SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 000-26787
MORTGAGE.COM, INC.
(Name of issuer in its charter)
FLORIDA 65-0435281
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1643 NORTH HARRISON PARKWAY
SUNRISE, FLORIDA 33323
(Address of principal executive offices) (Zip Code)
(954) 838-5000
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X ; No ____.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____
State the aggregate market value of the voting stock held by
non-affiliates of the registrant on March 15, 2000, computed by reference to the
average high and low prices on that date: $74,273,089.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of March 15, 2000: 43,340,432 shares of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE INCORPORATED AT
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Mortgage.com, Inc. Proxy Statement for the 2000 Part III, Items 10,
Annual Meeting of Shareholders 11, 12 and 13
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PART I
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
We make forward-looking statements in this document that are subject to
risks and uncertainties. The statements contained in this report on Form 10-K
that are not strictly historical are forward-looking statements within the
meaning of the federal securities laws, including statements regarding our
expectations, beliefs, intentions or strategies regarding the future.
Forward-looking statements include statements regarding, among other things, (1)
our growth, operating and marketing strategies, (2) our assessment of the future
of the mortgage and e-commerce industries, (3) the impact of new and existing
competitors on our business, (4) our analysis of proposed legislation regarding
the Internet and electronic signatures, (5) trends affecting our financial
condition or results of operations, (6) our ability to replace the loss of a
material customer and (7) our financing plans.
Although we believe that the expectations reflected in such
forward-looking statements are based on reasonable assumptions, there are risks
and uncertainties that may cause actual results to differ materially from
expectations. Forward-looking statements are not guarantees of future
performance. These risks and uncertainties include the factors discussed in
Items 1 and 7 of this report and the risks described in our filings under the
Securities Act of 1933 and in our Forms 10-Q and 8-K, including but not limited
to changes in interest rates, changes in competitive pressures on pricing or
quality of service, seasonal variations in the demand for mortgages, the impact
of marketing programs, governmental regulation and our ability to keep pace with
technological developments.
ITEM 1. DESCRIPTION OF BUSINESS
Mortgage.com, Inc. is a leading provider of online mortgage services
and technology to businesses and consumers. Our vision is to create the
definitive Internet-based technology platform for originating, underwriting,
processing, closing and selling mortgage loans. We enable other businesses to
use this technology platform when they market to customers who choose to obtain
mortgage services through the Internet. This platform will enable new businesses
to participate in the mortgage origination arena, by offering mortgage services
to their customers through the Internet while letting us do the technology and
back office work. We have designed this platform to decrease the cost of
originating, closing and selling loans, so consumers who obtain a loan via our
technology platform will save money when compared to obtaining a loan using a
traditional lender.
We have developed, and will continue to develop, state-of-the-art
technology to support the origination, processing, underwriting, closing and
secondary marketing of mortgage loans. Our clients include real estate
companies, homebuilders, trusted financial advisors, Internet-based companies
who market their services over the Internet, known in the industry as "affinity
customers", mortgage web sites that generate leads, and other non-traditional
mortgage originators. In addition, our clients include mortgage companies and
banks that wish
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to offer Internet mortgage services without developing a full in-house Internet
solution for themselves.
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. In addition, our internal research indicates that
borrowers feel the fees involved in obtaining a mortgage loan are too high.
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 seek to take advantage of the existing relationships that our
clients have with prospective borrowers, and offer our services through our
clients marketing efforts. In some cases, we offer our services directly to
borrowers, although we are increasingly moving away from this strategy as we
realize the benefits of leveraging our client's marketing efforts.
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 the borrower is
referred directly to our mortgage.com Web site or comes from one of the 89
private label web sites we have developed for our business to business clients.
In 1999, we originated and closed mortgage loans with a total principal
amount of $3.0 billion, of which approximately 36.2% were originated through our
Internet platform. We funded and sold $2.3 billion of those loans. Wholesale
lenders provided the funding for the balance of the loans at our request.
INDUSTRY BACKGROUND
OVERVIEW
The Mortgage Bankers Association of America, or MBA, estimates that
the mortgage industry originated approximately $1.29 trillion in mortgages
in 1999 compared to $1.51 trillion in 1998. The MBA estimates that another
$0.97 trillion in mortgages will be originated in 2000.
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
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borrower's home. The borrower may have to wait weeks while credit reports,
appraisals and other third party verifications are ordered. In many cases,
the mortgage originator is a commissioned salesperson, and earns greater
income when he or she can convince a borrower to accept a higher rate. It is
common for a mortgage salesperson to earn 1% or more of the loan amount for
originating a loan. 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 and the available
products and pricing options.
Some of a borrower's frustration and dissatisfaction stems from
inefficiencies and delays in the application, processing and underwriting
phases of the mortgage lending process. Manual collection and transfer of
information from the application process through the processing and
underwriting phases increases loan approval time and results in a greater
number of human errors. Many mortgage originators and mortgage lenders do
not have the technical expertise or financial resources to automate the
origination, processing and underwriting of mortgage loans to achieve
greater efficiency. Continuing inefficiencies make it difficult for mortgage
originators and mortgage lenders to keep borrowers adequately informed and
satisfied.
We believe the mortgage origination market is highly fragmented
with many small originators. This leads to a lack of consistency in the
pricing and processing of mortgage loans and contributes to borrower
dissatisfaction with the entire process.
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 500
million in 2002. As consumers have become increasingly adept at using the
Internet for evaluating and purchasing a 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 $2.8 trillion 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, centralized 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.
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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. 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. We also
believe that pending federal and state legislation authorizing the use of
electronic signatures will expedite the use of online mortgage transactions,
if such legislation is adopted.
ONLINE MORTGAGE SERVICES
The mortgage industry is well suited for transformation to an
Internet platform. Mortgage origination 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 legal and technology framework that will allow
mortgage underwriting, processing, closing and sales to take full advantage
of the power of the Internet is still developing. We are at the forefront of
developing the technology framework for these "back-office" services to
supplement the origination platform we have already developed. 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 will be under increasing pressure to offer their
borrowers an Internet origination and closing process. We believe many of
them will choose to use our platform instead of creating it themselves.
Based on a recent report from Forrester Research, electronic
commerce on the Internet through direct-to-consumer channels is expected to
grow from $33 billion in 2000 to $108 billion in 2003, a 227% increase,
while electronic commerce on the Internet through business-to-business
channels is expected to grow from $251 billion in 2000 to $1.34 trillion in
2003, a 444% increase.
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 to
advertise and 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:
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/bullet/ low cost loan choices when compared to obtaining a loan through a
traditional lender;
/bullet/ multiple loan product and loan servicer choices, with an easy way
to compare the options;
/bullet/ online loan applications and loan pre-qualifications;
/bullet/ seven day a week convenience, with the option to speak with a
person for extended hours every day;
/bullet/ service guarantees that are backed up by management commitment and
cash refunds when appropriate; and
/bullet/ the ability to monitor the status of their loans from origination
through closing.
We believe companies that are able to provide these benefits to
borrowers will gain a competitive advantage.
THE MORTGAGE.COM SOLUTION
We use our Internet platform and other internally-developed,
proprietary technologies to maximize efficiency in the mortgage lending process
in support of the mortgage operations of our clients, such as mortgage bankers,
mortgage brokers, financial institutions, Realtors and homebuilders, and in our
current direct-to-consumer Internet mortgage banking operation. Because of these
efficiencies, borrowers find the experience of obtaining a mortgage more
satisfying and less frustrating because they benefit from:
/bullet/ convenient access to the mortgage lending process through the
Internet, by e-mail, by telephone or in person at locations where
homes are sold;
/bullet/ interactive selection from a comprehensive suite of mortgage
products and services;
/bullet/ personalized services and products tailored to individual needs;
/bullet/ service guarantees;
/bullet/ faster applications and pre-qualifications;
/bullet/ interest rate locks; and
/bullet/ constant monitoring of loan status.
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
Teleweb
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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 clients or
our own mortgage banking operations, 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.
THE MORTGAGE.COM STRATEGY
Our objective is to touch every mortgage, either as a lender or via
implementing our technology for use by other mortgage lenders. Key elements of
our strategy are:
ESTABLISHING AND ENHANCING BRAND AWARENESS WITHIN THE MORTGAGE,
FINANCIAL SERVICES AND REAL ESTATE INDUSTRIES. We seek to make the Mortgage.com
name synonymous with the delivery of mortgage services via the Internet
throughout these industries. We want consumers to recognize the "powered by
mortgage.com" logo as being representative of a new and better loan process,
combined with greater speed and significant cost savings. We spent approximately
$10 million for advertising and promotion of the Mortgage.com brand name during
1999, and because of the success of our promotional efforts, we believe our name
is generally well known throughout the industry. We therefore do not intend to
spend a material amount of money on advertising and promotion in the current
fiscal year, with a focus instead on co-branding with leading financial
information sites and developing additional business alliances.
DEVELOPING A NEW AND BETTER LOAN PROCESS THAT UTILIZES TECHNOLOGY AND
THE INTERNET TO REDUCE COSTS. 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 our CLOser software system and
its Internet interface that will increase its versatility and automate
additional portions of the mortgage process. For example, we intend to implement
additional automated underwriting systems, automated closing services and
automated links for third party services such as title insurance, hazard
insurance, and appraisals. 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, our clients and we will be
able to provide borrowers with convenient, high-value and low-cost services. As
we are able to reduce our cost of loan origination and increase the areas in
which we generate revenues, we can offer our platform to other lenders at a cost
below that which they can perform the services themselves. This, in turn, allows
them to drive down costs to their consumers, creating a win-win cycle.
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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 have developed a new segment of our www.mortgage.com
Web site specifically tailored to borrowers of sub-prime loans. We have also
developed our Web interfaces, documentation and fulfillment services completely
in Spanish to serve this growing population in the language of their choice.
These services are found at www.hipoteca.com and at other private label versions
of this site. We also intend to continue to provide solutions to Realtors and
homebuilders, so that 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.
PROMOTING AND ENHANCING OUR PRIVATE LABEL CAPABILITIES. Substantially
every technology and service that we offer can be offered on a private label
basis. This is key to our strategy. We believe the mortgage origination market
is highly fragmented, with many small originators. As a result, we believe
marketing our private label services is a more effective marketing strategy than
marketing our own brand. In order to reach our goal of touching every mortgage,
we need to offer our services and technologies to all types of traditional and
non-traditional lenders. By doing this on a private label, variable cost basis,
we can allow these clients to take advantage of the Internet lending revolution
without developing all of the expertise in-house. The market is so vast, we feel
this strategy is superior to merely developing our brand directly with
consumers. In addition, we have substantial expertise in creating Affiliated
Business Arrangements and other marketing structures that allow non-traditional
companies to participate in the mortgage origination industry, while still
offering the services to borrowers at a substantial cost reduction over
traditional lenders.
PRODUCTS AND SERVICES FOR OUR BUSINESS TO BUSINESS RELATIONSHIPS
Our primary business-to-business products and services are:
/bullet/ Co-branded web sites where our clients market our products to
their customers over the Internet;
/bullet/ Private label loan origination, processing and closing
services;
/bullet/ Turnkey, point of sale mortgage origination solutions for
non-traditional mortgage industry participants; and
/bullet/ Web site development and hosting.
Each of these services, except Web hosting services, takes advantage of
our efficient and low cost platform for originating, underwriting, processing,
and selling mortgages. In addition, our clients benefit from our demonstrated
ability to convert Internet inquiries into closed loans.
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"CO-BRANDED" WEB SITES
We have entered into Internet marketing agreements that provide for
advertising and promotion of our online mortgage solutions and also provide
for Internet links to co-branded versions of www.mortgage.com through
established home and financial information Web sites such as
www.tdwaterhouse.com. In addition, certain special interest web sites, such
as www.thewhiz.com and www.gosmallbiz.com, desire to offer their clients
access to mortgage services, and we offer the co-branding solution to them
as well. Potential borrowers browsing one of these sites for home buying or
financial information are presented with an opportunity to apply for a
mortgage online, without having to search for a separate Web site. Borrowers
can click on a link that takes them 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 Teleweb 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.
In total, we have 41 co-branding relationships, and these accounted
for 8.7% of our revenue in 1999. We are able to bring most co-branded Web
sites on line within two weeks of signing final agreements with our clients.
"PRIVATE LABEL" LOAN ORIGINATION, PROCESSING AND CLOSING SERVICES
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 typically operated in the
name of the client, while we provide the technology and management support
in the background through our proprietary CLOser software system and a
private label Internet site. We create and maintain prime and sub-prime
private label Web sites for such clients as Chase Manhattan Mortgage
Corporation as part of our Prudential Real Estate Affiliates relationship,
SouthTrust Mortgage, BuildNet Financial and NetB@nk.
The Web sites we create are custom-tailored to our clients and
offer online applications, full integration with processing and underwriting
systems and Teleweb 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.
We have six private label relationships and they accounted for 6.6%
of our revenue in 1999. Private labeling primarily is focused on working
with lenders who wish to maintain their brand identity throughout the
mortgage process. In some cases, these lenders wish to offer only loan
products that they will buy in the secondary market. We expect our
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financial institutions marketing strategy to provide the bulk of our private
label relationships, as this solution is ideal for banks and mortgage banks
looking to add an Internet channel on a turnkey basis.
TURNKEY, POINT OF SALE MORTGAGE ORIGINATION SOLUTIONS FOR NON-TRADITIONAL
MORTGAGE INDUSTRY PARTICIPANTS
Our turnkey point of sale mortgage solutions are typically offered
to new participants in the mortgage lending arena that operate at the point
of home sales. The primary clients using these services are Realtors,
homebuilders and "Trusted Financial Advisors," such as financial planners
and accounting firms. We offer specialized marketing agreements and
membership programs, and can establish independent branch offices for our
clients, that allow them to participate in the loan origination process
using our Internet and CLOser technology platforms. The client is able to
offer its customers "one-stop shopping" for both the client's primary
product, such as a home or financial investment, and a secondary product
that facilitates the sale of the primary product, which in this case is a
mortgage.
A significant portion of our turnkey point-of-sale mortgage
solutions is offered under the trade names Princeton Capital, Advantage
Financial and Western America Mortgage. In each case, we place personnel
and/or online mortgage kiosks in the office of a client to implement the
turnkey solutions. Our Western America Mortgage operations are contained in
Western America Mortgage, Ltd., a partnership of which we own 51%. Our
partner in that operation is a wholly owned subsidiary of Mason-McDuffie
Real Estate, Inc., which does business in Northern California as Prudential
California Realty.
Our primary clients in this area are Prudential California Realty,
Arvida Homes, Keyes Realty and Cendant Mortgage. All told, we have over 40
point-of-sale relationships, which contributed 48.3% of our revenue in 1999.
We expect that this category will continue to be our largest revenue channel
in 2000.
WEB SITE DEVELOPMENT AND HOSTING
We develop Web sites and software systems for lenders who use our
technology in their back office mortgage operations. With these services, we
do not act as a lender. We are typically paid up-front development fees and
ongoing hosting and use fees that are sometimes based on loan volume
generated by the use of our software.
As part of these services, we continue to develop and update our
proprietary CLOser software system, which automates virtually every stage of
the back office mortgage process. Among numerous other features, CLOser
automatically downloads credit reports and obtains other third party
verifications electronically. It also links to the Web sites we create,
third party automated underwriting systems and our processing and
underwriting systems. CLOser also contains an extensive loan product and
pricing database and sophisticated loan tracking features.
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Our clients for these services are Superior Bank, Valley National
Bank, General Electric Mortgage Corporation, GMAC Mortgage Corporation and
GHR Systems, Inc. GHR acts as a reseller of our technology and services and
has brought us joint clients such as PNC Bank and Charter One Mortgage. Our
subsidiary, Openclose.com, also provides similar services for Countrywide
Home Loans, Inc.
This category of services contributed 13.8% of our revenue in 1999
and we expect this percentage to remain stable in 2000. This strategy fits
well with our plan to "touch every mortgage" and allows us to increase
revenue without a significant increase in personnel required to fulfill
mortgage processing and closing services.
WORLD-CLASS INTERNET LEAD CONVERSION SERVICES
The companies which own lead aggregator mortgage Web sites market
heavily to entice potential borrowers to their Web sites, where the
potential borrowers are given the opportunity to select from an array of
loan products from several mortgage lenders. The Web site owners are
typically paid based on the number of mortgage inquiries, or "leads", that
are converted into closed loans or applications. Our unique focus on
Internet lending strategies has resulted in our ability to convert a higher
than typical percentage of Internet leads to closed loans. Therefore,
operators of lead aggregator mortgage Web sites seek our participation on
their sites. Our lead conversion capability also makes our co-branding and
private label services more desirable.
We have considerable experience with lead aggregator sites such as
QuickenLoans, Lending Tree.com, Priceline.com, Microsoft Homeadvisor and
CFN. We enable the lead aggregators to offer high quality mortgage services
to consumers using their Web site and provide a cost effective means for
financial institutions to participate on these sites without the
considerable investment required to develop their own electronic mortgage
infrastructure. Our clients have informed us that over the past year, we
consistently outperformed most other participants on their Web sites by
converting more consumer inquiries into funded loans.
