
BT ALEX BROWN
PIPER JAFFRAY, INC.
Acting on behalf of themselves and as
the Representatives of the several
Underwriters
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:_________________________________
[Insert title]
-19-
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Securities
----------- ---------------
Credit Suisse First Boston Corporation
BT Alex Brown
Piper Jaffray, Inc.
------------------
Total........................ ==================
FORM OF
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
MORTGAGE.com, INC.
Pursuant to Sections 607.1001, 607.1002, 607.10025, and 607.1006,
Florida Business Corporation Act, the following provisions of the Articles of
Incorporation of Mortgage.com, Inc., a Florida corporation, incorporated
September 3, 1993 and assigned document number P93000061901, be and they hereby
are amended in the following particulars:
1. The name of the corporation is Mortgage.com, Inc.
2. The foregoing amendment was adopted by the board of directors of the
corporation on the 12th day of July, 1999. Pursuant to Section 607.10025,
Florida Business Corporation Act, shareholder action was not required to adopt
the foregoing amendment. The amendment does not adversely affect the rights or
preferences of the holders of outstanding shares of any class or series and does
not result in the percentage of authorized shares that remain unissued after the
division exceeding the percentage of authorized shares that were unissued before
the division.
3. Article 4, Section 4.1 is hereby amended to read as follows:
Section 4.1 Authorized Capital. The maximum number of shares of
stock which the Corporation is authorized to have outstanding at any one time is
two hundred twenty-five million (225,000,000) shares divided in classes as
follows:
(a) Fifteen million (15,000,000) shares of Preferred Stock having a
par value of $0.01 per share and which may be issued in one or more classes or
series as further described in Section 4.2; and
(b) Two hundred ten million (210,000,000) shares of Common Stock
having a par value of $0.01 per share and having the voting and other rights
described in Section 4.3.
4. Upon filing of this Amendment with the Florida Secretary of State
(the "Effective Date") each share of Common Stock outstanding or reserved for
issuance pursuant to outstanding options or warrants, or upon conversion of
outstanding convertible preferred stock shall be divided into seven shares of
Common Stock and shareholders of record on the Effective Date shall be entitled
to receive six shares of Common Stock for each share of Common Stock owned by
them immediately prior to the Effective Date.
5. Immediately prior to the Effective Date there were _____ shares of
Common Stock outstanding and _____ shares reserved for issuance pursuant to
outstanding options or warrants or upon conversion of outstanding preferred
stock. At the Effective Date there will be _____ shares of Common Stock
outstanding and _____ shares reserved for issuance.
<PAGE>
IN WITNESS WHEREOF, the undersigned President and Chief Executive
Officer of this corporation has executed these Articles of Amendment this _____
day of ________________, 1999.
------------------------------
Seth S. Werner, President and
Chief Executive Officer
NUMBER MORTGAGE.COM, INC. SHARES
MC a Florida corporation
THE EASIEST WAY HOME
COMMON MORTGAGE.COM, INC. SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 61910V 10 2
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
- -------------------------------MORTGAGE.COM, INC.-------------------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney on surrender of this certificate properly endorsed.
This certificate and the shares represented hereby are issued and shall be held
subject to all the provisions of the Articles of Incorporation and the Bylaws of
the Corporation and all amendments from time to time thereto, to all of which
the holder, by acceptance hereof, assents. This certificate shall not be valid
until countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the signatures of its
duly authorized officers.
Dated:
/s/ Christine Anderson MORTGAGE.COM, INC. /s/ Seth S. Werner
---------------------- CORPORATE --------------------
SECRETARY SEAL CHAIRMAN AND CHIEF
1993 EXECUTIVE OFFICER
FLORIDA
*
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ) Transfer Agent and Registrar
By
Authorized Officer
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO
REQUESTS, THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, AND LIMITATIONS
APPLICABLE TO EACH CLASS OF STOCK OF THE CORPORATION AND THE VARIATIONS IN
RIGHTS, PREFERENCES, AND LIMITATIONS DETERMINED FOR EACH SERIES (AND THE
AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES).
SUCH REQUEST MAY BE MADE TO THE CORPORATION AT ITS PRINCIPAL OFFICE.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as tenants
in common
UNIF GIFT MIN ACT-D Custodian
------------------ --------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
---------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received,___________________________hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------
- --------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
--------------------------------------
NOTICE:
--------------------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
--------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
RECAPITALIZATION AGREEMENT
AND
PLAN OF REORGANIZATION
This Recapitalization Agreement (the "Agreement") is made as of July 8,
1999 between Mortgage.com, Inc., a Florida corporation (the "Company"), formerly
known as First Mortgage Network, Inc., and Mason-McDuffie Real Estate, Inc., a
California corporation ("MMRE").
FACTUAL BACKGROUND
A. MMRE owns 1,000 shares of the Company's Special Preferred Stock
(Northern California Division) (the "Preferred Stock"), which represents all the
issued and outstanding shares of that series of the Company's preferred stock.
B. The parties have determined for purposes of the proposed
recapitalization that the Northern California Division has a value of
approximately $10,200.00.
C. All accrued dividends on the Preferred Stock have been paid and all
dividends prorated to the date of the recapitalization shall be paid prior
thereto.
D. MMRE and the Company desire to enter into a recapitalization
transaction, pursuant to Section 368(a)(1)(E) of the Internal Revenue Code of
1986, as amended, pursuant to which MMRE shall surrender the Preferred Stock to
the Company in exchange for $2,040,000 of Common Stock, on the terms and subject
to the conditions set forth in this Agreement. The Company desires to simplify
its capital structure in order to facilitate an initial public offering or other
transaction.
Plan of Reorganization
----------------------
This plan of reorganization shall be a reorganization within the
meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as
amended. In the event of an Initial Public Offering or Sale Transaction that is
consummated on or before November 1, 1999, the Company shall recapitalize by
exchanging the Preferred Stock for certain Common Stock.
NOW THEREFORE, in order to consummate the foregoing plan of
reorganization and in consideration of the mutual benefits to be derived
therefrom and the mutual benefits hereunder contained, the Company and MMRE
approve and adopt this plan of reorganization and agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
1.1 "Business Day" shall mean a day on which the New York Stock
Exchange is open for trading.
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1.2 "Common Stock" means the common stock, par value $0.01 per share,
of the Company.
1.3 "Initial Public Offering" means an underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale by the Company of Common
Stock, which results in the Common Stock being traded on a national
securities exchange, on NASDAQ or on a comparable system.
1.4 "Offering Price" means that price per share at which Common Stock
is sold to the public in the Initial Public Offering.
1.5 "Sale Transaction" means (i) any sale of all or substantially all
of the assets of the Company or (ii) any merger, consolidation, share
exchange, or other business combination or transaction involving the
Company with or into another person or sale of all or substantially all of
the assets of the Company that results in the shareholders of the Company,
immediately prior to such transaction or series of transactions, owning
less than 50% of the outstanding Common Stock of the Company or the common
stock of its successor, immediately following consummation of the
transaction or series of transactions, provided that pursuant to the Sale
Transaction, the holders of Common Stock shall receive cash or shares of a
publicly-traded company in connection with the transaction.
2. Recapitalization Upon Initial Public Offering or Sale Transaction.
In the event the Company consummates an Initial Public Offering or a Sale
Transaction on or before November 1, 1999, the Preferred Stock shall be
exchanged for Common Stock as set forth below:
2.1 Initial Public Offering. In the event the Company shall consummate
an Initial Public Offering on or before November 1, 1999, MMRE shall
exchange, and shall be deemed automatically to have effected the exchange
of the Preferred Stock for Common Stock, effective as of the close of
business on the Business Day immediately prior to the day on which the
closing with respect to the Initial Public Offering is held, and such date
is referred to herein as the "IPO Recapitalization Date." On the IPO
Recapitalization Date, MMRE shall deliver to the Company the stock
certificates representing the Preferred Stock together with such
assignments, stock powers and other instruments as the Company may
reasonably request in order to evidence and facilitate the transfer of the
Preferred Stock to the Company free and clear of all liens and
encumbrances, and the Company shall issue to MMRE in exchange, Two Million,
Forty Thousand Dollars ($2,040,000) of Common Stock, valued at the Offering
Price.
2.2 Sale Transaction. In the event the Company shall consummate a Sale
Transaction on or before November 1, 1999, MMRE shall exchange, and shall
be deemed automatically to have effected the exchange of the Preferred
Stock for Common Stock effective as of the close of business on the
Business Day immediately prior to the
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day on which the closing with respect to the Sale Transaction is held, and
such date is referred to as the "Sale Recapitalization Date" (the "IPO
Recapitalization Date" and the Sale Recapitalization Date are both referred
to as a "Recapitalization Date"). On the Sale Recapitalization Date, MMRE
shall deliver to the Company the stock certificates representing the
Preferred Stock together with such assignments, stock powers and other
instruments as the Company may reasonably request in order to evidence and
facilitate the transfer of the Preferred Stock to the Company free and
clear of all liens and encumbrances, and the Company shall issue to MMRE in
exchange, Two Million, Forty Thousand Dollars ($2,040,000) of Common Stock,
valued at the price (or value) per share which the holders of the
outstanding Common Stock of the Company shall receive in the Sale
Transaction. For example, if the Sale Transaction is a merger in which the
Company's shareholders shall receive $20 per share in exchange for their
Common Stock, MMRE would receive 102,000 shares of Common Stock in exchange
for the Preferred Stock.
In the event the Company's shareholders shall receive shares
in another publicly traded company as a result of the Sale Transaction, the
Company's Common Stock shall be valued based on the value of the public
company's shares being received for each share of Common Stock. If the
conversion ratio of the Company's Common Stock to the public company's
shares is fixed in advance in the merger agreement (rather than being based
on the trading price of the public company's shares at or near the time of
closing), the parties agree the value of the public company's shares shall
be calculated as the average of the last reported sales prices of the
public company's shares on the principal exchange upon which the shares
trade for each of the last five Business Days immediately preceding the
Sale Recapitalization Date. For example, if pursuant to the terms of the
Merger Agreement, each share of Common Stock is converted into two shares
of PubCo, and the average closing sale price of PubCo stock on its
principal exchange for the five Business Days immediately preceding the
Sale Recapitalization Date was $50 per share, then the Common Stock would
be valued at $100 per share and MMRE would receive 20,400 Shares of Common
Stock in exchange for the Preferred Stock.
In the event of a Sale Transaction, the Common Stock received by
MMRE in exchange for the Preferred Stock shall be entitled to the same
consideration and treatment pro rata as the other outstanding Common Stock.
2.3 No Fractional Shares On or as soon as practical after the
Recapitalization Date, the Company shall issue and deliver to MMRE, a
certificate or certificates for the number of full shares of Common Stock
to which MMRE is entitled and a check or cash with respect to any
fractional interest in a share of Common Stock. The stock certificate shall
not contain any restrictive legends except for such legend as counsel for
the Company deems customary and appropriate to indicate the shares have not
been registered and cannot be sold except in compliance with exceptions
under the appropriate securities laws, to the extent applicable.
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<PAGE>
2.4 Effect of Recapitalization. On the Recapitalization Date, all
the Preferred Shares (i) shall be deemed to have been converted into Common
Shares as provided above, (ii) no longer shall be deemed to be outstanding,
(iii) no longer shall accrue dividends (except that dividends shall be due
and paid, on a pro rata basis, to the time of the recapitalization), and
(iv) no longer shall have any voting or other rights (except only the right
of MMRE to receive Common Shares upon conversion and cash in lieu of
fractional interests as provided herein). On the Recapitalization Date,
MMRE shall have no further rights with respect to the Company's "Northern
California Division" and the Amended and Restated Operating Agreement for
the Northern California Division dated as of July 1, 1998 shall be
terminated and the Trademark License Agreement between MMRE and the Company
shall be terminated.
2.5 Cooperation to Facilitate Recapitalization. The Company and
MMRE shall act reasonably, cooperatively and in good faith to accomplish
the foregoing recapitalization and to facilitate the orderly closing of the
Initial Public Offering or Sale Transaction, as relevant, including without
limitation, (i) the Company providing reasonable advance notice to MMRE of
a proposed Initial Public Offering or Sale Transaction, (ii) the parties
executing appropriate additional documents and instruments and taking such
additional actions as may be reasonably requested to consummate more
effectively the recapitalization and related transactions, (iii) the
parties scheduling and conducting a closing of the recapitalization "in
escrow" prior to the actual Recapitalization Date, so as to avoid delaying
or inconveniencing consummation of the Initial Public Offering or Sale
Transaction, and (iv) in the event of an Initial Public Offering, MMRE
shall execute a customary "lock-up" agreement as may be reasonably
requested by the Company's underwriter, provided that the terms of the
"lockup" agreement shall not be more burdensome than the agreements signed
by the Company's Chief Executive Officer and the Company's primary venture
capital fund shareholders and the term of such "lock-up" shall not exceed
three months.
2.6 Termination. In the event the Company fails to consummate an
Initial Public Offering or Sale Transaction on or before November 1, 1999,
this Agreement shall terminate.
3. Representations and Warranties of MMRE. MMRE makes the following
representations and warranties to the Company, each of which is true and correct
on the date hereof, shall be true and correct as of the Recapitalization Date
and shall survive the closing of the transactions contemplated herein:
3.1 Title to Shares. MMRE has good and marketable title to the
Preferred Stock, free and clear of all liens, restrictions and encumbrances
including, without limitation, voting trusts or proxies and there are no
restrictions regarding ownership or transfer of the Preferred Stock which
affect MMRE's ability to consummate the reorganization and other
transactions contemplated herein, provided that MMRE's Preferred Stock may
be subject to a lien in favor of its lender, which lien shall be released
upon the Recapitalization Date.
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<PAGE>
3.2 Authority; No Violation. MMRE has full power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed by
MMRE and, assuming this Agreement constitutes a valid and binding
obligation of the Company, constitutes a valid and binding obligation of
MMRE, enforceable against MMRE in accordance with its terms.
4. Representations and Warranties of Company. Company makes the
following representations and warranties to MMRE, each of which is true and
correct on the date hereof, shall be true and correct as of the Recapitalization
Date and shall survive the closing of the transactions contemplated herein:
4.1 Authority; No Violation. The Company has full power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed by the Company and, assuming this Agreement constitutes a valid
and binding obligation of MMRE, constitutes a valid and binding obligation
of the Company, enforceable against the Company in accordance with its
terms.
4.2 Common Shares. The Common Shares to be issued to MMRE pursuant
to this Agreement, will be when issued, duly authorized, validly issued,
fully paid and nonassessable and shall be free and clear of liens and
encumbrances.
5. 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 hereto 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.
6. Binding Effect. This Agreement shall be binding upon the heirs,
personal representatives, successors and assigns of the parties hereto,
including any person receiving any Preferred Stock from MMRE.
7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which shall
together constitute one and the same instrument.
8. Survival of Other Agreements. The parties agree that except to the
extent expressly in conflict with this Agreement, all other agreements between
the parties shall remain in full force and effect. During the term of this
Agreement, the provisions in this Agreement shall expressly control over any
other conversion rights or similar privileges relating to the Preferred Stock,
including, without limitation, such rights contained in the Company's Articles
of Incorporation.
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<PAGE>
9. Effect and Interpretation. This Agreement will be governed,
construed and enforced in accordance with the laws of the State of Florida
without regard to conflict of law principles hereunder. Titles contained in this
Agreement have been inserted for convenience and in no way define, limit or
extend the scope intended in 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.
10. Amendment. This Agreement may be amended only by written agreement
signed by the party against whom enforcement is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MORTGAGE.COM, INC.
By:
---------------------------------
Seth S. Werner, President and
Chief Executive Officer
"Company"
MASON-McDUFFIE REAL ESTATE, INC.
By:
---------------------------------
A. David Cobo, President
"MMRE"
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Exhibit 5.1
FOLEY & LARDNER
ATTORNEYS AT LAW
<TABLE>
<CAPTION>
<S> <C> <C>
CHICAGO POST OFFICE BOX 240 SACRAMENTO
DENVER JACKSONVILLE, FLORIDA 32201-0240 SAN DIEGO
JACKSONVILLE THE GREENLEAF BUILDING SAN FRANCISCO
LOS ANGELES 200 LAURA STREET TALLAHASSEE
MADISON JACKSONVILLE, FLORIDA 32202-3510 TAMPA
MILWAUKEE TELEPHONE (904) 359-2000 WASHINGTON, D.C.
ORLANDO FACSIMILE (904) 359-8700 WEST PALM BEACH
</TABLE>
CLIENT/MATTER NUMBER
021837/0178
July 13, 1999
Mortgage.com, Inc.
8751 Broward Boulevard, Fifth Floor
Plantation, Florida 33324
Re: Registration Statement on Form S-1
Registration No. 333-79757
Gentlemen:
This opinion is being furnished in connection with the Registration
Statement on Form S-1 (Registration No. 333-79757) of Mortgage.com, Inc. (the
"Company"), under the Securities Act of 1933, as amended, for the registration
of shares of common stock, par value $0.01 (the "Shares"). The Registration
Statement filed June 2, 1999, as amended by Amendment No. 1 filed concurrently
herewith is referred to herein as the "Registration Statement."
As counsel for the Company, we have examined and are familiar with the
following:
a. Fourth Amended and Restated Articles of Incorporation of the Company
as filed in the Office of the Secretary of State of the State of Florida;
b. Form of Amendment to the Fourth Amended and Restated Articles of
Incorporation of the Company to be filed in the Office of the Secretary of State
of the State of Florida;
c. Amended and Restated Bylaws of the Company;
d. The proceedings of the board of directors of the Company in
connection with or with respect to the issuance and sale of the Shares to be
sold by the Company to certain underwriters pursuant to an underwriting
agreement (the "Underwriting Agreement") between the Company and the
underwriters named in the Registration Statement; and
<PAGE>
FOLEY & LARDNER
Mortgage.com, Inc.
July 13, 1999
Page 2
e. Such other documents, Company records, and matters of law as we
deemed to be pertinent.
Based upon our examination of such documents and our familiarity
with such proceedings, it is our opinion that:
1. The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Florida.
2. Upon filing of the Amendment to the Fourth Amended and Restated
Articles of Incorporation of the Company with the Office of the Secretary of
State of the State of Florida, the Shares covered by the Registration Statement
(including the Shares covered by the over-allotment described in the
Registration Statement) to be sold by the Company will, when the price therefor
is approved by the board of directors of the Company or the committee to which
it has delegated pricing authority, and when issued and delivered to the
underwriters pursuant to the Underwriting Agreement against payment of the
consideration therefor, be duly and validly issued, fully paid and
non-assessable.
We hereby consent to the inclusion of this opinion as Exhibit 5.1 in
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus. In giving this consent we do not admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules or regulations of the
Securities Exchange Commission promulgated thereunder.
FOLEY & LARDNER
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of this 1st day
of January, 1999, between Mortgage.com, Inc., a Florida corporation (the
"Company"), and Seth S. Werner (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
the Executive's potential contribution to the continued growth and success of
the Company and desires to assure the Company of the Executive's employment in
an executive capacity and to compensate him therefor;
WHEREAS, the Executive desires to commit himself to serve the Company
on the terms herein provided;
WHEREAS, the Company recognizes that circumstances may arise in which a
change of control of the Company occurs, through acquisition or otherwise,
thereby causing a potential conflict of interest between the Company's needs for
the Executive to remain focused on the Company's business, and for the necessary
continuity in management prior to and following a change of control, and the
Executive's reasonable personal concerns regarding future employment with the
Company and economic protection in the event of loss of employment as a
consequence of a change of control;
WHEREAS, the Company and the Executive desire that any proposal for a
change of control of the Company will be considered by the Executive objectively
and with reference only to the best interests of the Company and its
shareholders;
WHEREAS, the Executive will be in a better position to consider the
Company's best interests if the Executive is afforded reasonable economic
security against altered conditions of employment which could result from any
such change of control; and
WHEREAS, the Executive possesses intimate knowledge of the business and
affairs of the Company and has acquired certain confidential information and
data with respect to the Company which the Company desires to protect.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following
words and phrases have the following meanings:
"Affiliate" has the same meaning as "affiliate" in Rule 144(a)
promulgated under the Securities Act of 1933, as amended.
"Beneficial Owner" has the same meaning as "beneficial owner" in Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended.
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"Cause" for termination means (i) Executive's conviction of a felony,
(ii) acts of Executive which, in the judgment of the Board, constitute fraud on
the part of Executive, including but not limited to misappropriation or
embezzlement in the performance of duties as an employee of the Company, or
willful engagement in conduct materially injurious to the Company, or (iii)
gross misconduct, including but not limited to the willful failure of Executive
either to (a) obey lawful written instructions of the Board after thirty (30)
days notice in writing of Executive's failure to do so and the Board's intention
to terminate Executive if such failure is not corrected, or (b) correct any
conduct of Executive which constitutes a breach of this Agreement after thirty
(30) days notice in writing of Executive's failure to do so and of the Board's
intention to terminate Executive if such failure is not corrected.
"Change of Control" shall be deemed to have occurred if, after the
effective date of this Agreement,
(a) any one Person (or group of Affiliated Persons or
entities) other than an Excluded Person or an underwriter temporarily
holding securities pursuant to an offer of such securities, becomes a
Beneficial Owner, directly or indirectly, of securities representing
50% or more of the total number of votes that may be cast for the
election of directors of the Company; or
(b) the shareholders of the Company approve, and the Company
consummates, a merger, consolidation or share exchange of the Company
with any other corporation or approve the issuance of voting securities
of the Company in connection with a merger, consolidation or share
exchange of the Company, other than (i) a merger, consolidation or
share exchange which would result in the voting securities of the
Company outstanding immediately prior to such merger, consolidation or
share exchange continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity or
any parent thereof) at least 50% of the combined voting power of the
voting securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger, consolidation or
share exchange, or (ii) a merger, consolidation or share exchange
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person other than an Excluded Person is or
becomes the Beneficial Owner, directly or indirectly, of securities of
the Company representing 50% or more of either the then outstanding
shares of common stock of the Company or the combined voting power of
the Company's then outstanding voting securities; or
(c) the shareholders of the Company approve, and the Company
consummates, an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets (in one transaction or
a series of related transactions within any period of 24 consecutive
months), other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity at least 50% of
the combined voting power of the voting securities of which are owned
by Persons in substantially the same proportions as their ownership of
the Company immediately prior to such sale.
2
<PAGE>
Notwithstanding the foregoing, no "Change of Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the common stock
of the Company immediately prior to such transaction or series of transactions
continue to own, directly or indirectly, in the same proportions as their
ownership in the Company, an entity that owns all or substantially all of the
assets or voting securities of the Company immediately following such
transaction or series of transactions.
"Date of Termination" shall mean (i) if the term of this Agreement
expires, the expiration date as specified in Section 2 hereof, (ii) if the
Executive's employment is terminated by his death, the date of his death, (iii)
if the Executive's employment is terminated upon his Retirement, the date of his
Retirement, (iv) if the Executive's employment is terminated as a result of a
disability described in Section 9, the date on which the Executive is terminated
in accordance with Section 9, (v) if the Executive's employment is terminated
pursuant to Sections 8(b), 8(d) or 8(f), the date of the Notice of Termination
(which date shall not precede the date of mailing such Notice of Termination)
and (vi) if the Executive's employment is terminated pursuant to Sections 8(c)
or 8(e), the date specified as the Date of Termination in the Notice of
Termination (which date shall not precede the date of mailing such Notice of
Termination).
"Excluded Person" means Seth Werner, Canaan Equity, L.P., Dominion Fund
III, or Affiliates of any of the foregoing.
"Good Reason" shall be deemed to have occurred if (i) the Company
reduces the Executive's Base Salary other than pursuant to an across the board
reduction for all executives of the Company made necessary by business
conditions in the judgment of the Board of Directors of the Company, (ii) the
Company requires the Executive to relocate more than 50 miles from Broward
County, Florida, (iii) the Company fails to meet its obligations under Section
5, or engages in any other material breach of the terms of this Agreement, (iv)
there is a material adverse change by the Board of the Executive's functions,
duties, authority or responsibilities without the Executive's written consent,
and, as a result of such change, the Executive's position with the Company shall
be or becomes one of less dignity, responsibility, authority or scope.
"Notice of Termination" has the meaning set forth in Section 8(g).
"Person" means any individual, firm, partnership, corporation or other
entity, including any successor (by merger or otherwise) of such entity, or a
group of any of the foregoing acting in concert.
"Retirement" shall be deemed to have occurred if the Executive's
employment terminates at age 62 or older, and if the Executive has accrued 15
years of continuous service with the Company or any Affiliate company.
2. Employment. Unless earlier terminated pursuant to the provisions of
this Agreement, the Company shall employ the Executive for a term of 5 years,
commencing on January 1, 1999. This Agreement shall thereafter automatically
renew annually for successive one year terms unless either the Company or the
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Executive gives written notice to the other at least 90 days prior to the end of
the initial term hereof or any subsequent one-year renewal term, as the case may
be, of the Company's or the Executive's election not to extend this Agreement,
in which event the expiration of the then current term of this Agreement shall
constitute the Date of Termination.
3. Position and Duties. The Executive shall serve as the President and
Chief Executive Officer of the Company and in such additional management
positions as the Board and the Executive may mutually agree. In addition, so
long as the Executive is a member of the Board, he shall be elected as Chairman
of the Board. The Executive shall be accountable only to the Board, and, subject
to the authority of the Board, shall have supervision and control over, and
responsibility for, the general management and operation of the Company. He also
shall have such other powers and duties as may from time to time be prescribed
by the Board, provided that such duties are consistent with the Executive's
position as a president and chief executive officer of a company the size and
type of the Company. The Executive shall devote his entire working time and
efforts to the business and affairs of the Company and shall diligently and
faithfully perform the duties of his office pursuant to this Agreement.
4. Place of Performance. In connection with his employment by the
Company, the Executive shall be based at the Company's principal executive
offices in Broward County, Florida, or such other place as may be mutually
agreed to by the Company and the Executive.
5. Director's Seat. The Company shall nominate the Executive to
continue to serve as a Board member at each annual meeting of the Company's
shareholders occurring during the term of this Agreement.
6. Compensation.
(a) Base Salary. The Executive shall receive during the first
year of his employment hereunder an annual base salary of Three Hundred
Fifty Thousand Dollars ($350,000) (together with any annual increases,
the "Base Salary"). There shall be an annual review for merit by the
Board at which time the Board may increase the Executive's Base Salary.
The Executive's Base Salary shall be payable in periodic installments
in accordance with the Company's usual practice for senior executives
of the Company.
(b) Bonuses. In addition to Base Salary, during the term of
his employment hereunder, the Executive may be paid an annual bonus as
determined from time to time by the Board. The Board will assign the
Executive a percentage of his Base Salary that may be earned as a bonus
(the "Target Award Percentage"). The Target Award Percentage shall
never be less than 55%. The Board also will assign financial
performance targets for the Company by which to measure the Executive's
performance. Each year, the Board will determine a percentage which
reflects the Company's actual financial performance in relation to the
financial performance targets set for the Company ("Percent of Target
Award Earned"). The Executive's bonus will be determined as follows:
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<PAGE>
(Target Award Percentage) x (Base Salary) x (Percent of Target
Award Earned)
The amount of any bonus payable to the Executive shall be
determined as promptly as practicable after the determination of the
Company's financial performance for the year, but in any event such
payment will be made not later than 30 days after the Company's receipt
of consolidated audited financial statements, if audited, or if not
audited, not later than April 30 of such year.
(c) Long-term Incentive Compensation. In addition to Base
Salary, the Executive shall be entitled to participate in the Company's
Stock Option Plan, or other similar long-term incentive plan, and may
be granted stock options at least once per year as determined from time
to time by the Board. The Option Agreement evidencing the options
granted pursuant to this Section 6(c) (the "Options") shall contain
customary anti-dilution adjustments to the exercise price and number of
purchasable shares of common stock (e.g., stock splits, reverse splits,
stock dividends).
Notwithstanding any vesting schedule contained in any Option
Agreement evidencing Options, upon termination of the Executive's
employment pursuant to Sections 8(d)or 8(e), the Options shall become
one hundred percent (100%) vested on the Date of Termination. With
respect to non-qualified stock options, the deadline for exercising
such Options under the applicable Option Agreement is hereby amended to
be a date which is the sooner of three years from the Date of
Termination or the end of the option term for exercising such Options
set forth in the Option Agreement.
(d) Expenses. During the term of his employment hereunder, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by him in performing services hereunder
(according to the policies and procedures from time to time established
by the Board for its senior executive officers), provided that the
Executive properly accounts for expenses in accordance with Company
policy.
(e) Fringe Benefits. During the term of his employment, the
Executive shall be entitled to participate in or receive benefits under
all the Company's employee benefits plans and arrangements, including
any retirement plan, stock option plan, profit-sharing plan, savings
plan, health-and-accident plan, disability plan, insurance programs or
other arrangements made available by the Company to its senior
executives, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements.
(f) Vacations. The Executive shall be entitled to the number
of paid vacation days in each calendar year determined by the Company
from time to time for its senior executive officers, but not less than
four (4) weeks in any calendar year (prorated in any calendar year
during which the Executive is employed for less than the entire year in
accordance with the number of days in such calendar year during which
he is so employed). The Executive shall also be entitled to all paid
holidays provided by the Company to its senior executive officers.
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(g) Car Allowance. During the term of his employment, the
Executive shall at the Executive's expense maintain an automobile
available for use in connection with the performance of his duties
hereunder and shall be entitled to a car allowance of $1,500 per month.
(h) Insurance. The Company shall obtain, pay for and keep in
force at all times while Executive is employed by the Company (and
thereafter when required by this Agreement), a term life insurance
policy on the life of the Executive with a death benefit not less than
the greater of (i) four (4) times the Base Salary or (ii) $1,500,000;
provided, that if the Executive is not insurable at the insurer's
lowest rates for healthy, non-smoking males of the Executive's age (the
"Non-Rated Premiums"), then the Company shall obtain and pay for an
insurance policy on the life of the Executive in the face amount
obtainable for such Non-Rated Premiums. The Executive shall have the
exclusive right to designate the beneficiaries of any life insurance
policy provided by the Company hereunder and to change the
beneficiaries from time to time. Such policy and the proceeds and cash
value thereof, if any, shall be the sole property of the Executive and
the Company shall not retain any beneficial interest therein. Upon
termination of the Executive's employment by the Company for Cause,
upon a disability described in Section 9, as a result of his
Retirement, or by the Executive or the Company pursuant to notice under
Section 2, the Company's obligation to pay the premiums on such
insurance shall cease; in all other events the premiums shall be paid
for eighteen (18) months following the Date of Termination.
7. Unauthorized Disclosure. During the period of his employment
hereunder and following termination of his employment, the Executive shall not,
without the written consent of the Board or a person authorized thereby,
disclose to any Person, other than an employee of the Company or a Person to
whom disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties as a senior executive of the Company,
any material confidential information obtained by him while in the employ of the
Company with respect to any of the Company's products, improvements, formulas,
designs or styles, processes, customers, computer software and systems, computer
programming or methods of marketing, the disclosure of which would be materially
damaging to the Company; provided, however, that confidential information shall
not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information of a type
not otherwise considered confidential by Persons engaged in the same business or
a business similar to that conducted by the Company. Executive shall have no
obligation hereunder to keep confidential any confidential information if and to
the extent disclosure of any thereof is specifically required by law; provided,
however, that in the event disclosure is required by applicable law, Executive
shall provide the Company with prompt notice of such requirement, prior to
making any disclosure, so that the Company may seek an appropriate protective
order.
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8. Termination.
(a) Death and Retirement. The Executive's employment hereunder
shall terminate upon his death. The Executive's employment hereunder
shall terminate upon his Retirement.
(b) Termination by the Company for Cause. The Company may
terminate the Executive's employment hereunder at any time for Cause by
delivering a Notice of Termination to the Executive.
(c) Termination by the Company without Cause. The Company may
terminate the Executive's employment hereunder for any reason by
delivering a Notice of Termination to the Executive at least 30 days
prior to the Date of Termination.
(d) Termination by the Executive for Good Reason Following
Change of Control. The Executive may terminate his employment hereunder
for Good Reason any time within two years following a Change of Control
by delivering a Notice of Termination to the Company.
(e) Termination by the Executive Following Change of Control.
The Executive may terminate his employment hereunder for any reason any
time after the date which is 120 days after the date of a Change of
Control, by delivering a Notice of Termination to the Company at least
30 days prior to the Date of Termination.
(f) Termination by the Executive for Good Reason. Executive
may terminate his employment hereunder for Good Reason at any time by
delivering a Notice of Termination to the Company.
(g) Notice of Termination. Any termination by the Company
pursuant to subsections (b) or (c) of this Section 8, and any
termination by the Executive pursuant to subsections (d), (e) or (f) of
this Section 8, shall be communicated by a written notice delivered by
certified mail, return receipt requested, within the appropriate time
periods, if any, specified by such subsections, and such Notice of
Termination shall indicate the specific termination provision in this
Agreement relied upon. If the termination is pursuant to subsections
(b) or (d) of this Section 8, the Notice of Termination also shall set
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
9. Disability. If a physician reasonably acceptable to the Executive
determines in writing that the Executive is incapacitated due to physical or
mental illness, and if as a result the Executive is incapable of performing his
duties hereunder on a full-time basis for the Disability Period (as defined
below), then the Company shall notify the Executive in writing that it intends
to replace him within 30 days after the date the notice is sent. If the
Executive shall not have returned to the performance of his duties hereunder on
substantially a full-time basis within 30 days after the date the notice is sent
by the Company, the Company may terminate the Executive and replace him without
breaching this Agreement. As used herein, the Disability Period shall mean the
period of disability required by the Company's long-term disability insurance
policies as a condition to providing disability benefits to the Executive under
such policies.
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10. Compensation Upon Termination or During Disability.
(a) Death or Disability. If the Executive's employment is
terminated by reason of his death or disability, the Executive or the
Executive's estate shall be entitled to (1) all Base Salary, pro-rata
bonus and all fringe benefits accrued and vested through the Date of
Termination, (2) all accrued and vested retirement benefits and in
addition, in the event of the death of the Executive, all stock options
granted prior to the date of death shall become 100% vested, and (3) in
the case of the Executive's death, if no beneficiary is designated, the
proceeds of the insurance policy provided for in Section 6(h) hereof.
(b) Termination by Company For Cause. If the Executive's
employment is terminated for Cause, the Executive shall be entitled to
receive (1) his full Base Salary accrued through the Date of
Termination at the rate in effect at the time the notice of termination
is given and (2) only such Options as have vested prior to the Date of
Termination. The Company shall have no further obligations to the
Executive under this Agreement.
(c) Termination Upon Retirement. If the Executive's employment
is terminated as a result of his Retirement the Executive shall be
entitled to receive (1) his full Base Salary accrued through the Date
of Termination plus a pro-rata bonus at the rate in effect at the time
the notice of termination is given and (2) 100% vesting of the Options
he has been granted prior to the Date of Termination. The Company shall
have no further obligations to the Executive under this Agreement,
other than its obligations under the Company's retirement plans and
policies if the Executive's employment is terminated as a result of his
Retirement. If the Executive's Options vest under this paragraph, the
deadline for exercising such Options under the applicable Option
Agreement shall be the date which is the sooner of three years after
the Date of Termination or the deadline for exercising such Options set
forth in the Option Agreement.