We include our revenue from participation on lead aggregator sites
as either private label or co-branding revenue, depending on the structure
of the relationship. We expect this revenue to decrease somewhat in 2000, as
we will no longer participate on the Web site owned by Intuit Lender
Services. On October 7, 1999, we terminated our agreement with Intuit Lender
Services for the provision of prime mortgage loan services to the
www.quickenmortgage.com web site. Terminating this agreement relieved us of
a prohibition from participating on multi-lender sites other than
www.quickenmortgage.com. We processed 3,008 loans under this agreement in
1999, and we anticipate the reduced loan volume from this termination will
be replaced by new and existing co-branded Internet relationships entered
into with economic terms more favorable to us.
On November 9, 1999, Intuit Lender Services terminated an agreement
relating to sub-prime mortgage services. This termination also relieved us
of certain exclusivity restrictions. We processed 57 loans under this
agreement in 1999, and accordingly, do not
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anticipate that the termination of this agreement will have a material
adverse effect on the Company's sub-prime loan business.
PRODUCTS AND SERVICES FOR OUR DIRECT-TO-CONSUMER CHANNELS
Our direct-to-consumer channels include our www.mortgage.com Web site,
which is linked to our Teleweb centers, and our OnLine Capital operations.
During 1999, our direct-to-consumer channels originated and closed $678.6
million of mortgage loans, 33.2% of which were originated through the Internet.
We funded $462.7 million of those loans. These channels generally rely on our
Internet Web sites, CLOser software system, direct marketing efforts and loan
officer sales force to generate consumer interest in our loan products.
ONLINE MORTGAGE ORIGINATION THROUGH WWW.MORTGAGE.COM
We operate the www.mortgage.com Web site that serves as our primary
online origination source for mortgage loans. Through www.mortgage.com,
borrowers can research and evaluate mortgage products and services, select
the most suitable mortgage loan with interactive assistance, apply for a
mortgage loan, lock in an interest rate and monitor the status of their
loans. The www.mortgage.com platform also serves as the backbone of our
private label and co-branded Web sites that we provide in our
business-to-business relationships.
In 1999, we spent $10 million on targeted advertising to consumers
designed to drive them to www.mortgage.com. After reviewing the results of
this advertising and our company objectives, we determined that this was not
the most cost-effective way of growing our business and reaching our goal of
touching every mortgage. We discontinued this branding campaign and no
longer intend to spend significant advertising resources to drive consumers
to www.mortgage.com. Instead, we intend to concentrate on establishing
relationships with other businesses that already have consumer traffic
meeting our demographics and establish links from their Web sites to ours.
In 1999, 13.1% of our revenue was generated by consumers coming
directly to www.mortgage.com. Because of the shift in our business strategy,
we anticipate that this percentage will decrease in 2000.
ONLINE CAPITAL OPERATIONS
Our OnLine Capital operations consist of commissioned loan officers
who conduct their own marketing to consumers, individual real estate agents
and other sources of mortgage loans. These loan officers originate the loans
using our CLOser software system and personalized Web sites that we have
developed for each loan officer. In late 1999, we decided to redesignate
these loan officers as account executives to reflect a new focus on selling
our business-to-business products and services to real estate companies,
homebuilders and other industry participants, rather than marketing loan
products to individual consumers.
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In 1999, 9.5% of our revenue was generated by OnLine Capital
personnel. We expect this figure to increase in 2000, although we expect the
revenue to be generated through business-to-business relationships developed
by account executives, rather than through direct-to-consumer channels. We
will phase out our use of the OnLine Capital trade name in 2000.
OUR SERVICE DELIVERY PLATFORM
TELEWEB CENTER SUPPORT
For both our business-to-business and direct to consumer
operations, we receive our Internet loan applications and customer inquiries
through our Teleweb centers. Our Teleweb center operations are integrated
with our Web sites to provide customer service to visitors to
www.mortgage.com and all of the other Web sites we operate for various
business-to-business clients. 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 Teleweb 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.
LOAN PRODUCTS
We offer a complete menu of mortgage loan products to serve the
portion of the residential real estate market consisting of one to four-
unit housing. Generally, the industry breaks down the description of these
products into two categories: prime mortgage loans and sub-prime mortgage
loans. These categories are described below.
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 that exceeds the
amounts permitted by Fannie Mae or Freddie Mac.
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The prime mortgage loan portion of our Web site and the Web sites
we create for clients 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 submit a secure online application 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 and the Web sites we create for
clients 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.
In 1999, 95.5% of the dollar amount of loans we funded was
attributable to the funding of prime mortgage loans. The funding of prime
mortgage loans generated approximately 94.3% of our revenue from lending
activities.
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 the Web sites we create for
clients, and the associated customer service representatives, try to
simplify the borrowing process and give borrowers answers within a short
period of time. In most cases, a borrower knows within 3 hours whether he is
approved for a mortgage loan.
Commensurate with the higher credit risk, we charge borrowers
higher interest rates on sub-prime mortgages, which allows us to generate
higher origination fees and higher gains on sale in the secondary market
than prime mortgage loans. The higher interest rate also allows us to
generate a greater spread between the interest rate we charge the borrower
and the interest rate we pay to lenders for the financing arrangements we
use to fund the mortgage loans.
In 1999, 4.5% of the dollar amount of loans we funded was
attributable to the funding of sub-prime mortgage loans. The funding of
sub-prime mortgage loans generated approximately 5.7% of our revenue from
lending activities.
PAPERLESS MORTGAGE SERVICES AND TECHNOLOGY
We recently entered into strategic alliance and licensing
agreements with eOriginal, Inc., a prominent technology company that has
patented a process to enable the electronic
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creation of negotiable instruments and other documents and the ability to
transmit, store and retrieve these instruments and documents. The eOriginal
technology helps assure that electronic documents are unique, authentic and
secure. Our agreements with eOriginal allow us to embed the eOriginal
technology into the products and services we provide to our
business-to-business clients.
The agreement also provides for development phases to promote the
ability to do business electronically. For example, the initial development
phase involves the cooperation of us, eOriginal, e-close as settlement
agent, GMAC Mortgage Corporation, Residential Funding Corporation and Fannie
Mae as secondary market investors, and the Florida counties of Broward,
Duval and Hillsborough, to develop an electronic mortgage process. We
believe the eOriginal technology has the potential to get us one step closer
to our future goal of electronic, paperless mortgages.
OPENCLOSE.COM
To address the changing technology needs of the wholesale mortgage
industry, we developed a Web site to promote the migration to Internet lending.
That Web site, www.openclose.com, caters exclusively to the business-to-business
market segment. At www.openclose.com, 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. We do not act as a lender on
the openclose site. The Web site is designed to give mortgage brokers access to
automated underwriting information earlier in the cycle of the origination
process, which results in faster transactions, cost savings for borrowers,
brokers and lenders and a reduction in paperwork. The Web site also offers
improved communications between lenders and their broker customers. Membership
in www.openclose.com also creates opportunities to develop business from new
relationships.
On January 27, 2000, we contributed assets associated with the
www.openclose.com business to a newly formed subsidiary, Openclose.com, Inc., in
exchange for $24 million in cash and common stock representing 51% of the
subsidiary's outstanding securities. The remainder of the outstanding securities
of Openclose.com are held by accredited investors who are also significant
investors in Mortgage.com and who have representatives on the board of directors
of both Mortgage.com and Openclose.com. Openclose.com received $30 million in
cash from the sale of 49% of its outstanding securities to these accredited
investors, $24 million of which was paid to us in connection with our
contribution of the openclose assets.
Among the assets contributed were co-ownership of the www.openclose.com
Internet web site, the programming and computer code used exclusively in
connection with the site, trade rights associated with this programming and
code, and ownership of certain customer contracts pertaining to
www.openclose.com. In addition, we entered into an Administrative Services and
Technology Sharing Agreement with Openclose.com under which we will continue to
provide certain management, accounting and technical services to Openclose.com.
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We also have granted Openclose.com a non-exclusive, perpetual license to certain
computer code owned by us that is necessary to the operation of the
www.openclose.com Web site.
As of March 1, 2000, 38 mortgage lenders and approximately 900 mortgage
brokers were participating subscribers to www.openclose.com. Participating
mortgage bankers pay Openclose.com a fee for each mortgage loan sent to them
through www.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 pay Openclose.com a fee for each sub-prime mortgage loan transmitted
through www.openclose.com for review. The fees charged by Openclose.com to
participating mortgage bankers for each viewing of the mortgage banker's page on
the Web site by brokers are split equally between Openclose.com and an
unaffiliated third party, from whom Openclose.com licenses some of the tools
available on www.openclose.com.
Mortgage brokers pay Openclose.com a fee for each loan submitted to
www.openclose.com for review by lenders. There are no monthly participation fees
charged to mortgage brokers.
In December 1999, we signed a Master Web Services Agreement with
Countrywide Home Loans pursuant to which we obtained the exclusive right for a
four-year term to develop Web sites to be marketed and sold by Countrywide to
its network of mortgage brokers nationwide. The agreement combines our Web
development capabilities with Countrywide's technical and sales expertise. Each
participating broker for whom we develop a Web site will pay us a setup fee and
a monthly fee from which we will pay Countrywide a commission. We have assigned
the agreement to Openclose.com but will continue to provide the necessary Web
development services under the Administrative Services and Technology Sharing
Agreement. Openclose.com will use the www.openclose.com platform to provide
Countrywide mortgage brokers with same-day ability to order Web sites online and
begin online mortgage originations. Openclose receives fees for each Web site
created and also generates ongoing Web hosting revenue.
The www.openclose.com Web site incorporates the functionality of Fannie
Mae's Desktop Underwriter software that is used in connection with automated
underwriting decisions. We hold a license to use Desktop Underwriter and pay
Fannie Mae a licensing fee based on the volume of mortgage loans submitted for
automated underwriting. Through the Administrative Services Agreement, we use
Desktop Underwriter to provide Openclose.com with automated underwriting
decisions. A portion of the fee we pay to Fannie Mae for Desktop Underwriter is
reimbursed by Openclose.com.
CUSTOMERS
Our business-to-business clients include real estate companies,
homebuilders, trusted financial advisors, Internet-based affinity customers,
lead aggregation mortgage web sites, and other non-traditional mortgage
originators. In addition, our clients include financial
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institutions, primarily mortgage companies and banks, which wish to offer
Internet mortgage services without developing a full in-house solution for
themselves.
Our relationship with Mason-McDuffie Real Estate accounted for 8.4% or
more of our loans originated in 1999. Our relationship with Intuit Lender
Services accounted for approximately 19.6% of the mortgage loans we originated
in 1999, but our relationship with Intuit Lender Services has terminated.
Through Cendant Mortgage, we have developed relationships with CENTURY
21/registered trademark/ and Coldwell Banker/registered trademark/ offices that
taken together accounted for approximately 17.9% of the mortgage loans we
originated in 1999. Superior Bank contributed $2.0 million in management,
technology and other fees in 1999.
Our direct-to-consumer customers consist of borrowers who contact us
through www.mortgage.com and our OnLine Capital loan officers. We provided 3,875
homebuyers and homeowners with mortgage financing totaling more than $678
million in 1999 through direct-to-consumer channels.
SALES AND MARKETING
BUSINESS-TO-BUSINESS SALES AND MARKETING
We market our business-to-business services through an internal
sales force that is divided into the five markets that we serve: real estate
companies, homebuilders, trusted financial advisors, financial institutions
and consumer Web sites. We advertise in trade journals, attend trade shows
and make individual sales calls on known leaders in the various vertical
markets. As of February 2000, we have 9 people in our business development
area. In addition, many of the former loan officers in our
direct-to-consumer business who are now working as account executives will
transition to business development in the year 2000.
We have several marketing relationships with other businesses that
market our products. These businesses include BuildNet Financial, Prudential
Real Estate Affiliates, Chase Manhattan Mortgage Corporation, McPherson TMR,
ACM Carolinas and Strategic Networks.
RELATIONSHIP WITH BUILDNET FINANCIAL. We have entered into
agreements with BuildNet Financial Services Inc. which provides BuildNet
with exclusive marketing rights to our suite of Internet mortgage solutions
for the residential home building industry in the United States. BuildNet,
whose homebuilder user base manages the construction of over 350,000
residential homes in the United States each year, has agreed to offer our
products to its clients. These products include:
/bullet/ NET BRANCH AGREEMENTS, which enable builders to participate
directly in the mortgage origination process;
/bullet/ MARKETING AGREEMENTS, through which BuildNet Financial helps create
and maintain Web sites for individual builders; and
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/bullet/ CO-BRANDED WEB-SITES, which link builders' Web sites to the
BuildNet Financial Web site.
BuildNet Financial, through its relationship with us, plans to
offer participating homebuilders back-office support that should include
technology, processing, underwriting, and loan funding. Our marketing
agreement with BuildNet Financial expires March 2002, with automatic 12
month renewals unless we or BuildNet Financial give notice of an intent not
to renew. BuildNet Financial can terminate the marketing agreement early
only if BuildNet sells all or substantially all of its assets or merges with
another company and does not survive the merger.
RELATIONSHIP WITH CHASE AND THE PRUDENTIAL REAL ESTATE NETWORK. We
have a joint marketing agreement with The Prudential Real Estate Affiliates,
Inc. and Chase Manhattan Mortgage Company that designates 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.
Members that select our services can use a centralized
private-label Web site that we have designed and maintain for the Prudential
relationship. They also will have the benefit of our Teleweb 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 Teleweb centers.
RELATIONSHIPS WITH MCPHERSON TMR, STRATEGIC NETWORKS AND ACM
CAROLINAS. We have entered into Master Marketing and Management Agreements
with McPherson TMR, Strategic Networks and ACM Carolinas. Under the terms of
the agreements, these entities have agreed to offer our products and
services, including marketing agreements, net branch programs and
memberships to designated clients. Net branch programs refer to contracts
between us and clients to manage the day-to-day operations of a separate
mortgage business established by us for a client. All of the mortgage loans
originated by a net branch are transmitted to us for processing, closing and
funding. Membership programs refer to contracts between us and a mortgage
broker or homebuilder that licenses our technology for a fee. The mortgage
loans originated through our technology members are transmitted to us for
processing, closing and funding.
They earn a fee for successful marketing of the programs and
ongoing support of the clients they bring to us. McPherson primarily markets
the programs to Remax real estate franchisees in Ohio, Tennessee and
Georgia. Strategic Networks markets the programs to a variety of real estate
companies in Illinois and Missouri. ACM Carolinas markets the programs in
North Carolina. In combination, these companies brought us 12 new
relationships with real estate companies in the fourth quarter of 1999.
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DIRECT-TO-CONSUMER SALES AND MARKETING
We market our products and services directly to consumers on the
Internet via banner advertisements. This program is limited and not likely
to be expanded. In addition, our general business activities, past branding
advertising and easy to remember Web site name continue to generate consumer
traffic directly to www.mortgage.com. Lastly, our OnLine Capital loan
officers will continue to generate some direct to consumer loans as they
transition to their new roles as account executives marketing our business
to business solutions. We do not intend to hire additional consumer direct
loan officers.
OPENCLOSE.COM MARKETING
Openclose.com has its own sales team dedicated to
www.openclose.com. Openclose.com is 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. Openclose.com also intends to continue to
participate in numerous industry trade shows, including regional trade shows
in Florida and California, and the trade shows held for the National
Association of Mortgage Brokers and the Mortgage Bankers Association.
MARKETING SERVICES PROVIDED BY QUINTEL COMMUNICATIONS
We recently entered into an exclusive strategic marketing agreement
with Quintel Communications. This marketing agreement provides for joint
development of new marketing programs for products and services of both
companies to be offered to visitors and customers of the Mortgage.com Web
site and our related business-to-business Web sites.
The new marketing programs will market both mortgage and
non-mortgage products and services. The programs will be directed to our
growing database of more than 800,000 consumers and to Quintel's network and
databases, which currently include more than 5 million profiled consumers,
both on- and off-line.
Quintel is a direct marketing company with the ability to market
thousands of products and services to a detailed database of profiled
consumers via direct, permission-based e-mail marketing, on-line promotions,
loyalty and incentive programs, and group buying events. Currently,
Quintel's network of strategic investments and marketing partnerships
includes MultiBuyer.com, GroupLotto.com, itarget.com, skymall.com, the
Innovation Factory, Inc., GenerationA.com and CyberGold.
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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, and (3) through
network members. 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 some cases, we will present the loans to wholesale
lenders who make the underwriting decisions and fund the loans, paying us a
loan origination fee.
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 December 31, 1999, 111
employees execute the processing functions. Our operations managers approve
and monitor third party sources that have originated the loans, and third
parties from which 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 35 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
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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 not to lock an
interest rate until the closing. In those cases, we may choose to sell the
loan on a short-term "mandatory" basis, which means we are required to sell
the loan to a secondary market investor within a specified number of days
after the closing.
We 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:
Norwest Funding Fleet Mortgage
Cendant Mortgage GE Capital Mortgage Services
Residential Funding Corporation Interfirst Mortgage
Citicorp Mortgage
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.
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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 aggregate borrowing
limits of $190 million, consisting of a single syndicated line of credit for
$90 million and a loan purchase agreement for $100 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 18 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.
POST-CLOSING QUALITY CONTROL
After we have funded and closed a mortgage loan, we submit 10% of
funded loans for a post-funding review. A post-funding review includes a
re-verification of credit, employment income and source of funds, as well as
a review of closing documentation. These reviews also include procedures
designed to detect evidence of fraudulent documentation or unacceptable
activities during the processing, funding or selling of the mortgage loan.
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 December 31, 1999, we employed 59 software
developers who are continually working to develop new technological solutions
for the mortgage industry. As of that date, we employed 43 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 13 customer service
employees who provide technical help desk services. Last year we spent
approximately $2.1 million on research and development and we intend to continue
devoting substantial resources toward that end.
TECHNOLOGY INFRASTRUCTURE AND SECURITY
We have 100 computer servers that 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
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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 for which
they are responsible. 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
The www.openclose.com Web site owned by Openclose.com uses 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.
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. In addition, many
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large and local lenders market mortgage solutions to real estate companies,
homebuilders, trusted financial advisors, Web site operators and financial
institutions.
We believe that the principal competitive factors for our business
to business solutions are:
/bullet/ ability to offer our clients' customers a web origination and
service experience that is efficient and effective;
/bullet/ ability to quickly and effectively develop co-branding and private
label web sites;
/bullet/ a broad selection of mortgage loan products;
/bullet/ ability to offer our clients' consumers attractive interest rates
and fees;
/bullet/ comprehensiveness of information services;
/bullet/ quality and responsiveness of customer service; and
/bullet/ ease of use of computer technology.
We must continue to enhance our technology to compete effectively.
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 and "SmartQuote" are also our trademarks and service marks.
Openclose.com owns the trademark for "Openclose." Other trademarks and
service marks in this prospectus are the property of their holders. We also
have registered the Internet domain names "mortgage.com," "realoans.com,"
"hipoteca.com" and other domain names we use. Openclose.com has registered
the Internet domain name "openclose.com." A registered domain name gives the
owner the exclusive rights to use these names as the addresses for Web sites
in the United States.
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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
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 each state's regulatory authority, 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. Rules and regulations issued by these entitiesimpose licensing and work
flow 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 Home Mortgage Disclosure 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.
24
<PAGE>
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. Home Mortgage
Disclosure 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 Home Mortgage Disclosure Act could result in administrative
enforcement actions that 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 that have been the
subject of lawsuits against other companies include:
/bullet/ "add on" fees;
/bullet/ truth in lending calculations and disclosures;
/bullet/ escrow and adjustable rate mortgage calculations;
/bullet/ private mortgage insurance calculations and disclosures;
/bullet/ forced-placed hazard, flood and optional insurance; and
/bullet/ 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
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 December 31, 1999, we had 776 full-time employees. Our success
depends upon our ability to attract, train and retain qualified personnel. We
have a comprehensive training
25
<PAGE>
program that 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 Teleweb 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 is represented by a union. We believe we have a
good relationship with our employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides the names, ages and business experience
for the past five years for each of the Executive Officers of the Registrant.
Executive Officers are each elected for one year terms.
<TABLE>
<S> <C>
Seth S. Werner (54) CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER. Mr. 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 from 1999 to present. 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., and a director, President, Secretary and Treasurer of Harbour
Real Estate Corporation.
John J. Hogan (38) SENIOR EXECUTIVE VICE PRESIDENT. Mr. Hogan has served as an Executive Vice
President from July 1997 through January 2000, as Senior Executive Vice
President from January 2000 to the present and as a member of our board of
directors since July 1997. 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
26
<PAGE>
served as 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.
Edwin D. Johnson (43) EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. Mr. Johnson was a
Senior Vice President from November 1998 through January 2000, an Executive
Vice President from January 2000 to present and our 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.
John T. Rodgers (37) EXECUTIVE VICE PRESIDENT, SALES AND MARKETING. Mr. Rodgers has been an
Executive Vice President since April 1998 and heads our sales and marketing
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 (49) EXECUTIVE VICE PRESIDENT AND CHIEF INFORMATION OFFICER. Mr. Young joined us
in July 1999 as a Senior Vice President and Chief Information Officer. In
January 2000, his title was changed to Executive Vice President and Chief
Information Officer. From September 1998 through July 1999, Mr. Young was
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.).
Don M. Lashbrook (47) EXECUTIVE VICE PRESIDENT, OPERATIONS. Mr. Lashbrook joined us in November
1998 as Executive Vice President and Chief Operating Officer of our Consumer
Direct Division. In January 2000, his title was changed to Executive Vice
President,
27
<PAGE>
Operations. From April 1997 to October 1998, he served as the Chief
Operating Officer for CFI Mortgage, Inc., in West Palm Beach, Florida,
which specialized in the retail production of prime and sub-prime mortgage
loans and the wholesale production of sub-prime and alternative mortgage
loans. From March 1996 to April 1997 he was Senior Vice President, Risk
Management, with Citizens Mortgage, and from December 1994 to February 1996
was Executive Vice President, Operations with Barnett Mortgage Company.
Barbara Rambo (47) PRESIDENT, OPENCLOSE.COM, Ms. Rambo joined our Openclose.com subsidiary in
January 2000 as President. From December 1998 to January 2000, Ms. Rambo was
a self employed banking consultant. From October 1993 to December 1998 she
was a Group Executive Vice President at Bank of America, and from April 1990
to September 1993, was an Executive Vice President at Bank of America. She
also serves on the board of directors of Gymboree Corp.
</TABLE>
ITEM 2. PROPERTIES
We are headquartered in Sunrise, Florida, where we currently lease
approximately 111,814 square feet of office space. Our lease for this building,
which houses our executive offices and our call centers, expires in 2009 with a
provision for extension. 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 we do not have the ability to
extend or renew the lease. We also have a 2,500 square foot office in Santa
Rosa, California and a 1,000 square foot office in Reno, Nevada.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material litigation and no material legal
proceedings terminated during our fiscal quarter ended December 31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
28
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock is listed on The Nasdaq National Market under the
symbol MDCM. The following table shows the range of high and low sales prices
for our common stock for the third and fourth fiscal quarters of 1999.
FISCAL
QUARTER HIGH LOW
------- ------ -----
3rd $22.75 $7.00
4th 13.31 5.50
Based on information supplied by the transfer agent, at March 15, 2000,
there were approximately 124 record holders of our common stock (not including
individual participants in security position listings).
The payment of cash dividends is within the discretion of our Board of
Directors and will depend, among other factors, on earnings, capital
requirements and our operating and financial condition. We have never declared
or paid cash dividends on our common stock. We do not anticipate paying any cash
dividends in the foreseeable future.
In October 1999, we acquired Capital Savings Co., Inc. from CSC
Holdings, LLC for 162,500 shares of our common stock and cash. The issuance of
the common stock was exempt pursuant to Section 4(2) as a transaction by an
issuer not involving a public offering. No underwriters were employed in this
transaction and appropriate legends have been affixed to the common stock
issued.
During the fiscal quarter ended December 31, 1999, we granted stock
options to purchase 101,538 shares of common stock with exercise prices ranging
from $8.25 to $11.53 per share, to employees, directors and consultants pursuant
to our employee stock option plan in consideration of services rendered or to be
rendered. In addition, we issued 222,177 shares of common stock pursuant to
employee stock options that were exercised in the fiscal quarter ended December
31, 1999. The issuance of common stock upon exercise of the options is 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 these transactions and
appropriate legends have been affixed to the stock options and will be affixed
to the common stock issuable upon exercise of the stock options.
On November 10,1999, we issued 35,000 shares of common stock pursuant
to an exercise of warrants issued in November 1995. The exercise price for the
warrants was approximately $0.71. The issuance of the common stock was exempt
pursuant to Section 4(2)
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<PAGE>
as a transaction by an issuer not involving a public offering. No underwriters
were employed in this transaction and appropriate legends have been affixed to
the common stock issued.
Pursuant to a registration statement effective August 11, 1999, we
registered 7,062,500 shares of our common stock for our own account in an
initial public offering for an aggregate offering price to the public of
$56,500,000. We also registered 1,059,375 shares pursuant to an underwriters
option to cover over-allotment of shares. There were no selling security
holders. We completed the offering having sold all 7,062,500 shares to the
public and 379,375 shares pursuant to the underwriter option. The managing
underwriter in the offering was Credit Suisse First Boston. The gross proceeds
from this transaction were $59.5 million. The net proceeds were $53.8 million
after underwriter discounts of $4.1 million and offering expenses of
approximately $1.6 million paid to third parties unaffiliated with us. The
following table shows the approximate use of the net proceeds of our initial
public offering (in millions):
USE OF PROCEEDS AMOUNT
-------------------------------------------------------- ------
Repayment of subordinated debt.......................... $40.5
Redemption of warrants.................................. .4
Advertising branding campaign........................... 8.0
Research and development(1)............................. 1.4
Working capital/general use............................. 3.5
Total................................................... $53.8
- ----------
(1) A portion of the research and development expenditures have been
capitalized in our financial statements.
[The Remainder of This Page Is Intentionally Left Blank]
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<PAGE>
ITEM 6. SELECTED 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, 1998 and 1999 have been audited by KPMG LLP,
independent auditors. The financial statements for the periods ended March 31,
1995 and December 31, 1995 are unaudited. The unaudited financial statements
have been prepared on the same basis as the audited financial statements. This
information should be read in conjunction with our financial statements
(including the related notes thereto) and Management's Discussion and Analysis
of the Financial Condition and Results of Operations, each included elsewhere in
this Form 10-K. All numbers are in thousands, except per share data.
<TABLE>
<CAPTION>
NINE MONTHS APR. 15, 1994
YEAR ENDED DECEMBER 31, ENDED (INCEPTION)
-------------------------------------------- DEC. 31, THROUGH
1999 1998 1997 1996 1995 MAR. 31, 1995
-------- ------- ------- ------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Secondary marketing revenue, net........... $ 35,616 $28,598 $11,595 $ 4,101 $ 942 $ 77
Loan production and processing fees, net... 10,629 5,338 2,347 821 778 384
Management, technical and other fees....... 4,331 1,868 2,032 2,577 1,422 40
Interest income............................ 10,682 6,998 3,550 922 289 77
-------- ------- ------- ------- ------ -------
Total revenue............................ 61,258 42,802 19,524 8,421 3,431 578
-------- ------- ------- ------- ------ -------
Expenses:
Compensation and employee benefits......... 53,575 26,075 13,083 6,527 2,542 1,515
Marketing and advertising.................. 16,524 1,335 238 94 36 33
Research and development................... 2,110 2,888 1,079 497 -- --
Depreciation and amortization.............. 5,316 1,873 480 652 296 235
General and administrative................. 18,919 9,598 5,126 3,764 1,470 919
Interest expense........................... 11,310 7,111 3,050 905 381 94
-------- ------- ------- ------- ------ -------
Total expenses........................... 107,754 48,880 23,056 12,439 4,725 2,796
-------- ------- ------- ------- ------ -------
Loss before minority interest and
extraordinary item........................ (46,496) (6,078) (3,532) (4,018) (1,294) (2,218)
Minority interest............................. (4) -- -- -- -- --
-------- ------- ------- ------- ------ -------
Loss before extraordinary item................ (46,500) (6,078) (3,532) (4,018) (1,294) (2,218)
Extraordinary item - loss on extinguishment of
debt...................................... (436) -- -- -- -- --
-------- ------- ------- ------- ------ -------
Net loss..................................... $(46,936) $(6,078) $(3,532) $(4,018) $(1,294) $(2,218)
======== ======= ======= ======= ======= =======
Net loss per share - basic and diluted:
Loss before extraordinary item............ $(2.17) $(1.02) $(0.55) $(0.56) $(0.16) $(0.39)
Extraordinary item........................ (0.02) -- -- -- -- --
-------- ------- ------- ------- ------ -------
Net loss.................................. $(2.19) $(1.02) $(0.55) $(0.56) $(0.16) $(0.39)
======== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 7,537 $ 3,412 $ 1,680 $ 2,008 $ 222
Working capital.............................. 6,980 2,240 1,353 2,283 (850)
Total assets................................. 138,075 193,438 81,927 30,711 11,684
Convertible preferred stock.................. -- 32 19 15 2
Stockholders' equity......................... 33,327 13,136 3,797 3,283 347
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We are a leading provider of online mortgage services and technology to
businesses and consumers. Our vision is to create the definitive Internet
platform for originating, underwriting, processing, closing and selling
mortgage loans. We enable other businesses to use this technology platform when
they market to customers who choose to obtain mortgage services through the
Internet.
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" pay
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 America Mortgage, the mortgage affiliate of Mason-McDuffie Real Estate,
a major real estate company in northern California. In June 1997, we acquired
Online Capital, a mortgage lender also located in northern California, with
more than 25 loan counselors at the point-of-sale of homes, three Realtor
business-to-business relationships and requisite back office personnel. We
deployed these acquired resources to support and expand our member business in
California.
In the spring of 1998, we acquired RM Holdings, Inc. and its American
Finance and Investment (AFI) operations and moved the 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 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.
In October 1999, we acquired Capital Savings Co., Inc., PlanMax, Inc. and
the assets of ACM/USA, Inc. and CSC Marketing Services, LLC from CSC Holdings,
LLC for 162,500 shares of our common stock and $250,000 in cash. Capital
Savings Co., Inc. and CSC Marketing Services, LLC operated a traditional
mortgage brokerage company in North Carolina. We have substantially eliminated
this operation as of March 2000. PlanMax, Inc. has the relationships that have
formed the foundation of our Trusted Financial Advisor vertical marketing
strategy. ACM/USA brought us three marketing relationships that focus on
marketing our services to real estate and other companies in Ohio, Illinois,
Indiana, Tennessee, Georgia and North Carolina. CSC Holdings brought us a
relationship with BuildNet Financial, with whom we have signed a marketing
agreement where BuildNet will market our services to homebuilders nationwide.
We provide origination, processing, underwriting, closing, funding and
post-closing mortgage services, and the technology to support these services,
to other mortgage industry participants through our business-to-business
channels. We enable these business clients to efficiently conduct the mortgage
process by providing them with:
/bullet/ private label mortgage services, where we provide mortgage
services that our clients can market under their own brand names;
/bullet/ co-branded mortgage services, where we provide mortgage services
that we and our clients jointly market under both of our brand names;
32
<PAGE>
/bullet/ back office services, where we provide the behind-the-scenes
administrative and operational portions of the mortgage process for our
clients and licenses of our proprietary technology, including CLOser and
its Internet interface.
We provide similar 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 our loan counselors stationed at the point-of-sale of homes. In
February 2000, we announced plans to convert our loan officer point of sale
originations to the installation of various web-based solutions in the offices
of our Realtor and homebuilder clients. We are also redesignating our loan
officers as account executives who will be responsible for marketing our point
of sale Internet solutions to real estate and other companies.
We also developed www.openclose.com, a web site where participating
mortgage lenders, brokers and loan correspondents pay for the opportunity to
exchange lender product and pricing information, automated underwriting data,
mortgage insurance certificates and borrower application information in an
online environment. The www.openclose.com web site became available for
commercial use in August 1999 and over 900 brokers and 38 lenders had agreed to
participate in the program as of March 1, 2000.
On January 27, 2000, we contributed assets associated with the
www.openclose.com business to a newly formed subsidiary, Openclose.com, Inc.,
in exchange for $24 million in cash and common stock representing 51% of the
subsidiary's outstanding securities. The remainder of the outstanding
securities of Openclose.com were purchased by accredited investors that
contributed $30 million in cash to Openclose.com in exchange for convertible
preferred stock. Among the assets contributed were co-ownership of the
www.openclose.com Internet Web site, the programming and computer code used
exclusively in connection with the site, trade rights associated with this
programming and code and ownership of certain customer contracts pertaining to
www.openclose.com. The assets contributed had been carried on our balance sheet
at a nominal amount.
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 recorded as "Secondary
marketing revenue, net" in our financial statements.
Other services, including 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 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, technology
and other fees" in our financial statements.
The cost of funds under our financing arrangements is based on short-term
interest rates, while the 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
interest we earn on the loans we fund is recorded as "Interest income", and the
interest we pay under our financing arrangements, along with other interest
incurred on debt obligations, is recorded as "Interest expense" in our
financial statements.