(d) Termination by Company Without Cause or by the Executive
with Good Reason. Subject to Section 10(e), if the Company terminates
the Executive's employment pursuant to Section 8(c), or the Executive
terminates his employment pursuant to Section 8(f) then the Company
shall pay to the Executive his full Base Salary accrued through the
Date of Termination at the rate in effect on the Date of Termination.
In addition, the Company shall pay to the Executive, as liquidated
damages, or severance pay, or both, on the thirtieth (30th) day
following the Date of Termination, a lump-sum amount equal to (a) two
times the Base Salary then in effect plus (b) two times the annual car
allowance provided for in this Agreement. In addition, the Company
shall maintain in full force and effect, for the continued benefit of
the Executive for eighteen (18) months following the Date of
Termination, all employee benefit plans and programs in which the
Executive was entitled to participate immediately prior to the Date of
Termination, so long as the Executive's continued participation is
possible under the general terms and provisions of such plans and
programs.
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In addition, if the Date of Termination, as defined in
Section 1, is the date the term of this Agreement expires as specified
in Section 2, all stock options granted prior to the date of
termination shall become 100% vested.
(e) Termination of Executive Upon Change of Control. (1)
Notwithstanding Section 10(d), if the Company terminates the
Executive's employment pursuant to Section 8(c) within two years
following a Change of Control, or (2) if the Executive terminates his
employment pursuant to Section 8(d), or (3) if a Change of Control
occurs and the Executive's employment was terminated by the Company
pursuant to Section 8(c) during the period 180 days prior to the date
on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (1)
was at the request of a third party who had taken steps reasonably
calculated to effect a Change of Control or (2) otherwise arose in
connection with or in anticipation of a Change of Control, then in lieu
of any other severance payment or liquidated damages described herein,
the Company shall pay to the Executive, as liquidated damages, or
severance pay, or both, on the thirtieth (30th) day following the Date
of Termination, a cash lump-sum amount equal to the higher of the
following amounts:
o Three times the Executive's Base Salary then in
effect, plus three times the average of the bonuses
paid to Executive during the prior three calendar
years (or the number of calendar years that bonuses
have been paid to Executive if bonuses have been paid
for less than three calendar years) or
o Three times the Executive's Base Salary then in
effect, plus three times his target bonus under
Section 6(b) for the then current calendar year,
assuming the Percent of Target Award Earned is 100%.
If the Executive terminates his employment within two years
following a Change of Control pursuant to Section 8(e) hereof, then in
lieu of any other severance payment or liquidated damages described
herein, the Company shall pay to the Executive, as liquidated damages,
or severance pay, or both, on the thirtieth (30th) day following the
Date of Termination, a cash lump-sum amount equal to the higher of the
following amounts:
o The Executive's Base Salary then in effect,
plus the average of the bonuses paid to Executive
during the prior three calendar years (or the number
of calendar years that bonuses have been paid to
Executive if bonuses have been paid for less than
three calendar years) or
o The Executive's Base Salary then in effect,
plus his target bonus under Section 6(b) for the then
current calendar year, assuming the Percent of Target
Award Earned is 100%.
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(f) If Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") applies to payments made to the Executive upon a
Change of Control, the Company shall pay to the Executive an amount
necessary to negate the effect upon the Executive of any excise tax on
any portion of such payment pursuant to Section 280G of Code, as well
as the effect upon the Executive of any excise tax and income tax on
amounts required to be paid pursuant to this subsection (f), such
amounts under this subsection (f) to be paid to the Executive in four
equal installments, with the first installment due and payable on the
Date of Termination, and the remaining installments due and payable
every 90 days following the Date of Termination.
11. Non-Competition. In recognition of the Company's substantial
relationships with business clients or prospects and its trade secrets and other
valuable, confidential business or professional information, the Executive
agrees that, in the event of any termination, except termination under Sections
8(c), 8(e) or 8(f), the Executive shall not, for a period expiring three (3)
years after the Date of Termination, without the prior written approval of the
Board, participate in the management of, be employed by or own any business
enterprise at a location within the United States that engages in substantial
competition with the online mortgage origination business of the Company or its
affiliates, where such enterprise's revenues from any competitive activities
amount to 10% or more of such enterprise's net revenues or sales for its most
recently completed fiscal year. Nothing in this Section 11 shall prohibit the
Executive from owning stock or other securities of a competitor amounting to
less than five percent of the outstanding capital stock of such competitor. For
terminations under Section 8(c), 8(e) or 8(f), the Executive shall not, for a
period expiring one (1) year after the Date of Termination, without the prior
written approval of the Board, participate in the management of, be employed by
or own any business enterprise at a location within the United States that
engages in substantial competition wit the Company or its affiliates, where such
enterprise's revenues from any competitive activities amount to 10% or more of
such enterprise's net revenues or sales for its most recently completed fiscal
year; provided, however, that nothing in this Section 11 shall prohibit the
Executive from owning stock or other securities of a competitor amounting to
less than five percent of the outstanding capital stock of such competitor. In
addition and notwithstanding anything herein to the contrary, this section shall
not apply if the Date of Termination as defined in Section 1 is the date the
term of this Agreement expires as specified in Section 2.
12. Non-Solicitation. In recognition of the Company's substantial
relationships with business clients or prospects and its trade secrets and other
valuable, confidential business or professional information, the Executive
agrees that during the term of his employment with the Company, and for a period
of two years following the termination of his employment by Company for Cause or
by the Executive voluntarily, he will not, directly or indirectly, for himself
or for any other commercial enterprise, directly or indirectly (i) solicit any
of the Company's customers, members, joint venture partners, or technology
partners, which relationships are in existence during the term of his employment
or at the time of termination of such employment, as the case may be, or (ii)
solicit or discuss with any employee of the Company the employment of such
Company employee by any commercial enterprise other than the Company, nor
recruit, attempt to recruit, hire or attempt to hire any such Company employee
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on behalf of any commercial enterprise other than the Company. In addition and
notwithstanding anything herein to the contrary, this section shall not apply if
the Date of Termination as defined in Section 1 is the date the term of this
Agreement expires as specified in Section 2.
The Executive acknowledges that the enforcement of the provisions in
Section 11 and this Section 12 shall not result in unreasonable deprivation of
his right to earn a living and that if the provisions of Section 11 or this
Section 12 shall be determined by any court to be invalid or unenforceable to
any extent, then Section 11 or this Section 12, as applicable, shall be deemed
to be amended so as to be valid and enforceable to the fullest extent permitted
by law.
13. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be deemed properly mailed, if
mailed to the following addresses:
If to the Executive:
Seth S. Werner
4975 SW 85th Street
Miami, FL 33143
If to the Company:
Mortgage.com, Inc.
8751 Broward Boulevard
Fifth Floor
Plantation, Florida 33324
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. Successors; Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
15. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is approved
by the Board and agreed to in writing signed by the Executive and such officer
as may be specifically authorized by the Board. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
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shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Florida, exclusive of
conflicts of laws principles.
16. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Florida (without regard to the
choice of law or conflict of laws provisions thereof).
18. Attorneys' Fees. In the event of any litigation arising out of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees
and expenses from the losing party, whether incurred before suit is brought,
before or at trial, on appeal, or in insolvency proceedings.
19. Jurisdiction. Each party to this Agreement hereby irrevocably
submits to the jurisdiction of any Florida state court or federal court sitting
in Broward County, Florida in any action or proceeding arising out of or
relating to this Agreement, or any other related document, and each hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such Florida state or federal court. The Company and
Executive agree that such jurisdiction and venue shall be exclusive and each
party to this Agreement hereby irrevocably waives, to the fullest extent it may
effectively do so, the defense of any inconvenient forum to the maintenance of
such action or proceeding.
20. Counterparts. This 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
MORTGAGE.COM, INC.,
("Company")
By: /s/ John J. Hogan
---------------------
John J. Hogan, Executive Vice President
/s/ Seth S. Werner
- ------------------
Seth S. Werner ("Executive")
12
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is dated as of
the 28th day of May, 1999, between mortgage.com, inc., a Florida corporation
(the "Company"), and John Hogan (the "Executive").
WHEREAS, the Company and the Executive are parties to a
certain Purchase Agreement (as hereafter defined) dated January 1, 1998,
pursuant to which the Company purchased and the Executive sold all of the
Executive's right, title and interests in and to the net profits of the
Company's Northern California Division; and
WHEREAS, the Executive is currently employed with the Company
pursuant to an Employment Agreement dated as of January 1, 1998, which
Employment Agreement the Executive has agreed to terminate upon execution of
this Agreement; and
WHEREAS, the Executive desires to commit himself to serve the
Company and the MBG (as hereafter defined) on the terms herein provided.
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes the Executive's potential contribution to the continued growth and
success of the Company and desires to assure the Company of the Executive's
employment in an executive capacity and to compensate him therefor;
WHEREAS, the Company recognizes that circumstances may arise
in which a change of control of the Company occurs, through acquisition or
otherwise, thereby causing a potential conflict of interest between the
Company's needs for the Executive to remain focused on the Company's business,
and for the necessary continuity in management prior to and following a change
of control, and the Executive's reasonable personal concerns regarding future
employment with the Company and economic protection in the event of loss of
employment as a consequence of a change of control;
WHEREAS, the Company and the Executive are desirous that any
proposal for a change of control of the Company will be considered by the
Executive objectively and with reference only to the best interests of the
Company and its shareholders;
WHEREAS, the Executive will be in a better position to
consider the Company's best interests if the Executive is afforded reasonable
economic security, as provided herein, against altered conditions of employment
which could result from any such change of control; and
WHEREAS, the Executive possesses intimate knowledge of the
business and affairs of the Company and has acquired certain confidential
information and data with respect to the Company which the Company desires to
protect.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, the parties
hereto agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following words and
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phrases shall have the following meanings. Terms capitalized herein but not
defined herein shall have the meanings given to them in the Purchase Agreement.
"Affiliate" has the same meaning as "affiliate" in Rule 144(a)
promulgated under the Securities Act of 1933, as amended.
"Beneficial Owner" shall have the same meaning as "beneficial
owner" in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended.
"Cause" for termination shall mean (i) Executive's conviction
of a felony, (ii) acts of Executive which, in the judgment of the Board,
constitute fraud on the part of Executive, including but not limited to
misappropriation or embezzlement in the performance of duties as an employee of
the Company, or willful engagement in conduct materially injurious to the
Company, or (iii) gross misconduct, including but not limited to the willful
failure of Executive either to (a) obey lawful written instructions of the Board
after thirty (30) days notice in writing of Executive's failure to do so and the
Board's intention to terminate Executive if such failure is not corrected, or
(b) correct any conduct of Executive which constitutes a breach of this
Agreement after thirty (30) days notice in writing of Executive's failure to do
so and of the Board's intention to terminate Executive if such failure is not
corrected.
"Change of Control" shall be deemed to have occurred if, after
the effective date of this Agreement,
a. any one Person (or group of affiliated Persons or entities)
other than an Excluded Person or an underwriter temporarily holding
securities pursuant to an offer of such securities, becomes a
Beneficial Owner, directly or indirectly, of securities representing
50% or more of the total number of votes that may be cast for the
election of directors of the Company; or
b. the shareholders of the Company approve, and the Company
consummates, a merger, consolidation or share exchange of the Company
with any other corporation or approve the issuance of voting securities
of the Company in connection with a merger, consolidation or share
exchange of the Company, other than (i) a merger, consolidation or
share exchange which would result in the voting securities of the
Company outstanding immediately prior to such merger, consolidation or
share exchange continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity or
any parent thereof) at least 50% of the combined voting power of the
voting securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger, consolidation or
share exchange, or (ii) a merger, consolidation or share exchange
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person other than an Excluded Person is or
becomes the Beneficial Owner, directly or indirectly, of securities of
the Company representing 50% or more of either the then outstanding
shares of common stock of the Company or the combined voting power of
the Company's then outstanding voting securities; or
c. the shareholders of the Company approve, and the Company
consummates, an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets (in one transaction or
a series of related transactions within any period of 24 consecutive
months), other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity at least 50% of
the combined voting power of the voting securities of which are owned
by Persons in substantially the same proportions as their ownership of
the Company immediately prior to such sale.
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Notwithstanding the foregoing, no "Change of Control" shall be
deemed to have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to own, directly or indirectly, in the same proportions as
their ownership in the Company, an entity that owns all or substantially all of
the assets or voting securities of the Company immediately following such
transaction or series of transactions.
"Date of Termination" shall mean (i) if the term of this
Agreement expires, the expiration date as specified in Section 2 hereof, (ii) if
the Executive's employment is terminated by his death, the date of his death,
(iii) if the Executive's employment is terminated as a result of a disability
described in Section 9, the date on which the Executive is terminated in
accordance with Section 9, (iv) if the Executive's employment is terminated
pursuant to Sections 8(b) or 8(d), the date of the Notice of Termination (which
date shall not precede the date of mailing such Notice of Termination) and (v)
if the Executive's employment is terminated pursuant to Sections 8(c) or 8(e),
the date specified as the Date of Termination in the Notice of Termination
(which date shall not precede the date of mailing such Notice of Termination).
"Excluded Person" shall mean Seth Werner, Canaan Equity, L.P.,
Dominion Fund III, or affiliates of any of the foregoing.
"Good Reason" shall mean, if (i) the Company reduces the
Executive's Base Salary other than pursuant to an across the board reduction for
all executives of the Company made necessary by business conditions in the
judgment of the Board of Directors of the Company, (ii) the Company requires the
Executive to relocate more than 50 miles from Santa Clara County, California
(iii) the Company fails to meet its obligations under Section 5, or engages in
any other material breach of the terms of this Agreement, (iv) there is a
material adverse change by the Board of the Executive's functions, duties,
authority or responsibilities without the Executive's written consent, and, as a
result of such change, the Executive's position with the Company shall be or
becomes one of less dignity, responsibility, authority or scope
"Notice of Termination" shall have the meaning set forth in
Section 8(f) hereof.
"Person" shall mean any individual, firm, partnership,
corporation or other entity, including any successor (by merger or otherwise) of
such entity, or a group of any of the foregoing acting in concert.
"Board" shall mean the Company's Board of Directors.
"Division" shall mean the Company's Northern California
Division.
"MBG" means the "MBG" or "Mortgage Banking Group" as such
terms are defined in the Purchase Agreement.
"MBG Shut Down" shall mean the closing by the Company of the
operations of the MBG by any means which results in the loss of 75% or more of
origination loan volume generated by the MBG during the most recent fiscal
quarter.
"Members" shall mean members of the Company's membership
network.
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NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
2. Employment. Unless earlier terminated pursuant to the provisions of
this Agreement, the employment of the Executive by the Company shall be for a
term of 3 years, commencing on the 1st day of January, 1999. This Agreement
shall thereafter automatically renew annually for successive one year terms
unless either the Company or the Executive shall give written notice to the
other at least 90 days prior to the end of the initial term hereof or any
subsequent one-year renewal term, as the case may be, of the Company's or the
Executive's election not to extend this Agreement, in which event the expiration
of the then current term of this Agreement shall constitute the Date of
Termination.
3. Position and Duties. The Executive shall serve as the President and
Chief Operating Officer of the Division and the MBG, as an Executive Vice
President of the Company, and in such additional management positions as the
Board and the Executive may mutually agree. Subject to the authority of the
Board, the Executive shall have supervision and control over, and responsibility
for, (i) the day-to-day operations of the Division pursuant to the policies
adopted by the Board from time to time, and (ii) the day-to-day operations of
the MBG pursuant to the policies adopted by the Board, all as overseen by the
Chief Executive Officer and President of the Company. Specifically, the
Executive's duties will include (i) the development of Division business and MBG
business; (ii) the recruitment of Members; (iii) the integration of the business
conducted in all offices and sites of the MBG (as currently existing and as may
be expanded in the future); (iv) the general growth and improvement of the
Division and the MBG; and (v) executive management of secondary marketing
activities and chairmanship of the Pricing Secondary Marketing Committee, which
committee has the authority to set and determine loan product offerings, pricing
and secondary marketing policies and procedures.
The Executive shall have such other powers and duties as may
from time to time be prescribed by the Board, provided that such duties are
consistent with the Executive's position as an executive officer in charge of
the general management of the Division and the MBG. The Executive shall devote
his entire working time and efforts to the business and affairs of the Division
and the MBG.
4. Place of Performance. In connection with his employment by the
Company, the Executive shall perform his duties from locations in Santa Clara
County, California, or such other place as may be mutually agreed to by the
Company and the Executive.
5. Director's Seat. The Company shall nominate the Executive to
continue to serve as a Board member at each annual meeting of the Company's
shareholders occurring during the term of this Agreement.
6. Compensation.
a. Base Salary. The Executive shall receive during the first
year of his employment hereunder an annual base salary of Two Hundred
Fifty Thousand Dollars ($250,000) (the "Base Salary"). During the
remaining term of his employment (years two and three), there shall be
an annual review for merit by the Board at which time the Executive's
Base Salary shall be increased by eight percent (8%) of the Base Salary
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for the immediately preceding year. The Executive's Base Salary shall
be payable in periodic installments in accordance with the Company's
usual practice for executive officers of the Company.
b. Bonuses. In addition to Base Salary, during the term of his
employment hereunder, the Executive shall be paid bonuses as determined
from time to time by the Board. The Executive will be assigned a target
award, representing a percentage of his Base Salary (representing not
less than 35% nor more than 100% of his Base Salary) ("Target Award").
The Executive's bonus will be determined by multiplying the Target
Award by a percentage reflecting the financial performance of the
Company ("Percent of Target Award Earned"). The amount of any bonus
payable to the Executive shall be determined as promptly as practicable
after the determination of the Company's financial performance for the
year, but in any event such payment will be made not later than 30 days
after the Company's receipt of consolidated audited financial
statements, if audited, or if not audited, not later than April 30 of
such year.
c. Other Incentive Compensation. In addition to Base Salary,
the Executive shall be entitled to participate in the Company's Stock
Option Plan. During the term of the Executive's employment, he shall be
further entitled to stock options under the Company's Stock Option Plan
in an amount equal to one-half of the stock options granted to the
Company's Chief Executive Officer from time to time, such stock options
to be incentive stock options or non-qualified stock options, depending
on the type of stock options granted to the Company's Chief Executive
Officer. The Option Agreement evidencing the options granted pursuant
to this Section 6(c) (the "Options") shall contain customary
anti-dilution adjustments to the exercise price and number of
purchasable shares of common stock (e.g., stock splits, reverse splits,
stock dividends). Options which may not be eligible for incentive stock
option treatment as a result of yearly or other limits on the number of
shares eligible for such treatment shall be deemed to be non-qualified
stock options.
Notwithstanding any vesting schedule contained in any
Option Agreement evidencing Options, upon termination of the
Executive's employment pursuant to Section 8 for any reason other than
(i) by the Company for Cause or (ii) the Executive's retirement
pursuant to the Company's retirement policies, the Options shall become
one hundred percent (100%) vested on the Date of Termination and with
respect to non-qualified stock options, the deadline for exercising
such Options under the applicable Option Agreement shall be extended to
a date which is ten years from the date hereof.
d. Expenses. During the term of his employment hereunder, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by him in performing services hereunder
(according to the policies and procedures from time to time established
by the Board), provided that the Executive properly accounts therefor
in accordance with Company policy.
e. Fringe Benefits. During the term of his employment, the
Executive shall be entitled to participate in or receive benefits under
all the Company's employee benefits plans and arrangements, including
any retirement plan, stock option plan, profit-sharing plan, savings
plan, health-and-accident plan, disability plan, insurance programs or
other arrangements made available by the Company to its senior
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executives, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements.
f. Vacations. The Executive shall be entitled to the number of
paid vacation days in each calendar year determined by the Company from
time to time for its senior executive officers but not less than four
(4) weeks in any calendar year (prorated in any calendar year during
which the Executive is employed for less than the entire year in
accordance with the number of days in such calendar year during which
he is so employed). The Executive shall also be entitled to all paid
holidays provided by the Company to its senior executive officers.
g. Car Allowance. During the term of his employment, the
Executive shall at the Executive's expense maintain an automobile
available for use in connection with the performance of his duties
hereunder and shall be entitled to a car allowance of $1,500 per month.
h. Insurance. The Company shall obtain and pay for and keep in
force at all times while Executive is employed by the Company and
thereafter as provided herein, an insurance policy on the life of the
Executive with a death benefit not less than the greater of (i) four
(4) times the Base Salary or (ii) $1,500,000; provided, that if the
Executive is not insurable at the insurer's lowest rates for healthy,
non-smoking males of the Executive's age (the "Non-Rated Premiums"),
then the Company shall obtain and pay for an insurance policy on the
life of the Executive in the face amount obtainable for such Non-Rated
Premiums. The Executive shall have the exclusive right to designate the
beneficiaries of any life insurance policy provided by the Company
hereunder and to change the beneficiaries from time to time. Such
policy and the proceeds and cash value thereof, if any, shall be the
sole property of the Executive and the Company shall not retain any
beneficial interest therein. Upon termination of the Executive's
employment by the Company for Cause, upon a disability described in
Section 9, as a result of his retirement pursuant to the retirement
policies of the Company, or by the Executive or the Company pursuant to
notice under Section 2, the Company's obligation to pay the premiums on
such insurance shall cease; in all other events the premiums shall be
paid for eighteen (18) months following the Date of Termination.
7. Unauthorized Disclosure.
a. During the period of his employment hereunder and following
termination thereof, the Executive shall not, without the written
consent of the Board or a person authorized thereby, disclose to any
Person, other than an employee of the Company or a Person to whom
disclosure is reasonably necessary or appropriate in connection with
the performance by the Executive of his duties as a senior executive of
the Company, any material confidential information obtained by him
while in the employ of the Company with respect to any of the Company's
products, improvements, formulas, designs or styles, processes,
customers, computer software and systems, computer programming or
methods of marketing, the disclosure of which would be materially
damaging to the Company; provided, however, that confidential
information shall not include any information known generally to the
public (other than as a result of unauthorized disclosure by the
Executive) or any information of a type not otherwise considered
confidential by Persons engaged in the same business or a business
similar to that conducted by the Company. Executive shall have no
obligation hereunder to keep confidential any confidential information
if and to the extent disclosure of any thereof is specifically required
by law; provided, however, that in the event disclosure is required by
applicable law, Executive shall provide the Company with prompt notice
of such requirement, prior to making any disclosure, so that the
Company may seek an appropriate protective order.
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b. The provisions of this Section 7 shall be binding upon the
Executive's heirs, successors and legal representatives.
8. Termination.
a. Death. The Executive's employment hereunder shall terminate
upon his death.
b. Termination by the Company for Cause. The Company may
terminate the Executive's employment hereunder at any time for Cause by
delivering a Notice of Termination to the Executive.
c. Termination by the Company without Cause. The Company may
terminate the Executive's employment hereunder for any reason by
delivering a Notice of Termination to the Executive at least 30 days
prior to the Date of Termination.
d. Termination by the Executive for Good Reason. The Executive
may terminate his employment hereunder for Good Reason by delivering a
Notice of Termination to the Company. For purposes of this Agreement,
"Good Reason" shall mean (i) a material breach of or default under this
Agreement or the Purchase Agreement by the Company which is not cured
by the Company within thirty (30) days after its receipt of notice
thereof by the Executive or (ii) an MBG Shut Down. A termination by the
Executive pursuant to this subsection d shall be treated for all
purposes as a termination by the Company pursuant to subsection c of
this Section 8.
e. Termination by the Executive Following Change of Control.
The Executive may terminate his employment hereunder for any reason
after the date which is 120 days after the date of a Change of Control,
by delivering a Notice of Termination to the Company at least 30 days
prior to the Date of Termination.
f. Notice of Termination. Any termination by the Company
pursuant to subsections b or c of this Section 8, and any termination
by the Executive pursuant to subsections d or e of this Section 8,
shall be communicated by a written notice delivered by certified mail,
return receipt requested, within the appropriate time periods, if any,
specified by such subsections, and such Notice of Termination shall
indicate the specific termination provision in this Agreement relied
upon. If the termination is pursuant to subsections b or d of this
Section 8, the Notice of Termination also shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated.
9. Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, as determined in writing by a physician reasonably
acceptable to Executive, the Executive shall have been unable to perform his
duties hereunder on a full-time basis for the Disability Period (as defined
below), and the Executive is therefore incapable of performing such duties, and
within thirty (30) days after the Company notifies the Executive in writing that
it intends to replace him the Executive shall not have returned to the
performance of his duties hereunder on substantially a full-time basis, the
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Company may terminate the Executive and replace him without breaching this
Agreement. As used herein, the Disability Period shall mean the period of
disability required by the Company's disability insurance policies as a
condition to providing disability benefits to the Executive under such policies.
10. Compensation Upon Termination or During Disability.
a. Death or Disability. If the Executive's employment shall be
terminated by reason of his death or disability, the Executive or the
Executive's estate shall be entitled to all compensation and all fringe
benefits accrued and vested through the Date of Termination, all
accrued and vested retirement benefits; and in addition, in the event
of the death of the Executive all stock options granted prior to the
date of death shall become 100% vested. In addition, if the Executive's
employment is terminated as a result of a disability within the meaning
of Section 9, the Company shall provide such disability benefits to the
Executive as are made available to other senior executive officers of
the Company.
b. Termination by Company For Cause; Retirement. If the
Executive's employment shall be terminated for Cause, the Executive
shall be entitled to receive (A) his full Base Salary accrued through
the Date of Termination at the rate in effect at the time the notice of
termination is given and (B) only such Options as have vested prior to
the Date of Termination, and the Company shall have no further
obligations to the Executive under this Agreement.
If the Executive's employment shall be terminated as a result
of his retirement at an age of 60 years or older, the Executive shall
be entitled to receive (A) his full Base Salary accrued through the
Date of Termination at the rate in effect at the time the notice of
termination is given and (B) 100% vesting of Options he has been
granted prior to the Date of Termination, and the Company shall have no
further obligations to the Executive under this Agreement, other than
its obligations under the Company's retirement plans and policies if
the Executive's employment is terminated as a result of his retirement
pursuant to the Company's retirement policies.
c. Termination by Company Without Cause; Termination by
Executive for Good Reason. Subject to subsection (d) of this Section
10, if (A) the Company shall terminate the Executive's employment
pursuant to Section 8(c) or (B) the Executive terminates his employment
for Good Reason, then the Company shall pay to the Executive his full
Base Salary accrued through the Date of Termination at the rate in
effect on the Date of Termination. In addition, the Company shall pay
to the Executive, as liquidated damages, or severance pay, or both, on
the thirtieth (30th) day following the Date of Termination, a lump-sum
amount equal to (a) two times the Base Salary then in effect plus (b)
two times the annual car allowance provided for in this Agreement
(collectively, a "Severance Payment"). In addition, the Company shall
maintain in full force and effect, for the continued benefit of the
Executive for eighteen (18) months following the Date of Termination,
all employee benefit plans and programs in which the Executive was
entitled to participate immediately prior to the Date of Termination,
so long as the Executive's continued participation is possible under
the general terms and provisions of such plans and programs. To the
extent that the Executive's benefits from any pension, profit sharing
or other retirement plan or program (whether tax qualified or
otherwise) are not vested on the Date of Termination, the Company shall
pay to the Executive in 18 equal monthly installments following the
Date of Termination, the present value of the difference between the
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amounts which would have been paid to the Executive had he been fully
vested on the Date of Termination and the amounts actually paid or
payable to the Executive pursuant to such plans or programs.
In addition, if the Date fo Termination, as defined in Section
1, is the date the term of this Agreement expires as specified in
Section 2, all stock options granted prior to the Date fo Termination
shall become 100% vested.
d. Termination of Executive Upon Change of Control.
Notwithstanding subsection (c) of this Section 10, if
i. the Company shall terminate the Executive's employment
pursuant to Section 8(c) or the Executive terminates his employment for
Good Reason, in either case at any time within two years following a
Change of Control, or
ii. a Change of Control occurs and the Executive's employment
was terminated by the Company pursuant to Section 8(c) during the
period 180 days prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (A) was at the request of a third party who
had taken steps reasonably calculated to effect a Change of Control or
(B) otherwise arose in connection with or in anticipation of a Change
of Control,
then in lieu of the Severance Payment described in subsection (c) of Section 10,
the Company shall pay to the Executive, as liquidated damages, or severance pay,
or both, on the thirtieth (30th) day following the Date of Termination, a cash
lump-sum amount equal to the higher of the following amounts:
iii. Three (3) times Base Salary plus the average of the
bonuses paid to Executive during the prior three calendar years (or the
number of calendar years that bonuses have been paid to Executive if
bonuses have been paid for less than three calendar years) or
iv. Three (3) times Base Salary plus his Target Award bonus
for the then current calendar year, assuming the Percent of Target
Award Earned is 100%.
Notwithstanding subsection (c) of this Section 10, if the Executive terminates
his employment pursuant to Section 8(e) hereof, then in lieu of the Severance
Payment described in subsection (c) of Section 10, the Company shall pay to the
Executive, as liquidated damages, or severance pay, or both, on the thirtieth
(30th) day following the Date of Termination, a cash lump-sum amount equal to
the higher of the following amounts:
v. Three (3) times Base Salary plus the average of the bonuses
paid to Executive during the prior three calendar years (or the number
of calendar years that bonuses have been paid to Executive if bonuses
have been paid for less than three calendar years) or
vi. Three (3) times Base Salary plus his Target Award bonus
for the then current calendar year, assuming the Percent of Target
Award Earned is 100%.
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e. If Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") applies to payments made to the Executive upon a
Change of Control, the Company shall pay to the Executive an amount
necessary to negate the effect upon the Executive of any excise tax on
any portion of such payment pursuant to Section 280G of Code, as well
as the effect upon the Executive of any excise tax and income tax on
amounts required to be paid pursuant to this subsection (e), such
amounts under this subsection (e) to be paid to the Executive in four
equal installments, with the first installment due and payable on the
Date of Termination, and the remaining installments due and payable
every 90 days following the Date of Termination
11. Non-Competition. In recognition of the Company's substantial
relationships with business clients or prospects and its trade secrets and other
valuable, confidential business or professional information, the Executive
agrees that, in the event of any termination, except termination under Sections
8.c, 8.d or 8.e or the Executive shall not, for a period expiring three (3)
years after the Date of Termination, without the prior written approval of the
Board, participate in the management of, be employed by or own any business
enterprise at a location within the United States that engages in substantial
competition with the online mortgage origination business of the Company or its
affiliates, where such enterprise's revenues from any competitive activities
amount to 10% or more of such enterprise's net revenues or sales for its most
recently completed fiscal year. Nothing in this Section 11 shall prohibit the
Executive from owning stock or other securities of a competitor amounting to
less than five percent of the outstanding capital stock of such competitor. For
terminations under Section 8.c, 8.d or 8.e the Executive shall not, for a period
expiring one (1) year after the Date of Termination, without the prior written
approval of the Board, participate in the management of, be employed by or own
any business enterprise at a location within the United States that engages in
substantial competition with the online mortgage origination business of the
Company or its affiliates, where such enterprise's revenues from any competitive
activities amount to 10% or more of such enterprise's net revenues or sales for
its most recently completed fiscal year; provided, however, that nothing in this
Section 11 shall prohibit the Executive from owning stock or other securities of
a competitor amounting to less than five percent of the outstanding capital
stock of such competitor. In addition and notwithstanding anything herein to the
contrary, this section shall not apply if the Date of Termination as defined in
Section 1 is the date the term of this Agreement expires as specified in Section
2.
12. Non-Solicitation. In recognition of the Company's substantial
relationships with business clients or prospects and its trade secrets and other
valuable, confidential business or professional information, the Executive
agrees that during the term of his employment with the Company, and for a period
of two years following the termination of his employment by Company for Cause or
by the Executive voluntarily, he will not, directly or indirectly, for himself
or for any other commercial enterprise, directly or indirectly (i) solicit any
of the Company's customers, members, joint venture partners, or technology
partners, which relationships are in existence during the term of his employment
or at the time of termination of such employment, as the case may be, or (ii)
solicit or discuss with any employee of the Company the employment of such
Company employee by any commercial enterprise other than the Company, nor
recruit, attempt to recruit, hire or attempt to hire any such Company employee
on behalf of any commercial enterprise other than the Company. In addition and
notwithstanding anything herein to the contrary, this section shall not apply if
the Date of Termination as defined in Section 1 is the date the term of this
Agreement expires as specified in Section 2.
The Executive acknowledges that the enforcement of the provisions in
Section 11 and this Section 12 shall not result in unreasonable deprivation of
his right to earn a living and that if the provisions of Section 11 or this
Section 12 shall be determined by any court to be invalid or unenforceable to
any extent, then Section 11 or this Section 12, as applicable, shall be deemed
to be amended so as to be valid and enforceable to the fullest extent permitted
by law.
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13. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be deemed properly mailed, if
mailed to the following addresses:
If to the Executive:
John Hogan
17526 Vineland Avenue
Monte Sereno, CA 95030
If to the Company:
Mortgage.com, Inc.
8751 Broward Boulevard
Fifth Floor
Plantation, Florida 33324
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. Successors; Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
15. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is approved
by the Board and agreed to in writing signed by the Executive and such officer
as may be specifically authorized by the Board. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Florida, exclusive of
conflicts of laws principles.
16. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
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17. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Florida (without regard to the
choice of law or conflict of laws provisions thereof).
18. Attorneys' Fees. In the event of any litigation arising out of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees
and expenses from the losing party, whether incurred before suit is brought,
before or at trial, on appeal, or in insolvency proceedings.
19. Jurisdiction. Each party to this Agreement hereby irrevocably
submits to the jurisdiction of any Florida state court or federal court sitting
in Broward County, Florida in any action or proceeding arising out of or
relating to this Agreement, or any other related document, and each hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such Florida state or federal court. The Company and
Executive agree that such jurisdiction and venue shall be exclusive and each
party to this Agreement hereby irrevocably waives, to the fullest extent it may
effectively do so, the defense of any inconvenient forum to the maintenance of
such action or proceeding.
20. Counterparts. This 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
MORTGAGE.COM, INC.,
("Company")
By: /s/ Seth Werner
-------------------
Seth Werner, Chief Executive Officer
/s/ John Hogan
- --------------
John Hogan ("Executive")
12
Amended and Restated
EMPLOYMENT AGREEMENT
This Amended and Restated EMPLOYMENT AGREEMENT (this "Agreement") is
made this 28th day of May, 1999, between mortgage.com, inc. (f/k/a First
Mortgage Network, Inc.), a Florida corporation (the "Company"), and David Larson
(the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
the Executive's potential contribution to the growth and success of the Company
and desires to assure the Company of the Executive's continued employment in an
executive capacity and to compensate him therefor; and
WHEREAS, the Company and the Executive wish to amend and restate in its
entirety the Employment Agreement dated July 18, 1997 (the "Former Employment
Agreement") which is attached hereto as Exhibit "A" and which, except for
certain provisions specifically incorporated by reference, shall be of no
further force or effect; and
WHEREAS, the Executive desires to commit himself to serve the Company
on the terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following
words and phrases shall have the following meanings:
"Affiliate" has the same meaning as "affiliate" in Rule 144(a)
promulgated under the Securities Act of 1933, as amended.
"Beneficial Owner" has the same meaning as "beneficial owner" in Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended.