We have experienced substantial losses since our inception and, as of
December 31, 1999, have an accumulated deficit of $65.3 million. These net
losses and the accumulated deficit resulted from investments
33
<PAGE>
in our technology infrastructure and personnel in anticipation of growth in
loan volumes from both our direct-to-consumer and business to business channels
and from a $10 million advertising campaign in 1999 to increase the awareness
of the Mortgage.com brand name. We do not expect to be profitable until at
least the latter half of 2002. Our plan to achieve profitability includes:
/bullet/ a reduction in our costs per loan through economies of scale we
achieve from higher loan volumes;
/bullet/ developing the recognized standard technology platform for
originating, underwriting, processing, closing and selling mortgages over
the Internet;
/bullet/ increased automation of the loan process, which will reduce our
cost to produce each loan; and
/bullet/ 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 have completed our brand advertising campaign and plan to use our
marketing and technology infrastructure to enhance loan production volumes
through partnerships and business alliances with business partners. We expect
to raise additional funds in the private and public capital markets and intend
to invest available funds heavily in developing these new partnerships and
strategic alliances, our operating infrastructure and supporting
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.
Our limited operating history makes it difficult to forecast future
operating results. Although our revenue has grown significantly in recent
years, 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:
/bullet/ changes in interest rates;
/bullet/ loss of strategic relationships;
/bullet/ changes in competitive pressures on pricing or quality of
service;
/bullet/ seasonal variations in demand for mortgages;
/bullet/ general economic conditions;
/bullet/ system failures or Internet down time;
/bullet/ changes in state or federal government regulations and their
interpretations, especially with respect to the mortgage and Internet
industries;
/bullet/ our ability to enhance our information technology to keep pace
with changes in the industry; and
/bullet/ 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.
34
<PAGE>
RESULTS OF OPERATION
The following table sets forth the percentage of total revenue of certain
line items included in our statement of operations for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE:
Secondary marketing revenue, net ................. 58.1% 66.8% 59.4%
Loan production and processing fees, net ......... 17.4 12.5 12.0
Management, technology and other fees ............ 7.1 4.4 10.4
Interest income .................................. 17.4 16.3 18.2
----- ----- -----
Total revenue ..................................... 100.0 100.0 100.0
----- ----- -----
EXPENSE:
Compensation and employee benefits ............... 87.5 60.9 67.0
Marketing and advertising ........................ 26.9 3.1 1.2
Research and development ......................... 3.4 6.7 5.5
Depreciation and amortization .................... 8.7 4.4 2.5
General and administrative ....................... 30.9 22.5 26.3
Interest expense ................................. 18.5 16.6 15.6
----- ----- -----
Total expenses .................................... 175.9 114.2 118.1
----- ----- -----
Loss before extraordinary item .................... (75.9) (14.2) (18.1)
----- ----- -----
Extraordinary item ................................ ( 0.7) -- --
----- ----- -----
Net loss .......................................... (76.6)% (14.2)% (18.1)%
===== ===== =====
</TABLE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUE
Total revenue increased 43% to $61.3 million in 1999 from $42.8 million in
1998. This growth resulted primarily from loan volume generated by our Web
sites, from strategic alliances with online partners and Realtors and a full
year's operational effect of our acquisition of AFI in April 1998. Interest
rates were generally low in 1998, but Federal Reserve policies increased
interest rates in the second half of 1999, weakening the volume of originations
of refinanced loans during that period.
SECONDARY MARKETING REVENUE, NET. Gains and other revenue from the
origination and secondary marketing of mortgage loans increased 24% to $35.6
million in 1999 from $28.6 million 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
$3.0 billion in 1999 as compared to $2.0 billion in 1998. From these
originations, we funded and sold in the secondary market $2.3 billion in loans
in 1999 and $1.5 billion in 1998. Other mortgage lenders funded loans that we
originated but did not fund. The increase in loan volumes and related revenue
resulted primarily from our introduction of additional Internet origination
channels 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 100% to $10.6 million in 1999 from $5.3 million in 1998. This
increase in production and processing fees resulted from an overall increase in
loan volume and from new strategic alliances that produced fees from processing
loans for third parties and other mortgage lenders. Approximately 20% of these
fees came from Intuit Lender Services during 1999. Fees from this source will
decline with the termination of the Intuit Lender Services contracts.
On October 7, 1999, we terminated our agreement with Intuit Lender
Services, Inc. for the provision of prime loan mortgage services to the
quickenmortgage.com web site. Terminating this agreement relieved us of
exclusivity restrictions. We processed 3,008 loans under the agreement in 1999,
and we anticipate that the reduced loan volume from this termination will be
replaced by new co-branded Internet relationships entered into with economic
terms more favorable to us.
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In addition, on November 9, 1999, Intuit Lender Services terminated a
second agreement relating to sub-prime mortgage services. This termination also
relieved us of exclusivity restrictions. We processed 57 loans from this
agreement in 1999, and accordingly, do not anticipate that the termination of
this agreement will have a material adverse effect on the Company's sub-prime
loan business.
MANAGEMENT, TECHNOLOGY AND OTHER FEES. Total revenue from management,
technology and other fees increased 126% to $4.3 million in 1999 from $1.9
million in 1998. The 1999 amount includes recognition of $1.0 million in
previously deferred revenue from the sale of software that we no longer use in
our business. The remaining increase was primarily attributable to fees earned
from business affiliations for management services and technology.
INTEREST INCOME. Interest income increased 53% to $10.7 million in 1999
from $7.0 million in 1998 and was earned from the volume of loans originated
during the period between their funding and sale. In addition, interest rates
were higher in 1999 than in 1998.
EXPENSES
COMPENSATION AND EMPLOYEE BENEFITS. Compensation and employee benefits
consist primarily of management and employee salaries, bonuses, commissions and
related costs as well as the cost of personnel from temporary agencies. Total
compensation and benefit costs increased 105% to $53.6 million in 1999, or
87.5% of revenue, from $26.1 million in 1998, or 60.9% of revenue. The increase
in total compensation and benefit costs resulted primarily from an increase in
the number of employees from 486 to 776 at December 31, 1998 and 1999,
respectively, to support our new Internet origination volumes and related
technical support services. The increase was also a result of increased
commissions paid to loan originators commensurate with increased loan volumes.
Total compensation and benefit costs increased as a percentage of revenue due
to training periods involved in expanding our call center capacity to meet
Internet loan demand. We expect that compensation and employee benefits will
not increase significantly in the near future as we have reorganized our
operations to combine staff handling our separate business channels into one
function. We expect to obtain cost efficiencies from directing our operations
more toward full utilization of Internet strengths.
Included in "Compensation and employee benefits" is the amortization of
unearned compensation, which resulted when stock options we granted during 1998
and the first and second quarters 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 December 31, 1999, we have recorded approximately
$16.6 million in deferred compensation, and we amortized approximately $7.7
million and $29,000 of that amount to expense in 1999 and 1998, respectively.
During the third quarter of 1999, the vesting of certain options was
accelerated and approximately $5.4 million of deferred compensation relating to
these options was recognized in expense. The remaining balance will be
amortized on a straight-line basis over the remaining vesting periods of the
underlying options. Stock-based compensation is a non-cash expense.
MARKETING AND ADVERTISING. Marketing and advertising expenses consist
primarily of the cost of a national advertising campaign to brand the
Mortgage.com name with the public and payments for 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
and advertising expenses also include fees paid to other web sites and business
partners for lead generation. Marketing expenses increased 1,169% to $16.5
million in 1999, or 26.9% of revenue, from $1.3 million in 1998, or 3.1% of
revenue. These increases were directly related to the branding campaign, new
online distribution agreements and online advertising designed to increase the
exposure of our Web site. Since the branding campaign is complete, we believe
that marketing expenses will decrease, both in absolute dollars and as a
percentage of revenue. We expect that the costs of expanding strategic
partnerships with other Web sites to drive more traffic to our Web site will be
less than the media costs of brand advertising.
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 decreased 28% to $2.1 million in 1999,
or 3.4% of revenue, from $2.9 million in 1998, or 6.7% of revenue. The decrease
was primarily due to the redeployment of product development personnel to the
capitalized development of the integration of CLOser with newly acquired
Internet technology and third-party software. We believe additional investment
in research and development is essential to our success and we expect these
expenses will increase in future periods.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization consists of
depreciation of capital equipment, amortization of goodwill related to
acquisitions, amortization of intangible assets and amortization of capitalized
software development costs. Depreciation and amortization expenses increased
179% to $5.3 million in 1999, or 8.7% of revenue, from $1.9 million in 1998, or
4.4% 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, additions to goodwill from the AFI
acquisition and payments relating to the Online Capital and Mortgage.com name
acquisitions. During 1999, $613,000 was amortized on intangible assets. These
expenses have increased 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, an additional $1.5 million in the cost of the domain name and
planned expenditures to maintain state-of-the-art technology in support of our
Internet operations.
GENERAL AND ADMINISTRATIVE. General and administrative costs include
telephone and communication costs, rent and other occupancy costs, equipment
leases, certain loan transfer fees and consulting and professional expenses.
General and administrative expenses increased 97% to $18.9 million in 1999, or
30.9% of revenue, from $9.6 million in 1998, or 22.5% 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 at a slower
rate as we continue to grow. We expect to benefit from efficiencies in our
plans to streamline processing operations to make better use of the Internet.
INTEREST EXPENSE. Interest expense, which includes interest on
subordinated debt and on capital lease obligations, increased 59% to $11.3
million 1999, compared to $7.1 million 1998. These increases were a result of
the $40.5 million in subordinated debt issued in the first half of 1999, which
was paid off from public offering proceeds in August 1999, and of higher
interest rates incurred on warehouse loans in the second half of 1999.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE
Total revenue increased 119% to $42.8 million in 1998 from $19.5 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 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 closed loans that we originated increased from
$2.0 billion in 1998 from $808.7 million in 1997. We funded and sold in the
secondary market $1.5 billion in loans in 1998 and $562.0 million in 1997. The
increase in loan volumes and related revenue resulted primarily from the
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 resulting from relatively low interest rates.
LOAN PRODUCTION AND PROCESSING FEES, NET. Loan production and processing
fees, less amounts paid to third parties for certain processing services,
increased 130% to $5.3 million in 1998 from $2.3 million in 1997. This increase
in production and processing fees resulted from an overall increase in loan
volume.
MANAGEMENT, TECHNOLOGY AND OTHER FEES. 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.
INTEREST INCOME. Interest income increased 94% to $7.0 million in 1998
from $3.6 million in 1997. An overall increase in loan volume increased the
interest earned during 1998.
EXPENSES
COMPENSATION AND EMPLOYEE BENEFITS. Compensation and benefit costs
increased 99% to $26.1 million in 1998, or 60.9% of revenue, from $13.1 million
in 1997, or 67.0% of revenue. The dollar increase in total compensation and
benefit costs resulted primarily from an increase in number of employees from
148 at
37
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December 31, 1997 to 486 at December 31, 1998 to support our new Internet
origination volumes and related technical support services. The increase was
also a result of increased commissions paid to loan originators commensurate
with increased loan volumes. Total compensation and benefit costs decreased as
a percentage of revenue.
MARKETING AND ADVERTISING. Marketing expenses increased 446% to $1.3
million in 1998, or 3.1% of revenue, from $238,000 in 1997, 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.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 164%
to $2.9 million in 1998, or 6.7% of revenue, from $1.1 million in 1997, or 5.5%
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 4.4% of revenue, from $480,000 in
1997, or 2.5% 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 22.5% of revenue, from $5.1 million in 1997, or
26.3% 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 support personnel. These
expenses declined as a percentage of revenue due to increased mortgage loan
originations.
INTEREST EXPENSE. Interest expense increased 129% to $7.1 million in 1998
from $3.1 million in 1997. An overall increase in loan volume increased the
interest charge by our warehouse lenders during 1998.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly consolidated
statement of operations data for each of the eight quarters during the years
ended December 31, 1999 and 1998. This information has been prepared
substantially on the same basis as the audited consolidated financial
statements 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 the notes to those
statements. As a result of our limited operating history and numerous factors
outside management's control, some of which are listed above, we may experience
material fluctuations in revenue and earnings in future quarters. Accordingly,
the operating results of any quarter may not be indicative of the results that
may be expected for any future period.
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<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------
DEC. 31, SEPT. 30, JUNE 30,
1999 1999 1999
-------------- ------------- ------------
STATEMENTS OF OPERATIONS DATA: (In thousands)
<S> <C> <C> <C>
Revenue:
Secondary marketing revenue, net ................. $ 8,448 $ 8,622 $ 9,946
Loan production and processing fees, net ......... 2,486 2,442 3,103
Management, technology and other fees ............ 710 663 967
Interest income .................................. 2,276 2,847 2,882
-------- -------- -------
Total revenue ................................... 13,920 14,574 16,898
-------- -------- -------
Expenses:
Compensation and employee benefits ............... 12,832 18,385 12,713
Marketing and advertising ........................ 3,322 8,623 3,043
Research and development ......................... 351 389 593
Depreciation and amortization .................... 1,797 1,667 1,154
General and administrative ....................... 5,599 5,146 4,415
Interest expense ................................. 2,188 2,935 3,537
-------- -------- -------
Total expenses .................................. 26,089 37,145 25,455
-------- -------- -------
Loss before minority interest and
extraordinary item ............................... (12,169) (22,571) (8,557)
Minority interest ................................ (4) -- --
--------- -------- -------
Loss before extraordinary item .................... (12,173) (22,571) (8,557)
Extraordinary item ............................... -- (436) --
-------- -------- -------
Net loss .......................................... $(12,173) $(23,007) $(8,557)
======== ======== =======
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Secondary marketing revenue, net ................. 60.7% 59.2% 58.9%
Loan production and processing fees, net ......... 17.9 16.8 18.4
Management, technology fees and other ............ 5.1 4.5 5.7
Interest income .................................. 16.3 19.5 17.0
-------- -------- -------
Total revenue ................................... 100.0 100.0 100.0
-------- -------- -------
Expenses:
Compensation and employee benefits ............... 92.2 126.1 75.2
Marketing and advertising ........................ 23.9 59.2 18.0
Research and development ......................... 2.5 2.7 3.5
Depreciation and amortization .................... 12.9 11.4 6.8
General and administrative ....................... 40.2 35.4 26.2
Interest expense ................................. 15.7 20.1 20.9
-------- -------- -------
Total expenses .................................. 187.4 254.9 150.6
-------- -------- -------
Loss before minority interest and
extraordinary item ............................... (87.4) (154.9) (50.6)
Minority interest ................................ 0.0 -- --
-------- -------- -------
Loss before extraordinary item .................... (87.4) (154.9) (50.6)
Extraordinary item ............................... -- ( 3.0) --
-------- -------- -------
Net loss .......................................... (87.4)% (157.9)% (50.6)%
======== ======== =======
<CAPTION>
Quarter Ended
-----------------------------------------------------------------
MAR. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
1999 1998 1998 1998 1998
------------ ------------ ------------- ------------ ------------
STATEMENTS OF OPERATIONS DATA: (In thousands)
<S> <C> <C> <C> <C> <C>
Revenue:
Secondary marketing revenue, net ................. $ 8,600 $ 8,938 $ 7,632 $ 6,621 $ 5,407
Loan production and processing fees, net ......... 2,598 1,809 1,329 1,278 922
Management, technology and other fees ............ 1,991 134 539 649 546
Interest income .................................. 2,677 2,210 2,258 1,461 1,069
------- ------- ------- -------- --------
Total revenue ................................... 15,866 13,091 11,758 10,009 7,944
------- ------- ------- -------- --------
Expenses:
Compensation and employee benefits ............... 9,645 8,602 6,653 5,892 4,928
Marketing and advertising ........................ 1,536 539 454 257 85
Research and development ......................... 777 1,155 722 578 433
Depreciation and amortization .................... 698 1,114 338 268 153
General and administrative ....................... 3,759 2,994 2,721 2,293 1,590
Interest expense ................................. 2,650 2,353 2,149 1,484 1,125
------- ------- ------- -------- --------
Total expenses .................................. 19,065 16,757 13,037 10,772 8,314
------- ------- ------- -------- --------
Loss before minority interest and
extraordinary item ............................... (3,199) (3,666) (1,279) (763) (370)
Minority interest ................................ -- -- -- -- --
------- ------- ------- -------- --------
Loss before extraordinary item .................... (3,199) (3,666) (1,279) (763) (370)
Extraordinary item ............................... -- -- -- -- --
------- ------- ------- -------- --------
Net loss .......................................... $(3,199) $(3,666) $(1,279) $ (763) $ (370)
======= ======= ======= ======== ========
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Secondary marketing revenue, net ................. 54.2% 68.3% 64.9% 66.2% 68.1%
Loan production and processing fees, net ......... 16.4 13.8 11.3 12.8 11.6
Management, technology fees and other ............ 12.5 1.0 4.6 6.4 6.9
Interest income .................................. 16.9 16.9 19.2 14.6 13.4
------- ------- ------- -------- --------
Total revenue ................................... 100.0 100.0 100.0 100.0 100.0
------- ------- ------- -------- --------
Expenses:
Compensation and employee benefits ............... 60.8 65.7 56.6 58.9 62.0
Marketing and advertising ........................ 9.7 4.1 3.9 2.6 1.1
Research and development ......................... 4.9 8.8 6.1 5.8 5.5
Depreciation and amortization .................... 4.4 8.5 2.9 2.7 1.9
General and administrative ....................... 23.7 22.9 23.1 22.8 20.0
Interest expense ................................. 16.7 18.0 18.3 14.8 14.2
------- ------- ------- -------- --------
Total expenses .................................. 120.2 128.0 110.9 107.6 104.7
------- ------- ------- -------- --------
Loss before minority interest and
extraordinary item ............................... (20.2) (28.0) (10.9) ( 7.6) ( 4.7)
Minority interest ................................ -- -- -- -- --
------- ------- ------- -------- --------
Loss before extraordinary item .................... (20.2) (28.0) (10.9) ( 7.6) ( 4.7)
Extraordinary item ............................... -- -- -- -- --
------- ------- ------- -------- --------
Net loss .......................................... (20.2)% (28.0)% (10.9)% ( 7.6)% ( 4.7)%
======= ======= ======= ======== ========
</TABLE>
Our quarterly growth in revenue resulted from a growth in loan volumes
until the third quarter of 1999, when increasing interest rates resulted in
slower growth. We also have experienced normal seasonality in the mortgage
industry by having stronger demand in the summer than in the winter.
Our compensation costs reflect a general upward trend as a percentage of
revenue due to the increase in personnel to support our new Internet
origination volumes and related technical and administrative support services
as well as increased commissions paid to loan originators commensurate with
increased loan volumes. The $5.4 million of vested unearned compensation
expense caused an unusual increase in compensation during the third quarter of
1999. The marketing and advertising branding expense affected the 1999 periods
and is not expected to continue in 2000. Our general and administrative
expenses have increased as a percentage of revenue due to our expansion to
provide for operational growth. The expansion required additions to leased
space and equipment and communication costs to handle support services from our
call center. We also used consultants to assist in the technology expansion and
in evaluation to determine that we had no exposure to potential Year 2000
technology problems.
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LIQUIDITY AND CAPITAL RESOURCES
On August 11, 1999, we completed an initial public offering in which we
sold 7,062,500 shares of common stock. Subsequently, the underwriters of the
public offering exercised an option to purchase an additional 379,375 shares of
common stock to cover over-allotments of shares. The gross proceeds from these
transactions were $59.5 million, or $55.4 million net of underwriter discounts.
A portion of the proceeds was used to repay $40.5 million of subordinated debt
and $433,000 was used to redeem certain warrants.
Since inception and prior to the public offering, we have funded
operations primarily through net cash proceeds from private placements of
preferred stock totaling $26.5 million through December 31, 1998. 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. The subordinated
notes and the convertible subordinated notes were repaid upon completion of the
initial public offering. We also received $15.0 million from the sale of shares
of preferred stock in May. All preferred stock converted into common stock at
the date of the public offering in August.
As of December 31, 1999, we had cash and cash equivalents of $7.5 million
and an additional $2.5 million in cash available through our warehouse lines of
credit which may be used for general corporate purposes. Excess cash has been
temporarily deposited against the warehouse balances to enhance our return on
cash. In January 2000, we raised an additional $24.0 million in cash by
contributing the assets of www.openclose.com to a newly formed subsidiary,
Openclose.com, Inc. Openclose.com raised $30.0 million in cash from the sale of
preferred stock representing 49% of the outstanding voting stock of
Openclose.com $24 million of which was paid to us in connection with our
contribution of the Openclose.com assets. Subject to market conditions, we
intend to raise additional cash to fund our continuing expansion either through
a private placement of stock or through a secondary public offering.
One of our most significant needs for operating capital is to fund
mortgage loans between closing and eventual delivery to secondary market
investors. We have funded these loans through loan purchase agreements,
warehouse lines of credit and collateralized loan purchase agreements with
banks and other financial institutions. We currently have a single syndicated
line of credit for $110 million and loan purchase agreements with Greenwich
Capital and Superior Bank of $50 million and $10 million, respectively. These
financing arrangements generally provide between 97% and 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 the receipt of
loan sale proceeds from investors approximately 22 days during 1999.
Net cash provided by operating activities for the year ended December 31,
1999 totaled $48.6 million. This cash was generated primarily from a reduction
in mortgage loans available for sale, offset by operating losses.
Net cash used in investing activities for the year ended December 31, 1999
totaled $16.6 million, $9.6 million of which was used 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. Included in these purchases was the $3.5 million
repurchase of our CLOser software system from an unrelated party. The purchase
of the mortgage.com domain name cost us $2.4 million.
Net cash used in financing activities for the year ended December 31, 1999
totaled $28.0 million, as $69.0 million in proceeds from the issuance of common
and preferred stock was used to reduce warehouse and other notes payable, to
redeem warrants and for general corporate purposes.
As of December 31, 1999, we had net operating loss carryforwards of
approximately $57.7 million available to reduce future taxable income expiring
on various dates from 2008 to 2019.
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 cash generated by the sale of www.openclose.com, 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 intend to raise capital to fund
these requirements either through a private placement of stock or through a
secondary public offering. However, we cannot be sure that we will be able to
raise sufficient funds in the capital markets to adequately support our
strategic plans. Moreover, the issuance of additional equity or convertible
debt securities could result in dilution to our existing stockholders.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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. In June 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB SFAS No. 133. SFAS 133, as amended, is now effective for all fiscal
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<PAGE>
quarters of all fiscal years beginning after June 15, 2000. The impact of this
Statement is not anticipated to have a material impact on the Company's
consolidated statements of operations, balance sheets or cash flows upon the
adoption of this standard.
ITEM 7A. QUANTITATIVE AND QUALITATIVE 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 have retained 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 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.
41
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
Financial statements from the Registrant's 1999 Annual Report to
Shareholders are listed at Part IV, Item 14(a), "Consolidated Financial
Statements and Schedules" and are included in this report immediately following
Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information concerning our directors and delinquent filers is
incorporated by reference pursuant to Instruction G of Form 10-K from the
Registrant's definitive proxy statement for the 2000 annual meeting of
shareholders to be filed with the Commission pursuant to Regulation 14A on or
before April 30, 2000.
Information concerning our executive officers is contained under the
caption "Executive Officers of the Registrant" in Item 1 of Part I of this Form
10-K, pursuant to Instruction G of Form 10-K and Item 401(b) of Regulation S-K.
42
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by
reference pursuant to Instruction G of Form 10-K from the Registrant's
definitive proxy statement for the 2000 annual meeting of shareholders to be
filed with the Commission pursuant to Regulation 14A on or before April 30,
2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management is incorporated by reference pursuant to Instruction G of Form
10-K from the Registrant's definitive proxy statement for the 2000 annual
meeting of shareholders to be filed with the Commission pursuant to Regulation
14A on or before April 30, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
is incorporated by reference pursuant to Instruction G of Form 10-K from the
Registrant's definitive proxy statement for the 2000 annual meeting of
shareholders to be filed with the Commission pursuant to Regulation 14A on or
before April 30, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
/bullet/ Report of KPMG LLP
/bullet/ Consolidated Balance Sheets as of December 31, 1999 and 1998
/bullet/ Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997
/bullet/ Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1999, 1998 and 1997
/bullet/ Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
/bullet/ Notes to Consolidated Financial Statements
43
<PAGE>
MORTGAGE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
----------- -----------
(In thousands, except
share data)
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................... $ 7,537 $ 3,412
Mortgage loans available for sale, net .................................. 93,120 176,373
Property and equipment, net ............................................. 16,408 5,266
Capitalized software development costs, net ............................. 2,817 978
Goodwill and other intangible assets, net ............................... 9,780 4,688
Other assets ............................................................ 8,413 2,721
--------- ---------
Total assets ............................................................ $ 138,075 $ 193,438
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Warehouse and other notes payable ....................................... $ 88,399 $ 172,166
Accounts payable, accrued expenses and other liabilities ................ 13,691 5,558
Capital lease obligations ............................................... 2,409 1,566
Deferred revenue ........................................................ -- 1,012
--------- ---------
Total liabilities .................................................... 104,499 180,302
--------- ---------
Minority interest ....................................................... 249 --
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 15,000,000 shares,
issued and outstanding 3,199,073 shares at December 31, 1998 ......... -- 32
Common stock, $.01 par value. Authorized 210,000,000 shares,
issued and outstanding 43,221,964 and 9,398,270 shares at
December 31, 1999 and 1998, respectively ............................. 432 94
Additional paid-in capital ............................................. 107,011 31,531
Unearned compensation .................................................. (8,860) (631)
Accumulated deficit .................................................... (65,256) (17,890)
--------- ---------
Total shareholders' equity ........................................... 33,327 13,136
--------- ---------
Total liabilities and shareholders' equity .............................. $ 138,075 $ 193,438
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE>
MORTGAGE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Secondary marketing revenue, net ............................ $ 35,616 $ 28,598 $ 11,595
Loan production and processing fees, net .................... 10,629 5,338 2,347
Management, technology and other fees ....................... 4,331 1,868 2,032
Interest income ............................................. 10,682 6,998 3,550
--------- -------- --------
Total revenues ............................................ 61,258 42,802 19,524
--------- -------- --------
Expenses:
Compensation and employee benefits .......................... 53,575 26,075 13,083
Marketing and advertising ................................... 16,524 1,335 238
Research and development .................................... 2,110 2,888 1,079
Depreciation and amortization ............................... 5,316 1,873 480
General and administrative .................................. 18,919 9,598 5,126
Interest expense ............................................ 11,310 7,111 3,050
--------- -------- --------
Total expenses ............................................ 107,754 48,880 23,056
--------- -------- --------
Loss before minority interest and extraordinary item ......... (46,496) (6,078) (3,532)
Minority interest ............................................ (4) -- --
---------- -------- --------
Loss before extraordinary item ............................... (46,500) (6,078) (3,532)
Extraordinary item--loss on extinguishment of debt ........... (436) -- --
--------- -------- --------
Net loss ..................................................... $ (46,936) $ (6,078) $ (3,532)
========= ======== ========
Net loss per share--basic and diluted:
Loss before extraordinary item .............................. $ (2.17) $ (1.02) $ (0.55)
Extraordinary item .......................................... (0.02) -- --
--------- -------- --------
Net loss ..................................................... $ (2.19) $ (1.02) $ (0.55)
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
MORTGAGE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 31, 1999, 1998 and 1997
------------------------------------------------
Preferred Stock Common Stock
------------------------ -----------------------
Shares Amount Shares Amount
--------------- -------- -------------- --------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Balance at December 31, 1996 ..................... 1,452,507 $ 14 7,923,594 $ 79
Issuance of preferred stock ..................... 266,668 3 -- --
Issuance of common stock warrants ............... -- -- -- --
Issuance of common stock in acquisitions ........ -- -- 501,676 5
Conversion of subordinated debentures ........... 206,000 2 -- --
Retirement of treasury stock .................... -- -- (735,000) (7)
Net loss ........................................ -- -- -- --
--------- ------ --------- ----
Balance at December 31, 1997 ..................... 1,925,175 19 7,690,270 77
Issuance of preferred stock, net of expenses
of $343,000..................................... 1,080,427 11 -- --
Issuance of common stock warrants ............... -- -- -- --
Issuance of common stock in acquisitions ........ -- -- 1,400,000 14
Issuance of common stock for services ........... -- -- 308,000 3
Conversion of subordinated debentures ........... 193,471 2 -- --
Stock option plan compensation .................. -- -- -- --
Amortization of unearned compensation ........... -- -- -- --
Dividends paid .................................. -- -- -- --
Net loss ........................................ -- -- -- --
--------- ------ --------- ----
Balance at December 31, 1998 ..................... 3,199,073 32 9,398,270 94
Issuance of preferred stock, net of expenses
of $495,050..................................... 250,001 2 -- --
Issuance of common stock in an initial public
offering, net of expenses of $5,743,649......... -- -- 7,441,875 74
Issuance of common stock for acquisition of
mortgage.com Internet domain name .............. -- -- 140,000 1
Issuance of common stock in acquisition ......... -- -- 162,500 2
Issuance of common stock warrants ............... -- -- -- --
Conversion subordinated debentures .............. -- -- 46,669 1
Conversion of preferred stock ................... (3,449,074) (34) 24,515,961 245
Exercise of stock options ....................... -- -- 1,306,689 13
Repurchase of common stock warrants ............. -- -- -- --
Exercise of common stock warrants ............... -- -- 210,000 2
Stock option plan compensation .................. -- -- -- --
Amortization of unearned compensation ........... -- -- -- --
Dividends paid .................................. -- -- -- --
Net loss ........................................ -- -- -- --
---------- ------ ---------- ----
BALANCE AT DECEMBER 31, 1999 ..................... -- $ -- 43,221,964 $432
========== ====== ========== ====
<CAPTION>
Years ended December 31, 1999, 1998 and 1997
---------------------------------------------------------------
Additional
Paid-in Unearned Accumulated Treasury
Capital Compensation Deficit Stock Total
----------- -------------- ------------- --------- ------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ..................... $ 11,270 $ -- $ (7,530) $ (550) $ 3,283
Issuance of preferred stock ..................... 1,997 -- -- -- 2,000
Issuance of common stock warrants ............... 8 -- -- -- 8
Issuance of common stock in acquisitions ........ 533 -- -- -- 538
Conversion of subordinated debentures ........... 1,498 -- -- -- 1,500
Retirement of treasury stock .................... (543) -- -- 550 --
Net loss ........................................ -- -- (3,532) -- (3,532)
--------- --------- --------- ------ ----------
Balance at December 31, 1997 ..................... 14,763 -- (11,062) -- 3,797
Issuance of preferred stock, net of expenses
of $343,000..................................... 12,011 -- -- -- 12,022
Issuance of common stock warrants ............... 86 -- -- -- 86
Issuance of common stock in acquisitions ........ 1,486 -- -- -- 1,500
Issuance of common stock for services ........... 327 -- -- -- 330
Conversion of subordinated debentures ........... 2,198 -- -- -- 2,200
Stock option plan compensation .................. 660 (660) -- -- --
Amortization of unearned compensation ........... -- 29 -- -- 29
Dividends paid .................................. -- -- (750) -- (750)
Net loss ........................................ -- -- (6,078) -- (6,078)
--------- --------- --------- ------ ----------
Balance at December 31, 1998 ..................... 31,531 (631) (17,890) -- 13,136
Issuance of preferred stock, net of expenses
of $495,050..................................... 14,503 -- -- -- 14,505
Issuance of common stock in an initial public
offering, net of expenses of $5,743,649......... 53,717 -- -- -- 53,791
Issuance of common stock for acquisition of
mortgage.com Internet domain name .............. 645 -- -- -- 646
Issuance of common stock in acquisition ......... 1,339 -- -- -- 1,341
Issuance of common stock warrants ............... 529 -- -- -- 529
Conversion subordinated debentures .............. 99 -- -- -- 100
Conversion of preferred stock ................... (211) -- -- -- --
Exercise of stock options ....................... 1,216 -- -- -- 1,229
Repurchase of common stock warrants ............. (12,433) -- -- -- (12,433)
Exercise of common stock warrants ............... 148 -- -- -- 150
Stock option plan compensation .................. 15,928 (15,928) -- -- --
Amortization of unearned compensation ........... -- 7,699 -- -- 7,699
Dividends paid .................................. -- -- (430) -- (430)
Net loss ........................................ -- -- (46,936) -- (46,936)
--------- --------- --------- ------ ----------
BALANCE AT DECEMBER 31, 1999 ..................... $ 107,011 $ (8,860) $ (65,256) $ -- $ 33,327
========= ========= ========= ====== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE>
MORTGAGE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1999 1998 1997
------------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Net cash flows from operating activities:
Net loss .............................................................. $ (46,936) $ (6,078) $ (3,532)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Amortization and depreciation ........................................ 5,316 1,873 480
Amortization of unearned compensation ................................ 7,699 29 --
Provision for losses ................................................. 1,269 899 133
Extraordinary item ................................................... 436 -- --
Minority interest .................................................... 4 -- --
Decrease (increase) in mortgage loans available for sale, net ......... 82,949 (102,703) (36,490)
Changes in other operating assets and liablities:
(Increase) decrease in other assets .................................. (6,564) (1,639) 846
Increase (decrease) in accounts payable, accrued expenses and
other liabilities .................................................. 5,530 2,912 (4,432)
Decrease in deferred revenue ......................................... (1,012) -- (20)
--------- ---------- ---------
Net cash provided by (used in) operating activities ................ 48,691 (104,707) (43,015)
--------- ---------- ---------
Cash flows from investing activities:
Additions to capitalized software development costs ................... (2,765) (832) (518)
Additions to property and equipment ................................... (9,619) (2,580) (1,065)
Purchase of companies, net cash acquired .............................. (621) (2,650) 366
Additions to intangible assets ........................................ (3,564) -- --
--------- ---------- ---------
Net cash used in investing activities .............................. (16,569) (6,062) (1,217)
--------- ---------- ---------
Cash flows from financing activities:
Net (repayments) proceeds from warehouse notes payable ................ (83,760) 99,554 39,031
Proceeds from issuance of subordinated debentures ..................... 40,500 2,000 1,500
Repayment of subordinated debentures .................................. (40,500) (200) --
Proceeds from other notes payable ..................................... 100 -- 396
Payment of other notes payable ........................................ (7) (468) (31)
Payment of capital lease obligations .................................. (1,387) -- --
Proceeds from issuance of common stock ................................ 59,535 -- --
Costs of issuing common stock ......................................... (5,744) -- --
Proceeds from exercise of stock options ............................... 1,229 -- --
Proceeds from issuance of preferred stock ............................. 15,000 12,365 3,000
Costs of issuing preferred stock ...................................... (495) -- --
Proceeds from exercise of warrants .................................... 150 -- 8
Redemption of warrants ................................................ (12,433) -- --
Dividends paid ........................................................ (430) (750) --
Contributions from minority interests ................................. 245 -- --
--------- ---------- ---------
Net cash provided by (used in) financing activities ................ (27,997) 112,501 43,904
--------- ---------- ---------
Net increase (decrease) in cash and cash equivalents ............... 4,125 1,732 (328)
Cash and cash equivalents at beginning of year ......................... 3,412 1,680 2,008
--------- ---------- ---------
Cash and cash equivalents at end of year ............................... $ 7,537 $ 3,412 $ 1,680
========= ========== =========
</TABLE>
(Continued)
47
<PAGE>
MORTGAGE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1999 1998 1997
---------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ............................... $10,107 $6,731 $ 2,749
======= ====== =======
Cash paid during the period for income taxes ........................... $ 2 $ 26 $ --
======= ====== =======
Non-cash investing and financing activities:
Common stock issued in connection with purchase of Internet domain name 646 -- --
Common stock issued to facilitate capital investments .................. -- 330 --
Conversion of preferred stock for common stock ......................... 34 -- --
Conversion of subordinated debentures for common stock ................. 100 -- --
Conversion of subordinated debentures for preferred stock .............. -- 2,200 1,500
Unearned compensation on stock options ................................. 15,928 660 --
Capital lease obligations incurred for equipment ....................... 2,230 -- --
Receivable for subordinated debentures ................................. -- 2,000 --
Receivable for preferred stock ......................................... -- -- 1,000
Property received in exchanged for note receivable ..................... -- 131 --
Retirement of treasury stock ........................................... -- -- 550
Construction in progress accrued but unpaid ............................ 2,681 -- --
Acquisition of businesses:
Fair value of assets acquired ......................................... -- 2,540 14,276
Liabilities assumed ................................................... 2 319 13,482
Common stock issued at acquisition .................................... 1,341 750 538
Common stock issued under earnout agreement ........................... -- 750 --
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
(a) ORGANIZATION
Mortgage.com, 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 was enhanced and became known as CLOser, a proprietary platform that
supports all of the services that the Company offers. The Company uses 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. The Company also uses the CLOser platform to provide
management processing and back-office services to those customers on an
outsourced basis and also provides funding for the mortgages originated by
them.