"Cause" for termination shall mean (i) Executive's conviction of a
felony, (ii) acts of Executive which, in the judgment of the Board, constitute
fraud on the part of Executive, including but not limited to misappropriation or
embezzlement in the performance of duties as an employee of the Company, or
willfully engaging in conduct materially injurious to the Company and in
violation of the covenants contained in this Agreement, or (iii) gross
misconduct, including but not limited to the willful failure of Executive either
to (a) continue to obey lawful written instruction of the Board after 30 days
notice in writing of Executive's failure to do so and the Board's intention to
terminate Executive if such failure is not corrected, or (b) correct any conduct
of Executive which constitutes a breach of this Agreement after 30 days notice
in writing of Executive's failure to do so and the Board's intention to
terminate Executive if such failure is not corrected.
"Change of Control" shall be deemed to have occurred if, after the
effective date of this Agreement, any one Person (or group of Affiliated
Persons) other than an Excluded Person or an underwriter temporarily holding
securities pursuant to an offer of such securities, becomes a Beneficial Owner,
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directly or indirectly, of securities representing 40% or more of the total
number of votes that may be cast for the election of directors of the Company.
"Date of Termination" shall mean (i) if the term of this Agreement
expires, the expiration date as specified in Section 2 hereof, (ii) if the
Executive's employment is terminated by his death, the date of his death or if
the Executive's employment is terminated by his Retirement, the date of his
Retirement, (iii) if the Executive's employment is terminated as a result of a
disability described in Section 9, the date on which the Executive is terminated
in accordance with the provision of Section 9 and (iv) if the Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination.
"Excluded Person" means Seth S. Werner, Canaan Equity L.P., Dominion
Fund III or Affiliates of any of the foregoing.
"Net Profits of OPENCLOSE" shall mean the annual (or quarterly, if
payments under Section 6d. are made quarterly) net income of OPENCLOSE before
the deduction or allowance for federal or state income taxes. In computing Net
Profits of OPENCLOSE, the Company shall allocate general overhead and
administrative expenses pursuant to the budget attached as Exhibit "H" and all
intercompany technology fees shall be waived by the Company. The determination
of Net Profits of OPENCLOSE shall otherwise be made in accordance with generally
accepted accounting principles consistent with the Company's past accounting
practices.
"Notice of Termination" has the meaning set forth in Section 8(f).
"Person" means any individual, firm, partnership, corporation or other
entity, including any successor (by merger or otherwise) of such entity, or a
group of any of the foregoing acting in concert.
"Retirement" shall be deemed to have occurred if the Executive's
employment terminates at age 62 or older, and if the Executive has accrued 15
years of continuous service with the Company or any Affiliate company.
2. Employment. Unless earlier terminated pursuant to the provisions of
Section 8 hereof, the employment of the Executive by the Company shall be for
the term of five (5) years commencing on March 1, 1997 and shall thereafter
automatically renew annually for successive terms of one (1) year unless either
the Company or the Executive shall give written notice to the other at least
ninety (90) days prior to the end of the initial term hereof or any subsequent
one (1) year renewal term, as the case may be, of the Company's or the
Executive's election not to extend this Agreement, in which event the expiration
of the then current term of this Agreement shall constitute the Date of
Termination.
3. Position and Duties. The Executive shall serve as the President and
Chief Operating Officer of the Broker Services Group of the Company (the
"B.S.G.") and in such additional management positions as the Board and the
Executive may mutually agree. As President and Chief Operating Officer of the
B.S.G., Executive's sole duties shall consist of the following duties described
in the rest of this paragraph. The Executive shall be accountable only to the
Chief Executive Officer (the "CEO") of the Company and the Board, and, subject
to the authority of the CEO and the Board, shall be the most senior executive
having supervision and control over and responsibility for the general
management and operation of OPENCLOSE and shall have such other powers and
duties as may from time to time be prescribed by the CEO or the Board, provided
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that such duties are consistent with the Executive's position as the senior
executive officer in charge of the general management of OPENCLOSE. The current
operations of OPENCLOSE are more particularly described in Exhibit "B" attached
hereto. The Executive shall devote his entire working time and efforts to the
business and affairs of the Company and shall diligently and faithfully perform
the duties of his office pursuant to this Agreement.
4. Place of Performance. In connection with his employment by the
Company, the Executive shall be based at the Company's principal executive
offices or such other place as may be mutually agreed to by the Company and the
Executive.
5. Director's Seat. Prior to the time of an initial public offering,
the Company shall elect the Executive, and after an initial public offering, the
Company shall nominate the Executive to serve as a Board member at each annual
meeting of the Company's shareholders occurring during the term of this
Agreement.
6. Compensation.
a. Base Salary. The Executive shall receive during the term of his
employment hereunder an annual base salary ("Base Salary") at the rate of at
least Two Hundred Thousand Dollars ($200,000.00). There shall be an annual
review for merit by the Board at which time the Executive's annual salary may be
increased. Once increased, the Executive's Base Salary hereunder shall not
thereafter be reduced. The Executive's Base Salary shall be payable in periodic
installments in accordance with the Company's usual practice for senior
executives of the Company.
b. Incentive Compensation Based on Performance of "www.OPENCLOSE.com"
The Company is in the process of developing an Internet website
service (to be located at and hereinafter referred to as "www.OPENCLOSE.com")
that provides participating mortgage brokers and lenders with access to Fannie
Mae desktop underwriting ("DU") information, product and rate information, and
mortgage insurance information, and which is more particularly described in
Exhibit "B" attached hereto. (The OPENCLOSE Division of the B.S.G. is
hereinafter referred to as "OPENCLOSE"). In addition to Base Salary, during the
term of his employment hereunder, the Executive shall be entitled to earn a
performance bonus of up to One Hundred Thousand Dollars ($100,000) annually as
follows:
(i) Fifty Thousand Dollars ($50,000) on June 1, 1999 (the "Start
Date") if by that date there are (1) a minimum of eight (8) contracts, signed by
lenders participating in the OPENCLOSE web site, ("Lender Contracts") or a
minimum of eight (8) fully executed letters of intent to enter into a Lender
Contract or any combination of Lender Contracts and letters of intent; and (2) a
minimum of 30 contracts signed by brokers participating in the OPENCLOSE web
site ("Broker Contracts") or thirty (30) letters of intent to enter into a
Broker Contract or any combination thereof; and (3) a minimum of twenty-three
(23) submissions to the OPENCLOSE web site. The Start Date shall be extended one
(1) day for each day beyond March 1st, 1999 that the OPENCLOSE web site is not
released by the Company for Beta Testing.
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(ii) Fifty Thousand Dollars ($50,000) on January 1, 2000 if by
that date there are (1) a minimum of twelve (12) Lender Contracts or letters of
intent to enter into a Lender Contract, or any combination thereof; and (2) a
minimum of five hundred seventy-five (575) Broker Contracts or letters of intent
to enter into a Broker Contract, or any combination thereof; and (3) a minimum
of one thousand five hundred eighty (1,580) submissions to the OPENCLOSE web
site.
(iii) The performance criteria in subsequent years shall be as
mutually agreed between the parties hereto.
The amount Executive is entitled to earn under this Section shall
not be adjusted proportionally if the minimum number of Lender Contracts, Broker
Contracts, letters of intent and submissions is not achieved by the Start Date
or January 1, 2000, as the case may be.
c. Incentive Compensation Based on Stock Options in the Company.
(i) In addition to Base Salary and pursuant to the Former
Employment Agreement, the Executive has previously received options with a term
of ten (10) years to purchase 150,000 shares of the Company's Common Stock at a
price of $7.50 per share (the "Options"), pursuant to the Company's Stock Option
Plan, which options shall be incentive stock options to the extent permitted by
law. (A copy of the Stock Option Agreement between the Executive and the Company
for the foregoing 150,000 options is attached hereto as Exhibit "C" and is
hereafter referred to as the "150,000 Stock Option Agreement"). In connection
with all of the vesting schedules for the Options set forth below, Options which
may not be eligible for incentive stock option treatment as a result of yearly
or other limits on the number of shares eligible for such treatment shall be
deemed to be non-qualified stock options. The Options shall contain a "cashless"
exercise feature to the extent that such feature will not result in an Option
which would otherwise be a tax-qualified incentive stock option being deemed to
be a non-qualified stock option.
(ii) So long as this Agreement is in effect, the Options shall
vest on the earlier of (i) such date or on such conditions as are provided in
the 150,000 Stock Option Agreement or (ii) twenty percent (20%) on each one year
anniversary from March 1, 1997; provided, however, that, during Executive's
employment hereunder, in the event of an initial public offering of the
Company's Common Stock which results in the Company's Common Stock being listed
on a national securities exchange, on NASDAQ, or on a comparable system (the
"IPO"), or a transaction or series of transactions not involving a public
offering pursuant to which any person other than Seth Werner, Canaan Capital
Limited Partnership, Canaan Capital Offshore Limited Partnership C.V., Canaan
Equity L.P., Canaan Ventures II Limited Partnership, Canaan Ventures II Offshore
C.V., or Dominion Partners III, or affiliates of any of the foregoing, acquire
an aggregate amount of Common Stock representing thirty-three and one-third
percent (33-1/3%) or more of the outstanding shares of Common Stock (the
"Private Placement"), on or prior to March 1, 1999, or a Change of Control on or
prior to March 1, 1999, (x) forty percent (40%) of the Options shall vest on the
closing date of the IPO, Private Placement or transaction giving rise to the
Change of Control and (y) twenty percent (20%) of the Options shall vest each 6
months thereafter. During Executive's employment hereunder, in the event of an
IPO, Private Placement or Change of Control after March 1, 1999, twenty percent
(20%) of the Options shall vest each 6 months following the closing date of the
IPO, Private Placement or the transaction giving rise to the Change of Control;
except that if any Options were scheduled to vest prior to the six month
anniversary of the closing date of the IPO, Private Placement or transaction
giving rise to a Change of Control (the "Scheduled Options"), the Scheduled
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Options shall vest as scheduled (the "Scheduled Option Date") and thereafter
twenty percent (20%) of the Options shall vest each six (6) months following
Scheduled Option Date.
Notwithstanding anything herein or in the 150,000 Stock
Option Agreement to the contrary, if the Executive's employment shall be
terminated on or after March 1, 1998 for reasons other than (i) for Cause, (ii)
as a result of his retirement pursuant to the retirement policies of the
Company, or (iii) upon termination by the Executive pursuant to Section 8(e)
hereof, the Options (and any other stock options subsequently granted to
Executive by Company's Board of Directors) shall become one hundred percent
(100%) vested on the Date of Termination.
If any change(s) in the federal income tax laws materially
affect(s) the tax treatment of the Executive with respect to the Options or the
Common Stock purchasable pursuant to the Options, the Company and the Executive
agree to negotiate in good faith to reach an agreement which will take advantage
of, or minimize the disadvantage to the employee of, such change(s).
d. Incentive Compensation Based on Net Profits of the OPENCLOSE
Division of B.S.G. In order to increase Executive's incentive to develop the
OPENCLOSE business, the Company grants to the Executive the right to share in
the Net Profits of OPENCLOSE, or in the Net Proceeds of any External Financing
of OPENCLOSE (described below) or in the proceeds of a sale of the OPENCLOSE
Division, as follows:
(i) In consideration of the services to be performed under this
Agreement, and of the agreement by the Executive to forbear from exercising (the
"Forbearance" ) any portion of the 50,000 Incentive Stock Options granted to
Executive in the 1998 Incentive Stock Option Agreement (the "1998 SOA", a copy
of which is attached as Exhibit "D") until the earlier of the Initial Vesting
Date, as defined herein, or the date the Company exercises its Discontinuance
Right, as defined herein, Executive shall have the right to earn as additional
incentive compensation a percentage of the Net Profits of OPENCLOSE and the Net
Proceeds of any External Financing of OPENCLOSE, if any (the "vested interest"
or "VI"), which percentage shall be determined and shall vest as set forth
below.. (Notwithstanding the foregoing, in the event the lead managing
underwriter for the Company's initial public offering determines that it is in
the best interest of the Company for all of Executive's rights in the 1998 SOA
to be released prior to the completion of the IPO (the "Underwriter's Option")
then, in lieu of the Forbearance, Executive agrees to release all of his right,
title and interest to the 1998 SOA pursuant to the Transfer, Assignment and
Release, a copy of which is attached as Exhibit "E").
o 5% on January 1, 2001 (the "Initial Vesting Date")
o 1% on January 1, 2002
o 2% on January 1, 2003
o 2% on January 1, 2004
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o If at any time prior to January 1, 2004 Executive's
employment is terminated for any reason other than
pursuant to Section 8e hereof, or for Cause, the
remaining unvested portion of the VI shall vest
immediately such that the VI shall equal ten (10%)
percent.
Any compensation to which Executive may be entitled under
this Section shall be paid to him annually thirty (30) days after the end of the
Company's fiscal year, commencing with the first full fiscal year which includes
January 1, 2001. Commencing with the second full fiscal year after the Company
has achieved Net Profits of OPENCLOSE , the compensation to which Executive is
entitled under this Section shall be paid to him quarterly within thirty (30)
days after the end of the quarter.
(ii) Executive's Right of Rescission of the VI. Commencing on the
Initial Vesting Date or the date the Executive's employment is terminated for
any reason other than termination by the Executive pursuant to Section 8e,
whichever is earlier, and continuing for ninety (90) days thereafter (the
"Executive's Rescission Period") the Executive shall have the right to deliver
written notice to the Company (the "Executive's Rescission Notice") notifying
the Company that he is releasing his rights in the VI back to the Company
("Executive's Right of Rescission") (such that he shall have no further right to
any portion of the Net Profits of OPENCLOSE or Net Proceeds of any External
Financing of OPENCLOSE), and rescinding the Forbearance ; provided, however,
that if the Underwriter's Option was exercised, the Executive may elect in the
Executive's Rescission Notice to receive a payment (the "Rescission Payment")
computed pursuant to either of the following methods at the election of the
Executive:
Method 1 (applicable only if Company Common Stock is
publicly traded): An amount payable in cash or Common Stock of the Company, at
the election of the Executive, equal to the difference between [the average
trading price of the Company's Common Stock for the seven (7) trading days
immediately preceding the date of the Executive's Rescission Notice] and [the
Exercise Price under the 1998 SOA,] multiplied by [the number of shares (the
"Share Amount") that Executive would have been vested in under the 1998 SOA on
the date of the Rescission Notice had the Executive not released his rights
therein pursuant to this Section.] The Exercise Price and the Share Amount shall
be adjusted for stock splits and other adjustments pursuant to Section 4.3 of
the Company's Restated Stock Option Plan last amended on October 18, 1998. The
value of any unvested options computed pursuant to the above method shall be
granted to the Executive at such times as the Executive would have become vested
in the corresponding number of shares under the 1998 SOA.
Method 2: Cash or, if the Company's stock is publicly
traded, Common Stock (valued at the average trading price seven (7) trading days
immediately preceding the date of Executive's Rescission Notice) of the Company
in an amount equal to the fair market value of the VI on the date of Executive's
Rescission Notice as determined by the appraisal method set forth on Exhibit
"F".
In addition, at any time after the expiration of the
Executive's Rescission Period, the Executive shall have the right to exercise
the Executive's Right of Rescission and release the VI to the Company, in which
event the Company shall provide the Executive the Rescission Payment computed in
the manner set forth for Method 2.
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Provisions Regarding Common Stock: In the event the
Executive elects to receive Common Stock of the Company in payment of any of the
amounts set forth above, the Provisions Regarding Company Common Stock set forth
in Exhibit "G shall apply.
(iii) Company's Right to Redeem the VI. Commencing on the Initial
Vesting Date, in the event that the Executive's employment is terminated by
either party for any reason, and continuing for one (1) year thereafter (the
"Company Rescission Period") or, in the event the Company sells the assets of
OPENCLOSE, the Company may deliver written notice to the Executive (the "Company
Rescission Notice"), notifying him of the Company's intent to redeem Executive's
rights in the VI (the "Company Right of Redemption") for a redemption price
equal to the fair market value of the VI on the date of the Company Rescission
Notice as determined by the appraisal method set forth on Exhibit "F". Upon
completion of the appraisal, and payment of the redemption price, the Executive
shall have no further interest in the Net Profits of OPENCLOSE or the Net
Proceeds of any External Financing of OPENCLOSE.
(iv) Net Losses. If OPENCLOSE shall suffer a net loss in any year
during the term of this Agreement, including any extension thereof, such loss
shall be applied against future Net Profits of OPENCLOSE plus the proceeds of
External Financing so that the balance of compensation which Executive shall be
entitled to receive over his Base Salary under this provision shall be the Net
Profits of OPENCLOSE for the then-current year reduced by net losses, if any, in
prior years which have not been previously applied against Net Profits of
OPENCLOSE or the proceeds of External Financing. Net losses sustained by
OPENCLOSE in years prior to the effective date of this Agreement shall not enter
into the computation of Net Profits of OPENCLOSE and shall not be applied
against future Net Profits of OPENCLOSE or the proceeds of External Financing.
The Company shall furnish Executive with detailed annual statements of profit
and loss for OPENCLOSE contemporaneously with the completion of the yearly audit
of the Company's financial statements by its independent auditors.
Notwithstanding anything herein to the contrary, , Executive
shall be entitled to receive his share of Net Profits of OPENCLOSE only to the
extent the cumulative net losses of the OPENCLOSE Division' do not exceed One
Million Five Hundred Thousand Dollars ($1,500,000) plus the proceeds of External
Financing. In the event the cumulative net losses of the OPENCLOSE Division
exceed the sum of One Million Five Hundred Thousand Dollars, ($1,500,000) plus
the proceeds of External Financing, one hundred percent (100%) of the net income
of the OPENCLOSE Division shall be applied against cumulative net losses, and no
amount of Net Profit or External Financing shall be paid to the Executive, until
such time as the cumulative net losses do not exceed One Million Five Hundred
Thousand Dollars($1,500,000) plus the proceeds of External Financing.
(v) Definition of Net Proceeds of any External Financing. The
provisions of this paragraph 6d(v) apply only if the assets of the OPENCLOSE
Division are distributed to a separate entity controlled by the Company (the
"OPENCLOSE Newco"), and the operations consist solely of OPENCLOSE.com. The term
Net Proceeds of any "External Financing" shall mean the proceeds of any debt or
equity financing obtained by the Company from third parties (other than
Affiliates), less expenses incurred in obtaining such debt or equity financing
but only to the extent such Net Proceeds are obtained based solely upon the
assets of OPENCLOSE through the sale of debt or equity in the OPENCLOSE
Division. However, the Net Proceeds of any External Financing of OPENCLOSE shall
be paid first to the Company in return of its capital investment in OPENCLOSE up
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to $1,500,000. Thereafter, a percentage of the Net Proceeds of any External
Financing of OPENCLOSE shall be paid to the Executive equal to the VI. [As an
example: suppose the Company has invested Two Million Dollars ($2,000,000) in
OPENCLOSE and the net proceeds of any External Financing of OPENCLOSE is Three
Million Dollars ($3,000,000) and the VI is ten percent (10%). The first Five
Hundred Thousand Dollars ($500,000) will be used to repay the Company's
investment and the remainder shall be split ten percent (10%) to Executive and
ninety percent (90%) to the Company. The same shall apply upon the independent
sale of the OPENCLOSE Division should it occur, provided, however, that after
the sale of the OPENCLOSE Newco to an entity not controlled by the Company, the
Executive shall have no further VI in the Net Profits or External Financing of
the OPENCLOSE Newco.]
Contemporaneously with any payments made hereunder, the
Company shall provide Executive with a schedule showing the calculations made in
connection herewith, in reasonable detail, and shall allow Executive and his
representatives access to the underlying detail to verify the calculations,
provided such representatives agree to be bound by a customary nondisclosure
agreement as provided by the Company.
e. Company's Right to Discontinue OPENCLOSE and Executive's Option to
Purchase OPENCLOSE.
(i) The Company reserves the right to discontinue or substantially
reduce the level of commitment to operation of OPENCLOSE at any time, in its
sole discretion (the "Discontinuance Right"). Without in any respect limiting
the right of the Company to sell or otherwise transfer OPENCLOSE, it is agreed
that the Company's sale or other transfer (directly or indirectly) of OPENCLOSE
for value to a third party, including as a result of a business combination or
sale of the Company's stock, shall not be deemed to be an exercise of the
Discontinuance Right.
(ii) In the event the Company exercises its Discontinuance Right
prior to the Initial Vesting Date, the Forbearance shall be rescinded, and
Executive shall receive as severance compensation at the rate set forth in
Section 10c and, in addition, the Executive shall have the right to obtain
ownership of and continue the business of the OPENCLOSE Division. If the
Executive elects to exercise that right, the Company shall assign to Executive
or his affiliated entity (the "Transferee") each OPENCLOSE Lender Contract and
Broker Contract subject to (i) the prior written consent to such assignment of
each Lender, Broker and FannieMae required in connection therewith; and (ii) the
assumption by the Transferee, in a form reasonably acceptable to the Company, of
all of the Company's obligations under each such Lender, Broker or third party
Contract required in connection therewith and shall transfer to the Transferee
all other assets primarily used in the conduct of the business of OPENCLOSE (the
"Assignment").
(iii) In the event the Company exercises its Discontinuance Right
after the Initial Vesting Date, the Forbearance shall not be rescinded and
Executive shall, at the election of the Executive, be entitled to receive the
Assignment.
In the event the Company exercises its Discontinuance Right,
it agrees to give Executive ninety (90) days written notice in order that
Executive may exercise the election to receive the Assignment.
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f. Expenses. During the term of his employment hereunder, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by him in performing services hereunder (according to the policies and
procedures from time to time established by the Board for its senior executive
officers) provided that the Executive properly accounts therefor in accordance
with Company policy.
g. Fringe Benefits. During the term of his employment, the Executive
shall be entitled to participate in or receive benefits under all the Company's
employee benefits plans and arrangements, including any retirement plan, stock
option plan, profit-sharing plan, savings plan, health-and-accident plan,
disability plan, insurance or other arrangement made available by the Company to
its senior executives, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements.
h. Vacations. The Executive shall be entitled to the number of paid
vacation days in each calendar year determined by the Company from time to time
for its senior executive officers, but not less than four (4) weeks in any
calendar year (prorated in any calendar year during which the Executive is
employed for less than the entire year in accordance with the number of days in
such calendar year during which he is so employed). The Executive shall also be
entitled to all paid holidays provided by the Company to its senior executive
officers.
i. Car Allowance. During the term of this Employment Agreement, the
Executive shall, at the Executive's expense, maintain an automobile available
for use in connection with the performance of his duties hereunder and shall be
entitled to a car allowance of $1,500 per month.
j. Insurance. The Company shall obtain and pay for and keep in force at
all times while Executive is employed by Company and thereafter as provided
herein, an insurance policy on the life of the Executive with a death benefit
not less than the greater of (i) four (4) times the Base Salary or (ii) Seven
Hundred Fifty Thousand Dollars ($750,000); provided, that if the Executive is
not insurable at the insurer's lowest rates for healthy, non-smoking males of
the Executive's age (the "Non-Rated Premiums"), then the Company shall obtain
and pay for an insurance policy on the life of the Executive in the face amount
obtainable for such Non-Rated Premiums. The Executive shall have the exclusive
right to designate the beneficiaries of any life insurance policy provided by
the Company hereunder and to change the beneficiaries from time to time. Such
policy and the proceeds and cash value thereof, if any, shall be the sole
property of the Executive, and the Company shall not retain any benefit therein.
Upon termination of the Executive's employment by the Company for Cause, upon a
disability described in Section 8, as a result of his Retirement , by the
Executive pursuant to Section 7(e), or by the Company or the Executive pursuant
to notice as set forth in Section 2 hereof, the Company's obligation to pay the
premiums on such insurance shall cease; in all other events the premiums shall
be paid for eighteen (18) months following the Date of Termination. In addition,
the Company shall, at such time as the Company's Board of Directors shall
determine that such purchase is in the Company best interests, purchase and
maintain directors' and officers' insurance coverage in such amounts and on such
terms as the Board of Directors shall deem customary for companies within the
Company's industry, and the Company shall agree to indemnify Executive to the
same extent as Company shall agree to indemnify other senior executives.
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k. Market Rate Home Financing. The Company shall supply to the
Executive market rate mortgage loan financing to enable the Executive to
purchase a residence in Florida. Unless otherwise agreed upon by the Company and
Executive, any such financing shall have a term of no less than 30 years and
shall not be greater than 95% of the price of the new residence; provided,
however, that in no event shall the amount of any such loan exceed $570,000. The
Executive shall be responsible for all principal and interest on the mortgage
loan. The Company will offer wholesale rates and will not add origination fees,
discount points, processing fees, underwriting and closing fees, or any mark-up
whatsoever.
7. Unauthorized Disclosure.
During the period of his employment hereunder and following termination
thereof, the Executive shall not, without the written consent of the Board or a
person authorized thereby, disclose to any person, other than an employee of the
Company or a person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by the Executive of his duties as an executive
of the Company, any material confidential information obtained by him while in
the employ of the Company with respect to any of the Company's products,
improvements, formulas, designs or styles, processes, customers, computer
software and systems, computer programming or methods of marketing, the
disclosure of which would be materially damaging to the Company; provided,
however, that confidential information shall not include any information known
generally to the public (other than as a result of unauthorized disclosure by
the Executive) or any information of a type not otherwise considered
confidential by persons engaged in the same business or a business similar to
that conducted by the Company. Executive shall have no obligation hereunder to
keep confidential any confidential information if and to the extent disclosure
of any thereof is specifically required by law; provided, however, that in the
event disclosure is required by applicable law, the employee shall provide the
Company with prompt notice of such requirement, prior to making any disclosure,
so that the Company may seek an appropriate protective order. Executive will not
use or disclose to other employees of the Company, during the term of this
Agreement, confidential information belonging to his former employers.
8. Termination.
a. Death and Retirement. The Executive's employment hereunder shall
terminate upon his death. The Executive's employment hereunder shall terminate
upon his Retirement.
b. Termination by the Company for Cause. The Company may terminate the
Executive's employment hereunder at any time for Cause by delivering a Notice of
Termination to the Executive.
c. Termination by the Company without Cause. The Company may terminate
the Executive's employment hereunder for any reason by delivering a Notice of
Termination to the Executive at least (90) days prior to the Date of
Termination.
d. Constructive Discharge. If the Company (i) breaches its obligations
described in Sections 2-6 or engages in any other material breach of the terms
of this Agreement, or (ii) exercises its rights under Section 6e(i), or (iv)
there is a material adverse change by the Board or the CEO of Executive's
functions, duties, or responsibilities without Executive's written consent, and,
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as a result of such change, Executive's position with the Company shall be or
becomes one of less dignity, responsibility, importance or scope, the Executive
shall have the option to terminate this Agreement and such termination shall be
treated for all purposes as a termination by the Company pursuant to subsection
(c) of this Section.
e. Termination by the Executive. The Executive may terminate his
employment hereunder upon delivering a Notice of Termination to the Company not
less than thirty (30) days prior to the Date of Termination.
f. Notice of Termination. Any termination by the Company pursuant to
subsections (b) or (c) of this Section, and any termination by the Executive
pursuant to subsections (d) or (e) of this Section, shall be communicated by a
written notice delivered by certified mail, return receipt requested, within the
appropriate time periods, if any, specified in such subsections, and such Notice
of Termination shall indicate the specific termination provision in this
Agreement relied upon. If the termination is pursuant to subsections (b) or (d)
of this Section, the Notice of Termination also shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated.
9. Disability. If as a result of the Executive's incapacity due to
physical or mental illness, as determined in writing by a physician reasonably
acceptable to Executive, the Executive shall have been absent from his duties
hereunder on a full-time basis for the Disability Period (as defined below), and
the Executive is incapable of performing such duties, and within thirty (30)
days after the Company notifies the Executive in writing that it intends to
replace him, the Executive shall not have returned to the performance of his
duties hereunder on substantially a full-time basis, the Company may terminate
the Executive and replace him without breaching this Agreement. As used herein,
the Disability Period shall mean the period of disability required by the
Company's disability insurance policies as a condition to providing disability
benefits to the Executive under such policies.
10. Compensation Upon Termination or During Disability.
a. If the Executive's employment shall be terminated by reason of his
disability or death, the Executive or Executive's estate shall be entitled to
all compensation and fringe benefits accrued and vested through the end of the
month of his death, all accrued and vested retirement benefits and, if no
beneficiary is designated, the proceeds of the insurance policy provided for in
Section 6(J) hereof; provided, however, that if the Executive's employment is
terminated as a result of disability within the meaning of Section 9, the
Company shall provide such disability benefits to the Executive as are made
available to other senior executive officers of the Company.
b. If the Executive's employment shall be terminated (i) for Cause, or
(ii) as a result of his retirement pursuant to the retirement policies of the
Company, the Executive shall be entitled to receive (i) his full Base Salary
accrued through the Date of Termination at the rate in effect at the time the
notice of termination is given, (ii) only such Options as have vested prior to
the Date of Termination, and the Company shall have no further obligations to
the Executive under this Agreement, and (iii) incentive compensation accrued or
vested prior to the Date of Termination.
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c. If the Company shall terminate the Executive's employment prior to
March 1, 2002 for a reason other than Cause, disability or retirement pursuant
to the retirement policies of the Company, then the Company shall pay to the
Executive his full Base Salary accrued through the Date of Termination at the
rate in effect at the time the notice of termination is given. In addition, in
lieu of any further salary payments to the Executive for periods subsequent to
such Date of Termination, the Company shall pay as severance pay to the
Executive an amount equal to (a) one hundred fifty percent (150%) of Executive's
annual Base Salary in effect as of the Date of Termination payable in eighteen
(18) equal monthly installments, plus (b) the amount of Executive's car
allowance for eighteen (18) months payable in eighteen (18) equal monthly
installments (the "Severance Payment"). In addition, the Company shall maintain
in full force and effect for the continued benefit of the Executive for eighteen
(18) months following the Date of Termination, all employee benefit plans and
programs in which the Executive was entitled to participate immediately prior to
the Date of Termination; provided that the Executive's continued participation
is possible under the general terms and provisions of such plans and programs.
To the extent that the Executive's benefits from any pension, profit sharing or
other retirement plan or program (whether tax qualified or otherwise) are not
vested on the Date of Termination, except for the VI, the Company shall pay to
the Executive in eighteen (18) equal monthly installments following the Date of
Termination, the present value of the difference between the amounts which would
have been paid to the Executive had he been fully vested on the Date of
Termination and the amounts actually paid or payable to the Executive pursuant
to such plans or programs (the "Retirement Payment" and together with the
Severance Payment, the "Termination Payments").
d. If the Company shall terminate the Executive's employment after
March 1, 2002, other than pursuant to notice as set forth in Section 2 hereof,
or for a reason other than Cause, disability or retirement pursuant to the
retirement policies of the Company, then the Company shall continue to pay to
the Executive his full Base Salary plus car allowance from the Date of
Termination at the rate in effect at the time the notice of termination is given
through the end of the then current one year (1) renewal term, and Executive
shall not be entitled to the Termination Payments described in subsection c.
above.
11. Non-Competition. In recognition of the Company's substantial
relationships with business clients or prospects and its trade secrets and other
valuable, confidential business or professional information, the Executive
agrees that, in the event of any termination, except termination under Sections
8(c) or 8(d) the Executive shall not, for a period expiring one (1) year after
the Date of Termination, without the prior written approval of the Board,
participate in the management of, be employed by or own any business enterprise
at a location within the United States that engages in substantial competition
with the online mortgage origination business of the Company or its affiliates,
where such enterprise's revenues from any competitive activities amount to 10%
or more of such enterprise's net revenues or sales for its most recently
completed fiscal year. Nothing in this Section 11 shall prohibit the Executive
from owning stock or other securities of a competitor amounting to less than
five percent of the outstanding capital stock of such competitor. In addition
and notwithstanding anything herein to the contrary, this section shall not
apply if the Date of Termination as defined in Section 1 is the date the term of
this Agreement expires as specified in Section 2.
12. Non-Solicitation. In recognition of the Company's substantial
relationships with customers, members, business clients or prospects and its
trade secrets and other valuable, confidential business or professional
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information, the Executive agrees that during the term of his employment with
the Company, and for a period of one (1) year following the termination of his
employment by Company for Cause or by Executive voluntarily, he will not,
directly or indirectly, for himself or for any other commercial enterprise,
directly or indirectly (i) solicit any of the Company's customers, members or
joint venture partners, which relationships are in existence during the term of
his employment or at the time of termination of such employment, as the case may
be, or (ii) solicit or discuss with any employee of the Company the employment
of such Company employee by any commercial enterprise other than the Company,
nor recruit, attempt to recruit, hire or attempt to hire any such Company
employee on behalf of any commercial enterprise other than the Company. In
addition and notwithstanding anything herein to the contrary, this section shall
not apply if the Date of Termination as defined in Section 1 is the date the
term of this Agreement expires as specified in Section 2.
The Executive acknowledges that the enforcement of the provisions
in this Section shall not result in unreasonable deprivation of his right to
earn a living and that if the provisions of this Section shall be determined by
any court to be invalid or unenforceable to any extent, then this Section shall
be deemed to be amended so as to be valid and enforceable to the fullest extent
permitted by law.
13. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
David Larson
21562 St. Andrews Grand Circle
Boca Raton, FL 33486
If to the Company:
mortgage.com, inc.
8751 Broward Boulevard, Fifth Floor
Plantation, Florida 33324
Attn: Mr. Seth Werner, CEO
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. Successors; Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. This Agreement shall be
binding on the successors and assigns of the parties hereto. If the Executive
should die while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee or other designee or, if there be no such designee, to the Executive's
estate.
13
<PAGE>
15. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is approved
by the Board of Directors and agreed to in writing signed by the Executive and
such officer as may be specifically authorized by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, exclusive of conflicts of laws principles.
16. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Florida (without regard to the
choice of law or conflict of laws provisions thereof).
18. Attorneys' Fees. In the event of any litigation arising out of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees
and expenses from the losing party, whether incurred before suit is brought,
before or at trial, on appeal, or in insolvency proceedings.
19. Jurisdiction. Each party to this Agreement hereby irrevocably
submits to the jurisdiction of any Florida state court or federal court sitting
in Broward County, Florida in any action or proceeding arising out of or
relating to this Agreement, or any other related document, and each hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such Florida state or federal court. The Company and
Executive agree that such jurisdiction and venue shall be exclusive and each
party to this Agreement hereby irrevocably waives, to the fullest extent it may
effectively do so, the defense of any inconvenient forum to the maintenance of
such action or proceeding.
20. Counterparts. This 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.
21. Entire Agreement; Modification. This Agreement supercedes all
previous agreements including the Former Employment Agreement and represents the
entire agreement between the parties hereto with respect to the subject matter
hereof. It may not be amended or modified except by a written instrument
executed by both parties.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
mortgage.com, inc. ("Company")
By: /s/ Seth Werner
--- ---------------
Seth Werner, Chief Executive Officer
/s/ David Larson
- -------------------------------
David Larson ("Executive")
15
<PAGE>
EXHIBITS
Exhibit F Appraisal Method for Right of Recision
<PAGE>
EXHIBIT F
Appraisal Method for Right of Recision
In order to exercise the Right of Recision, the Executive shall provide
to the Company written notice that Executive elects to exercise the Right of
Recision and such notice shall be given by registered or certified mail. Such
notice shall designate an Independent Appraiser.