Effective January 7, 1999, the Company changed its name from First
Mortgage Network, Inc. to Mortgage.com.
(b) RISKS AND UNCERTAINTIES
The Company has a limited operating history and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and extend the Company's online service
brands, the rejection of the Company's services by consumers, vendors and/or
advertisers, the inability of the Company to maintain and increase the levels
of traffic on its online services, as well as other risks and uncertainties.
Additionally, in the normal course of business, companies in the mortgage
banking industry encounter certain economic and regulatory risks. Economic
risks include interest rate risk, credit risk and market risk. The Company is
subject to interest rate risk to the extent that in a rising interest rate
environment, the Company will generally experience a decrease in loan
production, which may negatively impact the Company's operations. Credit risk
is the risk of default, primarily in the Company's mortgage loans that result
from the mortgagors' inability or unwillingness to make contractually required
payments. Market risk reflects changes in the value of mortgage loans available
for sale and in commitments to originate loans.
As a non-depository mortgage banker, the Company is dependent on
specialized mortgage credit facilities to finance its mortgage lending
activities. Several commercial banks and institutional investors provide these
funding sources. Most of these financing arrangements have one-year terms and
some are cancelable by the lenders at any time. Management expects the lenders
will continue to finance its mortgage banking activities; however, there can be
no assurance that they will continue to do so. The termination of one or more
of these relationships would adversely affect the Company's business.
The Company sells loans to mortgage loan purchasers on a servicing
released basis without recourse. As such, the purchasers have assumed the risk
of loss or default by the borrower. However, the Company is usually required by
these purchasers to make certain representations relating to credit
information, loan documentation and collateral. To the extent that the Company
does not comply with such representations, or there are early payment defaults,
the Company may be required to repurchase the loans and indemnify these
purchasers for any losses from borrower defaults. To date, repurchase of loans
has not been significant.
(c) LIQUIDITY AND CAPITAL RESOURCES
The Company has experience a period of rapid growth that has placed a
significant strain on its resources. Net losses for the years ended December
31, 1999, 1998 and 1997 amounted to $46.9 million, $6.1 million and $3.5
million, respectively. Since inception, the Company has funded its operations
primarily through cash raised from the issuance of subordinated debt and from
private placements of preferred and common
49
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock. On August 11, 1999, the Company completed an initial public offering in
which 7,062,500 shares of common stock were sold. Subsequently, the
underwriters of the public offering exercised an option to purchase additional
379,375 shares of common stock to cover over-allotments of shares. The gross
proceeds from these transactions were $59.5 million, or $55.4 million net of
underwriter discounts. A portion of the proceeds was used to repay the $40.5
million of subordinated debt, and $433,000 was used to redeem certain warrants.
Expenses in addition to underwriter discounts incurred in the offering were
approximately $1.6 million.
The Company's near and long-term strategies focus on exploiting existing
and potential competitive advantages while eliminating or mitigating
competitive disadvantages. In response to current market conditions and as a
part of its ongoing corporate strategy, the Company is pursuing several
initiatives intended to increase liquidity and better position the Company to
compete under current market conditions.
On January 27, 2000, the Company contributed certain assets constituting
the Company's "Openclose" division to a newly formed corporation,
Openclose.com, Inc., in exchange for $24 million in cash and common stock of
Openclose.com representing 51 percent of its outstanding securities.
Simultaneously with this contribution, certain accredited investors contributed
$30 million in cash to Openclose.com in exchange for convertible preferred
stock representing the remaining 49 percent of its outstanding securities. The
assets contributed by the Company consisted primarily of the www.openclose.com
Internet web site, the programming and computer code, and certain customer
contracts pertaining to the web site. These contributed assets were carried on
the Company's balance sheet at a nominal amount. The Company will account for
the transaction as a capital contribution in its 2000 consolidated financial
statements.
The Company has and is pursuing aggressive cost cutting programs by
reducing employee levels across the Company, streamlining overhead and
administrative expenses and reorganizing back office operations around one
platform. The Company has also entered into a strategic alliance and licensing
agreement in February 2000 with eOriginal, Inc., a technology company that has
a patented process to enable the electronic creation of negotiable instruments
and other critical source documents in the Internet and the ability to
transmit, store and retrieve these protected electronic original documents.
This strategic alliance and licensing agreement will allow the Company to embed
this technology into the products and services the Company provides to its
business customers.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and of all of its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) BASIS OF PRESENTATION
The consolidated financial statements of the Company have been prepared on
the accrual basis of accounting. Certain prior year balances have been
reclassified to conform to current year presentation. In particular, the
presentation of interest expense, which in prior years was presented as an
offset of revenue, in 1999 is being included within expenses. The effect of
this reclassification has been to increase total revenue and total expenses by
$7,111,344 and $3,049,591 for the year ended December 31, 1998 and 1997,
respectively, as compared to previously reported amounts.
(c) 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.
(d) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
50
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) 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 aggregate market value. Market value is
determined by outstanding commitments from investors or current investor yield
requirements. 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.
(f) PROPERTY AND EQUIPMENT, NET
Property and equipment is carried at cost less accumulated depreciation.
Depreciation is recorded on the straight-line method over the estimated useful
lives of the assets. Useful lives for property and equipment are as follows:
Building ........................................................ 30 years
Computer hardware and software .................................. 3 years
Furniture and fixtures, telephone equipment and vehicle ......... 5 years
Leased property and equipment meeting certain criteria is capitalized and
the present value of lease payments is recorded as a capital lease obligation.
Amortization of capitalized leased assets is provided on the straight-line
basis over the shorter of the useful lives or the term of the lease.
(g) CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Costs incurred in developing computer software for internal use are
charged to expense when incurred as research and development costs, until the
project has reached the application development stage. Software development
costs incurred thereafter are capitalized . Capitalized costs include (i)
external direct costs of material and services consumed in developing
internal-use software, and (ii) payroll and payroll-related costs for employees
who are directly associated with and who devote time to the internal-use
software project. Capitalization of such costs ceases no later than the point
at which the project is substantially complete and ready for its intended use.
Capitalized software development costs are amortized on a straight-line basis
over a three years period.
The Company periodically evaluates impairment of capitalized software
costs by considering, among other factors, whether the software is not expected
to provide substantive service potential, and a significant change is made or
will be made to the software program. A loss measured by the lower of carrying
value or fair value, if any, less cost to sell, is recognized when the value of
the undiscounted cash flow benefit related to the asset falls below the
unamortized cost.
(h) GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill is recognized in business combinations where the purchase price
exceeds the fair value of the identifiable assets acquired less liabilities
assumed. Other intangible assets are recorded at cost, represented by the cash
paid and/or the fair value of the shares of common stock exchanged. Goodwill
and other intangible assets are amortized on a straight-line basis over the
following estimated useful lives:
Goodwill ........................ 15 years
Internet domain name ............ 10 years
Covenant not to compete ......... 2 years
(i) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
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 and operating loss and tax credit carryforwards. 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. A valuation allowance reduces deferred tax assets when it is
"more likely than not" that some portion or all of the deferred tax assets will
not be realized.
51
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) ALLOWANCE FOR LOSSES
The Company provides for losses relating to the origination and sale of
mortgage loans and receivables. 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 other investors once the specific deficiencies are resolved.
The impact of such repurchases has not been significant to date.
(k) 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.
(l) 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.
(m) INTEREST INCOME AND EXPENSE
Interest income is accrued as earned. Loans are placed on non-accrual
status when any portion of principal or interest is ninety days past due or
earlier when concern exists as to the ultimate collectibility of principal or
interest. Loans return to accrual status when principal and interest become
current and are anticipated to be fully collectible. Interest expense is
recorded when incurred.
(n) 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
$1.9 million, $1.6 million and $1.9 million were earned from one customer for
the years ended December 31, 1999, 1998 and 1997, respectively.
(o) RESEARCH AND DEVELOPMENT EXPENSES
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.
(p) MARKETING AND ADVERTISING COSTS
Marketing and advertising costs are expensed as incurred.
52
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(q) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets, goodwill 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.
(r) STOCK COMPENSATION
The Company accounts for its stock-based employee compensation
arrangements in conformity with the Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company recognizes unearned
compensation as a direct charge to shareholders' equity the excess of the
estimated market price of the Company's common stock at the date of grant over
the amount, if any, an employee must pay to acquire the stock. Unearned
compensation is amortized to the statement of operations on a straight-line
basis over the related vesting period.
(s) NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss available to
common shareholders for the year by the weighted-average number of shares of
common stock outstanding during the year. Diluted net loss per share is
computed by dividing the net loss available to common shareholders for the year
by the weighted-average number of common stock and potential common stock
outstanding during the year, to the extent that such potential common stock is
dilutive. Potential common stock includes the shares issuable pursuant to the
exercise of stock options, convertible debentures and convertible preferred
stock. Since the potential common stock for all years were antidilutive (i.e.
reduce net loss per share), basic and dilutive net loss per share are the same.
The following table presents the computation of basic and diluted net loss
per share:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ -------------
(In thousands, except per share data)
<S> <C> <C> <C>
Loss before extraordinary item .................... $ (46,500) $ (6,078) $ (3,532)
Preferred stock dividends:
Paid ............................................. (430) (750) --
Cumulative unpaid ................................ (2,217) (2,115) (953)
---------- --------- ---------
Loss available to common shareholders ............. (49,147) (8,943) (4,485)
Extraordinary item ................................ (436) -- --
---------- --------- ---------
Net loss available to common shareholders ......... $ (49,583) $ (8,943) $ (4,485)
========== ========= =========
Weighted-average number of shares ................. 22,646 8,729 8,162
========== ========= =========
Basic and diluted net loss per share:
Loss before extraordinary item ................... $ (2.17) $ (1.02) $ (0.55)
Extraordinary item ............................... (.02) -- --
---------- --------- ---------
Net loss ......................................... $ (2.19) $ (1.02) $ (0.55)
========== ========= =========
</TABLE>
(t) NEW ACCOUNTING PRONOUNCEMENTS
DERIVATIVES. In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("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. In June 1999, the FASB
issued SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES-- DEFERRAL OF THE EFFECTIVE DATE OF FASB SFAS NO. 133. SFAS 133, as
amended, is now effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The impact of this Statement is not
anticipated to have a material impact on the Company's consolidated statements
of operations, balance sheets or cash flows upon the adoption of this standard.
53
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACQUISITIONS
On October 7, 1999, the Company acquired all the outstanding common stock
of Capital Savings Co., a wholly-owned subsidiary of CSC Holdings, LLC engaged
as retail mortgage broker, and certain other assets and contracts for
$1,590,625 consisting of $250,000 in cash and 162,500 shares of common stock
(valued at $1,340,625). The acquisition has been accounted under the purchase
method of accounting, and the results of operations of the acquired business
have been included in the consolidated statements of operations since the date
of acquisition. The purchase price has been allocated to the respective assets
acquired and liabilities assumed based on their estimated fair values. Goodwill
recorded in conjunction with this purchase was $1,338,141 and is being
amortized on a straight-line basis over 15 years. The term of the purchase
agreement provides for the sellers to receive additional payments in shares of
the Company based on the revenues of certain of the operations acquired.
During 1998, the Company acquired all the outstanding common stock of RM
Holdings, Inc., an internet-based mortgage lender and call center for
$2,221,000 consisting of $1,471,000 in cash and 700,000 shares of common stock
(valued at $750,000). The acquisition has been accounted under the purchase
method of accounting, and the results of operations of the acquired business
have been included in the consolidated statements of operations since the date
of acquisition. The purchase price has been 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 and is being
amortized on a straight-line basis over 15 years.
During 1997, the Company acquired all the outstanding common stock of
OnLine Capital, a mortgage lender for $793,186 consisting of $255,672 in cash
and 501,676 shares of common stock (valued at $537,510). The acquisition has
been accounted under the purchase method of accounting, and the results of
operations of the acquired business have been included in the consolidated
statements of operations since the date of acquisition. The purchase price has
been allocated to the respective assets acquired and liabilities assumed based
on their estimated fair values. Goodwill recorded in conjunction with this
purchase was $476,475 and is being amortized on a straight-line basis over 15
years. The terms of the purchase agreement provided for the sole shareholder of
OnLine Capital to receive an additional 700,000 shares of common stock and a
contingent considerations of up to $3,400,000 in cash, calculated based upon a
percentage of the profits of the business, payable quarterly until the limit is
reached or until June 30, 2001, whichever comes first. During 1998, 700,000
shares (valued at $750,000) were issued together with cash consideration
amounting to $1,652,694. During 1999, $548,048 has been paid under this
contingent payment provision of the purchase agreement. Additional goodwill of
$548,048 and $2,402,694 has been recognized at December 31, 1999 and 1998,
respectively.
Pro forma financial information assuming that the acquisitions occurred as
of January 1, 1998 is not significantly different than the actual amounts
recognized in the consolidated financial statements.
(4) MORTGAGE LOANS AVAILABLE FOR SALE, NET
Mortgage loans available for sale, net consist of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
(In thousands)
<S> <C> <C>
Mortgage loans available for sale ................................... $ 92,677 $ 175,683
Loan broker premiums, origination points and discounts, net ......... 31 186
Deferred loan origination costs ..................................... 412 504
-------- ---------
Mortgage loans available for sale, net ............................. $ 93,120 $ 176,373
======== =========
</TABLE>
All mortgage loans held for sale are pledged as collateral for the
warehouse notes at December 31, 1999 and 1998 (see note 9).