Upon receipt of such notice, the Company shall also select an
Independent Appraiser. Each of the Independent Appraisers selected by Executive
and the Company shall be at the cost and expense of the Company and shall be
instructed to complete the required appraisal of the Division within fifteen
(15) days of his appointment. The Company and the Executive shall supply all
information necessary to allow the appraisers to perform the appraisals.
Following submission of the independent appraisers' reports to the
Company and the Executive, the Company and the Executive shall have five (5)
business days (an "Agreement Period") to agree on a valuation. If the Company
and the Executive agree on a valuation, then the fair market value of the VI
shall be set at such agreed upon figure, and the Executive's election to convert
shall become irrevocable. If the Company and the Executive cannot so agree, the
Executive shall have the option to rescind his Recision Notice by written notice
of such recision (by facsimile to the Chief Executive Officer of the Company,
with receipt confirmed by telephone) no later than the first business day
following the end of the Agreement Period. No partial recision shall be
permitted. If no Recision Notice is timely delivered, the Executive's election
to convert shall become irrevocable. The two independent appraisers submitting
reports shall be instructed by the Executive and the Company, respectively, to
immediately appoint a third independent appraiser to perform the valuation. The
third independent Appraiser shall be instructed to complete the required
appraisal within fifteen (15) days of his appointment. The value of the VI, as
determined by the third appraiser, shall be final and binding upon the Company
and the Executive, free of challenge or review in any court.
May 26, 1999
Mr. Jack Rodgers
Mortgage.com, Inc.
8751 Broward Boulevard
Plantation, FL 33324
Dear Jack
The following, including the attached Non-Competition Agreement
(Exhibit "A") will set forth our agreement in connection with the termination of
your current employment agreement and your continued employment as an employee
at will at mortgage.com:
1. Position: Executive Vice President, Mortgage.com and President,
CDG.
2. Effective Date: April 1, 1999
3. Base Annual Salary: $200,000
4. Car Allowance: $500 per month
5. 1998 Bonus: $100,000
6. 1999 Bonus: Executive shall be paid bonuses as determined from
time to time by the Board. The Executive will be assigned a
target award, representing a percentage of his Base Salary
(representing not less than 35% nor more than 100% of his Base
Salary) ("Target Award"). The Executive's bonus will be
determined by multiplying the Target Award by a percentage
reflecting the financial performance of the Company ("Percent of
Target Award Earned"). The amount of any bonus payable to the
Executive shall be determined as promptly as practicable after
the determination of the Company's financial performance for the
year, but in any event such payment will be made not later than
30 days after the Company's receipt of consolidated audited
financial statements, if audited, or if not audited, not later
than April 30 of such year.
7. 401k Program: Standard eligibility for participation under the
plan terms
8. Vacation: Three weeks annually
9. Insurance: Standard benefits available to all employees.
Mortgage.com will contribute the HMO health and DMO dental rate
toward the premium for your insurance benefits, any upgrades or
dependent coverage will be your responsibility.
10. Stock Options: 15,000 stock options, vesting 20% annually, at a
strike price of $30.00 per share pursuant to the Company's Stock
Option Plan and form of Stock Option Agreement currently in
effect.
<PAGE>
11. By your signature below, you acknowledge that this agreement
replaces your former Employment Agreement, dated the 28 day of
January, 1998 and a copy of which is attached as Exhibit "B",
and that all of the obligations of Mortgage.com thereunder have
either been satisfied or, as to future obligations, shall be and
are hereby released and of no further force and effect.
12. A copy of the current Mortgage.com Employee Handbook currently
in effect.
If the above offer is acceptable to you, please so indicate by
executing below and returning a copy of this letter for our files. We are
excited about having you continue with us at mortgage.com and look forward to
working with you for many years to come.
Sincerely,
/s/ SETH WERNER
---------------
SETH WERNER
Chairman and CEO
I hereby acknowledge and accept the above terms and conditions this _____ day of
May, 1999
/s/ JACK RODGERS
- ---------------------------
JACK RODGERS
Non-Competition Agreement
THIS AGREEMENT is made as of the 24th day of May, 1999, between
MORTGAGE.COM, INC., a Florida corporation (the "Company"), and JACK RODGERS, an
individual resident of the State of Florida ("Rodgers" or "Executive").
W I T N E S S E T H
WHEREAS, the Company originates, processes, underwrites, funds, closes
and sells mortgage loans throughout the United States, using loan
correspondents, network members, retail loan officers and strategic business
partners, each of whom employs the Company's proprietary CLOser software system
and its associated Internet capabilities; and
WHEREAS, Rodgers is employed by the Company and is currently the
President of the Company's Advanced Technology Group where he is charged with
the overall development and maintenance of all of the Company's computer
technology; and
WHEREAS, in his position with the Company, Rodgers has access to
valuable confidential business and professional information possessed by the
Company, has substantial relationships with prospective and existing technology
customers and clients of the Company, has specialized training in the methods by
which the Company employs its technology and conducts its business and has
access to trade secrets related to the CLOser software system and its associated
Internet capabilities; and
WHEREAS, because of Rodgers's intimate knowledge of the Company's
confidential information, trade secrets, customer and client relationships,
technology and methods of operation, there would be a detrimental effect on the
Company's business if Rodgers were to enter into competition with the Company
after the date hereof; and
WHEREAS, the Company is contemplating an initial public offering of its
common stock and the underwriters managing the offering are unwilling to proceed
with the offering in the absence of reasonable non-competition restrictions
being placed on the Company's senior executive officers, including Rodgers; and
WHEREAS, Rodgers holds shares of the Company's common stock, and has a
financial interest in the Company's common stock being publicly traded following
an initial public offering; and
NOW THEREFORE, in consideration of the above premises and of the
promises herein contained, the parties covenant and agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following
words and phrases have the following meanings:
"Affiliate" has the same meaning as "affiliate" in Rule 144(a)
promulgated under the Securities Act of 1933, as amended.
"Beneficial Owner" has the same meaning as "beneficial owner" in Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended.
"Cause" for termination means (i) Executive's conviction of a felony,
(ii) acts of Executive which, in the judgment of the Board, constitute fraud on
the part of Executive, including but not limited to misappropriation or
embezzlement in the performance of duties as an employee of the Company, or
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<PAGE>
willful engagement in conduct materially injurious to the Company, or (iii)
gross misconduct, including but not limited to the willful failure of Executive
either to (a) obey lawful written instructions of the Board after thirty (30)
days notice in writing of Executive's failure to do so and the Board's intention
to terminate Executive if such failure is not corrected, or (b) correct any
conduct of Executive which constitutes a breach of this Agreement after thirty
(30) days notice in writing of Executive's failure to do so and of the Board's
intention to terminate Executive if such failure is not corrected.
"Change of Control" shall be deemed to have occurred if, after the
effective date of this Agreement,
(a) any one Person (or group of Affiliated Persons or entities)
other than an Excluded Person or an underwriter temporarily
holding securities pursuant to an offer of such securities,
becomes a Beneficial Owner, directly or indirectly, of
securities representing 50% or more of the total number of
votes that may be cast for the election of directors of the
Company; or
(b) the shareholders of the Company approve, and the Company
consummates, a merger, consolidation or share exchange of the
Company with any other corporation or approve the issuance of
voting securities of the Company in connection with a merger,
consolidation or share exchange of the Company, other than (i)
a merger, consolidation or share exchange which would result
in the voting securities of the Company outstanding
immediately prior to such merger, consolidation or share
exchange continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity or any parent thereof) at least 50% of
the combined voting power of the voting securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger, consolidation or
share exchange, or (ii) a merger, consolidation or share
exchange effected to implement a recapitalization of the
Company (or similar transaction) in which no Person other than
an Excluded Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company
representing 50% or more of either the then outstanding shares
of common stock of the Company or the combined voting power of
the Company's then outstanding voting securities; or
(c) the shareholders of the Company approve, and the Company
consummates, an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets
(in one transaction or a series of related transactions within
any period of 24 consecutive months), other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity at least 50% of the combined
voting power of the voting securities of which are owned by
Persons in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change of Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the common stock
of the Company immediately prior to such transaction or series of transactions
continue to own, directly or indirectly, in the same proportions as their
ownership in the Company, an entity that owns all or substantially all of the
assets or voting securities of the Company immediately following such
transaction or series of transactions.
"Excluded Person" means Seth Werner, Canaan Equity, L.P., Dominion Fund
III, or Affiliates of any of the foregoing.
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<PAGE>
"Good Reason" shall be deemed to have occurred if (i) the Company
reduces the Executive's base salary, (ii) the Company requires the Executive to
relocate more than 50 miles from Plantation, Florida, (iii) the Company fails to
meet its obligations hereunder or the Letter Agreement of even date or engages
in any other material breach of the terms of this Agreement, (iv) there is a
material adverse change by the Board of the Executive's functions, duties,
authority or responsibilities without the Executive's written consent, and, as a
result of such change, the Executive's position with the Company shall be or
becomes one of less dignity, responsibility, authority or scope.
"Person" means any individual, firm, partnership, corporation or other
entity, including any successor (by merger or otherwise) of such entity, or a
group of any of the foregoing acting in concert.
"Retirement" shall be deemed to have occurred if the Executive's
employment terminates at age 62 or older, and if the Executive has accrued 15
years of continuous service with the Company or any Affiliate company.
2. Confidentiality. Rodgers will not reveal to others or use any of the
Company's trade secrets, proprietary information, or other confidential
information pertaining to the financial affairs, condition, business,
technology, customers and clients, products, manner of operation, training
systems, plans or prospects of the Company or its Affiliates, or aid others in
doing so, except in the proper exercise of his duties for the Company.
3. Non-Competition. During Rodgers's employment with the Company, and
for a period of twelve (12) months following the termination of Rodgers's
employment for any reason whatsoever, Rodgers will not, anywhere in the United
States:
(a) compete, directly or indirectly, with the Company or its
Affiliates in any business that would be deemed to be
competitive with the online residential mortgage origination
business of the Company or its Affiliates as such business was
conducted by the Company or its Affiliates during Rodgers's
employment; and
(b) become employed by or affiliated in any manner with any other
business entity or person which owns or operates or is seeking
to acquire or operate a business which would be deemed to be
competitive with the online residential mortgage business of
the Company or its Affiliates as such business was conducted
by the Company or its Affiliates during Rodgers's employment.
(c) nothing in this section shall prohibit Rodgers from owning
stock or other securities of a competitor amounting to less
than five (5) percent of the outstanding capital stock of such
competitor.
4. Non-Solicitation. During Rodgers's employment with the Company, and
for a period of twelve (12) months following the termination of Rodgers's
employment for any reason whatsoever, Rodgers will not:
(a) solicit any business from customers or prospects of the
Company or its Affiliates, which solicitation would be deemed
to be competitive with the business of the Company or its
Affiliates as such business was conducted by the Company or
its Affiliates during Rodgers's employment; and
(b) solicit persons who are or have been employees or consultants
of the Company or its Affiliates during the one (1) year
period prior to termination of Rodgers's employment, to leave
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<PAGE>
their employment or terminate their consulting arrangements
with the Company or its Affiliates, or to become employed by
or to engage in business with Rodgers, which business would be
deemed to be competitive with business of the Company or its
Affiliates as such business was conducted by the Company
during Rodgers's employment.
5.Compensation Upon Termination or During Disability.
(a) Death or Disability. If the Executive's employment is
terminated by reason of his death or disability, the Executive
or the Executive's estate shall be entitled to (1) his then
current base salary, pro-rata bonus and all fringe benefits
accrued and vested through the date of termination, (2) all
accrued and vested retirement benefits and (3) in the case of
the Executive's death, if no beneficiary is designated, the
proceeds of any Company maintained life insurance policy.
(b) Termination by Company For Cause. If the Executive's
employment is terminated for Cause or by reason of voluntary
termination, the Executive shall be entitled to receive (1)
his base salary accrued through the date of termination at the
rate in effect at the time the notice of termination is given
and (2) only such stock options as have vested prior to the
date of termination. The Company shall have no further
obligations to the Executive under this Agreement.
(c) Termination Upon Retirement. If the Executive's employment is
terminated as a result of his Retirement the Executive shall
be entitled to receive (1) his base salary accrued through the
date of termination plus a pro-rata bonus at the rate in
effect at the time the notice of termination is given and (2)
100% vesting of the stock options he has been granted prior to
the date of termination. The Company shall have no further
obligations to the Executive under this Agreement, other than
its obligations under the Company's retirement plans and
policies if the Executive's employment is terminated as a
result of his Retirement. If the Executive's stock options
vest under this paragraph, the deadline for exercising such
stock options under the applicable Option Agreement shall be
the date which is the sooner of three years after the date of
termination or the deadline for exercising such stock options
set forth in the Option Agreement.
(d) Termination by Company Without Cause or by the Executive with
Good Reason. If the Company terminates the Executive's
employment pursuant Without Cause or if the Executive resigns
for Good Reason, then the Company shall pay to the Executive
his base salary accrued through the date of termination at the
rate in effect on the date of termination. In addition, the
Company shall pay to the Executive, as liquidated damages, or
severance pay, or both, on the thirtieth (30th) day following
the date of termination, a lump-sum amount equal to one times
the base salary then in effect, and in addition, in such
event, one hundred percent of the stock options granted to
Executive prior to the date of termination shall become fully
vested. In addition, the Company shall maintain in full force
and effect, for the continued benefit of the Executive for
twelve (12) months following the date of termination, all
employee benefit plans and programs in which the Executive was
entitled to participate immediately prior to the date of
termination, so long as the Executive's continued
participation is possible under the general terms and
provisions of such plans and programs.
6.Injunctions. In the event of a breach or threatened breach by Rodgers
of his obligations under this Agreement, Rodgers acknowledges that the Company
will not have an adequate remedy at law and shall be entitled to such equitable
and injunctive relief as may be available to restrain Rodgers from the violation
of the provisions hereof. Nothing herein shall be construed as prohibiting the
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<PAGE>
Company from pursuing any other remedies available for such breach or threatened
breach, including the recovery of monetary damages from Rodgers.
7. Modification of Restriction. Rodgers acknowledges that the
enforcement of the provisions in this Agreement shall not result in unreasonable
deprivation of Rodgers's right to earn a living and that if the provisions of
this Agreement shall be determined by any court to be invalid or unenforceable
to any extent, then this Agreement shall be deemed to be amended so as to be
valid and enforceable to the fullest extent permitted by law.
8.Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if hand delivered, sent by
recognized overnight courier, or sent by certified mail to his residence in the
case of Rodgers, or to the principal office in Plantation, Florida, in the case
of the Company.
9. Governing Law. Rodgers and the Company agree that this Agreement
shall be governed by, construed and enforced in accordance with the laws of the
State of Florida, exclusive of choice of laws and conflict of laws principles.
The parties stipulate that any action or other legal proceeding arising under or
in connection with this Agreement shall be commenced and prosecuted in its
entirety in the federal or state courts having jurisdiction over Broward County,
Florida, each party hereby submitting to the personal jurisdiction thereof, and
the parties agree not to raise the objection that such courts are not a
convenient forum.
10.Counterparts. This Agreement may be executed in counterparts each of
which shall be original and together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
MORTGAGE.COM, INC.
By: ---------------------------------------------
Seth S. Werner, President and Chief Executive
Officer
-------------------------------------------------
John Rodgers, individually
Non-Competition Agreement
THIS AGREEMENT is made as of the 24th day of May, 1999, between
MORTGAGE.COM, INC., a Florida corporation (the "Company"), and JOHN BUSCEMA, an
individual resident of the State of New Jersey ("Buscema" or "Executive").
W I T N E S S E T H
WHEREAS, the Company originates, processes, underwrites, funds, closes
and sells mortgage loans throughout the United States, using loan
correspondents, network members, retail loan officers and strategic business
partners, each of whom employs the Company's proprietary CLOser software system
and its associated Internet capabilities; and
WHEREAS, Buscema is employed by the Company and is currently the
President of the Company's Advanced Technology Group where he is charged with
the overall development and maintenance of all of the Company's computer
technology; and
WHEREAS, in his position with the Company, Buscema has access to
valuable confidential business and professional information possessed by the
Company, has substantial relationships with prospective and existing technology
customers and clients of the Company, has specialized training in the methods by
which the Company employs its technology and conducts its business and has
access to trade secrets related to the CLOser software system and its associated
Internet capabilities; and
WHEREAS, because of Buscema's intimate knowledge of the Company's
confidential information, trade secrets, customer and client relationships,
technology and methods of operation, there would be a detrimental effect on the
Company's business if Buscema were to enter into competition with the Company
after the date hereof; and
WHEREAS, the Company is contemplating an initial public offering of its
common stock and the underwriters managing the offering are unwilling to proceed
with the offering in the absence of reasonable non-competition restrictions
being placed on the Company's senior executive officers, including Buscema; and
WHEREAS, Buscema holds options to purchase shares of the Company's
common stock, and has a financial interest in the Company's common stock being
publicly traded following an initial public offering; and
NOW THEREFORE, in consideration of the above premises and of the
promises herein contained, the parties covenant and agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following
words and phrases have the following meanings:
"Affiliate" has the same meaning as "affiliate" in Rule 144(a)
promulgated under the Securities Act of 1933, as amended.
"Beneficial Owner" has the same meaning as "beneficial owner" in Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended.
"Cause" for termination means (i) Executive's conviction of a felony,
(ii) acts of Executive which, in the judgment of the Board, constitute fraud on
the part of Executive, including but not limited to misappropriation or
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<PAGE>
embezzlement in the performance of duties as an employee of the Company, or
willful engagement in conduct materially injurious to the Company, or (iii)
gross misconduct, including but not limited to the willful failure of Executive
either to (a) obey lawful written instructions of the Board after thirty (30)
days notice in writing of Executive's failure to do so and the Board's intention
to terminate Executive if such failure is not corrected, or (b) correct any
conduct of Executive which constitutes a breach of this Agreement after thirty
(30) days notice in writing of Executive's failure to do so and of the Board's
intention to terminate Executive if such failure is not corrected.
"Change of Control" shall be deemed to have occurred if, after the
effective date of this Agreement,
(a) any one Person (or group of Affiliated Persons or
entities) other than an Excluded Person or an underwriter temporarily
holding securities pursuant to an offer of such securities, becomes a
Beneficial Owner, directly or indirectly, of securities representing
50% or more of the total number of votes that may be cast for the
election of directors of the Company; or
(b) the shareholders of the Company approve, and the Company
consummates, a merger, consolidation or share exchange of the Company
with any other corporation or approve the issuance of voting securities
of the Company in connection with a merger, consolidation or share
exchange of the Company, other than (i) a merger, consolidation or
share exchange which would result in the voting securities of the
Company outstanding immediately prior to such merger, consolidation or
share exchange continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity or
any parent thereof) at least 50% of the combined voting power of the
voting securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger, consolidation or
share exchange, or (ii) a merger, consolidation or share exchange
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person other than an Excluded Person is or
becomes the Beneficial Owner, directly or indirectly, of securities of
the Company representing 50% or more of either the then outstanding
shares of common stock of the Company or the combined voting power of
the Company's then outstanding voting securities; or
(c) the shareholders of the Company approve, and the Company
consummates, an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets (in one transaction or
a series of related transactions within any period of 24 consecutive
months), other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity at least 50% of
the combined voting power of the voting securities of which are owned
by Persons in substantially the same proportions as their ownership of
the Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change of Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the common stock
of the Company immediately prior to such transaction or series of transactions
continue to own, directly or indirectly, in the same proportions as their
ownership in the Company, an entity that owns all or substantially all of the
assets or voting securities of the Company immediately following such
transaction or series of transactions.
"Excluded Person" means Seth Werner, Canaan Equity, L.P., Dominion Fund
III, or Affiliates of any of the foregoing.
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<PAGE>
"Good Reason" shall be deemed to have occurred if (i) the Company
reduces the Executive's base salary, (ii) the Company requires the Executive to
relocate more than 50 miles from Montvale, New Jersey, (iii) the Company fails
to meet its obligations hereunder or engages in any other material breach of the
terms of this Agreement, (iv) there is a material adverse change by the Board of
the Executive's functions, duties, authority or responsibilities without the
Executive's written consent, and, as a result of such change, the Executive's
position with the Company shall be or becomes one of less dignity,
responsibility, authority or scope.
"Person" means any individual, firm, partnership, corporation or other
entity, including any successor (by merger or otherwise) of such entity, or a
group of any of the foregoing acting in concert.
"Retirement" shall be deemed to have occurred if the Executive's
employment terminates at age 62 or older, and if the Executive has accrued 15
years of continuous service with the Company or any Affiliate company.
2. Confidentiality. Buscema will not reveal to others or use any of the
Company's trade secrets, proprietary information, or other confidential
information pertaining to the financial affairs, condition, business,
technology, customers and clients, products, manner of operation, training
systems, plans or prospects of the Company or its Affiliates, or aid others in
doing so, except in the proper exercise of his duties for the Company.
3. Non-Competition. During Buscema's employment with the Company, and
for a period of twelve (12) months following the termination of Buscema's
employment for any reason whatsoever, Buscema will not, anywhere in the United
States:
(a) compete, directly or indirectly, with the Company or its
Affiliates in any business that would be deemed to be competitive with
the online residential mortgage origination business of the Company or
its Affiliates as such business was conducted by the Company or its
Affiliates during Buscema's employment; and
(b) become employed by or affiliated in any manner with any
other business entity or person which owns or operates or is seeking to
acquire or operate a business which would be deemed to be competitive
with the online residential mortgage business of the Company or its
Affiliates as such business was conducted by the Company or its
Affiliates during Buscema's employment.
(c) nothing in this section shall prohibit Buscema from owning
stock or other securities of a competitor amounting to less than five
(5) percent of the outstanding capital stock of such competitor.
4. Non-Solicitation. During Buscema's employment with the Company, and
for a period of twelve (12) months following the termination of Buscema's
employment for any reason whatsoever, Buscema will not:
(a) solicit any business from customers or prospects of the
Company or its Affiliates, which solicitation would be deemed to be
competitive with the business of the Company or its Affiliates as such
business was conducted by the Company or its Affiliates during
Buscema's employment; and
(b) solicit persons who are or have been employees or
consultants of the Company or its Affiliates during the one (1) year
period prior to termination of Buscema's employment, to leave their
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<PAGE>
employment or terminate their consulting arrangements with the Company
or its Affiliates, or to become employed by or to engage in business
with Buscema, which business would be deemed to be competitive with
business of the Company or its Affiliates as such business was
conducted by the Company during Buscema's employment.
5. Compensation Upon Termination or During Disability.
(a) Death or Disability. If the Executive's employment is
terminated by reason of his death or disability, the Executive or the
Executive's estate shall be entitled to (1) his then current base
salary, pro-rata bonus and all fringe benefits accrued and vested
through the date of termination, (2) all accrued and vested retirement
benefits and (3) in the case of the Executive's death, if no
beneficiary is designated, the proceeds of any Company maintained life
insurance policy.
(b) Termination by Company For Cause. If the Executive's
employment is terminated for Cause or by reason of voluntary
termination, the Executive shall be entitled to receive (1) his base
salary accrued through the date of termination at the rate in effect at
the time the notice of termination is given and (2) only such stock
options as have vested prior to the date of termination. The Company
shall have no further obligations to the Executive under this
Agreement.
(c) Termination Upon Retirement. If the Executive's employment
is terminated as a result of his Retirement the Executive shall be
entitled to receive (1) his base salary accrued through the date of
termination plus a pro-rata bonus at the rate in effect at the time the
notice of termination is given and (2) 100% vesting of the stock
options he has been granted prior to the date of termination. The
Company shall have no further obligations to the Executive under this
Agreement, other than its obligations under the Company's retirement
plans and policies if the Executive's employment is terminated as a
result of his Retirement. If the Executive's stock options vest under
this paragraph, the deadline for exercising such stock options under
the applicable Option Agreement shall be the date which is the sooner
of three years after the date of termination or the deadline for
exercising such stock options set forth in the Option Agreement.
(d) Termination by Company Without Cause or by the Executive
with Good Reason. If the Company terminates the Executive's employment
pursuant Without Cause or for Good Reason, then the Company shall pay
to the Executive his base salary accrued through the date of
termination at the rate in effect on the date of termination. In
addition, the Company shall pay to the Executive, as liquidated
damages, or severance pay, or both, on the thirtieth (30th) day
following the date of termination, a lump-sum amount equal to one times
the base salary then in effect, and in addition, in such event, one
hundred percent of the stock options granted to Executive prior to the
date of termination shall become fully vested. In addition, the Company
shall maintain in full force and effect, for the continued benefit of
the Executive for twelve (12) months following the date of termination,
all employee benefit plans and programs in which the Executive was
entitled to participate immediately prior to the date of termination,
so long as the Executive's continued participation is possible under
the general terms and provisions of such plans and programs.
6. Injunctions. In the event of a breach or threatened breach by
Buscema of his obligations under this Agreement, Buscema acknowledges that the
Company will not have an adequate remedy at law and shall be entitled to such
equitable and injunctive relief as may be available to restrain Buscema from the
-4-
<PAGE>
violation of the provisions hereof. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available for such
breach or threatened breach, including the recovery of monetary damages from
Buscema.
7. Modification of Restriction. Buscema acknowledges that the
enforcement of the provisions in this Agreement shall not result in unreasonable
deprivation of Buscema's right to earn a living and that if the provisions of
this Agreement shall be determined by any court to be invalid or unenforceable
to any extent, then this Agreement shall be deemed to be amended so as to be
valid and enforceable to the fullest extent permitted by law.
8. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if hand delivered, sent by
recognized overnight courier, or sent by certified mail to his residence in the
case of Buscema, or to the principal office in Plantation, Florida, in the case
of the Company.
9. Governing Law. Buscema and the Company agree that this Agreement
shall be governed by, construed and enforced in accordance with the laws of the
State of Florida, exclusive of choice of laws and conflict of laws principles.
The parties stipulate that any action or other legal proceeding arising under or
in connection with this Agreement shall be commenced and prosecuted in its
entirety in the federal or state courts having jurisdiction over Broward County,
Florida, each party hereby submitting to the personal jurisdiction thereof, and
the parties agree not to raise the objection that such courts are not a
convenient forum.
10. Counterparts. This Agreement may be executed in counterparts each
of which shall be original and together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
MORTGAGE.COM, INC.
By: /s/ Seth S. Werner
----------------------
Seth S. Werner, President and Chief
Executive Officer
/s/ John Buscema
----------------
John Buscema, individually
-5-
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 200,000 Shares of Common Stock of
MORTGAGE.COM, INC.
(formerly known as First Mortgage Network, Inc.)
THIS CERTIFIES THAT, in consideration for payment of good and valuable
consideration to Mortgage.com, 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, TWO HUNDRED THOUSAND
(200,000) fully-paid and nonassessable shares (the "Shares") of the Company's
Common Stock, $0.01 par value, at the price of FIVE DOLLARS AND N0/100 ($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.
The holder is aware that the Company is relying, and presently intends
to continue relying, upon exemptions from the securities registration
requirements of
<PAGE>
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
<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
3
<PAGE>
Warrant shall be adjusted by multiplying the exercise price in effect
immediately prior to such adjustment by 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.
4
<PAGE>
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.
IN WITNESS WHEREOF, Mortgag.com, Inc. has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated the date
first above written.
MORTGAGE.COM, INC.
By:
------------------------------
Seth S. Werner, Chairman
and Chief Executive Officer
ATTEST:
By:
---------------------------------
Secretary
5
<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
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.
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<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;
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(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) Licensee will give Fannie Mae immediate notice in
writing of any changes in control of Licensee.
"Control" means any material change in the current
senior managment or direct or indirect ownership of
Licensee. "Material change" is (i) the departure of
at least two of the following from the senior
management of Licensee: Messrs. Seth Werner, David
Larson, Jack Rodgers and John Hogan, (iii) a change
in the majority of the Licensee's Board of Directors,
as constituted on the first date by which both
parties have executed this Agreement, or (iii) the
transfer of over 50% of the ownership of Licensee,
either through one or cumulative transfers, as it
existed on the first date by which both parties have
executed this Agreement or a change in ownership of
Licensee that results in one entity or individual
owning over 50% of Licensee.
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 Exclusivity. For the period of ** from the first date by which
both parties have executed this Agreement, ** and to which
Fannie Mae has given its consent and ** The parties
additionally agree that at the end of the ** period, they may
decide to reinstitute these exclusivity provisions for an
additional period of time.
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** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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:
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(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:
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(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);
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(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
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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.
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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.
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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.
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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.
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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 Termination for Fee Negotiation Stalemate. If two weeks prior
to the expiration of any pricing period, as set forth in
Exhibit A **.
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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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
DESKTOP UNDERWRITER PRICING (Basic Fee) for (Name of Licensee)
--------------------------------------------------------------
1. Installation and Implementation Charges.
----------------------------------------
1.1 ** per site which includes the ** workstations, for any additional site
for which Fannie Mae has not already installed the Licensed Software.
1.2 Additional workstations will be billed an ** per workstation at the
same site.
2. Training Fees.
--------------
2.1 ** per participant, for ** day training course to be scheduled at a
mutually acceptable time at a Fannie Mae location.
2.2 ** for a ** day training course to be scheduled at a mutually
acceptable time at ** site.
2.3 Individuals attending training will receive one (1) copy of Fannie
Mae's standard Desktop Underwriter training documentation **.
Additional copies of such documentation shall be charged as follows
(based upon the number of copies ordered pursuant to a single request):
1-50 copies ** copy
51-100 copies ** copy
101-200 copies ** copy
201-400 copies ** copy
>400 copies ** copy
3. Connection Time Charges.
------------------------
3.1 ** per hour on-line connection time per user when using the local
MORNETPlus dial-up telephone number (billed in no more than one minute
increments): OR
3.2 ** per hour on-line connection time per user when using the
optional 1-888 MORNETPlus dial-up telephone number (billed in no more than one
minute increments).
3.3 If License has elected to use Fannie Mae's dedicated, leased-line
solution, the terms and conditions of License's separately executed leased-line
agreement with Fannie Mae shall govern such separate connection option.
3.4 If none of the above options is applicable, ** per hour on-line
connection time per user (billed in no more than one minute increments).
A-1
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<PAGE>
4. Loan Submission Charges.
------------------------
4.1 (i) ** per loan submitted to the Licensed Software that does not fall
withing the parameters defined in the first sentence of paragraph 4.1 (ii). This
fee does not apply to (i) any loan that fails within the parameters of **
provided that all submissions of such loan fail within the parameters of such
program and, if such loan is delivered to Fannie Mae, it is delivered as a **
loan, or (ii) any loan that receives a Desktop Underwriter lender advice
indicating ** or ** for which the fee is ** provided that all submissions of
such loan receives such lender advice.
(iii) ** per loan submitted to the Licensed Software via Licensee's
Site by a Participating Broker. This fee includes up to ** submissions per loan.
This fee does not apply to (i) any loan that fails within the parameters of **
provided that all submissions of such loan fails within the parameters of such
program and, if such loan is delivered to Fannie Mae, it is delivered as a **
loan, or (ii) any loan that receives a Desktop Underwriter lender advice
indicating ** or ** for which the fee is ** provided that all submissions of
such loan receive such lender advice. This fee will be in effect for a pilot
period of six months from the first date by which both parties have executed
this Agreement or for the first ** loans submitted to the Licensed Software,
whichever occurs first. Prior to the expiration of the pilot period, the parties
will negotiate a new fee, discounted from the standard per loan fee and based on
Licensee's commitments as to future loan volume, which will be effective at the
expiration of the pilot period. (Such renegotiated fee will not be higher than
the average per loan fee charged to other Licensees with similar Desktop
Underwriter volumes.) The parties thereafter annually on the anniversary date of
this Agreement.
(iii) ** for each loan application submitted to the Licensed Software
via Licensee's Site that is transferred in the MORNETPlus database to a lender
other than the Licensee, which fee is identical to the fee charged to other
licensees for the use of the Licensed Software by correspondents/brokers.
4.2 In addition to the charges set forth in paragraph 4.1:
(i) ** for each loan that is submitted for an S&P LEVELStm Risk Grade
and Loss Estimates; ** for each loan than is submitted for an S&P LEVELS Risk
Grade, Loss Estimate and Credit Enhancement; an additional ** for each loan
previously submitted and charged for an S&P LEVELS Risk Grade and Loss Estimate
and thereafter submitted for an S&P LEVELS Risk Grade, Loss Estimate and Credit
Enhancement; and
(ii) ** for each loan submission in excess of the first ** submissions
per loan.
5. Consumer Report Fees.
---------------------
The fees for consumer reports will be paid by License directly to the consumer
reporting agency/agencies. Fees are at rates negotiated between Licensee and the
agency/agencies.
A-2
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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").
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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.
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<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.
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<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.
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(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 Volume Planning. The following are the capacity plans for the first
four (4) months of funding ILSI Loans after the Preliminary Launch:
(a) By the end of **
(b) By the end of **
(c) By the end of **
(d) By the end of **
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.
** indicates information which has been omitted pursuant to a
confidential treatment request filed separately with the
commission.
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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) FMN shall meet the following conversion ratios for ILSI Loans from
the indicated stage or category, to a closed and funded loan:
(i) ** Stage **
(ii) ** Stage **
(iii) ** Stage (assuming prospective borrower submits
a fee or credit card deposit with the application. )**
(iv) ** Stage (assuming prospective borrower does not
submits a fee or credit card deposit with the application).**
(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.
** indicates information which has been omitted pursuant to a
confidential treatment request filed separately with the
commission.
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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
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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 Fees for FMN Services and Facilities. ILSI shall compensate FMN for
loan origination, loan, processing services, and related services and facilities
comtemplated by this Agreement based on the following schedule and formulae for
each closed ILSI Loan. The fee structure described in this section is
illustrative on only and is based on a loan in the principal amount of **. It is
acknowledged by the parties that the compensation to be earned by ILSI with
respect to any particular loan(s) approximates by does not exceed net orgination
revenue to ILSI for loans originated via the Website and processed to closing
without the participation of FMN.
FMN's compensation shall consist of a combination of cash paid for loan
orgination services by either ILSI or the Participating Lender purchasing the
loan, and the secondary market profit or margin received by FMN upon sale of the
loan to the Participating Lender.
<TABLE>
<CAPTION>
For example: Inquiry Prequalification Short Application
------- ---------------- -----------------
<S> <C> <C> <C>
Total Fees to FMN/ILSI
Standard Correspondent
Fee to Lender ** ** **
Total Loan Origination
Fees ** ** **
Rebate to Borrower ** ** **
Net Orgination Fees
Payable by Borrower ** ** **
Breakdown of Origination Fee
Portion to ILSI ** ** **
Portion to Lender via FMN ** ** **
Portion to FMN ** ** **
</TABLE>
** indicates information which has been omitted pursuant to a
confidential treatment request filed separately with the
commission.
11
<PAGE>
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 Margin Improvement From Increased Loan Orgination Revenue. If FMN
negotiates correspondent pricing from Participating Lenders such that the
difference between that figure and the Index is greater than **, FMN will be
entitled to keep the first ** of incremental revenue in each loan type category
derived from such improved pricing. Incremental additional revenue increases
over ** will be shared, such that the next ** in incremental revenue shall be
split equally between FMN and ILSI. If incremental revenue of more than ** is
achieved on any loan type, such revenue shall be allocate ** to borrowers (to be
used for price reductions or special promotion, offers, which may be offered to
individual borrowers as a group) ** to FMN, and ** to ILSI. Until such time as
ILSI no longer wishes to obtain such reports, FMN will provide weekly price
summaries to ILSI containing details of the correspondent pricing available and
the retail pricing to borrowers, indicating the spreads, by loan product.
** indicates information which has been omitted pursuant to a
confidential treatment request filed separately with the Commission.
12
<PAGE>
4.7 Margin Improvement From Reduced Costs. FMN and ILSI will use their
best efforts, individually and jointly, to achieve cost reductions related to
the processing of ILSI Loans; the parties will share any expenses incurred by
either of them in achieving these reductions, provided that such expenses have
been agreed upon in advance. Examples of projects resulting in cost reductions
include: adding additional functionality in Website point-of-sale; making
ongoing investments in technology and productivity tools; adding additional
interfaces to third party service providers; and general and administrative cost
reduction projects. The parties will plan, project, and monitor cost savings
anticipated from cost reduction projects. Cost savings achieved as a result of
these efforts will be quantified and allocated as follows ** to the borrower (to
be used for price reductions or special promotional offers to borrowers
individually or consummers as a group) ** to ILSI by reducing the fee paid to
FMN ** of the specified saving, and ** to FMN in the form of annual reduced
costs.
The initial cost-per-loan levels are the targets below, and set forth
in detail on Appendix D hereto, which savings will be shared according to the
formula described above.
Inquiry **
Prequalification **
Short Application **
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 Multi-Lender Mortgage Sites. For so long as subsections (a) and (b)
of this Section 5.1 are in effect,** Notwithstanding the foregoing, this Section
5.1 shall not restrict FMN from providing services to companies and Internet
sites that use the technology platforms that have been licensed from those
identified on Attachment C (as that Attachment may be amended), if FMN's
services consist of standard linkages and are limited to transmissions of loan
dat from such companies and Internet sites to FMN and/or the transmission of
pricing information **.
** indicates information which has been omitted pursuant to a
confidential treatment request filed separately with the
commission.
<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) Minimum Loan Business. Provided that FMN is not in breach
of any of its material obligations under this Agreement, during the first six
(6) months of 1999 ILSI shall transmit to FMN for processing and funding at
least ** Loans. Thereafter, the number of ILSI Loans transmitted to FMN will
increase in each subsequent six (6) month period by at least ** until an
aggregate to ** Loans are processed and funded by FMN for the six (6) month
period from July 1, 2001 to December 31, 2001. After the year 2001, provided FMN
is not in breach of its material obligations under this Agreement, ILSI must
transmit to FMN for processing and funding at least ** ILSI Loans during each
six (6) month period in order for the exclusivity provision of this Section 5.1
to remain in effect. The foregoing minimum requirements for transmission of ILSI
Loans to FMN will not be in effect for any six (6) month period during which FMN
does not meet the conversion ratios specified in Section 4.9 **.
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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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 Fannie Mae and Freddie Mac LP Transferable AU Decisions for
Brokers. If, on or before December 31, 1998, FMN offers to brokers in a
commercial setting a service that would allow brokers to electronically obain an
automated underwriting ("AU") score for a particular borrower, using FMN's
seller-servicer status with Fannie Mae and/or Freddie Mac, and such service
provides a technical and organizational mechanism for the broker to transfer and
transmit such score electronically to different lenders **.
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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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 Change of Control or Ownership. FMN will not, during the term of
this Agreement as it may extended, cause or authorized, or obligate itself to
cause or authorize, any Reorganization (defined below) with any entity **. A
Reorganization shall mean any capital reorganization of the Common Stock, or a
merger or consolidation of the Company with or into another corporation, unless
FMN shall be the surviving corporation, or the sale of all or substantially all
of FMN's capital stock or assets to any other person or entity, or any other
form of business combination or reorganization in which control of FMN is
transferred. "Control" shall be deemed to have been transferred in a transaction
or series of transactions in which any person, or group of related persons,
shall have acquired beneficial ownership of more than 25% of the capital stock
of FMN (assuming all rights, options, warrants or convertible or exchangeable
securities entitling the holders thereof to subscribe for or purchase or
otherwise acquire shares of capital stock have been fully exercised or
converted)or of substantially all of the assets of FMN.
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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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
- ----------
Index of Rates of Lenders
25
The initial Index shall consist of the following: **
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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
----------
**
Date of this Appendix: **
Site Company
1. ** **
2. ** **
3. ** **
4. ** **
5. ** **
6. ** **
7. ** **
8. ** **
27
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<PAGE>
APPENDIX D
----------
Roll-Up Inquiry Prequalification Short Application
- ------- ------- ---------------- -----------------
Total Origination Expense ** ** **
Total Processing Expense ** ** **
Total Underwriting Expense ** ** **
Total Closing Expense ** ** **
General & Administrative ** ** **
Total Secondary Expense ** ** **
Total Expense Per Loan ** ** **
28
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
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 For its efforts, PROCESSOR will be paid by LENDER all **, including
without limitation, any and all **, and other types of **. Payment will
be made in the form of ** for all loans sold to PROCESSOR by LENDER
under the License Agreement.
** indicates information which has been omitted pursuant to a
confidential treatment request filed separately with the
commission.
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
<PAGE>
Appendix A
**
** indicates information which has been omitted pursuant to a
confidential treatment request filed separately with the
commission.
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 Upon execution of this Agreement, Licensee shall pay to Licensor
a single fee of ** as full compensation to Licensor for its grant
of the License hereunder.
2
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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: ** Licensor
shall be entitled to a credit against the Purchase Price in the
amount of ** (i) from and including the date on which the sale
and purchase of such Loan is consummated between Licensee and
Licensor if the Purchase Price is received by Licensee by 12 noon
(prevailing Atlanta, Georgia time) on the date of consummation,
or (ii) after the date on which the sale and purchase of such
Loan is consummated between the Licensee and Licensor if the
Purchase Price is not received by Licensee by 12 noon (prevailing
Atlanta, Georgia, time) on the date of consummation. Licensor
shall also be entitled to a credit against the Purchase Price in
the amount of ** **
3
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<PAGE>
3.3 In addition to and not in lieu of the Purchase Price for each
Loan, Licensor shall pay Loan Sale Fees to Licensee in accordance
with this Section 3.3. The "Loan Sale Fees" shall include (a) **
per Loan funded by Licensee pursuant to the Processing Agreement,
which amount shall be due and payable from Licensor to Licensee
in immediately available funds simultaneously with the
consummation of each Loan sale from Licensee to Licensor pursuant
to this Agreement, plus (b) the amount, if any, equal to the
difference between ** and the aggregate Loan Sale Fees otherwise
due Licensee for Loans that Licensee funds pursuant to the
Processing Agreement during May 1998, which amount, if any, shall
be due and payable from Licensor to Licensee in immediately
available funds no later than June 5, 1998, plus (c) the amount,
if any, equal to the difference between ** and the aggregate Loan
Sale Fees otherwise due Licensee for Loans that Licensees funds
pursuant to the Processing Agreement during June 1998, which
amount, if any, shall be due and payable from Licensor to
Licensee in immediately available funds no later than July 6,
1998.
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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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 The "Staffing Fee" shall be ** per Loan funded by Licensee
pursuant to the Processing Agreement and purchased by Licensor
pursuant to this Agreement.
9.8 The "Facility Fee" shall be ** per calendar month, provided,
however, that the Facility Fee shall be subject to reduction as
follows:
(1) Facility Fee is reduced to ** per month if loan volume in any
one month is less than ** Loans, but greater than ** Loans;
(2) Facility Fee is reduced to ** per month if loan volume in any
one month is less than ** Loans, but greater than ** Loans;
or
(3) Facility Fee is reduced to ** per loan per month if loan
volume in any one month is less than ** Loans.
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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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
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<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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
`
================================================================================
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.
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"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
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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
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<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.
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<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
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<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.
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<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).
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<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
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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) The unpaid amount of each Advance against Mortgage Loans that
are not Aged Mortgage Loans shall bear interest from the date of such Advance
until paid in full, at a rate of interest equal to the lesser of (i) **, or (ii)
** which is equal to **.
(2) The unpaid amount of each Advance outstanding against Mortgage
Loans that are Aged Mortgage Loans shall bear interest (1) form the date such
Mortgage Loans become Aged Mortgage Loans until such Advances is paid in full at
a rate of interest equal to the lesser of (i) ** or (ii) **.
(3) Notwithstanding Section 2.4(a)(1) through (2) above to the
contrary, the unpaid portion ("NIB Advances") of Advances equal to Net
Investable Balances shall bear at the following rates in the following order of
priority: (1) first ** and second, **.
14
** indicates information which has been omitted pursuant to a confidential
treatement request filed separately with the Commission.
<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
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<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;
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<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
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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
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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
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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
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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;
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(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;
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(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.
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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
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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
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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.
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(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.
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(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
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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
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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.
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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.
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(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,
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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.
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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
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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.
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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.
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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.
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(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"):
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(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
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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
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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.
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(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
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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
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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,
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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
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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
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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
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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
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<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,
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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,
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<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,
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<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
SECOND AMENDMENT TO WAREHOUSING
CREDIT AND SECURITY AGREEMENT
This Second Amendment to Warehousing Credit and Security Agreement and
Amendment of Promissory Note (this "Amendment"), is entered into as of the 1st
day of July, 1999, by and between MORTGAGE.COM, INC., a Florida corporation,
formerly known as FIRST MORTGAGE NETWORK, INC. ("Borrower"), and BANK UNITED, a
federal savings bank ("Lender"). Capitalized terms used but not defined herein
have the meanings assigned to them in that certain Warehousing Credit and
Security Agreement (Single-Family Mortgage Loans) (the "Credit Agreement") dated
effective as of July 1, 1998, by and between Borrower and Lender, as the same
has been or may be amended or supplemented from time to time (the "Credit
Agreement").
Section 1. Recitals. Borrower and Lender desire to amend the Credit
Agreement, subject to the terms and conditions of this Amendment. Therefore,
Borrower and Lender hereby agree as follows, intending to be legally bound.
Section 2. Amendments. The Credit Agreement is hereby amended and
supplemented as follows:
(a) Section 1.1 of the Credit Agreement is amended by the modification and
addition of the following definition:
"Termination Date" shall mean September 30, 1999, or such earlier date
upon which Lender's obligation to fund shall be terminated pursuant to
the terms of this Agreement.
(b) The promissory note ("Credit Note") dated as of July 1, 1999, in the
original principal amount of $60,000,000, executed by Borrower and payable
to the order of Lender, is given to Lender in replacement of the promissory
note dated as of December 31, 1998, in the original principal amount of
$70,000,000, executed by Borrower and payable to the order of Lender (the
"12/98 Note"), which 12/98 Note was given to Lender in replacement of the
promissory note dated as of July 1, 1998, in the original principal amount
of $60,000,000, executed by Borrower and payable to the order of Lender
(the "Original Note"), and not in novation or discharge thereof. The
definition of the term "Note" in the Credit Agreement is hereby amended to
mean the Credit Note and all renewals, extensions, modifications,
increases, rearrangements, and replacements thereof.
Section 3. Representations. Borrower represents and warrants that all of
the representations and warranties contained in the Credit Agreement and all
instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date.
Section 4. Continued Force and Effect. Except as specifically amended
herein, all of the terms and conditions of the Credit Agreement, the Note, and
all other Loan Documents are and
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remain in full force and effect in accordance with their respective terms. All
of the terms used herein have the same meanings as set out in the Credit
Agreement, unless amended hereby or unless the context clearly requires
otherwise. References in the Credit Agreement to the "Agreement," the "Loan
Agreement," "hereof," "herein" and words of similar import shall be deemed to be
references to the Credit Agreement as amended hereby. Any reference in the
other Loan Documents to the "Agreement," the "Line of Credit Agreement,"
"Warehouse Agreement," or the "Loan Agreement" shall be deemed to be references
to the Credit Agreement, as amended through the date hereof. The term "Note,"
as used herein and in the Credit Agreement shall mean the Credit Note.
Section 5. Representations and Release of Claims. Except as otherwise
specified herein, the terms and provisions hereof shall in no manner impair,
limit, restrict or otherwise affect the obligations of Borrower or any third
party to Lender, as evidenced by the Loan Documents. Borrower hereby
acknowledges, agrees, and represents that (i) Borrower is indebted to Lender
pursuant to the terms of the Note; (ii) the liens, security interests and
assignments created and evidenced by the Loan Documents are, respectively,
first, prior, valid and subsisting liens, security interests and assignments
against the Collateral and secure all indebtedness and obligations of Borrower
to Lender under the Note, the Credit Agreement, all other Loan Documents, as
modified herein; (iii) there are no claims or offsets against, or defenses or
counterclaims to, the terms or provisions of the Loan Documents, and the other
obligations created or evidenced by the Loan Documents; (iv) Borrower has no
claims, offsets, defenses or counterclaims arising from any of the Lender's acts
or omissions with respect to the Loan Documents, or the Lender's performance
under the Loan Documents; (v) the representations and warranties contained in
the Loan Documents are true and correct representations and warranties of
Borrower, as of the date hereof, (vi) Borrower promises to pay to the order of
Lender the indebtedness evidenced by the Note according to the terms thereof;
and (vii) Borrower is not in default and no event has occurred which, with the
passage of time, giving of notice, or both, would constitute a default by
Borrower of Borrower's obligations under the terms and provisions of the Loan
Documents. In consideration of the modification of certain provisions of the
Loan Documents, all as herein provided, and the other benefits received by
Borrower hereunder, Borrower hereby RELEASES, RELINQUISHES and forever
DISCHARGES Lender, its predecessors, successors, assigns, shareholders,
principals, parents, subsidiaries, agents, officers, directors, employees,
attorneys and representatives (collectively, the "Lender Released Parties"), of
and from any and all claims, demands, actions and causes of action of any and
every kind or character, whether known or unknown, present or future, which
Borrower has, or may have against Lender Released Parties, arising out of or
with respect to any and all transactions relating to the Credit Agreement, the
Note, and the other Loan Documents occurring prior to the date hereof, including
any other loss, expense and/or detriment, of any kind or character, growing out
of or in any way connected with or in any way resulting from the acts, actions
or omissions of the Lender Released Parties, and including any loss, cost or
damage in connection with any breach of fiduciary duty, breach of any duty of
fair dealing, breach of competence, breach of funding commitment, undue
influence, duress, economic coercion, conflict of interest, negligence, bad
faith, malpractice, violations of the Racketeer Influence and Corrupt
Organizations Act, intentional or negligent infliction of emotional or mental
distress, tortious interference with corporate governments or prospective
business advantage, tortious interference with contractual relations, breach of
contract, deceptive trade practices, libel, slander, conspiracy, the charging,
contracting for, taking, reserving, collecting or receiving of interest in
excess of the highest lawful rate applicable to the Loan Documents (i.e.,
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<PAGE>
usury), any violations of federal or state law, any violations of federal or
state banking rules, laws or regulations, including, but not limited to, any
violations of Regulation B, Equal Credit Opportunity, bank tying act claims, any
violation the Texas Free Enterprise Antitrust Act or any violation of federal
antitrust acts.
Section 6. Severability. In the event any one or more provisions
contained in the Credit Agreeement, this Amendment, or any of the Loan Documents
should be held to be invalid, illegal or unenforceable in any respect, the
validity, enforceability and legality of the remaining provisions contained
herein and therein shall not be affected in any way or impaired thereby and
shall be enforceable in accordance with their respective terms.
Section 7. Expenses. Borrower agrees to pay all out-of-pocket costs and
expenses (including reasonable fees and expenses of legal counsel) of Lender in
connection with the preparation, operation, administration and enforcement of
this Amendment.
Section 8. Acknowledgment. Except as amended hereby, Borrower ratifies
and confirms that the Loan Documents are and remain in full force and effect in
accordance with their respective terms and that all Collateral is unimpaired by
this Amendment and secures the payment and performance of all indebtedness and
obligations of Borrower under the Note, the Credit Agreement, and all other Loan
Documents, as modified hereby. The undersigned officer of Borrower executing
this Amendment represents and warrants that he has full power and authority to
execute and deliver this Amendment on behalf of Borrower, that such execution
and delivery has been duly authorized, and that the resolutions and affidavits
previously delivered to Lender, in connection with the execution and delivery of
the Credit Agreement, are and remain in full force and effect and have not been
altered, amended or repealed in anywise.
Section 9. No Waiver. Borrower agrees that no Event of Default and no
Default has been waived or remedied by the execution of this Amendment by
Lender, and any such Default or Event of Default heretofore arising and
currently continuing shall continue after the execution and delivery hereof.
Section 10. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and, to the extent
applicable, by federal law.
Section 11. Counterparts. This Amendment may be executed in any number
of counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 12. NO ORAL AGREEMENTS. THIS WRITTEN AMENDMENT, THE CREDIT
AGREEMENT, THE NOTE, AND THE OTHER LOAN DOCUMENTS, ALL AS MODIFIED HEREBY,
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES.
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<PAGE>
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED and effective as of the dates first written above.
BORROWER: LENDER:
MORTGAGE.COM, INC. BANK UNITED, a federal savings bank
a Florida corporation
By: /s/ John Hogan By:
--------------------------- --------------------------------
Name: John Hogan JOHN D. WEST, Regional Director,
Title: Executive Vice President Mortgage Banker Finance
Page 4
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
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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
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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
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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.
"Floating Rate" means a floating rate of interest which is equal to **.
The Floating Rate will be **. The Lender's determination of the Floating Rate
as of any date of determination shall be conclusive and binding, absent manifest
error.
"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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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.
"High LTV Rate" means a floating rate of interest equal to **. The High
LTV Rate shall be **. The Lender's determination of the High LTV Rate as of any
date of determination shall be conclusive and binding, absent manifest error.
"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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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.
"Uncommitted Rate" means a floating rate of interest equal to **. The
Uncommitted Rate shall be **. The Lender's determination of the Uncommitted Rate
as of any date of determination shall be conclusive and binding, absent manifest
error.
12
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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
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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,
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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
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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.
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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
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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
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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.
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(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
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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
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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
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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
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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,
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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
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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
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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
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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.
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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
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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
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($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
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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
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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
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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
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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.
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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.
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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.
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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.
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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
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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
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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.
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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
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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.
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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
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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.
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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
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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.
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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
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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
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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
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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:
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(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
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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.
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<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-
Mortgage.Com, Inc.
July 9, 1999
Page 2
[Letterhead - GMAC RFC Worldwide Capital Partner]
July 9, 1999
Mortgage.Com, Inc.
8751 Broward Blvd., 5th Floor
Plantation, FL 33324
Attention: Edwin Johnson, Chief Financial Officer
Re: First Amended and Restated Warehousing Credit and Security
Agreement dated as of June 8, 1998, as amended or supplemented
("Agreement") by and between RESIDENTIAL FUNDING CORPORATION
("Lender") and FIRST MORTGAGE NETWORK, INC. ("Company")
Dear Mr. Johnson:
Reference is made to the Agreement. All capitalized terms used herein
shall have the meanings ascribed to such terms in the Agreement.
The Company has requested the Lender to extend the Maturity Date of the
Agreement to August 30, 1999, and the Lender has agreed to such extension in
consideration of the mutual covenants, agreements and conditions set forth
herein and in the Agreement, and for other good and valuable consideration.
Except as hereby expressly modified, the Agreement shall be otherwise
unchanged and shall remain in full force and effect.
The Company has also requested that the Lender agree to allow for the
prepayment of a portion of the Advances outstanding pursuant to Section 2 of the
Agreement (any such prepayment is hereafter referred to as a "Buydown"). The
Lender agrees to permit Buydown subject to the following conditions:
1. The Company will provide RFC one (1) Business Day advance
notice of each Buydown;
2. Each request for a Buydown will be on the corporate letterhead
of the Company;
3. Each Buydown will be in an amount of not less than $1,000,000;
4. No more than one Buydown will occur in any one week period;
and
5. A Buydown will not entitle the Company to the release of any
Collateral.
Provided that no Default or Event of Default has occurred, all or any
portion of a Buydown may be reborrowed hereunder, upon written notice to the
Lender no later than 9:30 a.m. on the Business Day that the Company desires to
reborrow such amount. The Lender shall use its best efforts consistent with the
requirements of its operational systems, to apply
<PAGE>
each Buydown to Advances outstanding at the time of such Buydown in descending
order of the interest rates applicable thereto. In the event the Lender receives
a payment of Advances that would, as a result of the Buydown, reduce the
outstanding principal balance of the Advances to an amount less than zero,
unless an Event of Default shall have occurred and be continuing, the Buydown,
or a portion thereof equal to such excess, shall be re-advanced to the Company.
The Lender reserves the right at any time, upon three Business Days' notice to
the Company, to terminate this letter agreement.
This extension of the Maturity Date and the terms of the Buydown shall
be effective only upon receipt by the Lender of a copy of this letter
acknowledged by the Company.
Very truly yours,
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ James Clapp
-----------------------------
Its: Director
ACKNOWLEDGED AND ACCEPTED
THIS DAY OF JULY, 1999
------------
MORTGAGE.COM, INC.
By:
----------------------------------
Its:
---------------------------------
$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.
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"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
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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).
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"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.
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"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,
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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.
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"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.
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"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.
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(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.
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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
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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. (a) The Borrower agrees to pay interest in respect of
the outstanding principal amount of the Advances from the date the proceeds
thereof are made available to the Borrower until the maturity thereof (whether
by acceleration or otherwise) (i) with respect to Advances secured by Eligible
Mortgage Loans, at a rate per annum equal to ** in excess of the Commercial
Paper Rate in effect from time to time and (ii) with respect to Advances secured
by Eligible Nonconforming Mortgage Loans, at a rate per annum equal to ** in
excess of the Commercial Paper Rate in effect from time to time, provided,
however, that with respect to any Advance which is disbursed by cashier's check,
which Advance has been outstanding for less than sixteen days (16), the
applicable rate of interest, calculated in accordance with provisions of this
Section 2.07(a), shall be reduced by **.
(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.
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3.01 Fees. (a) The Borrower shall pay the Agent an administration fee
(the "Administration Fee") with respect to each calendar month during the term
of this Agreement in an amount equal to the sum of ** for each Mortgage Loan
pledged as Collateral for the first time during such calendar month. In
addition, the Borrower shall pay all administrative costs of the Lender or the
Agent in connection with the making of an Advance and the handling of
Collateral, including, but not limited to, the costs of overnight and express
delivery, cashier's checks and wire transfers. The Administrative Fee and
administrative costs with respect to each calendar month will be due and payable
on the fifth Business Day following the end of such calendar month.
(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.
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17
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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
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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;
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(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.
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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
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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.
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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
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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.
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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.
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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
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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
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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.
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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
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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.
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(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
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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
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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.
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(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.
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(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.
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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
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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.
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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.
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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
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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
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(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.
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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
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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),
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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
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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
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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.
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(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,
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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
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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
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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
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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.
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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
AGREEMENT REGARDING CREATION
OF WESTERN AMERICA MORTGAGE, LTD.
THIS AGREEMENT is made as of July 8, 1999 by and among Mortgage.com,
Inc. ("M.com"), a Florida corporation, FMN Management Company, Inc. ("GP
Corp."), a Florida corporation, Western America Mortgage, Ltd. (the
"Partnership"), a Florida limited partnership to be formed by GP Corp.,
Amcalfund, Inc. ("LP Corp."), a California corporation, and Mason-McDuffie Real
Estate, Inc. ("MMRE"), a California corporation.
FACTUAL BACKGROUND
A. M.com is a mortgage banking company which originates, processes and
funds residential mortgage loans through the Internet and its membership
network. M.com uses its proprietary CLOser(R) software to track loans from
application to closing and to offer online access to information about loan
rates and M.com's line of loan products. M.com owns all the outstanding stock of
GP Corp.
B. MMRE conducts a real estate brokerage business with offices at
various locations in Northern California.
C. MMRE owns all the outstanding stock of LP Corp.
D. In the event M.com consummates an Initial Public Offering or a Sale
Transaction (as such terms are defined in Section 4.1 hereof) on or before
November 1, 1999, the parties desire to create the Partnership to operate a new
mortgage banking venture serving the mortgage banking needs of all real estate
offices and relocation businesses owned, directly or indirectly, or subsequently
acquired by MMRE and its subsidiaries and all real estate businesses that have
executed or subsequently enter into a Trademark License Agreement or TLC Service
Agreement from MMRE. The Partnership will utilize loan officers located in
MMRE's real estate brokerage offices. MMRE desires that LP Corp. own a 49%
limited partnership interest in the Partnership. GP Corp. shall establish the
Partnership, shall own a 51% partnership interest in the Partnership and shall
serve as its general partner.
E. M.com wishes to provide the CLOser(R) software and certain back
office human resources and accounting support to the Partnership.
NOW, THEREFORE, the parties hereto agree as follows:
1. Pre-Closing Actions. In the event the parties believe that a
reasonable probability exists that M.com will consummate an Initial Public
Offering or a Sale Transaction on or before November 1, 1999, shall take the
following actions:
1.1 Formation of Partnership. GP Corp. shall, and M.com shall cause
GP Corp. to, form the Partnership as a Florida limited partnership,
pursuant to the Partnership Agreement substantially in the form attached
hereto as Exhibit A. GP
<PAGE>
Corp. shall be the general partner of the Partnership and own 51% of the
Partnership and LP Corp. shall be the limited partner and own 49% of the
Partnership.
1.2 Preliminary Capitalization of Partnership. GP Corp. shall
determine, acting reasonably and in good faith, the amount of preliminary
capitalization which shall be necessary or desirable, from time to time, in
order to fund the organization of the Partnership and the Partnership's
preparation for commencement of mortgage banking operations, provided that
in no event shall the maximum requested capitalization exceed $500,000
without the prior written consent of all partners. GP Corp. shall
contribute, and M.com shall cause GP Corp. to contribute, 51% of each
requested preliminary capitalization contribution. LP Corp. shall
contribute, and MMRE shall cause LP Corp. to contribute, 49% of each
requested preliminary capitalization contribution. All requested capital
contributions to the Partnership shall be made by GP Corp. and LP Corp.
within ten (10) days of such request.
1.3 Preparation for Commencing Business. GP Corp. shall, and M.com
shall cause GP Corp. to, take such actions in its capacity as general
partner of the Partnership as GP Corp. reasonably and in good faith
believes are necessary and desirable to prepare the Partnership for
engaging in the mortgage banking business in the event of a closing of an
Initial Public Offering or Sale Transaction by M.com on or before November
1, 1999. All the parties shall cooperate reasonably and in good faith to
assist the Partnership in such efforts to prepare the Partnership for
operation, including, without limitation, assistance with documents
necessary for obtaining mortgage banking licenses and obtaining the
necessary equipment and personnel to conduct the business.
1.4 Mortgage Warehouse Financing. The Partnership shall use
reasonable, good faith efforts to secure a mortgage warehouse line of
credit in order to engage in the mortgage banking business.
2. Events to Occur at Closing. In the event of a closing by M.com of an
Initial Public Offering or Sale Transaction on or before November 1, 1999, the
parties agree to conduct a closing (the "Closing") pursuant to this Agreement,
at which the parties shall take, and shall use their reasonable, good faith
efforts to cause to be taken, the following actions:
2.1 Capital Contribution to Partnership.
a. GP Corp. shall contribute such additional capital to the
Partnership so that GP Corp.'s total capital contribution, including both
the capital contribution made at the Closing and all prior capital
contributions by GP Corp. to the Partnership, shall total $255,000.
b. LP Corp. shall contribute such additional capital to the
Partnership so that LP Corp.'s total capital contribution, including both
the capital contribution made at Closing and all prior capital
contributions by LP Corp. to the Partnership, shall total $245,000.
-2-
<PAGE>
2.2 MMRE Agreement. MMRE and the Partnership shall execute and
deliver the Office Use and Services Agreement, substantially in the form of
Exhibit B (the "MMRE Agreement"), which provides, among other things, that
the loan agents of the Partnership shall have access to MMRE's real estate
brokerage offices.
2.3 M.com Agreement. The Partnership and M.com shall execute and
deliver the Technology and Support Services Agreement, substantially in the
form of Exhibit C (the "M.com Agreement"), which provides, among other
things, for M.com to provide certain technology and accounting and human
resources management services to the Partnership.
2.4 Noncompetition and Option Agreement. The Partnership, MMRE, LP
Corp. and GP Corp. shall sign the Noncompetition and Option Agreement,
substantially in the form of Exhibit D (the "Noncompetition Agreement") and
M.com shall agree to be bound by Section 2.2 thereof.
2.5 Trademark License Agreement. The Partnership, M.com and MMRE
will execute and deliver the Trademark License Agreement, substantially in
the form of Exhibit E.
2.6 Other Documents. At the Closing, the parties shall execute such
other documents, instruments or writings as may reasonably requested by the
parties in order to consummate more effectively the transactions
contemplated hereby and the commencement of the Partnership's mortgage
banking business as contemplated by this Agreement and the attached
exhibits.
3. Termination. This Agreement shall terminate unless the Closing shall
have occurred on or before November 1, 1999.
4. Miscellaneous.
4.1 Definitions. For purposes of this agreement, the following terms
shall have the following meanings:
a. "Initial Public Offering" means an underwritten public
offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale by
M.Com of its common stock, which results in the common stock being
traded on a national securities exchange, on NASDAQ or on a comparable
system.
b. "Sale Transaction" means (i) any sale of all or substantially
all of the assets of the Company or (ii) any merger, consolidation,
share exchange, or other business combination or transaction involving
M.com with or into another person or sale of all or substantially all
of the assets of M.com that results in the shareholders of M.com,
immediately prior to such transaction or series of transactions, owning
less than 50% of the outstanding
-3-
<PAGE>
common stock of M.com or the common stock of its successor, immediately
following consummation of the transaction or series of transactions,
provided that pursuant to the Sale Transaction, the holders of Common
Stock shall receive cash or shares of a publicly-traded company in
connection with the transaction.
4.2 M.com's Separate Mortgage Banking Activities. The parties
acknowledge that M.com presently engages, and, except to the extent
expressly limited in written agreements by the parties, in the future
will continue to engage, in mortgage banking activities which compete
directly with the business of the Partnership and that M.com provides
technology to other competitors of the Partnership. The parties hereby
consent to such competitive activities and waive any resulting conflict
of interest.
4.3 No Joint Venture. Nothing in this Agreement or any of the
exhibits shall be interpreted or construed as creating a partnership,
joint venture or franchise between the parties or as making any party
the agent of another party (except for matters resulting from the
actual execution and delivery of the Partnership Agreement, if and when
actually executed and delivered).
4.4 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
hereto 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.
4.5 Binding Effect; Successors. This Agreement shall be binding
upon the heirs, personal representatives, successors and assigns of the
parties hereto. In the event M.com participates in a "Sale
Transaction", the successor to M.com (including, without limitation,
any successor by merger or successor as purchaser of all or
substantially all the assets of M.com) shall succeed to all the rights
and responsibilities of M.com under this Agreement.
4.6 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, and all of
which shall together constitute one and the same instrument.
4.7 Effect and Interpretation. This Agreement will be governed,
construed and enforced in accordance with the laws of the State of
California without regard to conflict of law principles thereunder.
Titles contained in this Agreement have been inserted for convenience
and in no way define, limit or extend the scope intended in 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.
-4-
<PAGE>
4.8 Entire Agreement. This instrument, together with the
exhibits, embodies the entire agreement between the parties hereto with
respect to the transactions contemplated herein and there have been,
and are, no agreements, representations or warranties other than those
set forth or provided herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
MORTGAGE.COM, INC.
By:
-----------------------------------
Seth S. Werner, President and
Chief Executive Officer
("M.com")
WESTERN AMERICA MORTGAGE, LTD.
By: FMN Management Company, Inc.,
its General Partner
By:
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Seth S. Werner, President
(the "Partnership")
FMN MANAGEMENT COMPANY, INC.
By:
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Seth S. Werner, President
("GP Corp.")
AMCALFUND, INC.
By:
-----------------------------------
Its:
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("LP Corp.")
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MASON-McDUFFIE REAL ESTATE, INC.
By:
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A. David Cobo, President
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SCHEDULE OF EXHIBITS
Exhibit A - Partnership Agreement
Exhibit B - Office Use and Services Agreement
Exhibit C - Technology and Support Services Agreement
Exhibit D - Noncompetition and Option Agreement
Exhibit E - Trademark License Agreement
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WESTERN AMERICA MORTGAGE, LTD.
LIMITED PARTNERSHIP AGREEMENT
This Agreement, is made this ______ day of _____________, 1999, to form
a limited partnership among FMN Management Company, Inc., a Florida corporation
(the "General Partner") and Amcalfund, Inc., a California corporation (the
"Limited Partner") (the General Partner and the Limited Partner collectively
referred to as the "Partners");
W I T N E S S E T H :
ARTICLE I.
General
(A) Formation; Name. The parties hereby form and establish a limited
partnership under the Florida Revised Uniform Limited Partnership Act (1986), as
amended from time to time (the "Act"). The name of the partnership shall be
"Western America Mortgage, Ltd." This partnership will become effective upon the
execution of this agreement and the filing of the Certificate of Limited
Partnership with the Florida Department of State ("Effective Date").
(B) Character of Business. The partnership may engage in any lawful
business permitted by the Act or the laws of any jurisdiction in which the
partnership may do business. The partnership shall have the authority to do any
and all things necessary, convenient or incident to the achievement of the
foregoing and the operation of its business. The principal purpose of the
partnership will be operation of a mortgage banking and mortgage brokerage
business and ancillary business activities primarily to meet the mortgage needs
of Mason-McDuffie Real Estate, Inc., a California corporation ("MMRE") and any
other real estate offices or relocation businesses owned by MMRE or the
Subsidiaries of MMRE, and any real estate offices or relocation businesses which
have signed, or hereafter enter into, Trademark License Agreements or TLC
Service Agreements with MMRE or its Affiliates, as such businesses may grow,
expand and evolve in the future and to other Prudential real estate offices
within MMRE's territory. The Partnership will also generate internet mortgage
business, through its own web site and links to any "portals" or other web site
that MMRE may wish to create between the Partnership's web sites and web sites
that MMRE controls. The Partnership shall earn the revenues of these internet
mortgage loans and shall have the right to set its own internet loan pricing
policies.
(C) Record Office and Agent for Service. The address of the record
office of the partnership shall be 8751 Broward Boulevard, Fifth Floor,
Plantation, Florida. The agent for service of process shall be Seth S. Werner,
whose address is 8751 Broward Boulevard, Fifth Floor, Plantation, Florida 33324.
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(D) Term. The term of the partnership will begin on the Effective Date
and will end on December 31, 2098, unless terminated earlier by operation of law
or pursuant to this agreement.
(E) Partners' Names and Business Addresses. The name and business
address of each of the Partners is as follows:
Name Business Address
---- ----------------
General Partner
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FMN Management Company, Inc., 8751 Broward Boulevard, Fifth Floor
a Florida corporation Plantation, FL 33324
Limited Partners
----------------
Amcalfund, Inc., 1901 Olympic Boulevard, Third Floor
a California corporation Walnut Creek, CA 94596
(F) Admission of Additional General Partners. The General Partner may
admit additional General Partners with the prior written consent of all
Partners. Any such General Partner admitted shall be included in the reference
to General Partners.
(G) Admission of Additional Limited Partners. The General Partners may
admit additional Limited Partners with the prior written consent of all
Partners. Any such Limited Partner admitted shall be included in all references
to Limited Partners herein.