54
<PAGE>
(5) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following at December 31:
1999 1998
----------- ----------
(In thousands)
Land .............................................. $ 132 $ 132
Building .......................................... 288 288
Computer hardware and software .................... 11,685 4,617
Furniture and fixtures ............................ 1,901 1,052
Leasehold improvements ............................ 652 453
Telephone equipment ............................... 1,281 743
Construction in progress .......................... 6,053 --
Vehicle ........................................... -- 12
-------- --------
21,992 7,297
Less accumulated depreciation and amortization .... (5,584) (2,031)
-------- --------
Property and equipment, net ...................... $ 16,408 $ 5,266
======== ========
Depreciation expense for the years ended December 31, 1999, 1998 and 1997
was $3,386,878, $1,091,941 and $330,869, respectively.
(6) CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET
Capitalized software development costs at December 31, 1999 and 1998, were
net of accumulated amortization of $1,594,675 and $666,253, respectively.
Information related to net capitalized software costs is as follows:
1999 1998 1997
---------- --------- --------
(In thousands)
Balance at beginning of year ......... $ 978 $ 639 $ 250
Capitalized costs .................... 2,765 827 518
Amortization ......................... (926) (488) (129)
------ ------ ------
Balance at end of year ............... $2,817 $ 978 $ 639
====== ====== ======
(7) GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill and other intangible assets, net consists of the following at
December 31:
1999 1998
----------- -----------
(In thousands)
Goodwill ........................................ $ 6,877 $ 4,992
Internet domain name ............................ 2,387 --
Covenant not to compete ......................... 1,823 --
-------- -------
11,087 4,992
Less accumulated amortization ................... (1,307) (304)
-------- -------
Goodwill and other intangible assets, net ....... $ 9,780 $ 4,688
======== =======
The amortization of goodwill and other intangible assets during the years
ended December 31, 1999, 1998 and 1997 was $1,003,238, $292,632 and $20,637,
respectively.
On January 31, 1999, the Company acquired the internet domain names of
www.mortgage.com and www.hipotecas.com for $241,180 in cash, including legal
costs, and 140,000 shares of common stock valued at $646,000. The agreement
provides that the Company pay certain amounts based on the level of loan volume
generated by such web sites. On July 1,1999, the Company settled this
contingency with a cash payment of $1.5 million.
55
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 1, 1999, the Company entered into three covenants not to compete
with certain former employees of the Company. The agreements provide for a
total cash payment of $1,822,958 based on an initial cash payment of $1,203,958
and additional cash payments of $77,375 over the subsequent eight-month period.
(8) OTHER ASSETS
Other assets consist of the following at December 31, 1999 and 1998:
1999 1998
---------- ----------
(In thousands)
Accounts receivable ..................... $ 333 $ 571
Note receivable ......................... 300 --
Due from sale of mortgage loans ......... 748 --
Broker fee receivables .................. 1,133 672
Interest receivable ..................... 366 197
Prepaid expenses ........................ 1,906 457
Deposits ................................ 3,593 821
Other ................................... 34 3
------- -------
$ 8,413 $ 2,721
======= =======
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 where
satisfied. These contract contingencies also affected the ultimate
collectibility of the note. The note was due on or before November 30, 2006,
and bore interest at 5 percent. The note was discounted to its net present
value and, due to the contingencies affecting collectibility, was fully
reserved at December 31, 1998.
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
was relieved of any further obligations.
(9) WAREHOUSE AND OTHER NOTES PAYABLE
Warehouse and other notes payable at December 31, consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
(In thousands)
<S> <C> <C>
Warehouse lines of credit totaling $90 and $205 million at December 31, 1999
and 1998, respectively, with unaffiliated lenders to support the funding of
mortgage loans. The term of the lines of credit call for monthly interest rate
ranging from 1.75% to 3% over the applicable lending rate, primarily prime
rate, LIBOR or commercial paper rate. The weighted-average interest rate at
December 31, 1999 and 1998 was 8.17% and 7.41, respectively. The
warehouse lines of credit are collateralized by mortgage loans available for
sale amounting to $91,981,126 and $174,838,356 at December 31, 1999 and
1998, respectively ........................................................... $ 88,017 $ 171,777
Subordinated convertible debenture bearing an interest rate of 12% and
maturing on May 1, 1999. Interest is due and payable monthly through
maturity. The debt was converted to 46,669 shares of common stock
during 1999 .................................................................. -- 100
Unsecured promissory note bearing an interest rate of 6.00% maturing on
December 31, 2003 payable to a mortgage broker ............................... 100 --
Mortgage note payable bearing an interest rate of 9.25% maturing though
April 10, 2002. Note payable is collateralized by certain Company property ... 282 289
-------- ---------
$ 88,399 $ 172,166
======== =========
</TABLE>
56
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The warehouse lines of credit contain customary conditions and events of
default, the failure to comply with, or occurrence of, would prevent any
further borrowings and would generally require the prepayment of any
outstanding borrowings under the lines of credit. These conditions include
financial covenants requiring the Company to maintain a minimum tangible net
worth, adjusted tangible net worth, current ratio and leverage ratio, as
defined in the agreements.
In addition to the warehouse lines of credit, the Company maintains
repurchase facilities amounting to $100 million and $25 million at December 31,
1999 and 1998, respectively, with other lenders for the sale of mortgage loans.
During 1999, the Company issued $40,500,000 of subordinated debentures to
shareholders of the Company. The debentures consisted of (i) $27,500,000 of
debt convertible to 3,208,331 shares of common stock and, (ii) $13,000,000 of
debt with detachable warrants to purchase 563,415 shares at $4.29 per share.
The debentures bore interest at 12% and were due at various dates through May
5, 2001. The proceeds of the issuance of the debentures with detachable
warrants have been allocated between the warrants and the debt based on the
relative fair values at the time of issuance. The portion allocable to the
warrants amounting to $529,440 has been accounted for as additional paid-in
capital with an offsetting discount on the debentures. The subordinated
debentures were extinguished with the proceeds of the initial public offering.
The Company recognized an extraordinary loss of $435,601 on the extinguishment
of debt.
The following table provides detail of common warrants outstanding at
December 31, 1999. All warrants are currently exercisable.
Exercise price Number of shares
- ---------------- -----------------
$ 0.71 3,010,000
0.79 395,388
1.07 2,205,546
1.14 256,032
1.50 256,032
1.64 382,550
1.86 256,032
5.19 38,150
8.00 168,310
---------
6,968,040
=========
(10) ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
Accounts payable and accrued expenses consist of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
(In thousands)
<S> <C> <C>
Accounts payable ...................................................... $ 8,184 $ 3,226
Accrued expenses ...................................................... 2,584 1,489
Construction in progress payable ...................................... 2,681 -
Warehouse line interest payable ....................................... 195 512
Profit distribution payable ........................................... 28 312
Deferred rent ......................................................... 19 19
-------- -------
Total accounts payable, accrued expenses and other liabilities ....... $ 13,691 $ 5,558
======== =======
</TABLE>
(11) STOCK OPTION PLANS
The Company has two stock option plans that provide for the granting of
incentive stock options and nonqualified stock options to directors, officers,
key employees and consultants. The objectives of these plans include attracting
and retaining the best personnel, providing for additional performance
incentives, and promoting the success of the Company by providing the
opportunity to acquire common stock.
The 1996 Employee Stock Option Plan (the "Plan") provides for the granting
of incentive and nonqualified options for up to 21,000,000 shares to officers,
key employees and consultants of the Company. Incentive stock options granted
under the Plan vest 40 percent on the second anniversary from the date of grant
and 20 percent in each of three years thereafter, except that California
residents vest 20 percent on the first
57
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 percent of the outstanding common stock,
incentive stock 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 110 percent of
the fair market value of the Company's common stock on the date of the grant.
Nonqualified options vest at 40 percent 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.
Options totaling 376,089 shares were also issued to certain directors,
employees and consultants prior to 1997 outside the stock option plan. During
1999, 201,089 of these shares were exercised.
The Directors' 1996 Stock Option Plan (the "Directors' Plan") provides for
the granting of nonqualified stock options for up to 420,000 shares to the
Company's nonexecutive directors. Stock options granted under the Directors'
Plan vest 66.67 percent 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.
In addition, options for 375,555 shares have been issued outside the plan
to employees, and 200,555 of these shares were exercised in 1999.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-average
Shares Exercise price
--------------- -----------------
<S> <C> <C>
Outstanding at December 31, 1996 ...................................... 2,621,500 $ 0.79
Granted .............................................................. 1,631,000 1.07
Forfeited ............................................................ (343,700) 0.91
--------- --------
Outstanding at December 31, 1997 (1,631,000 shares exercisable) ....... 3,908,800 0.90
Granted .............................................................. 4,400,739 1.47
Forfeited ............................................................ (462,875) 1.16
--------- --------
Outstanding at December 31, 1998 (2,793,819 shares exercisable) ....... 7,846,664 1.21
Granted .............................................................. 7,284,185 3.91
Exercised ............................................................ (1,306,689) 1.23
Forfeited ............................................................ (1,521,924) 3.66
---------- --------
Outstanding at December 31, 1999 (5,280,039 shares exercisable) ....... 12,302,236 $ 2.46
========== ========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Weighted average
Number remaining contractual Number
Exercise price Outstanding life (years) exercisable
- -------------------- ------------- ----------------------- ------------
<S> <C> <C> <C>
$0.79 - 1.07 4,213,472 6.9 2,966,478
1.64 - 2.14 6,311,064 7.9 2,311,041
4.29 262,220 9.3 2,520
8.00 - 11.53 1,515,480 9.6 --
--------- ---------
12,302,236 5,280,039
========== =========
</TABLE>
The Company recognized unearned compensation for $15,928,000 and $660,000
during the years ended December 31, 1999 and 1998, respectively, for certain
incentive stock options granted from October 1998 through April 1999 where the
estimated fair value of the options exceeded their exercise price at the date
of grant. For the years ended December 31, 1999 and 1998, the amortization of
unearned compensation was $7,699,100 and $29,000, respectively.
58
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides the fair value of options granted during the
year ended December 31, 1999, 1998 and 1997 together with a description of the
assumptions to calculate the fair value. The Black-Scholes Model was used in
estimating the fair market value of options and a discount for lack of
marketability was used as the options granted prior to August 11, 1999 are not
traded on a public market. Management has reviewed both internal and external
factors, which influence the value of the 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.
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Risk-free interest rate ......................... 5.10-5.67% 4.42-5.74% 6.12-6.73%
Expected volatility ............................. 150% -- --
Dividend yield .................................. -- -- --
Weighted-average expected option life ........... 5 YEARS 6 years 5 years
Weighted-average fair value of options .......... $ 3.79 $ 0.37 $ 0.03
</TABLE>
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the date of grant consistent with the provisions of
SFAS No. 123, the Company's net loss and loss per share (basic and diluted) for
the years ended December 31, 1999, 1998 and 1997 would have increase to the pro
forma amounts indicated below (amounts in thousands except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net loss--as reported ............... $ (46,936) $ (6,078) $ (3,532)
Net loss--pro forma ................. (48,825) (6,212) (3,571)
Loss per share--as reported ......... (2.19) (1.02) (0.55)
Loss per share--pro forma ........... (2.27) (1.04) (0.55)
</TABLE>
The pro forma effects of applying SFAS No. 123 are not indicative of
future amounts because this statement does not apply to options granted prior
to 1996. Additional stock options are anticipated in future years.
(12) INCOME TAXES
No current or deferred provision for income taxes was recorded for the
years ended December 31, 1999, 1998 and 1997, due to the Company's operating
losses in the respective years.
At December 31, 1999, the Company had approximately $57.7 million of tax
net operating loss carryforwards. If not used, the net operating loss
carryforwards will expire between 2008 and 2019.
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,
there would be an annual limitation in the amount of tax net operating loss
carryforwards, which could be utilized.
59
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The composition of net deferred tax assets at December 31, is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Tax net operating loss carryforward ............................ $ 21,713 $ 6,053
Deferred revenue ............................................... -- 607
Stock compensation ............................................. 2,908 --
Organization costs ............................................. -- 30
Allowance for losses ........................................... 599 182
Property and equipment principally due to depreciation ......... 255 38
Internet domain name ........................................... 20 --
Other .......................................................... 9 11
--------- --------
25,504 6,921
Valuation allowance ............................................. (24,385) (6,480)
--------- --------
Net deferred tax asset ......................................... 1,119 441
--------- --------
Deferred tax liabilities:
Covenant not to compete ........................................ 427 --
Capitalized software development costs ......................... 692 441
--------- --------
1,119 441
--------- --------
Total ......................................................... $ -- $ --
========= ========
</TABLE>
A 100 percent valuation allowance was established against the net deferred
tax asset at December 31, 1999 and 1998. Subsequently recognized tax benefits
relating to the valuation allowance for deferred tax assets as of December 31,
1999 will be recognized as an income tax benefit in the statement of
operations, except for $62,671 relating to the tax benefit from the exercise of
stock options which will be recorded as additional paid-in capital.
(13) RELATED PARTIES
The Company has a consulting agreement with two consulting firms of which
the principle owners are shareholders of the Company. Total consulting fees
expensed related to these consulting firms were $316,000 $604,600 and $300,100
during the years ended December 31, 1999, 1998 and 1997, respectively. As of
December 31, 1999, total unpaid fees for services rendered during 1999 under
such agreement totaled $15,000.
(14) FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidations. Significant differences
can arise between the fair value and carrying amount of financial instruments
that are recognized at historical cost amounts. 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. The fair value of amounts
disclosed herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement. 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.
The methods and assumptions to estimate the fair value of each class of
financial instrument are as follows:
MORTGAGE LOANS HELD FOR SALE--The fair value of mortgage loans held for
sale is 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. The fair value of
mortgage loans held for sale at December 31, 1999 and 1998 was $93,540,636 and
$177,167,458 (carrying value of $93,119,907 and $176,372,516), respectively.
60
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WAREHOUSE AND OTHER NOTES PAYABLE--The fair value of warehouse notes
payable approximates its carrying value because of the short maturity of the
notes. The fair value of subordinated debentures is estimated using the
estimated fair value of the preferred stock into which the subordinated debt
can be converted. The fair value of other notes payable is estimated by
discounting estimated future cash flows using a rate commensurate with the
risks involved. The fair value of warehouse and other notes payable at December
31, 1999 and 1998 was $88,398,872 and $172,406,856 (carrying value of
$88,398,872 and $172,166,273), respectively.
OTHER FINANCIAL INSTRUMENTS--The fair value of other financial instruments
(cash and cash equivalents, receivables, payables, accrued expenses and letters
of credit) approximate their carrying amount because of the short maturity of
those instruments.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company is party to financial
instruments with off-balance sheet risk, primarily commitments to originate
mortgage loans and forward commitments to sell mortgage loans. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount in excess of the amounts recognized in the
consolidated balance sheets. The contract amount of those instruments reflects
the extent of involvement the Company has in these particular classes of
financial instruments. The Company's exposure to credit loss in the event of
nonperformance by the other party with respect to loan commitments is
represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments and conditional obligations as
it does for on-balance-sheet instruments. For forward commitments, the contract
or notional amounts exceed the Company's exposure to credit loss.
Commitments to originate loans are agreements to lend to a customer,
provided the customer meets all conditions established in the contract.
Commitments have fixed expiration dates and may require payment of a fee.
Forward commitments to sell mortgage loans are contracts, which the Company
enters into for the purpose of reducing the market risk associated with
originating loans for sale. Risks may arise from the possible inability of the
Company to originate loans to fulfill the contracts, in which case the Company
may purchase securities in the open market to deliver against the contracts.
The following table represents outstanding commitments at December 31:
1999 1998
----------- -----------
(In thousands)
Commitments to originate mortgage loans ......... $ 87,096 $ 156,229
Commitments to sell mortgage loans .............. 112,836 184,106
The Company is contingently liable for performance under letters of credit
totaling $3,122,971 at December 31, 1999. These letters of credit secure
certain lease agreements and commitments under a construction contract and are
collateralized by certificates of deposit (presented as deposits in other
assets) amounting to $3,123,013.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially expose the Company to credit risk
consist primarily of cash and cash equivalents, mortgage loans held for sale
and receivables. The Company maintains cash and cash equivalents with various
major financial institutions and at times such amounts exceed federal deposit
insurance coverage limits. Mortgage loans held for sale are secured by
mortgages on residential properties and arise from customers throughout the
United States. Other receivables arise from a variety of customers where the
Company continually evaluates the creditworthiness but does not require
collateral. Management believes that no significant concentration of credit
risk exist with respect to the Company's financial instruments.