ARTICLE II.
Capital Contributions and Unit Allocation
(A) Initial Capital Contributions and Units. Initial contributions
shall be as set forth in Schedule A attached hereto, and each Partner shall
receive the number of units shown on Schedule A. If any additional General or
Limited Partner shall be subsequently admitted, the General Partners shall
determine the capital contribution required of such additional Partner and the
number of units to be assigned to such additional Partner, based on a good faith
determination of the fair market value of units at such time, which
determination shall be approved by the prior written consent of all Partners.
(B) Additional Capital Contributions. No additional capital
contributions shall be required of any Partner. If a Partner makes additional
capital contributions, additional units may be issued to such Partner with the
written consent of all Partners. The General Partners shall determine the number
of units to be assigned to the contributing Partner in exchange for the
contribution, based on a good faith determination of the fair market value of
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units at such time, which determination shall be approved by the prior written
consent of all Partners. Furthermore, capital contributions may be made with or
without the issuance of additional units if such contributions are made by all
Partners pro rata based on the number of units they have.
(C) Loans by Partners. The General Partners may loan funds to the
partnership on arm's length terms, and any Limited Partner may loan funds to the
partnership with the permission of the General Partners and on such terms as the
General Partners shall determine to be appropriate.
(D) Interest on Contributions. Capital contributions to the partnership
shall not earn interest, except as otherwise expressly provided in this
agreement.
(E) Withdrawal and Return of Contribution. Except as otherwise provided
in this agreement, no Partner shall be entitled to withdraw or to the return of
a capital contribution.
ARTICLE III.
Capital Accounts
(A) Maintenance of Capital Accounts. A capital account shall be
maintained for each Partner.
(B) Additions to Capital Accounts. A Partner's capital account shall be
increased by the following:
(1) The amount of money or fair market value of property
contributed by the Partner to the partnership.
(2) Allocation to the Partner of partnership income and gain (or
items thereof).
(C) Decreases to Capital Accounts. A Partner's capital account shall be
decreased by the following:
(1) The amount of money or fair market value of any property
distributed to the Partner by the partnership.
(2) Allocation to the Partner of expenditures of the partnership
described in Section 705(a)(2)(B) of the Internal Revenue Code
(expenditures of the partnership not deductible in computing its taxable
income and not properly chargeable to the capital account). Except for
amounts with respect to which an election is properly made under Section
709(b) of the Internal Revenue Code, amounts paid or incurred to organize a
partnership or to promote the sale of (or to sell) an interest in such
partnership shall solely for purposes of this paragraph be treated as
Internal
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Revenue Code Section 705(a)(2)(B) expenditures, and upon liquidation of the
partnership, no further capital account adjustment will be made in respect
thereof. If a deduction for a loss incurred in connection with the sale or
exchange of partnership property is disallowed to the partnership under
Section 267(a)(1) or 707(b) of the Internal Revenue Code, that deduction
shall solely for purposes of this paragraph be treated as an Internal
Revenue Code Section 705(a)(2)(B) expenditure.
(3) Allocation of partnership loss and deduction (or items
thereof).
(D) Negative Capital Accounts. Limited Partners shall not be obligated
to restore any deficit in the capital accounts established for their Limited
Partner interests.
(E) Transfers of Interests. Upon the transfer of all or a part of an
interest in the partnership, the capital account of the transferor that is
attributable to the transferred interest carries over to the transferee Partner.
(F) Adjustment of Capital Accounts to Fair Market Value. In the event
the values of partnership assets are adjusted pursuant to the definition of the
term "Value" below, the accounts of all Partners shall be adjusted
simultaneously to reflect the aggregate net adjustment as if the partnership
recognized gain or loss equal to the amount of such aggregate net adjustment,
and such adjustment shall be allocated to the Partners in accordance with
Article IV hereof.
(1) "Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial value of any asset contributed by a Partner to
the partnership shall be the gross fair market value of such asset, as
determined by the General Partners.
(b) The values of all partnership assets shall be adjusted to
equal their respective gross fair market values, as determined by the
General Partners as of the following times: (1) the acquisition of any
additional interest in the partnership by a new or existing Partner in
exchange for more than a de minimis capital contribution; (2) the
distribution by the partnership to a Partner of more than a de minimis
amount of partnership property unless all Partners receive
simultaneous distribution of undivided interest in the distributed
property in proportion to their interest in the partnership; and (3)
the termination of the partnership for federal income tax purposes
pursuant to Section 708(b)(1)(B).
(c) If the value of an asset has been determined or adjusted
pursuant to (a) or (b) above, such value shall thereafter be adjusted
by the depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses (as defined in Article IV).
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(G) Interpretation. This article is intended to comply with Reg. ss.
1.704-1(b)(2)(iv) and shall be interpreted in a manner consistent with such
Regulations.
ARTICLE IV.
Allocations
(A) Profits and Losses. Except as otherwise provided in this Article
IV, Profits and Losses shall be allocated as follows:
(1) Profits.
(a) First, to the Partners pro rata based on the distributions
made pursuant to Article V hereof until each Partner has been allocated an
amount of Profits pursuant to this Paragraph (A)(1)(a) in the current and
previous fiscal years that equals the distributions made to that Partner
pursuant to Article V hereof in the current and previous fiscal years.
(b) Second, to the Partners pro rata based on the Losses
allocated to them pursuant to Paragraph (A)(2)(c) of this Article IV until
each Partner has been allocated an amount of Profits pursuant to this
Paragraph (A)(1)(b) in the current and previous fiscal years that equals
the Losses allocated to that Partner pursuant to Paragraph (A)(2)(c) of
this Article IV in the previous fiscal years.
(c) Third, to the Partners pro rata based on the Losses
allocated to them pursuant to Paragraph (A)(2)(b) of this Article IV until
each Partner has been allocated an amount of Profits pursuant to this
Paragraph (A)(1)(c) in the current and previous fiscal years that equals
the Losses allocated to that Partner pursuant to Paragraph (A)(2)(b) of
this Article IV in the previous fiscal years.
(d) Lastly, to the Partners pro rata based in accordance with
the number of units owned by such Partner.
(2) Losses.
(a) First, to the Partners pro rata based on the Profits
allocated to them pursuant to Paragraph (A)(1)(d) of this Article IV until
each Partner has been allocated an amount of Losses pursuant to this
Paragraph (A)(2)(a) in the current and previous fiscal years that equals
the Profits allocated to that Partner pursuant to Paragraph (A)(1)(d) of
this Article IV in the previous fiscal years.
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(b) Second, to the Partners pro rata based on their respective
positive capital accounts until each Partner has been allocated an amount
of Losses pursuant to this Paragraph (A)(2)(b) in the current and previous
fiscal years to reduce that Partner's capital account to zero.
(c) Lastly, to the Partners in proportion to and to the extent
that each bears the related risk of economic loss.
(3) "Profits and Losses" means, for each fiscal year or other
period, an amount equal to the partnership's taxable income or loss for such
year or period, determined in accordance with Internal Revenue Code Section
703(a) (for this purpose, all items of income, gain, loss or deduction required
to be stated separately pursuant to Internal Revenue Code Section 703(a)(1)
shall be included in taxable income or loss), with the following adjustments:
(a) Any income of the partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits or
Losses pursuant to this definition shall be added to such taxable income or
loss.
(b) Any expenditures of the partnership described in Internal
Revenue Code Section 705(a)(2)(B) or treated as Internal Revenue Code
Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i)
of the Final Regulations, and not otherwise taken into account in computing
Profits or Losses pursuant to this definition, shall be subtracted from
such taxable income or loss.
(c) Gain or loss resulting from any disposition of partnership
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Value.
(d) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account book depreciation for such fiscal
year or other period hereof.
(e) Notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to Paragraphs (B), (C), (D),
(E), (F) and (G) of this Article IV shall not be taken into account in
computing Profits or Losses.
(B) Qualified Income Offset. If a Partner unexpectedly receives an
adjustment, allocation or distribution described in Reg. ss.
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain shall be allocated
to any Partner with a deficit capital account in an
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amount and manner sufficient to eliminate such deficit balance as quickly as
possible to the extent required by the Treasury Regulations. Any special
allocations of items of income or gain pursuant to this section shall be taken
into account in computing subsequent allocations of Profits and Losses pursuant
to this Article IV so that the net amount of any item so allocated and the
Profits, Losses and other items allocated to each Partner pursuant to this
Article IV shall, to the extent possible, be equal to the net amount that would
have been allocated to each Partner pursuant to the provisions of this Article
IV if such unexpected adjustment, allocation or distribution had not occurred.
(C) Minimum Gain Charge Back.
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(1) If there is a net decrease in partnership minimum gain for a
fiscal year of the partnership, then each Partner shall be allocated items
of income and gain for such year (and if necessary for subsequent years) in
accordance with Reg. ss. 1.704-2(f).
(2) Partnership minimum gain shall be determined in accordance with
and have the meaning ascribed to such term by Reg. ss. 1.704-2(d).
(3) A Partner's share of partnership minimum gain shall be
determined in accordance with and have the meaning ascribed to such term by
Reg. ss. 1.704-2(g).
(D) Nonrecourse Debt of the Partnership Where a Partner Bears the
Economic Risk of Loss.
(1) Partnership loss deductions or Section 705(a)(2)(b)
expenditures that are attributable to a particular Partner's nonrecourse
liability (hereinafter called "Partner Nonrecourse Deductions") shall be
allocated to the Partner that bears the economic risk of loss of the
liability, in accordance with Reg. ss. 1.704-(i)(1).
(2) The amount of Partner Nonrecourse Deductions with respect to a
Partner nonrecourse debt for any year shall be determined in accordance
with Reg. ss. 1.704-2(i)(2).
(3) If during a taxable year of the partnership there is a net
decrease in Partner nonrecourse debt minimum gain, as defined in Reg. ss.
1.704-2(i), any Partner with a share of such Partner nonrecourse debt
minimum gain as of the beginning of the year shall be allocated items of
income and gain for the year (and, if necessary, for succeeding years)
equal to such Partner's share of such net decrease in such Partner
nonrecourse debt minimum gain, in accordance with Reg. ss. 1.704-2(i).
(4) The determination of whether a Partner bears the economic risk
of loss with respect to any liability of the partnership shall be made in
accordance with Reg. ss. 1.752-2.
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(E) Tax Allocations with Respect to Property Contributions; Internal
Revenue Code Section 704(c). In accordance with Internal Revenue Code Section
704(c) and the Treasury Regulations thereunder, income, gain, loss and deduction
with respect to any property contributed to the capital of the partnership
shall, solely for tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such property to the
partnership for federal income tax purposes and its initial Value (computed in
accordance with subparagraph (a) of the definition of the term "Value" in
Paragraph (F)(1) of Article III hereof). In the event the Value of any
partnership property is adjusted pursuant to subparagraph (b) of the definition
of the term "Value" in Paragraph (F)(1) of Article III hereof, subsequent
allocations of income, gain, loss and deduction with respect to such asset shall
take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Value in the same manner as under Internal
Revenue Code Section 704(c) and the Treasury Regulations thereunder. Any
elections or other decisions relating to such allocations shall be made by the
General Partners in any manner that reasonably reflects the purpose and
intention of this agreement. Allocations pursuant to this paragraph are solely
for purposes of federal, state and local taxes and shall not affect, or in any
way be taken into account in computing, any Partner's Capital Account or share
of Profits, Losses or other items, or distributions pursuant to any provision of
this agreement.
(F) Allocations Upon the Admission of Additional Partners or a Transfer
of Partnership Interest.
(1) In the event additional Partners are admitted to the
partnership on different dates during any fiscal year, the Profits or
Losses allocated to the Partners for each such fiscal year shall be
allocated among the Partners in proportion to the interest in the
partnership each holds from time to time during such fiscal year in
accordance with Internal Revenue Code Section 706 using any convention
permitted by law and selected by the General Partners.
(2) Allocations made subsequent to a transfer of partnership
interest to another Partner shall be made as though all such prior
allocations attributable to the transferred interest were made to the
transferee Partner.
(G) Items Not Specifically Dealt With. Except as otherwise provided in
this agreement, all items of partnership income, gain, loss, deduction and any
other allocations not otherwise provided for shall be divided by allocating such
items to each Partner in accordance with such Partner's interest in the Profits
and Losses of the partnership.
(H) Construction. The provisions of this Article IV (and other related
provisions in this agreement) pertaining to the allocation of items of
partnership income, gain, loss, deductions and credit shall be interpreted
consistently with the Regulations issued under Internal Revenue Code Section 704
and, to the extent unintentionally inconsistent with such Regulations, shall be
deemed to be modified to the extent necessary to make such provisions consistent
with the Regulations.
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(I) Allocations Binding on Partners. The Partners are aware of the
income tax consequences of the allocations made by this Article IV and hereby
agree to be bound by the provisions of this Article IV in reporting their shares
of partnership income and loss for income tax purposes.
ARTICLE V.
Distributions
(A) Unit Distributions. The General Partner shall determine when
distributions shall be made and the amount of the distributions. Distributions
shall be made pro rata based upon the number of units each Partner shall have.
Distributions in kind shall be made only if all property is distributed to all
Partners pro rata (with all Partners receiving identical fractional interests in
all property distributed) or if any other in kind distribution is consented to
by all Partners, and in the case of any in kind distribution, capital accounts
shall be appropriately adjusted as required by this agreement and federal tax
law. The Partnership's general policy shall be to distribute excess cash (not
less than quarterly, if practical), provided that the Partnership shall first
retain sufficient Reserves for foreseeable expenses and capital expenditures and
to fund expansion and to maintain capital resources reasonably necessary to
obtain favorable mortgage warehouse loan terms. The Partnership shall make
distributions pursuant to the foregoing general policy.
(B) Amounts Withheld. All amounts withheld pursuant to the Internal
Revenue Code or any provision of any foreign, state or local tax law with
respect to any payment or distribution to the Partners shall be treated as
amounts distributed to the Partners pursuant to this Article V for all purposes
under this agreement.
ARTICLE VI.
Rights, Duties and Powers of Partners
(A) Power of General Partners to Manage the Business. The General
Partners shall have full and exclusive power and authority on behalf of the
partnership, in its name, to manage, control, administer and operate the
business and affairs of the partnership, and to do or cause to be done any and
all acts deemed by the Partners to be necessary or appropriate thereto, and the
scope of such power and authority shall encompass all matters in any way
connected with such business or incident thereto.
(B) Specific Powers of the General Partners. Each General Partner shall
have the power on behalf of the partnership:
(1) To enter into an Office Use and Services Agreement with MMRE
granting the Partnership the right to provide its mortgage banking and
mortgage brokerage services in MMRE's real estate offices.
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(2) To enter into a Technology and Support Services Agreement, with
Mortgage.com, Inc., a Florida corporation for the partnership to obtain
certain accounting and human resources management support services and
nonexclusive access to the CLOser(R) software.
(3) To enter into an Agreement Regarding Creation of Western
America Mortgage, Ltd. with M.com, MMRE and others regarding the initial
formation of the partnership.
(4) To engage in the mortgage banking and mortgage brokerage
business and any and all activities ancillary or incidental thereto.
(5) To obtain mortgage banking licenses, employ loan officers and
supervisory and support personnel.
(6) To obtain mortgage warehouse lines of credit and similar credit
facilities and loans to finance the mortgage banking and mortgage brokerage
business.
(7) To purchase, lease or otherwise acquire real or personal
property considered necessary or appropriate to carry on and conduct the
business of the partnership.
(8) To borrow monies for the business of the partnership and from
time to time, without limit as to amount, to draw, make, execute and issue
promissory notes and other negotiable or nonnegotiable instruments and
evidences of indebtedness, and to secure the payment of the sums so
borrowed and to mortgage, pledge, or assign in trust all or any part of the
partnership's property or assets, or to assign any monies owing or to be
owing to the partnership, to enter into mortgage warehouse credit
facilities and similar arrangements to finance the Partnership's mortgage
banking activities and to engage in any other means of financing.
(9) To manage, administer, conserve, improve, develop, operate,
lease, utilize and defend the partnerships property or assets, and to
contract with third parties for such purposes, and to do any and all other
things necessary or appropriate to carry out the terms and provisions of
this agreement which would or might be done by a normal and prudent person
in the management, administration, conservation, improvement, development,
operation, lease and utilization of his own property.
(10) To enter into, execute and deliver any easements, licenses or
other agreements customarily employed in connection with the acquisition,
sale, management, administration, conservation, improvement, development,
operation, lease and utilization of properties or assets of the type owned
by the partnership and any and all other instruments or documents
considered by the General Partners to be necessary or appropriate to carry
on and conduct the business of the partnership.
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(11) To employ on behalf of the partnership agents, employees,
accountants, lawyers, clerical help and such other assistance and services
as may seem proper and to pay therefor such remuneration as the General
Partners may deem reasonable and appropriate.
(12) To purchase, lease, rent or otherwise acquire or obtain the
use of machinery, computers, equipment, tools, materials and all other
kinds and types of real or personal property that may in any way be deemed
necessary, convenient or advisable in connection with carrying on the
business of the partnership, and to incur expenses for travel, telephone,
telegraph, insurance and for such other things, whether similar or
dissimilar, as may be deemed necessary or appropriate for carrying on and
performing the business of the partnership.
(13) To pay insurance premiums, property taxes and any other
amounts necessary or appropriate to the management, administration,
conservation, improvement, development, operation, lease or utilization of
any partnership property or asset.
(14) To make and to enter into such agreements and contracts with
such parties, and to give such receipts, releases and discharges with
respect to any and all of the foregoing and any matters incident thereto as
the General Partners may deem advisable or appropriate.
(15) To sue and be sued, complain and defend in the name of and on
behalf of the partnership.
(16) To make such classifications, determinations and allocations
as the General Partners may deem advisable, having due regard for any
relevant generally accepted accounting principles.
(17) To take such other action and to perform such other acts as
may be deemed appropriate to carry out the business and affairs of the
partnership.
(C) Limits on Powers of General Partners. The General Partners may do
the following only with the prior written consent of all the Partners:
(1) Do any act in contravention of the partnership agreement.
(2) Make, execute or deliver any assignment for the benefit of
creditors or any bond or confession of judgment.
(3) Do any act which would make it impossible to carry on the
ordinary business of the partnership.
(4) Alter the Primary purpose of the partnership from engaging in
the mortgage banking and mortgage brokerage business and ancillary and
related
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activities and lines of business, primarily through loan officers located
in the real estate brokerage offices of MMRE and any other mortgage banking
or mortgage brokerage businesses acquired, directly or indirectly, from
MMRE or its affiliates, as MMRE's business may expand and evolve in the
future, together with internet mortgage banking activities through the
Partnership's own web page and links to any "portals" or other web sites
maintained or controlled by MMRE.
(5) Sell all or substantially all the assets and business of the
Partnership.
(6) Entering into material business relationships between the
Partnership and the General Partner or its Affiliates which are not
"arms-length" at "fair market value".
(7) Loaning money from the Partnership to the General Partner or
its Affiliates.
(8) To enter into any agreement for sharing of profits or joint
venture with any person, firm, corporation, government or agency thereof
engaged in any business or transaction which this partnership is authorized
to engage in or any business or transaction capable of being conducted so
as to directly or indirectly benefit this partnership.
(D) Time Devoted to the Business. No General Partner shall be required
to devote all of such Partner's time to the business.
(E) General Partner's Competitive Mortgage Banking Activities. Subject
to the provisions of Section 2.2 of the Non-Competition and Option Agreement
between WAM, Amcalfund, Inc. and MMRE, the parties acknowledge and consent that
directors, shareholders, management and other affiliates of the General Partner
are, and will continue to be, engaged in mortgage banking and mortgage brokerage
businesses which are and will continue to be in competition with the
partnership, including, without limitation, supplying software and other support
to other competitors of the partnership and waive any conflict of interest.
Moreover, the parties acknowledge and consent that the general partner, its
affiliates and its officers, directors, employees and agents may pursue mortgage
banking and mortgage brokerage business-related opportunities (including,
without limitation, the opportunity to acquire additional businesses, the
opportunity expand existing mortgage business, the opportunity to hire new
employees and the opportunity to pursue customer relationships) for the benefit
of the shareholders and affiliates of the General Partner to the exclusion of
the Partnership.
(F) Limitation of Liability of General Partners. A General Partner
shall not be liable to the partnership or to any Partner for loss or damage
caused by any act or omission in such capacity if the General Partner acted in
good faith and in a manner the General Partner reasonably believed to be in or
not opposed to the best interests of the partnership, except for
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losses or damages adjudicated to have been caused by his fraudulent conduct or
willful or wanton misconduct. Without limiting the generality of the foregoing,
no General Partner shall be personally liable for return of the capital of any
Limited Partner or the return of any other contribution to the partnership made
by any Limited Partner.
(G) Indemnification of General Partners. The partnership shall
indemnify each General Partner against expenses, including reasonable attorneys'
fees, actually and reasonably incurred by the General Partner in connection with
any claim relating to the General Partner's acting or failing to act in such
capacity if the General Partner acted in good faith and in a manner the General
Partner reasonably believed to be in or not opposed to the best interests of the
partnership, except that no indemnification shall be made in respect of any
claim as to which the General Partner shall have been adjudged to be liable for
fraudulent conduct or willful or wanton misconduct in the performance of the
General Partner's duty to the partnership.
(H) Budget Process. The General Partner shall propose an annual
operating capital budget to the Limited Partners for discussion and comment
prior to the beginning of each fiscal year. The General Partner shall confer
with the Limited Partners regarding all major business decisions. The General
Partner shall provide the Limited Partners with reasonable access to the books
and records of the Partnership in addition to the reports required under Article
IX.
(I) Liability of the Limited Partner. The liability of a Limited
Partner for the obligations or losses of the partnership shall not exceed the
contributions such Limited Partner has previously made or has agreed to make
pursuant to Article II hereof.
(J) Confidential Information. The General Partner and its affiliates
shall not, directly or indirectly, at any time, divulge, disclose, furnish,
communicate with or make it necessary to any third party any confidential or
proprietary information of MMRE, including, without limitation, any customer
list, financial data or sales data. Any other provision of this Agreement to the
contrary notwithstanding, upon termination of this Agreement, the Limited
Partner shall have the right to obtain and retain copies of all record and
documents related to the business of the Partnership conducted by loan agents
working at MMRE-owned offices and offices of companies with whom MMRE has a
Trademark License Agreement or a TLC Service Agreement.
ARTICLE VII.
Assignment and Transfer of Partnership Interest
(A) Right to Sell or Assign. A General or Limited Partner may sell, assign or
transfer any of the units in the partnership owned by such Partner (subject to
the rights provided under Paragraph (B)), but such purchaser, assignee or
transferee shall only have the right to receive that share of the Profits,
Losses, distributions, capital account and returns of contributions to which the
transferor of such units in the partnership would have otherwise
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been entitled to and shall not obtain the right to become a Partner in the
partnership unless and until (1) all of the remaining Partners consent, in their
sole discretion, which may be unreasonably withheld, to make such purchaser,
assignee or transferee a Partner, and (2) such purchaser, assignee or transferee
agrees to be bound by all of the terms, obligations and conditions of this
agreement and executes and delivers all appropriate documents, agreements and
instruments as determined by the Partners. Notwithstanding the foregoing, the
Limited Partner shall have the right to transfer and assign its Partnership
Interest to an Affiliate (without triggering the right of first refusal of the
General Partner), and the Affiliate shall be admitted as a substitute limited
partner (and the General Partner shall consent to such substitution), provided
that the Affiliate shall agree in writing to be bound by the terms of this
Agreement and shall execute such further instrument and agreements as may be
customary and reasonably requested by counsel to the Partnership.
(B) Rights of Partnership. The partnership shall have a right of first
refusal with respect to any proposed sale, assignment or transfer of an interest
in the partnership or any portion thereof, to acquire such interest on the same
terms as the proposed sale, assignment or transfer, except that cash may be
substituted for any consideration other than cash or notes of the buyer. With
respect to any transfer occurring by reason of death of a Partner or by gift,
the partnership shall have an option to acquire such interest for its fair
market value. The rights and options granted to the partnership pursuant to this
paragraph may be exercised pro rata by all Partners electing to join in the
exercise if not exercised by the partnership.
(C) Permitted Transfers. The foregoing notwithstanding, the voluntary
or involuntary transfer of partnership units to the partnership or an existing
Partner shall not trigger the option to purchase under Paragraphs (B) of this
article. All units so transferred shall nevertheless remain subject to the terms
of this agreement in the hands of the transferee.
(D) Limited Partner's Option to Purchase General Partner's Units.
------------------------------------------------------------
(1) Definitions. For the purpose of this subsection VII(D), the
following terms have the following meanings:
(a) "Acceptable Performance" means that the Partnership
generates at least 25 Basis Points in Qualifying Profit and at least
25% Buyer Side Penetration for the relevant Measurement Period. The
penetration figure will be reviewed by the parties and may be changed
after 24 months to a figure mutually agreed by the parties.
(b) "Basis Points" means the dollar amount of Qualifying Profit
divided by the total dollar volume of loans closed by the Partnership
during the relevant Measurement Period.
(c) "Buyer Side Penetration" means the total number of loans
closed where the buyer was represented by an MMRE agent, divided by
the
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<PAGE>
total number of homes sold where the buyer was represented by an MMRE
agent. (The definition only applies to activity at the MMRE offices
identified on the list attached as Schedule B. The list of offices
will be reviewed by the parties and may be changed after 24 months to
a list mutually agreed by the parties.)
(d) "Measurement Period" means the six-month period ending on
the 24th month following the Partnership's commencement of mortgage
banking business operations, and thereafter each six-month period,
ending at the end of each consecutive calendar quarter, commencing
with the quarter ending in the 27th month (e.g., six months ending at
the ending of the 27th month, the six month ending at the end of the
30th month, etc.).
(e) "Qualifying Profit" means the pre-tax earnings of the
Partnership, calculated according to generally accepted accounting
principles ("GAAP"), applied on a consistent basis.
(f) "Unacceptable Performance" means that the Partnership does
not achieve Acceptable Performance for the relevant Measurement
Period.
(2) Purchase Option Upon Unacceptable Performance. In the event the
Partnership has Unacceptable Performance during any Measurement Period, the
Limited Partner will have the option , but not the obligation, to purchase
the General Partner's interest in the Partnership for a price calculated as
51% of an amount equal to two and one-half (2 1/2) times the Qualifying
Profit of the Partnership during the preceding 12 months. In addition, the
General Partner shall be paid the amount of its capital account.
(3) Purchase Option Upon Acceptable Performance. In the event the
Partnership achieves Acceptable Performance, the Limited Partner shall have
the option, but not the obligation, to purchase the General Partner's
interest in the Partnership at any time after the end of the fifth
Measurement Period (i.e., following the 36th month following the
Partnership's commencement of mortgage banking business operation)
(including exercise of the Option at the end of the fifth Measurement
Period) for a price calculated as 51% of an amount equal to four times the
Qualifying Profit of the Partnership during the preceding 12 months.
(4) Exercise of Options. The Limited Partner must exercise either
of the foregoing purchase options by giving written notice to the General
Partner within sixty (60) days following the end of the relevant
Measurement Period (or sixty (60) days following delivery of financial
statements for the Measurement Period, if later). The purchase price plus
the outstanding balance of the General Partner's capital account shall be
paid 50% in cash and 50% due in 36 months, payable in equal, consecutive
monthly installments, together with eight percent (8%) per annum interest.
The deferred payment shall be evidenced by a promissory note and secured by
a pledge
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<PAGE>
of, and first priority lien on, the interest in the Partnership purchased
from the General Partner. The closing of the sale shall occur at a
mutually-agreeable time and place, not more than sixty (60) days following
the delivery of the Limited Partner's written notice. The Limited Partner
and General Partner shall act reasonably and in good faith to prepare and
execute mutually satisfactory documentation for the sale, including the
form of note and pledge agreement. The General Partner shall retain its pro
rata share of income and cash flow, and shall bear its pro rata tax burden,
for operation of the Partnership to and including the closing date.
ARTICLE VIII.
Dissolution and Liquidation
(A) Dissolution. The partnership shall be dissolved upon the happening
of any of the following:
(1) The election to terminate the partnership by the General
Partners unless all of the Limited Partners consent to continue the
partnership. (The General Partner cannot liquidate the partnership if all
of the Limited Partners elect to continue the partnership.)
(2) The partnership being adjudicated insolvent or bankrupt.
(3) Any General Partner ceasing to be a General Partner by reason
of an event described in Paragraph (D) hereof if such event is not followed
by an election under Paragraph (E) hereof to continue the partnership.
(4) In any event at midnight on December 31, 2098.
(B) Liquidation. Except as otherwise provided in Paragraph (E) hereof,
upon a dissolution of the partnership, the General Partners shall be the
liquidators of the partnership; or, if there is no General Partner at the time
of dissolution, the Limited Partners shall select a liquidator by majority vote.
The liquidator so determined shall liquidate the partnership's assets and shall
do so as promptly as is consistent with obtaining fair value for them and shall
apply and distribute the assets of the partnership as follows:
(1) First, to the payment and discharge of all of the partnership's
debts and liabilities to creditors of the partnership other than the
Partners.
(2) Second, to the payment and discharge of all of the
partnership's debt and liabilities to creditors of the partnership that are
Partners.
(3) Third, to the Partners in accordance with their capital
accounts, after giving effect to all contributions, distributions and
allocation for all periods.
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<PAGE>
(C) Compliance with Timing Requirements of Regulations. In the event
the partnership is "liquidated" within the meaning of Reg. ss.
1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article VIII
by the end of the fiscal year in which such liquidation occurs, or if later,
within ninety (90) days of such liquidation. Distributions pursuant to the
preceding sentence may be distributed to a trust established for the benefit of
the Partners for the purposes of liquidating partnership assets, collecting
amounts owed to the partnership and paying any contingent or unforeseen
liabilities or obligations of the partnership or of the General Partners arising
out of or in connection with the partnership. The assets of any such trust shall
be distributed to the Partners from time to time, in the reasonable discretion
of the General Partners, in the same proportions as the amount distributed to
such trust by the partnership would otherwise have been distributed to the
Partners pursuant to this agreement; provided, however, that such trust may only
be created if the partnership has received an opinion from counsel, which is
generally recognized as being capable and qualified in the area of federal
income taxation, that such trust will not be classified as an association which
would be taxed as a corporation for federal income tax purposes.
(D) The General Partners shall use their good faith, reasonable efforts
to inform the Limited Partners, in a timely manner, of material business and
financial developments relating to the Partnership and to provide such
information regarding the Partnership as shall reasonably be requested by the
Limited Partner.
(E) Disqualification of General Partners. A General Partner shall cease
to be a General Partner of the partnership upon the happening of any of the
following events:
(1) Death of a General Partner (or dissolution or termination if a
General Partner is an entity, or distribution of all interest in the
partnership by the fiduciary if a General Partner is an estate).
(2) Incapacity of a General Partner. A General Partner shall be
deemed to be incapacitated if the General Partner is disabled and unable to
take an active part in the management of the partnership business for a
continuous period of at least six (6) months or the General Partner's
doctor determines that he will not be able to take an active part in the
management of the partnership business for a period of at least six (6)
months, or if the General Partner is adjudicated incompetent.
(3) Withdrawal of a General Partner.
(4) Removal of a General Partner.
(5) The assignment by a General Partner for the benefit of
creditors.
(F) Successor Partnership. Upon the occurrence of an event described in
Paragraph (D) hereof, the partnership shall thereafter be liquidated pursuant to
Paragraph (B) hereof unless, within ninety (90) days after such occurrence, all
remaining General Partners elect to continue the partnership or, if there is
then no remaining General Partner, the
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<PAGE>
remaining Partners having a majority of both the capital and profit interests of
the remaining Partners elect in writing to continue the partnership. If an
election to continue the partnership is made by the Partners and there is no
General Partner, a successor General Partner shall be selected by the Limited
Partners having a majority of both the capital and profit interests of the
Limited Partners. If an election to continue the partnership is made by the
Partners, then the successor General Partner shall have at least a one percent
(1%) interest in the Profits and Losses, distributions and other items of the
partnership (with a corresponding reduction in the Limited Partners' interest in
the partnership); this interest may be sold or given by the Limited Partners to
the new General Partner. This agreement shall be amended in order to reflect the
admission of the new General Partner. The disqualified General Partner's
interest in the partnership shall automatically be converted into a Limited
Partner interest representing the disqualified General Partner's then effective
interest in the Profits and Losses, distributions and other items of the
partnership. The Certificate of Limited Partnership shall be amended to reflect
the changes described herein.
ARTICLE IX.
Books, Reports, Accounting and Tax Elections
(A) Documents at Record Office. The General Partners shall maintain or
cause to be maintained at the partnership's record office complete and accurate
books and records with respect to all partnership business and transactions,
which books and records shall be kept in accordance with generally accepted
accounting principles. At a minimum, the General Partners shall keep the
following books and records at the record office of the partnership: (1) a
current list of the full name and last known business address of each Partner
set forth in alphabetical order; (2) a copy of the Certificate of Limited
Partnership and all certificates of amendment, together with executed copies of
any powers of attorney pursuant to which any certificate has been executed; (3)
copies of the partnership's federal, state and local income tax returns and
reports for the three (3) most recent years; and (4) copies of any effective
written partnership agreements and of any financial statements of the
partnership for the three (3) most recent years.
(B) Fiscal Year and Method of Accounting. The partnership's fiscal year
for both tax and financial reporting purposes shall be the calendar year. The
method of accounting shall be Generally Accepted United States Accounting
Principles, applied on a consistent basis.
(C) Reports and Statements.
(1) Within ninety (90) days of the end of each fiscal year of the
partnership, the General Partners, at the expense of the partnership, shall
cause to be delivered to the Limited Partners with respect to the just
completed fiscal year of the partnership such information as shall be
necessary for the preparation by the Limited Partners of their federal,
state and local income and other tax returns.
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<PAGE>
(2) Within ninety (90) days after the end of each fiscal year of
the partnership, the General Partners shall cause to be delivered to the
Limited Partners unaudited financial statements of the partnership for the
just completed fiscal year prepared at the expense of the partnership.
(3) Within thirty (30) days after the end of each calendar month,
the General Partners shall, at the partnership's expense, cause to be
delivered to each Limited Partner unaudited financial reports of the
partnership for the just completed calendar month.
(D) Tax Elections.
(1) Except as provided in subparagraph (2), the Tax Matters Partner
(the "Tax Matters Partner") shall have the sole discretion and authority to
make or revoke any elections on behalf of the partnership for tax purposes.
(2) In the event of a transfer of all or part of the interest of a
Partner in the partnership, at the request of the transferee, the Tax
Matters Partner may cause the partnership to elect, pursuant to Internal
Revenue Code Section 754 or any corresponding provision of subsequent law,
to adjust the basis of the partnership property as provided by Internal
Revenue Code Sections 734 and 743. The cost of such election shall be borne
by the transferee requesting such election.
(E) Tax Matters Partner. FMN Management Corp., a Florida corporation,
is designated as the Tax Matters Partner of the partnership, as provided in
Regulations pursuant to Internal Revenue Code Section 6231 and authorized to
perform such duties as are required or appropriate thereunder. If FMN Management
Corp. is no longer a General Partner, the then General Partners shall designate
a successor Tax Matters Partner from among their number. Each Partner by the
execution of this agreement consents to such designation of the Tax Matters
Partner and agrees to execute, certify, acknowledge, deliver, swear to, file and
record at the appropriate public offices such documents as may be necessary or
appropriate to evidence such consent.
ARTICLE X.
Miscellaneous
(A) Amendments. Except as provided in Paragraph (E) hereof, amendments
to this agreement shall be undertaken and effective only with the written
consent of all the Partners.
(B) Bank Accounts. Partnership funds shall be deposited in the name of
the partnership in accounts designated by the General Partners, and withdrawals
shall be made only by persons duly authorized by the General Partners.
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<PAGE>
(C) Binding Effect. Except as provided to the contrary, the terms and
provisions of this agreement shall be binding upon and shall inure to the
benefit of all the Partners, their personal representatives, heirs, successors
and assigns.
(D) Captions, Gender and Number. The captions in this agreement are
inserted only as a matter of convenience and in no way affect the terms or
intent of any provision of this agreement. All defined phrases, pronouns and
other variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural as the actual identity of the organization, person or
persons may require.
(E) Choice of Law and Severability. This agreement shall be construed
in accordance with the law of the State of Florida, without regard to conflict
of law principles thereunder. If any provision of this agreement shall be
contrary to the laws of the State of Florida or any other applicable law, at the
present time or in the future, such provision shall be deemed null and void, but
this shall not affect the legality of the remaining provisions of this
agreement. This agreement shall be deemed to be modified and amended so as to be
in compliance with applicable law, and this agreement shall then be construed in
such a way as will best serve the intention of the parties at the time of the
execution of this agreement.
(F) Counterparts. This agreement may be executed in one or more
counterparts. Each such counterpart shall be considered an original and all of
such counterparts shall constitute a single agreement binding all the parties as
if all had signed a single document.
(G) Entire Agreement. This agreement constitutes the entire agreement
among the Partners regarding the terms and operations of the partnership, except
for any amendments to this agreement adopted in accordance with Paragraph (A)
hereof. This agreement supersedes all prior and contemporaneous agreements,
statements, understandings and representations of the parties regarding the
terms and operation of the partnership, except as provided in the preceding
sentence.
(H) Last Day for Performance Other than a Business Day. In the event
that the last day for performance of an act or the exercise of a right hereunder
falls on a day other than a business day, the last day for such performance or
exercise shall be the first business day immediately following the otherwise
last day for such performance or such exercise. A business day means a day other
than a Saturday, Sunday or a legal holiday on which federally chartered banks
are generally closed for business.
(I) Notices. All notices, requests, consents or other communications
provided for in or to be given under this agreement shall be in writing, may be
delivered in person, by facsimile transmission (fax), by overnight air courier
or by mail, and shall be deemed to have been duly given and to have become
effective (1) upon receipt if delivered in person or by fax, (2) one (1) day
after having been delivered to an overnight air courier, or (3) three (3) days
after having been deposited in the mail as certified or registered matter, all
fees
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<PAGE>
prepaid, directed to the parties or their assignees at the following address (or
at such other address as shall be given in writing by a party hereto):
(1) If to the partnership or to a General Partner, to the intended
recipient at:
Mr. Seth S. Werner
FMN Management Company, Inc.
8751 Broward Boulevard, Fifth Floor
Plantation, FL 33324
with a copy to:
Foley & Lardner
200 North Laura Street
Jacksonville, FL 32202
Attn: Luther F. Sadler, Jr.
(2) If to a Limited Partner, to the intended recipient at the name
and address listed in Article I(E), with a copy to:
Donahue, Gallagher, Woods & Wood, LLP
300 Lakeside Drive, Suite 1900
Oakland, California 94612-3570
Attn: Michael J. Dalton.
(J) Waiver of Partition. The Partners hereby agree that no Partner, nor
any successor in interest to any Partner, shall have the right, while this
agreement remains in effect, to have any partnership real property partitioned,
or to file a complaint or institute any proceeding at law or in equity to have
such property partitioned, and all Partners, on behalf of themselves and their
successors and assigns, hereby waive any such right.
(K) Attorneys' Fees. In the event of any litigation to enforce the
provisions of this Partnership Agreement, the Prevailing Party shall recover
reasonable attorneys' fees and costs from the losing party.
IN WITNESS WHEREOF, the undersigned have caused this agreement to be
executed as of the day and year first above written.
GENERAL PARTNER:
FMN MANAGEMENT COMPANY, INC.
By:
------------------------------
Seth S. Werner, President
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LIMITED PARTNER:
AMCALFUND, INC.
By:
------------------------------
Its:
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Schedule A
Capital Contributions and Units
General Partner Capital Contribution Number of Units
--------------- -------------------- ---------------
FMN Management Company, Inc. $255,000 51
Limited Partner Capital Contribution Number of Units
--------------- -------------------- ---------------
Amcalfund, Inc. $245,000 49
<PAGE>
Schedule B
List of MMRE Offices for Calculation of Buyer Side Penetration
(Section VII(D)(c))
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<PAGE>
EXHIBIT "B"
OFFICE USE AND SERVICES AGREEMENT
THIS OFFICE USE AND SERVICES AGREEMENT ("Agreement") is entered into
this ___ day of ________________, ____, by and between Mason-McDuffie Real
Estate, Inc., a California corporation ("MMRE") and Western America Mortgage,
Ltd., a Florida limited partnership ("WAM").
R E C I T A L S
A. MMRE is a residential real estate brokerage company.
B. WAM engages in the mortgage brokerage and banking business.
C. MMRE owns or leases or is otherwise entitled to occupy the
respective premises (the "Premises") (i) identified on Exhibit A hereto and (ii)
such other premises MMRE may occupy for use as an office for real estate agents
during the term hereof, as and when MMRE occupies such premises. The parties
hereto acknowledge and agree that during the term of this Agreement the rights
of MMRE, to occupy such Premises, or any of such Premises, may be terminated, in
which event Exhibit A may be revised and, when initialed by all parties hereto,
may be attached to this Agreement and substituted for, and in lieu of, the
then-attached Exhibit A.
D. Upon the terms and conditions of this Agreement, WAM desires to
obtain from MMRE the use of certain office space (the "Office Space") at the
Premises, as more particularly shown on Exhibit A, and for certain related
office services, and MMRE desires to provide such office space and services.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency are hereby acknowledged, MMRE and WAM agree as follows:
1. Grant of Office Use/Services; Term; Termination.
-----------------------------------------------
A. Use of Office Space.
-------------------
During the term of this Agreement, MMRE agrees that WAM may use
the Office Space on the terms and conditions contained herein. In addition to
granting WAM the use of the Office Space, MMRE further agrees to permit WAM
reasonable use of and access to, at each Office Space location, all common-use
office equipment, telephones, modem and facsimile lines and machines, voice mail
systems, conference rooms, existing office furniture in the Office Space
designated for WAM, light receptionist coverage, and other similar services, it
being the parties' mutual intent that WAM's loan officers and managers using the
Office Space shall be extended the same courtesies and office-related
accommodations as MMRE's sales agents and employees occupying the Premises.
These shall include the privilege of attending, as appropriate, the various
meetings and functions,
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<PAGE>
including, but not limited to, office meetings, managers' meetings, award
functions, social functions, and similar meetings, that MMRE holds at the
Premises for managers and Realtors.
The use by WAM of the Office Space shall be in all respects
subject and subordinate to the terms, covenants and conditions of any rights and
conditions of and pertaining to MMRE's rights to occupy the Office Space or any
portion thereof. WAM shall conduct its business and occupancy in each Office
Space in a manner that shall not cause MMRE to be in default under its
agreements with third parties pertaining to the Premises. WAM acknowledges and
agrees that if MMRE ceases to occupy a particular Premises for whatever reason,
WAM's right to use the Office Space associated therewith shall cease. WAM
further acknowledges and agrees that all decisions respecting MMRE's continued
occupancy of any particular Premises is a matter of MMRE's sole discretion.
B. Term.
----
The term of this Agreement shall be ten (10) years from the
date hereof, provided that the term shall thereafter automatically renew from
time to time for successive, additional one-year terms unless either party shall
provide the other party with a written notice of termination at least nine (9)
months prior to the termination date (including any termination date as a result
of any renewal period).
C. Termination by Either Party.
---------------------------
This Agreement may be terminated by either party: (i) in the
event the other party should fail to perform any of its obligations hereunder
and should fail to remedy such nonperformance within thirty (30) calendar days
after receiving written demand therefor; provided, however, that upon a second
breach of the same obligation by such party, the other party hereto may
forthwith terminate this Agreement upon notice to the breaching party; (ii)
effective immediately, if the other party should become the subject of any
voluntary or involuntary bankruptcy, receivership or other insolvency
proceedings or make an assignment or other arrangement for the benefit of its
creditors; and (iii) effective immediately, if WAM should lose any license
necessary for it to conduct business as a mortgage broker and banker in the
State of California.
2. Payment and Services.
--------------------
A. In consideration of the use of the Office Space during the
Term, WAM covenants and agrees to pay to MMRE
(i) Fee calculated as Five Hundred Dollars ($500.00) per WAM
loan officer who occupies any of the Premises for more
than half of a month, per month. The monthly fee shall
be due on the first business day of each calendar month.
In the event of a partial month at the beginning or end
of this agreement, the monthly fee for the portion of
the month shall be prorated (in accordance with the
percentage of the number of days this Agreement is in
effect
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<PAGE>
during such partial month bears to the number of days in
that calendar month).
3. Reporting Obligations.
---------------------
WAM agrees during the term of this Agreement to provide MMRE with a
monthly written report summarizing in sufficient detail the number of
residential real estate transactions closed at each Office Space location during
such month for which transactions WAM provided mortgage-related services. In
turn, MMRE agrees during the term of this Agreement to provide WAM with a
monthly written report summarizing in sufficient detail, for each Office Space
location, MMRE's purchaser-side volume of business in connection with the
residential real estate transactions closed at each Office Space location during
such month, such reports to include specific reference to (i) the particular
MMRE Office and agent involved in each such transaction, and (ii) the property
address of the residential real estate property involved in each reported
transaction for such month. Each party agrees to provide to the other party its
respective written report for each calendar month during the term of this
Agreement no later than fifteen (15) days after the last day of each such month.
4. Repairs and Alterations.
-----------------------
There shall be no obligation on the part of the MMRE to make any
repairs, alterations or improvements in order to make the Premises or the Office
Space ready for occupancy by WAM or as a condition to WAM making the payments
contemplated by section 2 of this Agreement. If WAM shall desire to make any
repairs, alterations or improvements on the Premises or the Office Space, WAM
shall first obtain the prior written consent thereto of MMRE, which consent may
be granted or withheld in the sole discretion of MMRE, and shall bear all costs
related to such repairs or alterations. MMRE makes no representations or
warranty to WAM regarding the suitability of the Office Space or the Premises.
5. Assignment.
----------
WAM may not assign, transfer, sell, encumber or otherwise convey its
interest in, or any of its rights under, this Agreement, or any portion thereof,
or its interest in the Premises or the Office Space, or any portion thereof,
without the prior written consent of MMRE, which consent may be granted or
withheld in the sole discretion of MMRE. Any assignment, transfer, sublease,
sale, encumbrance or conveyance by WAM without first obtaining such prior
written consent shall, at the option of MMRE, be void.
6. Continuing Liability of MMRE.
----------------------------
Nothing in this Agreement shall be deemed to relieve MMRE from any
of its duties, responsibilities or obligations under the leases for the Premises
or confer on WAM any rights with respect to the Office Space or the Premises,
except as expressly set forth herein.
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<PAGE>
7. No Joint Venture.
----------------
Nothing in this Agreement shall be construed as creating a
partnership, joint venture, or franchise between the parties or as making either
party the agent of the other.
8. Notices.
-------
All notices under this Agreement shall be in writing and shall be
deemed to have been properly given if hand delivered or sent by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows (or to such other parties and addresses as either party may
from time to time designate by written notice as herein provided):
If to MMRE: 1901 Olympic Boulevard, Third Floor
Walnut Creek, CA 94596
Attn: Ed Krafchow
If to WAM: 983 University Ave., Building D
Los Gatos, CA 95032
Attn: John Hogan
9. Indemnification and Release.
---------------------------
(a) WAM shall hold MMRE harmless from, indemnify,
and defend MMRE against, any and all claims,
damages, causes of action, awards, and other
liabilities suffered by MMRE, including costs
and attorneys' fees, arising out of any WAM use
of the Office Space or WAM's provision of any
mortgage-related services upon the Premises.
(b) WAM releases MMRE from any and all claims,
damages, causes of action, awards or other
liabilities which may be suffered by WAM,
including costs and attorneys' fees, arising in
any manner from any acts or omissions, other
than grossly negligent or fraudulent acts or
omissions, relating to MMRE's provision of any
services to any of WAM's clients.
10. Intent of the Parties.
---------------------
It is the intent of both parties that this agreement shall comply
with the provisions of RESPA. The aggregate amount of fees to be paid hereunder
represent a good faith estimate by the parties of the market value of the access
to Office Space and services to be provided by MMRE to WAM hereunder hereunder.
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<PAGE>
11. Counterparts.
------------
This Agreement may be executed in counterparts, each of which shall
be deemed to be an original hereof.
12. Choice of Law.
-------------
This Agreement and the transaction contemplated hereunder shall be
governed by and construed in accordance with the laws of the State of
California.
13. Titles and Headings.
-------------------
The titles and headings of sections of this Agreement are intended
for convenience only and shall not in any way affect the meaning or construction
of any provision of this Agreement.
14. Changes, Waivers, Discharge and Modifications in Writing.
No provision of this Agreement may be changed, waived, discharged
or terminated except by an instrument in writing signed by the party against
whom enforcement of the change, waiver, discharge or termination is sought.
IN WITNESS WHEREOF, MMRE and WAM have executed this Agreement as of
the day and year first above written.
"MMRE"
MASON-McDUFFIE REAL ESTATE, INC.
By:
------------------------------
Name:
------------------------
Title:
-----------------------
"WAM"
WESTERN AMERICA MORTGAGE, LTD.
By:
------------------------------
Name:
------------------------
Title:
------------------------
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NONCOMPETITION AND OPTION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of
__________, 1999 by and between Western America Mortgage, Ltd., a Florida
limited partnership ("WAM"), Amcalfund, Inc., a California corporation ("LP
Corp."), FMN Management Company, Inc., a Florida corporation ("GP Corp."), and
Mason-McDuffie Real Estate, Inc., a California corporation ("MMRE").
FACTUAL BACKGROUND
A. MMRE conducts a real estate brokerage business with offices at
various locations.
B. WAM has been formed to engage in the mortgage banking and mortgage
brokerage business. WAM will focus primarily on serving the mortgage needs of
all real estate offices and relocation businesses owned or later acquired by
MMRE and any real estate offices which have signed a Trademark License Agreement
or TLC Service Agreement with MMRE. GP Corp. is the general partner of WAM and
owns a 51% partnership interest in WAM.
C. MMRE has granted WAM the right to provide its mortgage banking and
mortgage brokerage services in MMRE's real estate offices and MMRE agrees that
WAM shall seek to provide its mortgage brokerage and banking services to all
real estate offices which have signed Trademark License Agreements or TLC
Service Agreements with MMRE and to make the services of WAM available to sales
persons and clients of MMRE pursuant to an Office Use and Services Agreement of
even date herewith (as amended and modified from time to time, the "MMRE
Agreement").
D. LP Corp. owns a 49% limited partnership interest in WAM.
E. MMRE owns all of the issued and outstanding shares of LP Corp., and
by virtue of being the sole shareholder of LP Corp., MMRE has a continuing
financial stake in WAM's performance.
F. MMRE, LP Corp and GP Corp. are parties to that certain Agreement
Regarding Creation of Western America Mortgage, Ltd. dated July ___, 1999 (the
"WAM Agreement").
G. Section 2.4 of the WAM Creation Agreement requires that this
Agreement be executed and delivered by the parties in connection with the
formation of WAM.
NOW THEREFORE, intending to be legally bound, the parties hereto agree
as follows:
1. Confidential Information. MMRE, LP. Corp., GP Corp. and their
respective Affiliates (as defined below) will only make disclosure of
proprietary or confidential
<PAGE>
information concerning WAM and its mortgage banking and mortgage brokerage
business as shall be authorized by GP Corp. MMRE, LP Corp., GP Corp. and their
respective Affiliates, will not, directly or indirectly, at any time, divulge,
disclose, furnish, communicate or make accessible to any third party who is not
authorized by GP Corp. to receive such information, any customer or prospective
customer list, financial data, sales data, technology information, intellectual
property, business plans, strategic plans, market studies or any other
confidential or proprietary information relating to WAM. All files, records,
documents, forms, plans, policies and procedures manuals, client and prospective
client lists, written memoranda or similar materials generated in connection
with, or necessary to, the conduct of WAM's mortgage banking business and
mortgage brokerage business, whether now existing or arising in the future,
remain the exclusive property of WAM; provided, however, that all records and
information, whether in paper or electronic form, related to clients of MMRE
constitute proprietary information and trade secrets of MMRE. Notwithstanding
the foregoing, this Section shall not prevent, or apply to, disclosure of
information which is otherwise generally known in the marketplace.
For purposes of this Agreement, "Affiliate" shall mean any person
or entity which, directly or indirectly, through one or more intermediaries, is
controlled by the person or entity specified, provided, however, the entities
directly or indirectly controlled by Dave Cobo and/or Ed Krafchow shall be
deemed to be "Affiliates" of MMRE until the earlier to occur of (i) July 9, 2001
or (ii) as to Dave Cobo, at such time as Dave Cobo and Ed Krafchow shall cease
to own collectively more than 50% of the voting stock of MMRE, and as to Ed
Krafchow, at such time as he and Dave Cobo shall cease to own collectively more
than 50% of the voting stock of MMRE.
2. Noncompetition.
2.1 MMRE, LP Corp. and their respective Affiliates, will not compete
with WAM in the mortgage banking business (including, without limitation,
mortgage loan origination (whether by independent agents or using retail
loan officers), mortgage loan processing, mortgage loan underwriting,
mortgage brokerage and any other mortgage banking activities) and mortgage
brokerage business, either directly or indirectly, either alone or in
conjunction with others, in the Territory at any time prior to the later of
(i) the termination of the MMRE Agreement or (ii) LP Corp.'s withdrawal as
a limited partner from WAM. For purposes of this section, the term
"compete" includes, without limitation, acting as a proprietor, owner,
shareholder, partner, investor, joint venturer or other participant in or
with a competitor of WAM or as a trustee, director, officer, employee,
agent, representative, consultant, advisor or independent contractor to or
for a competitor of WAM. Without limiting the generality of the foregoing,
MMRE and LP Corp. shall not own, operate, or invest in any mortgage banking
venture, directly or indirectly, and will not permit other mortgage banking
or mortgage brokerage businesses to lease premises within offices of MMRE,
and/or any other real estate or relocation business which is owned or
controlled by MMRE and LP Corp. For purposes of this Agreement, the
Territory shall mean the United States of America. Notwithstanding the
foregoing, this noncompetition
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<PAGE>
provision shall not apply to (i) the mortgage business acquired by LP Corp.
from Americal Funding, Inc., provided that MMRE agrees not to cause any
loan agents engaged in the Americal Funding business or employed by LP
Corp. to be given access to any real estate offices owned by MMRE, or
companies with whom MMRE has signed a TLC Services Agreement) other than
the real estate offices acquired from Dutra Realty Enterprises, Inc. and
any relocation thereof, (ii) the Partnership in which MMRE is a partner
that provides mortgage brokerage services to MMRE's Sebastopol office,
provided MMRE agrees not to cause any loan agents of such Partnership to be
given access to any real estate offices owned by MMRE other than MMRE's
Sebastopol office or any relocation thereof. Section 2.1 shall not apply to
any mortgage brokerage business subsequently acquired by MMRE in compliance
with the right of first refusal provisions in favor of WAM, provided that
such business shall not be conducted in any MMRE office except the real
estate offices acquired in connection with such acquisition, and any
relocation thereof. Section 2.1 shall also terminate upon GP Corp. ceasing
to be a partner of WAM.
2.2 GP Corp. and Mortgage.com and their Affiliates shall not provide
mortgage brokerage and banking services through loan agents located in the
MMRE owned offices or Prudential franchised real estate offices which have
entered into Trademark License Agreements or TLC Service Agreements with
MMRE, except through WAM.
2.3 Enforceability. The parties hereto acknowledge that the
restrictions, prohibitions and other provisions in this Section 2 are fair,
reasonable 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 the WAM Creation Agreement and the related agreements
and transactions. In the event that the restrictions contained in this
Section 2 are held to be too broad to allow enforcement of such restriction
to its full extent, such restrictions 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 restrictions. The parties acknowledge and agree that the
remedy at law for the breach of the obligations under this Section 2 may be
inadequate, and agree and consent to the temporary and/or permanent
injunctive relief may be entered enjoining a party from breaching this
Agreement.
2.4 WAM's Option to Purchase Future MMRE Mortgage Banking
Operations.
(a) In the event that MMRE or its Affiliates shall subsequently
acquire or obtain, directly or indirectly through a subsidiary or
otherwise, ownership of any mortgage banking or mortgage brokerage business
or venture, WAM shall have the option, but not the obligation, to purchase
such mortgage banking and mortgage brokerage business from MMRE, and MMRE
hereby agrees to sell such business to WAM for a price which will be the
greater of (a) the sum of one percent
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<PAGE>
(1%) of purchase money mortgage loan volume and one-half percent (.5%) of
refinance mortgage loan volume of the business during the previous two-year
period, divided by two, or (b) an amount equal to three (3) times the
pre-tax earnings of the business over the two-year period, divided by two;
provided that in no case shall WAM be required to pay more than MMRE's
actual cost for the mortgage business. The purchase price shall be payable
in cash.
(b) MMRE shall promptly provide written notice to WAM in the
event of its acquisition of any such mortgage banking venture and shall
provide WAM and its employees, agents, accountants, attorneys and financial
advisors with the opportunity to conduct a reasonable due diligence
investigation of the potential acquisition, including, without limitation,
the right to inspect, review and make copies of the financial information
about the business, interview employees and inspect the facilities. WAM
shall notify MMRE in writing within 30 days following its opportunity to
complete its reasonable, good faith due diligence examination, as to
whether WAM elects to purchase the business. In the event WAM notifies MMRE
that it elects to purchase the business, the parties shall negotiate,
acting reasonably and in good faith, to develop mutually-acceptable
documentation for the transaction. In the event of any disagreement
regarding the reasonableness of provisions contained in the proposed
documentation, to the extent reasonable and practical under the
circumstances, the parties shall look to the acquisition documents executed
by MMRE, as purchaser, in connection with MMRE's acquisition of the
mortgage banking operation, to determine whether the proposed provisions
are fair and reasonable. Notwithstanding the foregoing, MMRE shall not be
required to make any representations or warranties except (i) to pass along
representations by the original Seller without liability to MMRE, and (ii)
representation that MMRE has taken no action to impair title.
(c) This Option shall terminate upon the earlier of (i) GP Corp.
ceasing to be general partner of WAM or (ii) LP Corp. ceasing to be a
limited partner of WAM.
3. No Joint Venture. Nothing in this Agreement shall be construed as
creating a partnership, joint venture or franchise between the parties or as
making either party the agent of the other.
4. Assignment. Neither this Agreement, nor the rights and obligations
hereunder may be assigned by any party without the written consent of the other
party.
5. Miscellaneous. This Agreement shall be governed by and construed
under the laws of the State of California. This Agreement supersedes any and all
agreements, whether written or oral, between the parties pertaining to the
subject matter of this Agreement. Each party to this Agreement acknowledges that
no inducements, promises or agreements, oral or otherwise, pertaining to the
subject matter of this Agreement, have been made by any party, or anyone acting
on behalf of any party, that are not embodied in this Agreement. This
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<PAGE>
Agreement shall be binding upon and inure to the benefit of the successors,
personal representatives and permitted assigns of the parties hereto. This
Agreement may not be amended except by a written document signed by the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WESTERN AMERICA MORTGAGE, LTD.,
a Florida limited business,
By: FMN Management Company, Inc., its
General partner.
By:
---------------------------------
Seth S. Werner, President
("WAM")
FMN MANAGEMENT COMPANY, INC.
By:
---------------------------------
Seth S. Werner, President
("GP Corp.")
AMCALFUND, INC.
By:
---------------------------------
Its:
----------------------------
("LP Corp.")
MASON-McDUFFIE REAL ESTATE, INC.
By:
---------------------------------
A. David Cobo, President
("MMRE")
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<PAGE>
Acknowledgement and Joinder:
Mortgage.com hereby joins in this Agreement
for the purpose of being bound by Section 2.2
hereof.
MORTGAGE.COM, INC., a Florida
corporation
By:
----------------------------------
Its:
----------------------------
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AMENDMENT NUMBER ONE TO DOMAIN NAME ASSIGNMENT AGREEMENT
This AMENDMENT NUMBER ONE TO DOMAIN NAME ASSIGNMENT AGREEMENT
(this "Amendment") is entered into this 30th day of June 1999, by and between
Mortgage.com, Inc. (f/k/a First Mortgage Network, Inc.), a Florida corporation
located at 8751 Broward Blvd., Plantation, Florida 33324 ("Purchaser"), and
Credit.Com, LLC, a California limited liability company located at 87 Stillman
Street, San Francisco, California 94107 ("Seller").
RECITALS
WHEREAS, on January 1st, 1999 PURCHASER and SELLER entered
into, inter alia, the following agreements: (i) Domain Name Assignment Agreement
(the "Domain Name Assignment Agreement"); (ii) Registration Rights Agreement
(the "Registration Rights Agreement"); and (iii) Security Agreement (the
"Security Agreement"); and
WHEREAS, PURCHASER and SELLER desire to amend the Domain Name
Assignment Agreement as more particularly set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, the parties agree as follows:
1. All capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed to such terms as set forth
in the Domain Name Assignment Agreement, regardless of whether certain
provisions of the Domain Name Assignment Agreement are deleted hereby.
2. In consideration of SELLER's obligations and agreements set forth in
this Amendment, PURCHASER shall pay to SELLER One Million Five Hundred
Thousand Dollars ($1,500,000) on the date hereof (the "Closing Date")
in cash and in immediately available funds by bank wire transfer to an
account or accounts designated by SELLER.
3. The lead in clause to Paragraph 2 of the Domain Name Assignment
Agreement is hereby amended in its entirety as follows:
"SELLER agrees to provide the PURCHASER the following as long as the
terms and conditions of the marketing agreement set forth in Paragraph
5 of this Agreement are in effect and PURCHASER is not in breach or
default of this Agreement:"
4. Paragraph 3.a. of the Domain Name Assignment Agreement is restated in
its entirety as follows:
"3.a PURCHASER shall provide SELLER with non-hyperlink promotional
space (80x80 pixels in size) the content of which shall be provided by
SELLER and unrestricted by PURCHASER except as otherwise permitted
herein. SELLER's promotional space referred to in the immediately
preceding sentence shall be located in a Premium Location defined as
"above the fold or bottom of the computer screen
<PAGE>
fully viewable without scrolling on a seventeen (17) inch computer
monitor using 640x480 resolution", on the Mortgage.com "Home Page"
which is defined herein "as any index, default, root or other web page
which is the first page called and displayed when accessing the
Internet web site addresses, http://www.mortgage.com, www.mortgage.com,
mortgage.com or any web site address not excluded in paragraph 3.h. of
this Agreement. SELLER shall have the right to provide PURCHASER, and
PURCHASER shall be obligated to host on its web server, or any web
server used to host the Mortgage.com "Home Page", any and all hyper
text markup language (HTML) or code required by SELLER on the
Mortgage.com Home Page.
Without forfeiting any of SELLER's rights contained herein including,
without limitation, those set forth in this Paragraph 3.a:
(a) SELLER agrees its promotional representation on the
Mortgage.com Home Page shall not include any content, code,
design or images considered to be obscene, pornographic or
illegal by a reasonable person residing in San Diego,
California applying the community standards of San Diego,
California.
(b) SELLER agrees to use commercially reasonable efforts to
maintain the "look and feel" of the Mortgage.com Home Page, it
being understood and agreed that the SELLER shall have the
sole and exclusive right to determine whether SELLER is in
compliance with the SELLER's obligations set forth in this
Paragraph 3.a (b) and that PURCHASER shall not have any rights
to determine whether SELLER is in compliance with the
provisions of this Paragraph 3.a(b).
(c) SELLER agrees to use its promotional space on the Mortgage.com
Home Page solely for the purpose of promoting its web site
www.credit.com.
(d) SELLER agrees that the only reference to Mortgage.com within
its promotional space on the Mortgage.com Home Page shall be
introduced with the words "member of" or "affiliate of".
(e) SELLER agrees the Credit.Com logo type used in its promotional
space on the Mortgage.com Home Page shall be substantially the
same as the logo type it uses on the Credit.Com Home Page
located at www.credit.com.
(f) SELLER agrees the only web site address or (URL) to be
displayed within its promotional space on the Mortgage.com
Home Page shall be http://www.credit.com or credit.com.
(g) SELLER agrees it will not use its promotional space on the
Mortgage.com Home Page to reference any third party mortgage
financing web sites or related mortgage financing third party
products.
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<PAGE>
(h) SELLER agrees to provide reasonable notice of any significant
changes to its promotional space on the Mortgage.com Home Page
prior to their implementation.
(i) For a period of one year from the date hereof, SELLER agrees
not to use any animated GIF's in SELLER's promotional space on
the Mortgage.com Home Page so long as PURCHASER does not use
any animated GIF's on PURCHASER's Mortgage.Com Home Page, it
being understood and agreed that if PURCHASER shall use any
animated GIF's on PURCHASER Mortgage.com Home Page during such
one year period, then SELLER shall be permitted to use
animated GIF's in SELLER's promotional space on the
Mortgage.com Home Page."
5. Paragraph 3.c. of the Domain Name Assignment Agreement is hereby
restated in its entirety as follows:
"3.c PURCHASER shall provide SELLER with a hyperlink promotional space
(480x60 pixels in size) which shall include a banner advertisement and
the hypertext markup language (HTML) provided by SELLER which shall
include the HTML code (left angle bracket) A HREF="
http://www.credit.com/cgi bin/redir/site=FMN/?http://www.credit.com/">
(left angle bracket)IMG SRC="
http://www.credit.com/ads/images/frm_banner.gif" > (left angle
bracket)/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 3.a. above, on the final page displayed to all visitors who
have completed the mortgage loan application process on the
www.mortgage.com web site or any site not excluded in Paragraph 3.h.
SELLER agrees its banner advertisement on the Mortgage.com website will
not reference any third party mortgage financing web sites or related
mortgage financing third party products."
6. Paragraph 3.d. of the Domain Name Assignment Agreement is hereby
restated in its entirety as follows:
"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 website at all web
sites currently using the loanshop brand, or to point those URLs
directly (without using redirects) at mortgage.com; provided, however,
that the first page of the Mortgage.com web site that any visitor is
directed to or may access on the Internet or otherwise shall contain
SELLER's non-hyper link promotional space (80 by 80 pixels in size) in
a Premium Location as further described in Paragraph 3.a. This
provision shall include all multi lender sites owned, operated and /or
branded by PURCHASER or any of its Affiliate entities."
7. The second sentence of Paragraph 3.i. of the Domain Name Assignment
Agreement is hereby deleted in its entirety.
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<PAGE>
8. Seller hereby waives its preemptive rights with respect to all
securities of the Purchaser whether issued or sold prior to, on, or
subsequent to the Closing Date and, accordingly, the second sentence of
Paragraph 4.a. of the Domain Name Assignment Agreement is hereby
deleted in its entirety.
9. SELLER agrees to execute the waiver letter attached hereto as Exhibit A
and the "lock-up" agreement attached hereto as Exhibit B on the date
hereof.
10. SELLER acknowledges that upon payment of the amount set forth in
Paragraph 2 of this Amendment, PURCHASER's payment obligations to
SELLER under Paragraphs 4.c. and 4.d. of the Domain Name Assignment
Agreement shall be satisfied and shall be deemed to have been paid in
full. Accordingly, paragraphs 4.c. and 4.d. of the Domain Name
Assignment Agreement are deleted in their entirety.
11. SELLER hereby waives its rights contained in Paragraph 4.e. of the
Domain Name Assignment Agreement with respect to the IPO. Accordingly,
Paragraph 4.e of the Domain Name Assignment Agreement is deleted in its
entirety and Paragraph 4.f is modified pursuant to Exhibit A attached
hereto.
12. SELLER agrees that upon payment of the amount set forth in Paragraph 2
of this Amendment, the security interest described in Paragraph 4.g. of
the Domain Name Assignment Agreement and in the Security Agreement
shall terminate and be of no further force and effect, and accordingly
the first paragraph of Paragraph 4.g of the Domain Name Assignment
Agreement is deleted in its entirety, and the second paragraph of
Paragraph 4.g of the Domain Name Assignment Agreement is amended and
restated in its entirety as set forth below and the Security Agreement
shall be terminated and be of no further force and effect. SELLER shall
sign such UCC-3 termination statements and other documents as shall be
reasonably requested by PURCHASER to effect the release of the security
interest referred to herein. SELLER hereby represents and warrants that
it never notified Network Solutions, Inc. ("NSI") in writing or
otherwise of PURCHASER's payment obligations to SELLER under Paragraphs
4.c and 4.d of the Domain Name Assignment Agreement, however, upon the
request of PURCHASER SELLER shall notify NSI in writing that
PURCHASER's payment obligations to SELLER under Paragraphs 4.c and 4.d
of the Domain Name Assignment Agreement have been satisfied, and that
the letter to NSI from SELLER (as agreed to by PURCHASER on January 7,
1999) is of no further force and effect and may be disregarded by NSI,
and a form of such notification is attached hereto as Exhibit C.
(1) Restated Second Paragraph of Paragraph 4.g. of the Domain Name
Assignment Agreement:
"In the event that PURCHASER breaches any of its obligations
contained in this Agreement or the Registration Rights
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, and, assuming
that such breach
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<PAGE>
is the first occurrence of such type of breach, then PURCHASER
shall have ten (10) days to cure such breach; provided,
however, that PURCHASER's cure period with respect to any type
of good faith and unintentional breach for which PURCHASER
previously was afforded such cure period shall be five (5)
days. PURCHASER shall not be afforded any cure period for; (i)
an intentional second occurrence of the same or substantially
similar breach during any consecutive twelve (12) month period
or (ii) the third breach of any obligation of PURCHASER under
this Agreement that occurs during any consecutive twelve (12)
month period. If PURCHASER shall fail to cure its breach
within the applicable time period of this Paragraph or such
breach is an intentional second occurrence of such type of
breach or is the third breach occurring during any consecutive
twelve (12) month period, then, without any further action by
any party hereto PURCHASER: (i) (A)shall be entitled to
recover its actual damages incurred as a result of such
breach; or (B) PURCHASER shall pay to SELLER ONE MILLION and
00/100 DOLLARS ($1,000,000) in cash and in immediately
available funds to an account or accounts designated by SELLER
within three (3) business days, such payment representing
reasonable and agreed upon liquidated damages and not a
penalty; and (ii) SELLER shall have the right, but not the
obligation, to terminate the executory portions of this
Agreement by delivering a written notice to PURCHASER at any
time up until the sixtieth (60th) day after PURCHASER shall
have made the $1,000,000 payment provided herein; and (iii) if
either party has to take legal action to enforce any of the
provisions of this Agreement, then, in addition to any and all
other rights, remedies or causes of action available, the
prevailing party shall be entitled to receive reasonable legal
fees and expenses in connection with such legal action.
To be considered a breach under this Paragraph 4.g, a monetary
payment due under this Agreement must be more than thirty (30)
days late, or more than twenty percent (20%) less than the
amount due, after any applicable cure period. Regardless of
the number of breaches, in no event shall the liquidated
damages referred to in clause (i)(B) of this Paragraph 4.g
exceed One Million Dollars ($1,000,000) in any consecutive
twelve (12) month period."
13. Paragraph 4.h. of the Domain Name Assignment Agreement is restated in
its entirety as follows:
"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 EIGHTEEN PERCENT (18%) per annum for each
day that such payment is not made."
14. Paragraph 5 of the Domain Name Assignment Agreement is hereby restated
in its entirety as follows:
"5. Marketing Agreement
In consideration of SELLER's obligations contained hereunder
including, without limitation, SELLER's web site advertising,
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<PAGE>
promotion and marketing of the Mortgage.com web site as
provided in Paragraph 2 above, which the parties agree is
valued at Two Million Five Hundred Thousand Dollars
($2,500,000) per year, PURCHASER shall pay SELLER on a monthly
basis, on the fifteenth (15th ) day of each month payable in
arrears, 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) during any twelve
(12) month period commencing on the date of closing of this
Agreement, and the amounts payable pursuant to this Section 5
shall expire ten (10) years from the date hereof.
5.a Mortgage. com shall pay to CREDIT.COM a fee of EIGHTY and
00/100 ($80.00) DOLLARS for every completed loan application
(defined as a submitted application and including a valid
Social Security Number, if a Social Security Number is so
requested as a part of such application) resulting or
originating from the CREDIT.COM web site (regardless of
whether the application results in a closed loan)."
15. The address set forth in Paragraph 13.g.1 of the Domain Name Assignment
Agreement to which notices must be delivered to the SELLER is hereby
amended by adding the following under the last paragraph of Paragraph
13.g.1 of the Domain Name Assignment Agreement:
"with copies to:
Todd A. Meagher, President and COO
87 Stillman Street
San Francisco, CA 94107
and
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq."
16. Except as specifically set forth in this Amendment, all terms and
conditions of the Domain Name Assignment Agreement, the Registration
Rights Agreement and all other ancillary documentation executed in
connection therewith shall remain in full force and effect. All
references to the Domain Name Assignment Agreement after the date
hereof shall automatically be deemed to include this Amendment, and,
accordingly, without limiting the generality of this sentence, it is
understood and agreed that the defined term "Agreement"
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<PAGE>
found in the Domain Name Assignment Agreement includes, collectively,
the Domain Name Assignment Agreement and this Amendment. In the event
of any conflict between the terms of this Amendment and the terms of
the Domain Name Assignment Agreement or the Registration Rights
Agreement, the terms of this Amendment shall control.
17. This Amendment 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 Closing Date.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Amendment as of the day and year first written above.
MORTGAGE.COM, INC.
By: Date:
--------------------------------------------- -----------------------
Name: Seth Werner
Title: Chief Executive Officer & President
CREDIT.COM, LLC
By: Date:
--------------------------------------------- ----------------------
Name: Todd Meagher
Title: President and Chief Operating Officer
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.
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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
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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:
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(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.
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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
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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
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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 Guaranteed Submissions. ILSI guarantees that the following minimum
numbers of Submissions for Subprime Loans will be generated through the Website
or ILSI's call center and forwarded to MC for processing during the following
three Contract Years:
(a) First Contract Year: ** Submissions
First quarter: **
Second quarter: **
Third quarter: **
Fourth quarter: **
(b) Second Contract Year: ** Submissions
First quarter: **
Second quarter: **
Third quarter: **
Fourth quarter: **
(c) Third Contract Year: ** Submissions
First quarter: **
Second quarter: **
Third quarter: **
Fourth quarter: **
ILSI shall attain the guaranteed minimum amounts of Submissions for each
quarter. For any quarter for which the minimum amount is not reached, ILSI shall
pay ** for each Submission below the required level of submissions for that
quarter, provided, however, that if the shortfall for any one quarter does not
exceed ** of the guaranteed minimum amount. MC shall monitor the number of
Submissions transmitted through ILSI each quarter and shall invoice ILSI for any
amount due at the end of such quarter. ILSI shall pay such invoices within 30
days of receipt.
The above guaranteed minimum amounts 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 guaranteed minimum amounts of
Submissions. The parties may further adjust such minimum amounts from time to
time by agreement in writing.
3.3 Conversion Ratios for Subprime Loans. The parties agree to the
following minimum performance standards for MC.
(a) MC shall meet the following conversion ratios for Subprime Loans
from the indicated stage or category, to a closed and funded loan:
(i) Inquiry Stage **
(ii) Prequalification Stage: **
(iii) Application Stage: **
The parties agree that ILSI will not provide pricing for Subprime Loans
online for five (5) months from the Commencement Date (or such earlier or later
date as the parties subsequently agree in writing). Therefore, all loans closed
and funded during that period will be deemed to be Inquiry Stage loans.
7
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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. Amount of Time to Close
Loans. MC shall monitor the processing of Subprime Loans to achieve and maintain
an average amount of time between application and loan closing of ** days for
refinance loans. From and after 18 months after the Commencement Date, the
average amount of time between application and loan closing for refinance loans
will be ** days. For purchase loans, MC shall close the loans within the time
period selected by the consumer not less than **% of the time.
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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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
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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 Signing and Exclusivity Fee.
MC shall pay ILSI a nonrefundable fee of * on August 10, 1999, provided
that ILSI has begun offering Subprime Loans on the Website on or before that
date. Furthermore, MC shall pay ILSI a non-refundable exclusivity fee in the
aggregate amount of **, payable in three equal installments on the first day of
each Contract Year for the first three Contract Years. Thereafter, MC shall pay
ILSI a non-refundable exclusivity fee in the amount of ** for each successive
Contract Year on the first day of each such year.
4.3 Fees for ILSI's Services and Facilities.
MC shall compensate ILSI for ILSI's origination of Subprime Loans at
the rate of ** basis points for each Subprime Loan closed by MC. This fee is
broken down as follows: (a) ** basis points will be paid by the borrower at the
time of closing of the loan as compensation for ILSI's mortgage origination
services; and (b) ** basis points as ILSI's share in the profit on the sale of
the loan by MC on the secondary market (whether or not MC realizes a profit on
any particular loan sale).
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.
For so long as Section 5.2 is in effect, ** Notwithstanding the
foregoing, this Section 5.1 shall not restrict MC from providing services to
companies and Internet sites that use the technology platforms that have been
licensed from those identified on Attachment B (as that Attachment may be
amended), if MC's services consist of standard linkages and are limited to
transmission of loan data from such companies and Internet sites to MC and/or
the transmission of pricing information, **.
5.2 Exclusivity with Respect to Subprime Loans. [Redacted]
MC shall be **. To the extent permitted by ILSI shall not permit **
without receiving the prior consent of MC. ILSI shall use its best efforts to **
as soon as practicably possible, but in any event not later than **. In
addition, ILSI shall pay MC a ** for each lender that **.
10
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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
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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
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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) Insufficient Volume. If ILSI does not achieve ** of Submissions in
Section 3.2 for three (3) consecutive months, MC shall notify ILSI in writing of
the shortfall. ILSI shall have ** 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 MC may terminate this Agreement after giving
six (6) months' prior written notice.
(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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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 Change of Control or Ownership. MC will not, during the term of
this Agreement as it may be extended, cause or authorize, or obligate itself to
cause or authorize, any Reorganization (defined below) with any entity ** . A
Reorganization shall mean any capital reorganization of the Common Stock, or a
merger or consolidation of the Company with or into another corporation, unless
MC shall be the surviving corporation, or the sale of all or substantially all
of MC's capital stock or assets to any other person or entity, or any other form
of business combination or reorganization in which control of MC is transferred.
"Control" shall be deemed to have been transfered in a transaction or series of
transactions in which any person, or group of related persons, shall have
acquired beneficial ownership of more than 25% of the capital stock of MC
(assuming all rights, options, warrants or convertible or exchangeable
securities entitling the holders thereof to subscribe for or purchase or
otherwise acquire shares of capital stock have been fully exercised or
converted) or of substantially all of the assets of MC.
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
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<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
The initial Index shall consist of the following:
**
**
**
**
**
Changes to this Index may be made by mutual consent, in order to maintain an
Index of at least five lenders from sites that may reasonably be deemed
competitive with QuickenMortgage.
21
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
<PAGE>
APPENDIX B
Site Company
1. ** **
2. ** **
3. ** **
4. ** **
5. ** **
6. ** **
7. ** **
8. ** **
** indicates information which has been omitted pursuant to a confidential
treatment request filed separately with the Commission.
WAIVER AGREEMENT
This Waiver Agreement ("Agreement") is executed by and between Cendant
Mortgage Corporation ("Cendant") and First Mortgage Network Inc. ("FMNI")
(collectively, the "Parties").
In 1997, Cendant (formerly known as PHH Mortgage Services Corporation)
entered into a Marketing Agreement with NRT under the terms of which, among
other things, for a fee paid by Cendant, NRT generally agrees not to market, or
grant unlimited access or space to, mortgage origination entities other than
Cendant, within certain NRT real estate brokerage offices (the Marketing
Agreement Exclusivity Provision), including, without limitation, the NRT offices
in Northern California other than Cornish and Carey described in Exhibit A
appended hereto (collectively, the NRT Northern California Offices).
FMN is a mortgage origination entity that seeks to originate mortgage
loans for real estate brokerage customers of the NRT Northern California
Offices, with the cooperation of such offices, without regard to the limitations
that otherwise would be imposed upon it and its loan officers under the terms of
the Marketing Agreement Exclusivity Provision.
Cendant is willing to permit FMN (or its designee, Old Redwood Mortgage
Corp., for purposes of certain offices ("Designee"; FMNI and Designee shall be
collectively referred to herein as "FMN")) to seek mortgage loan origination
business within the NRT Northern California Offices, without regard to the
Marketing Agreement Exclusivity Provision, and, accordingly, to waive the
applicability of the Marketing Agreement Exclusivity Provision, and NRT is
willing to consent to the such waiver, all under the terms and conditions of
this Agreement. FMN's agreement to indemnify Cendant is as set forth herein.
The Parties agree as follows:
1. FMN represents and warrants that it is duly incorporated; that it is
authorized to do business in California; and that it is duly licensed by and in
good standing with the State of California to originate and close single-family
residential mortgage loans in and around each of the NRT Northern California
Offices.
2. For the exclusive benefit of FMN, Cendant waives the applicability
of the Marketing Agreement Exclusivity Provision and Cendant agrees that FMN may
seek to originate mortgage loans for real estate brokerage customers of the NRT
Northern California Offices, all in accordance with the terms and conditions of
this Agreement. FMN agrees to comply with all the reasonable rules and
regulations adopted from time to time by NRT for the use, entry, management and
enjoyment of the NRT Northern California Offices. In addition, FMN agrees to
comply with all statutes, laws, rules and regulations affecting FMN's mortgage
lending business. FMN further agrees not to make any alterations or additions or
place any signs to or throughout the NRT Northern California offices without the
consent of NRT, which consent will not be unreasonably withheld.
<PAGE>
3. FMN agrees that its loan officers placed throughout the NRT Northern
California offices shall: (i) become involved in the NRT Northern California
Offices' activities to the fullest extent permitted by law; (ii) be accessible
24 hours a day, 7 days a week to pre-qualify potential customers; (iii) maintain
high visibility in such offices; and (iv) maintain a professional manner in
providing high quality service at all times to NRT real estate agents and
customers.
4. FMN agrees to pay to Cendant, in advance, each month during the term
of this Agreement by no later than the 10th day of each month, the sum of
$24,000 (twenty-four thousand dollars) for the waiver provided hereunder. The
parties agree that the waiver fee set forth herein represents the fair and
reasonable value of the waiver by Cendant of the Marketing Agreement Exclusivity
Provision with respect to the offices attached on Exhibit A. The parties further
agree that in the event there is a material change to the offices listed on
Exhibit A, the fees paid herein will be adjusted to reflect the continued fair
and reasonable value of the waiver by Cendant.
5. The Term of this Agreement shall commence January 1, 1999, and shall
end December 31, 2003 (the Termination Date), unless earlier terminated as
provided in this Agreement. Cendant may terminate this Agreement prior to the
Termination Date: (a) if the Marketing Agreement or any of the Correspondent
Agreement(s) executed between the parties are modified in any material way; (b)
if Cendant reasonably concludes that FMN is or likely will be in material
default under the terms of any other agreement it has with Cendant; or (c) in
the event Cendant receives written notice from the NRT that FMN, in NRT's
judgment, is performing in an unacceptable manner. In any such event, Cendant
shall give at least thirty (30) days written advance notice (the Notification
Period) of such early termination date to FMN. FMN may terminate this Agreement,
at any time, with or without cause, by providing thirty (30) days written notice
to Cendant. Notwithstanding the foregoing, the provisions of Paragraphs 6, 7, 8
and 10 shall survive termination of this Agreement.
6. Indemnification.
---------------
(a) The Parties each agree to indemnify the other from any and all
expenses, penalties, liabilities, loss, damage, including reasonable attorneys'
fees, or costs any Party may suffer as a result of claims, demands, suits,
costs, and/or judgments arising out of (i) any breach by any party of its
respective representations, warranties, covenants and/or obligations under this
Agreement or (ii) the negligence or willful misconduct of such Party.
(b) The Parties each agree to indemnify the other from any and all
liability, loss or damage any Party may suffer as a result of claims, demands,
suits, costs, judgments against it, or reasonable attorneys' fees arising out of
the failure of any Party to conform to the statutes, ordinances, or other
regulations or requirements of any governmental authority in all material
respects, in connection with this Agreement.
7. Other than for any action, claim, lawsuit or proceeding made or
started prior to execution of this Agreement of which the Parties are aware, in
the event any allegedly injured party ("Indemnitee") intends to make a claim for
indemnification hereunder, it shall notify the
2
<PAGE>
other ("Indemnitor") of the claim in writing promptly (but in no event later
than 30 days) after receiving written notice of any action, lawsuit, proceeding,
investigation or other claim or discovering the liability, obligation or facts
giving rise to such claim for indemnification, describing the claim, the amount
thereof (if known and quantifiable), and the basis thereof; provided that the
failure to so notify the Indemnitor shall not relieve the Indemnitor of its
obligations hereunder except to the extent such failure shall have actually
prejudiced the Indemnitor. The Indemnitor shall be entitled to assume and
control (with counsel of its choice) the defense of the action, lawsuit,
proceeding, investigation or other claim giving rise to Indemnitee's claim for
indemnification at the option and expense of the Indemnitor by sending written
notice of his election to do so within 15 days after receiving written notice of
such claim from the Indemnitee as aforesaid; provided, however, that:
(a) The Indemnitee shall be entitled to participate in the defense
of such claim and to employ counsel of its choice for such purpose, the fees and
expenses of such separate counsel which shall be borne by the Indemnitee;
(b) If the Indemnitor elects to assume the defense of any such
claim, the Indemnitor shall be entitled to compromise or settle such claim so
long as either (x) such settlement provides an unconditional release of all
Indemnitees with respect to such claim and requires the payment of monetary
damages only or (y) Indemnitor obtains the prior written consent of the
Indemnitee (which consent shall not he unreasonably withheld); and
(c) If the Indemnitor shall not have assumed the defense of such
claim within the 15-day period set forth above, the Indemnitee may assume the
defense of such action, lawsuit, proceeding, investigation or such other claim
with counsel selected by it (which counsel shall be reasonably acceptable to the
Indemnitor) at the expense of the Indemnitor, provided that the Indemnitee shall
under no circumstances settle or compromise such claim without the prior written
consent of the Indemnitor (which consent shall not be unreasonably withheld).
(d) No notification of any indemnification claim under the terms of
this Agreement shall be effective or timely unless it is given during the Term
of this Agreement. An obligation to indemnify under the terms of this Agreement
with respect to a claim notification which is timely given shall survive the
termination of this Agreement. Notification shall be given to the last known
address.
8. The terms of this Agreement shall be binding upon and shall inure to
the benefit of the respective parties. This Agreement shall not be assigned by
either party without the express prior written consent of the other, which
consent may be given or withheld in the sole discretion of the party whose
consent in required hereby. The obligation of FMN to pay the fee then owed, as
set forth in Section 2 of this Agreement, and the respective obligations of the
parties to indemnify as set forth in this Agreement, shall survive the
termination of this Agreement.
9. This Agreement shall be subject to and construed under the laws of
the State of New Jersey, without reference to the conflicts of laws provisions
thereof and FMN consents to
3
<PAGE>
the personal jurisdiction of the Courts of the State of New Jersey and the
United States District Court for the District of New Jersey.
The parties each have caused this Agreement to be executed, as of this
28th day of December, 1998, each by their duly appointed officers, as evidenced
below.
Cendant Mortgage Corporation
By: /s/ Robert E. Groody
--------------------------------
Name: Robert E. Groody
Its: Senior Vice President
First Mortgage Network, Inc.
By: /s/ Seth Werner
--------------------------------
Name: Seth Werner
its: Chief Executive Officer
Attachment: Exhibit A (NRT Northern California Offices)
4
<PAGE>
EXHIBIT A
C21/Contempo Almaden 1096 Blossom Hill Rd., #200
San Jose San Jose, CA 95123
C21/Contempo Bascom 3190 S. Bascom Ave., #100
San Jose San Jose, CA 95124
C21/Contempo Cupertino 1 19200 Stevens Creek Blvd.
Cupertino, CA 95014
C21/Contempo Cupertino 2 20100 Stevens Creek Blvd.
Town Center Cupertino, CA 95014
C21/Contempo Danville 671 San Ramon Valley Blvd.
Main & Annex Danville, CA 94526
C21/Contempo Fremont 39505 Paseo Padre Pkwy
Fremont, CA 94538
C21/Contempo Gilroy 7789 Wren Ave.
Gilroy, CA 95020
C21/Contempo Hollister 200 Tres Pinos Rd.
Hollister, CA 95023
C21/Contempo Lafayette 3586 Mt. Diablo Rd.
Lafayette, CA 94549
C21/Contempo Livermore 1813 Fourth Street
Livermore, CA 94553
C21/Contempo Los Gatos 221 Los Gatos-Saratoga Rd.
Los Gatos, CA 95030
C21/Contempo Morgan Hill 308 Tennant Station
Morgan Hill, CA 95037
C21/Contempo Pleasanton 5980 Stoneridge Dr., #122
Pleasanton, CA 94588
C21/Contempo Sunnyvale 761 E. El Camino Real
Sunnyvale, CA 94087
C21/Contempo Walnut Creek 1301 Ygnacio Valley Rd., #101
Walnut Creek, CA 94598
5
<PAGE>
C21/Contempo Willow Glen 1712 Meridian Ave.
San Jose San Jose, CA 95125
C21/Seville Los Altos 161 S. San Antonio Rd.
Los Altos, CA 94022
C21/Seville Menlo Park 801 El Camino Real
Menlo Park, CA 94025
C21/Seville Saratoga 12200 Saratoga-Sunnyvale Rd.
Saratoga, CA 95070
Coldwell Banker San Francisco 1390 Noriega Street
Jon Douglas Noriega San Francisco, CA 94122
Coldwell Banker San Francisco 1699 Van Ness Ave.
Jon Douglas Van Ness San Francisco, CA 94109
Coldwell Banker San Francisco 1801 Lombard Street
Jon Douglas Lombard San Francisco, CA 94109
Coldwell Banker Sunnyvale TBD
Jon Douglas
Coldwell Banker Mill Valley 104 Tiburon Blvd.
Jon Douglas East Mill Valley, CA 94941
Coldwell Banker San Mateo TBD
Jon Douglas
Coldwell Banker Greenbrae 350 Bon Air Center, Ste. 100
Jon Douglas Greenbrae, CA 94904
Coldwell Banker San Rafael 711 Grand Ave.
Jon Douglas San Rafael, CA 94901
Coldwell Banker San Rosa 100 B Street
Jon Douglas Santa Rosa, CA 95401
Coldwell Banker Novato 1701 Novato Blvd., #100
Jon Douglas Novato, CA 94947
Coldwell Banker Petaluma 333 S. McDowell Blvd.
Jon Douglas Petaluma, CA 94954
6
<PAGE>
Coldwell Banker Sausalito 3 Harbor Dr., Ste. 100
Jon Douglas Sausalito, CA 94965
Coldwell Banker Santa Rosa 790 Sonoma Ave.
PPM Sonoma Santa Rosa, CA 95404
Coldwell Banker Santa Rosa 2725 Mendocino Ave.
PPM Mendocino Santa Rosa, CA 95403
Coldwell Banker Sebastopol 220 Petaluma Ave.
PPM Sebastopol, CA 95472
Coldwell Banker Rohnert Park 50 Enterprise Dr.
PPM Rohnert Park, CA 94928
7
Mr. B. Anderson Young: Terms of
Offer of Employment
Dear Andy:
Please allow this letter to serve as an offer of employment with mortgage.com.
The terms and conditions of the offer are detailed below:
o Employed with: mortgage.com, inc.
o Position: Chief Information Officer
o Job Description: Responsible for the overall development and
maintenance of all of the Company's computer and
information technology.
o Additional Responsibilities: Jointly responsible with other Senior
Management for the management of the Company.
o Reports to: Seth Werner, Chairman and Chief Executive Officer
o Base Salary: $175,000 annually
o Bonus: Up to 30% of base salary for excellent performance, in
the sole discretion of the Chairman
o Frequency of Bonus Payment: Annually at discretion of Chairman; pro-rated
for 1999
o 401K Program: Standard eligibility for participation under the plan
terms.
o Vacation: Two weeks paid vacation annually.
o Medical and Dental Benefits: The cost of medical and dental insurance for
yourself will be covered by mortgage.com. as is standard
and available to all employees. The company will
contribute the HMO health and DMO dental rate toward the
premium for your insurance benefits, any upgrades or
dependent coverage will be your responsibly ; life
insurance through the company will be available at
standard rates.
o Relocation Expenses: Up to $75,000 in relocation expenses ( the "Relocation
Advance"), $25000 of which is to be managed at your
discretion, to cover items involved in relocation such as
realtor expenses, moving household goods and temporary
living expenses and $50,000 of which ( the "Sale of
Residence Allowance") is to cover loss of value in the
sale of your current residence in which you represent you
have invested $625,000. Upon the sale of your current
residence the Company shall apply to you the difference
between the sale price and $625,000 up to the Sale of
Residence Allowance. In the event you resign your
employment with the Company, or your employment is
terminated for cause prior to the end of three years from
the date of commencement of your employment with the
Company, you agree to repay to the company, upon demand,
a pro rata portion of the Relocation Advance and Sale of
Residence Allowance"; for example, if you
<PAGE>
resigned or were terminated for cause prior to the end of
the first year of employment, two thirds of the
Relocation Advance and the Sale of Residence Allowance
would have to be repaid by you ; if you resigned or were
terminated for cause prior to the end of the second year
of employment, one third would have to repaid by you.
o Stock Options: Assuming a 6:1 stock split in connection with the IPO,
the Company shall grant to you options to purchase 25,000
shares post split which shall vest at 20% per year and
otherwise be pursuant to the Company Stock Option Plan;
such option to purchase 25,000 post IPO split shares to
be at the higher of $10 per share or the IPO price. If
the IPO does not occur by 12/31/99, and/or there is no
split, the strike price for the options shall be $ 60.00
per share.
<PAGE>
The Company customarily issues stock options once each
year in the month of February as merit bonuses for the
previous year's performance, in the sole discretion of
the Chairman and the Board of Directors.
o Termination: Your rights in the event of a change in control are
governed by the Non Compete Agreement attached as Exhibit
A.
o Start Date: As soon as possible, but in no case later than July 31,
1999.
o Offer Expiration Date: Thursday, July 6, 1999
Acceptance Procedures:
- ----------------------
This offer may be accepted by executing below and faxing to Seth Werner at
954-452-9388 by no later than 12:00 midnight on the above expiration date.
mortgage.com reserves the right to extend the expiration date at it's
discretion.
Sincerely,
/s/ Seth Werner
--------------------------------------
Seth Werner, CEO
"Other than as specifically set forth herein, this employment offer does not
constitute an employment contract between B. Anderson Young and mortgage.com.
The offer if accepted shall result in the employment of B. Anderson Young as an
at will employee under the employment laws of the State of Florida and the Human
Resource policies of mortgage.com."
Accepted this 6th day of July 1999.
By: /s/ B. Anderson Young
-------------------------------------
B. Anderson Young
Fax to:
Fax #:
cc: Chris Anderson, Human Resource Director
Ed Johnson, CFO
Non-Competition Agreement
THIS AGREEMENT is made as of the 6th day of July, 1999, between
MORTGAGE.COM, INC., a Florida corporation (the "Company"), and B. ANDERSON
YOUNG, an individual resident of the State of Georgia ("Young" or "Executive").
W I T N E S S E T H
WHEREAS, the Company originates, processes, underwrites, funds, closes
and sells mortgage loans throughout the United States, using loan
correspondents, network members, retail loan officers and strategic business
partners, each of whom employs the Company's proprietary CLOser software system
and its associated Internet capabilities; and
WHEREAS, Young is to be employed by the Company as its Chief
Information Officer where he will be charged with the overall development and
maintenance of all of the Company's computer technology; and
WHEREAS, in his position with the Company, Young will have access to
valuable confidential business and professional information possessed by the
Company, have substantial relationships with prospective and existing technology
customers and clients of the Company, have specialized training in the methods
by which the Company employs its technology and conducts its business and have
access to trade secrets related to the CLOser software system and its associated
Internet capabilities; and
WHEREAS, because of the intimate knowledge of the Company's
confidential information, trade secrets, customer and client relationships,
technology and methods of operation to be obtained by Young, there would be a
detrimental effect on the Company's business if Young were to enter into
competition with the Company after the date hereof; and
NOW THEREFORE, in consideration of the above premises and of the
promises herein contained, the parties covenant and agree as follows:
1. Certain Definitions. For purposes of this Agreement, the
following words and phrases have the following meanings:
"Affiliate" has the same meaning as "affiliate" in Rule 144(a)
promulgated under the Securities Act of 1933, as amended.
"Beneficial Owner" has the same meaning as "beneficial owner"
in Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended.
"Cause" for termination means (i) Executive's conviction of a
felony, (ii) acts of Executive which, in the judgment of the
Board, constitute fraud on the part of Executive, including
but not limited to misappropriation or embezzlement in the
performance of duties as an employee of the Company, or
willful engagement in conduct materially injurious to the
Company, or (iii) gross misconduct, including but not limited
to the willful failure of Executive either to (a) obey lawful
written instructions of the Board after thirty (30) days
notice in writing of Executive's failure to do so and the
Board's intention to terminate Executive if such failure is
not corrected, or (b) correct any conduct of Executive which
constitutes a breach of this Agreement after thirty (30) days
notice in writing of Executive's failure to do so and of the
Board's intention to terminate Executive if such failure is
not corrected.
-1-
<PAGE>
"Change of Control" shall be deemed to have occurred if, after
the effective date of this Agreement,
(a) any one Person (or group of Affiliated Persons or
entities) other than an Excluded Person or an underwriter
temporarily holding securities pursuant to an offer of
such securities, becomes a Beneficial Owner, directly or
indirectly, of securities representing 50% or more of the
total number of votes that may be cast for the election of
directors of the Company; or
(b) the shareholders of the Company approve, and the Company
consummates, a merger, consolidation or share exchange of
the Company with any other corporation or approve the
issuance of voting securities of the Company in connection
with a merger, consolidation or share exchange of the
Company, other than (i) a merger, consolidation or share
exchange which would result in the voting securities of
the Company outstanding immediately prior to such merger,
consolidation or share exchange continuing to represent
(either by remaining outstanding or by being converted
into voting securities of the surviving entity or any
parent thereof) at least 50% of the combined voting power
of the voting securities of the Company or such surviving
entity or any parent thereof outstanding immediately after
such merger, consolidation or share exchange, or (ii) a
merger, consolidation or share exchange effected to
implement a recapitalization of the Company (or similar
transaction) in which no Person other than an Excluded
Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 50%
or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the
Company's then outstanding voting securities; or
(c) the shareholders of the Company approve, and the Company
consummates, an agreement for the sale or disposition by
the Company of all or substantially all of the Company's
assets (in one transaction or a series of related
transactions within any period of 24 consecutive months),
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity at
least 50% of the combined voting power of the voting
securities of which are owned by Persons in substantially
the same proportions as their ownership of the Company
immediately prior to such sale.
(d) Notwithstanding the foregoing, no "Change of Control"
shall be deemed to have occurred if there is consummated
any transaction or series of integrated transactions
immediately following which the record holders of the
common stock of the Company immediately prior to such
transaction or series of transactions continue to own,
directly or indirectly, in the same proportions as their
ownership in the Company, an entity that owns all or
substantially all of the assets or voting securities of
the Company immediately following such transaction or
series of transactions.
"Excluded Person" means Seth Werner, Canaan Equity, L.P.,
Dominion Fund III, or Affiliates of any of the foregoing.
-2-
<PAGE>
"Person" means any individual, firm, partnership, corporation
or other entity, including any successor (by merger or
otherwise) of such entity, or a group of any of the foregoing
acting in concert.
"Retirement" shall be deemed to have occurred if the
Executive's employment terminates at age 62 or older, and if
the Executive has accrued 15 years of continuous service with
the Company or any Affiliate company.
2. Confidentiality. Young will not reveal to others or use any of
the Company's trade secrets, proprietary information, or other
confidential information pertaining to the financial affairs,
condition, business, technology, customers and clients,
products, manner of operation, training systems, plans or
prospects of the Company or its Affiliates, or aid others in
doing so, except in the proper exercise of his duties for the
Company.
3. Non-Competition. During Young's employment with the Company,
and for a period of twelve (12) months following the
termination of Young's employment for any reason whatsoever,
Young will not, anywhere in the United States:
(a) compete, directly or indirectly, with the Company or its
Affiliates in any business that would be deemed to be
competitive with the online residential mortgage
origination business of the Company or its Affiliates as
such business was conducted by the Company or its
Affiliates during Young's employment; and
(b) become employed by or affiliated in any manner with any
other business entity or person which owns or operates or
is seeking to acquire or operate a business which would be
deemed to be competitive with the online residential
mortgage business of the Company or its Affiliates as such
business was conducted by the Company or its Affiliates
during Young's employment.
(c) nothing in this section shall prohibit Young from owning
stock or other securities of a competitor amounting to
less than five (5) percent of the outstanding capital
stock of such competitor.
4. Non-Solicitation. During Young's employment with the Company,
and for a period of twelve (12) months following the
termination of Young's employment for any reason whatsoever,
Young will not:
(a) solicit any business from customers or prospects of the
Company or its Affiliates, which solicitation would be
deemed to be competitive with the business of the Company
or its Affiliates as such business was conducted by the
Company or its Affiliates during Young's employment; and
(b) solicit persons who are or have been employees or
consultants of the Company or its Affiliates during the
one (1) year period prior to termination of Young's
employment, to leave their employment or terminate their
consulting arrangements with the Company or its
Affiliates, or to become employed by or to engage in
business with Young, which business would be deemed to be
competitive with business of the Company or its Affiliates
as such business was conducted by the Company during
Young's employment.
-3-
<PAGE>
5. Compensation Upon Termination or During Disability.
(a) Death or Disability. If the Executive's employment is
terminated by reason of his death or disability, the
Executive or the Executive's estate shall be entitled to
(1) his then current base salary, pro-rata bonus and all
fringe benefits accrued and vested through the date of
termination or death, (2) all accrued and vested
retirement benefits and (3) in the case of the Executive's
death, if no beneficiary is designated, the proceeds of
any Company maintained life insurance policy.
(b) Termination by Company For Cause. If the Executive's
employment is terminated for Cause or by reason of
voluntary termination, the Executive shall be entitled to
receive (1) his base salary accrued through the date of
termination at the rate in effect at the time the notice
of termination is given and (2) only such stock options as
have vested prior to the date of termination. The Company
shall have no further obligations to the Executive under
this Agreement.
(c) Termination Upon Retirement. If the Executive's employment
is terminated as a result of his Retirement the Executive
shall be entitled to receive (1) his base salary accrued
through the date of termination plus a pro-rata bonus at
the rate in effect at the time the notice of termination
is given and (2) 100% vesting of the stock options he has
been granted prior to the date of termination. The Company
shall have no further obligations to the Executive under
this Agreement, other than its obligations under the
Company's retirement plans and policies if the Executive's
employment is terminated as a result of his Retirement. If
the Executive's stock options vest under this paragraph,
the deadline for exercising such stock options under the
applicable Option Agreement shall be the date which is the
sooner of three years after the date of termination or the
deadline for exercising such stock options set forth in
the Option Agreement.
(d) Termination by Company Without Cause or by the Executive
with Good Reason. If the Company terminates the
Executive's employment Without Cause, then the Company
shall pay to the Executive his base salary accrued through
the date of termination at the rate in effect on the date
of termination. In addition, the Company shall pay to the
Executive, as liquidated damages, or severance pay, or
both, on the thirtieth (30th) day following the date of
termination, a lump-sum amount equal to one times the base
salary then in effect plus the amount of the previous
year's bonus, and in addition, in such event, one hundred
percent of the stock options granted to Executive prior to
the date of termination shall become fully vested.
6. Injunctions. In the event of a breach or threatened breach by Young
of his obligations under this Agreement, Young acknowledges that
the Company will not have an adequate remedy at law and shall be
entitled to such equitable and injunctive relief as may be
available to restrain Young from the violation of the provisions
hereof. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available for such breach
or threatened breach, including the recovery of monetary damages
from Young.
7. Modification of Restriction. Young acknowledges that the
enforcement of the provisions in this Agreement shall not result in
unreasonable deprivation of Young's right to earn a
-4-
<PAGE>
living and that if the provisions of this Agreement shall be
determined by any court to be invalid or unenforceable to any
extent, then this Agreement shall be deemed to be amended so as to
be valid and enforceable to the fullest extent permitted by law.
8. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if hand delivered,
sent by recognized overnight courier, or sent by certified mail to
his residence in the case of Young, or to the principal office in
Plantation, Florida, in the case of the Company.
9. Governing Law. Young and the Company agree that this Agreement
shall be governed by, construed and enforced in accordance with the
laws of the State of Florida, exclusive of choice of laws and
conflict of laws principles. The parties stipulate that any action
or other legal proceeding arising under or in connection with this
Agreement shall be commenced and prosecuted in its entirety in the
federal or state courts having jurisdiction over Broward County,
Florida, each party hereby submitting to the personal jurisdiction
thereof, and the parties agree not to raise the objection that such
courts are not a convenient forum.
10. Counterparts. This Agreement may be executed in counterparts each
of which shall be original and together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
MORTGAGE.COM, INC.
By: /s/ Seth Werner
-----------------------------------
Seth S. Werner, President and Chief
Executive Officer
/s/ B. Anderson Young
-----------------------------------
B. Anderson Young, individually
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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.
/s/ KPMG LLP
Fort Lauderdale, FLorida
July 13, 1999