(15) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company is obligated under various lease agreements relating to
property and equipment. Lease terms expire through 2009, subject to renewal
options. The following is a schedule of future minimum lease payments as of
December 31, 1999:
61
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital Operating
Year ending December 31, Leases Leases
- ----------------------------------------------------- ---------- -----------
(In thousands)
2000 ............................................. $ 1,373 $ 6,085
2001 ............................................. 1,173 5,476
2002 ............................................. 378 4,143
2003 ............................................. -- 3,089
2004 ............................................. -- 1,837
2005 and thereafter .............................. -- 7,553
------- --------
Total minimum lease payments ................... 2,924 $ 28,183
========
Less amount representing interest at 12% ......... 515
-------
Capital lease obligations ...................... $ 2,409
=======
Cost of property and equipment under capital leases and related
accumulated amortization at December 31, 1999 and 1998 is as follows:
1999 1998
---------- ---------
(In thousands)
Computer hardware and software ..................... $ 3,184 $ 1,102
Furniture and fixtures ............................. 323 322
Leasehold improvements ............................. 127 107
Telephone equipment ................................ 584 527
-------- -------
4,218 2,058
Less: accumulated depreciation and amortization .... (1,476) (397)
-------- -------
$ 2,742 $ 1,661
======== =======
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
$4,699,814, $2,313,552 and $1,583,606 respectively.
The Company has entered into a 10-year lease for approximately 110,000
square feet in an existing facility in Sunrise, Florida and expects to
consolidate operations that are in three separate facilities early in 2000.
Rental payments will be approximately $100,000 per month.
(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) OTHER
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.
(16) 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 web
site that enables brokers, lenders 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 or by funding and selling loans
62
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
originated through a business customer in the secondary market. These segments
are characterized by the nature of their customers and represent components of
the Company about which separate financial information is available that is
evaluated by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. 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.
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 the activities conducted by all
segments.
<TABLE>
<CAPTION>
Direct to Business to
Year ended December 31, 1999 Total Consumer Business
- ---------------------------------------------------------------- ------------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
Revenue:
Secondary marketing revenue, net ........................... $ 35,616 $ 9,849 $ 25,767
Loan production and processing fees, net ................... 10,629 1,932 8,697
Management, technology and other fees ...................... 4,331 -- 4,331
Interest income ............................................ 10,682 2,036 8,646
--------- -------- --------
Total revenue ............................................. 61,258 13,817 47,441
--------- -------- --------
Expenses:
Compensation and employee benefits ......................... 43,038 10,754 32,284
Marketing and advertising .................................. 16,331 4,031 12,300
Depreciation and amortization .............................. 3,972 511 3,461
General and administrative ................................. 14,913 2,942 11,971
Interest expense ........................................... 9,516 1,968 7,548
--------- -------- --------
Total segment expenses .................................... 87,770 20,206 67,564
-------- --------
Segment loss ................................................ $ 6,389 $ 20,123
======== ========
Research and development not allocated to segments ......... 2,110
Expenses not allocated to segments ......................... 17,874
---------
Total expenses ............................................ 107,754
Minority interest ........................................... (4)
Extraordinary items ......................................... (436)
---------
Net loss .................................................. $ 46,936
=========
Segmental assets ............................................ $ 93,868 $ 24,477 $ 69,391
Other assets not allocable to segments ...................... 44,207
---------
Total assets .............................................. $ 138,075
=========
</TABLE>
63
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Direct to Business to
Year ended December 31, 1998 Total Consumer Business
- ---------------------------------------------------------------- ------------- ------------ -------------
(In thousands)
<S> <C> <C> <C>
Revenue:
Secondary marketing revenue, net ........................... $ 28,598 $ 12,571 $ 16,027
Loan production and processing fees, net ................... 5,338 1,826 3,512
Management, technology and other fees ...................... 1,868 -- 1,868
Interest income ............................................ 6,998 2,056 4,942
--------- -------- --------
Total revenue ............................................. 42,802 16,453 26,349
--------- -------- --------
Expenses:
Compensation and employee benefits ......................... 23,641 10,732 12,909
Marketing and advertising .................................. 1,325 613 712
Depreciation and amortization .............................. 743 240 503
General and administrative ................................. 7,997 3,008 4,989
Interest expense ........................................... 7,111 2,274 4,837
--------- -------- --------
Total segment expenses .................................... 40,817 16,867 23,950
-------- --------
Segment (loss) income ....................................... $ (414) $ 2,399
======== ========
Research and development not allocated to segments ......... 2,888
Expenses not allocated to segments ......................... 5,175
---------
Total expenses ............................................ 48,880
Net loss .................................................. $ (6,078)
=========
Segmental assets ............................................ $ 176,373 $ 93,325 $ 83,048
Other assets not allocable to segments ...................... 17,065
---------
Total assets .............................................. $ 193,438
=========
<CAPTION>
Direct to Business to
Year ended December 31, 1997 Total Consumer Business
- ---------------------------------------------------------------- ------------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
Revenue:
Secondary marketing revenue, net ........................... $ 11,595 $ 4,998 $ 6,597
Loan production and processing fees, net ................... 2,347 788 1,559
Management, technology and other fees ...................... 2,032 -- 2,032
Interest income ............................................ 3,550 412 3,138
--------- -------- --------
Total revenue ............................................. 19,524 6,198 13,326
--------- -------- --------
Expenses:
Compensation and employee benefits ......................... 12,058 4,781 7,277
Marketing and advertising .................................. 58 51 7
Depreciation and amortization .............................. 318 91 227
General and administrative ................................. 3,258 714 2,544
Interest expense ........................................... 3,050 354 2,696
--------- -------- --------
Total segment expenses .................................... 18,742 5,991 12,751
-------- --------
Segment income .............................................. $ 207 $ 575
======== ========
Research and development not allocated to segments ......... 1,078
Expenses not allocated to segments ......................... 3,235
---------
Total expenses ............................................ 23,056
Net loss .................................................. $ (3,532)
=========
Segmental assets ............................................ $ 73,738 $ 31,243 $ 42,494
Other assets not allocable to segments ...................... 8,189
---------
Total assets .............................................. $ 81,927
=========
</TABLE>
64
<PAGE>
MORTGAGE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) SUBSEQUENT EVENT
On March 27, 2000, the Company entered into a common stock purchase
agreement with an investor granting the Company an option to sell stock to that
investor over the next 24 months, commencing on the effective date of a
registration statement. Under this commitment the Company will be able to sell,
subject to certain conditions, up to a total of $40 million of its unissued
common stock.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Mortgage.com, Inc.:
We have audited the accompanying consolidated balance sheets of
Mortgage.com, Inc. as of December 31, 1999 and 1998, 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, 1999.
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Mortgage.com, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Fort Lauderdale, Florida
February 11, 2000, except for footnote 17, which is as of March 27, 2000
65
<PAGE>
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
<TABLE>
<S> <C>
2.1 Agreement dated October 7, 1999, among MDCM Acquisition Corp. (an
affiliate of the registrant), CSC Holdings, LLC, Capital Savings Co.,
Inc., PlanMax, Inc., ACM/USA, Inc., CSC Marketing Services, LLC, Todd
Ballenger and Robert B. Ballenger
3.1* Fourth Amended and Restated Articles of Incorporation, as amended
3.2* Amended and Restated Bylaws
4.1* $27,500,000 Note Purchase Agreement dated as of May 5, 1999 (schedules
omitted)
4.2* $8,000,000 Note Purchase Agreement dated as of February 26, 1999
(schedules omitted)
4.3* $3,000,000 Note Purchase Agreement dated as of April 19, 1999
(schedules omitted)
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., as amended
4.8* Specimen certificate for shares of Registrant's common stock
4.9* Recapitalization Agreement and Plan of Reorganization between the
registrant and Mason-McDuffie Real Estate, Inc.
4.10* Letter Agreement dated September 1, 1998 from
the registrant to Technology Crossover
Ventures II, L.P.
10.1* Employment Agreement between the Registrant and Seth S. Werner dated
January 1, 1999
66
<PAGE>
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* 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
10.6* Amended and Restated Stock Option Plan (as of March 24, 1999)
10.7* 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)
10.8* Superior Bank Warrant Repurchase Agreement between Registrant and
Superior Bank, FSB dated May 4, 1999
(a) First Amendment to Superior Bank Warrant Repurchase Agreement
made as of August 11, 1999
10.9* Agreement between Registrant and Superior Bank, FSB dated as of April
1, 1998
10.10* Common Stock Warrant dated April 1, 1998 to
Superior Bank, FSB to purchase 300,000 shares
of Common Stock at $5.00 per share
10.11* Common Stock Warrant dated April 1, 1998 to
Superior Bank, FSB to purchase 100,000 shares
of Common Stock at $7.50 per share
10.12* Amended and Restated Desktop Underwriter
67
<PAGE>
Seller/Servicer Software License and Subscription Agreement between
Registrant and Fannie Mae executed October 15, 1998
10.13* Mortgage Loan Processing Agreement between the Registrant and Atlanta
Internet Bank, FSB dated as of April 1, 1998
10.14* Atlanta Internet Bank Mortgage Center Mortgage Loan Origination,
Processing, Purchase and Sale Agreement between Registrant and Atlanta
Internet Bank, FSB dated as of April 1, 1998
10.15* License, Staffing, Purchase and Sale Agreement between Registrant and
Atlanta Internet Bank, FSB dated as of April 1, 1998
10.16* Letter Agreement dated May 20, 1999, between the Registrant and NetBank
10.17* $2,000,000 Note Purchase Agreement dated as of February 9, 1999
(schedules omitted)
10.18* Form of Common Stock Warrant dated August 31, 1997 with an exercise
price of $7.50 per share (50,000 shares)
10.19* Form of Common Stock Warrant dated January 30, 1998 with an exercise
price of $7.50 per share (66,667 shares)
10.20* Form of Warrant dated February 9, 1999 with an exercise price of $30.00
per share (6,668 shares)
10.21* Form of Warrant dated February 26, 1999 with an exercise price of
$30.00 per share (53,334 shares)
10.22* Form of Warrant dated April 19, 1999 with an exercise price of $30.00
per share (20,004 shares)
10.23 Second Amended and Restated Warehousing Credit and Security Agreement
(Syndicated Agreement) dated as of November 12, 1999, among the Registrant,
Residential Funding Corporation and certain other lenders
(a) First Amendment to Second Amended and Restated Warehousing
Credit and Security Agreement (Syndicated Agreement) dated as
of December 17, 1999
10.24* Master Lease Agreement between Dominion Ventures, Inc. and Registrant
dated as of April 1, 1998
10.25 First Amendment to Master Lease Agreement No. 10571 dated November 5,
1998, between Dominion Ventures, Inc. and Registrant
10.26* 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.
68
<PAGE>
(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.
10.27* Domain Name Assignment Agreement dated as of January 1, 1999, between
the Registrant and Credit.com, LLC
(a) Amendment No. 1 to Domain Name Assignment Agreement dated as
of June 30, 1999 between the registrant and Credit.com, LLC
10.28* Form of Director Indemnification Agreement dated as of April 15, 1999
10.29* Form of Director/Officer Indemnification Agreement dated as of April
15, 1999
10.30* Form of Officer Indemnification Agreement dated as of April 15, 1999
10.31* Waiver Agreement dated December 28, 1998, between Cendant Mortgage and
Mortgage.com
10.32* B. Anderson Young - Terms of Offer of Employment
(a) Non-competition Agreement for B. Anderson Young
10.33 Lease Agreement dated June 23, 1999, between the Registrant and ACP
Office I, LLC.
10.34 Termination Agreement dated February 29, 2000, between Registrant and
Intuit Lender Services, Inc.
10.35 Administrative Services and Technology
Sharing Agreement dated as of January 27,
2000, between the Registrant and
Openclose.com, Inc.
10.36 Contribution Agreement dated as of January 27, 2000, among the
Registrant, Openclose.com, Inc. and certain investors listed therein
21.1 List of Subsidiaries
27.1 Financial Data Schedule (for SEC use only)
<FN>
---------
* Incorporated by reference from the registrant's Form S-1 (333-79757)
</FN>
</TABLE>
69
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report on to be signed on its
behalf by the undersigned, thereunto duly authorized.
MORTGAGE.COM, INC.
By: /s/ SETH S. WERNER
--------------------------------------------
Seth S. Werner, Chairman, President and
Chief Executive Officer
By: /s/ EDWIN D. JOHNSON
--------------------------------------------
Edwin D. Johnson, Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- --------------------------------------- --------------
<S> <C> <C>
/s/ SETH S. WERNER Chairman, President and Chief Executive March 28, 2000
- ------------------------- Officer
Seth S. Werner
/s/ JOHN HOGAN Senior Executive Vice President and March 28, 2000
- ------------------------- Director
John Hogan
/s/ GEORGE A. NADDAFF Director March 28, 2000
- -------------------------
George A. Naddaff
/s/ EDWIN D. JOHNSON Executive Vice President and Chief March 28, 2000
- ------------------------- Financial Officer
Edwin D. Johnson
/s/ STEPHEN GREEN Director March 28, 2000
- -------------------------
Stephen Green
/s/ MICHAEL K. LEE Director March 28, 2000
- -------------------------
Michael K. Lee
</TABLE>
70
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibits Description
- -------- -----------
<S> <C>
2.1 Agreement dated October 7, 1999, among MDCM Acquisition Corp. (an
affiliate of the registrant), CSC Holdings, LLC, Capital Savings Co.,
Inc., PlanMax, Inc., ACM/USA, Inc., CSC Marketing Services, LLC, Todd
Ballenger and Robert B. Ballenger
10.23 Second Amended and Restated Warehousing Credit and
Security Agreement (Syndicated Agreement) dated as of
November 12, 1999, among the Registrant, Residential
Funding Corporation and certain other lenders
10.23(a) First Amendment to Second Amended and Restated Warehousing
Credit and Security Agreement (Syndicated Agreement)
dated as of December 17, 1999
10.25 First Amendment to Master Lease Agreement No. 10571 dated
November 5, 1998, between Dominion Ventures, Inc. and
Registrant
10.33 Lease Agreement dated June 23, 1999, between the Registrant and ACP
Office I, LLC.
10.34 Termination Agreement dated February 29, 2000, between Registrant and
Intuit Lender Services, Inc.
10.35 Administrative Services and Technology
Sharing Agreement dated as of January 27,
2000, between the Registrant and
Openclose.com, Inc.
10.36 Contribution Agreement dated as of January 27, 2000, among the
Registrant, Openclose.com, Inc. and certain investors listed therein
21.1 List of Subsidiaries
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
71
EXHIBIT 2.1
AGREEMENT
This Agreement ("Agreement") is made this 7th day of October, 1999, by
and among mortgage.com, inc., a Florida corporation, with its principal place of
business located at 8751 Broward Boulevard, 5t' Floor, Plantation, Florida 33324
("Buyer"); MDCM Acquisition Corp., a Florida corporation which is a wholly-owned
subsidiary of Buyer ("Acquisition Corp."); CSC Holdings, LLC, a North Carolina
limited liability Company, with its principal place of business located at 2507
Falls Drive, Chapel Hill N.C. 27514 ("CSC" or "Seller"); Capital Savings Co.,
Inc., a North Carolina Corporation located at 2700 Wycliff Road, Suite 206,
Raleigh, NC 27607 , NC ("Capital Savings"); PlanMax Inc., a North Carolina
Corporation located at c% CSC Marketing , LLC., 2700 Wycliff Road, Suite 206,
Raleigh, North Carolina 27713 ("P1anMax"); ACM/USA, Inc., a North Carolina
corporation located at 2507 Falls Drive, Chapel Hill, North Carolina 27514
("ACM/USA"); CSC.' Marketing Services, LLC, a North Carolina limited liability
company located at 2507 Falls rive, Chapel Hill, North Carolina 27514 ("CSCMS");
Todd Ballenger who resides at 2507 Falls Drive, Chapel Hill NC 27514, and Robert
B. Batchelder who resides at 416 Drummond Drive, Raleigh, North Carolina 27609,
(Todd Ballenger and Robert Batchelder are hereinafter collectively referred to
as the "Shareholders of Seller").
FACTUAL BACKGROUND
CSC is the owner of record and beneficially of all of the issued and
outstanding shares of the capital stock of Capital Savings, whose business
consists of (i) operation of a traditional brick and mortar retail mortgage
brokerage operations with (five) offices in North Carolina which in 1998
originated approximately three hundred and five million dollars in mortgage
loans; (ii) ownership of a portion of the membership interest of Advantage
Capital Mortgage of York North Raleigh, LLC., and Advantage Capital Mortgage/
Property Associates, LLC., both mortgage brokerage businesses organized as
limited liability companies and located in North Carolina; (iii) management of
two mortgage brokerage businesses, Advantage Capital Mortgage of Raleigh, LLC.
and Advantage Capital Mortgage of Hickory, LLC and (iv) rights to the BuildNet
LOI, as described herein, to be obtained by Capital Savings from CSC prior to
the termination of the BuildNet LOI; and
CSC is the owner of record and beneficially of all the membership
interests of CSCMS, a mortgage processing center supporting each of the
businesses described herein; and
CSC is the owner of record and beneficially of all of the issued and
outstanding shares of the capital stock of PlanMax, a technology based company
providing exclusive on-line mortgage origination services for certified
financial planners and insurance agents. The business of P1anMax consists
principally of (i) a contract with LifeGoals.com, Inc. to market PlanMax
services to a nationwide network of approximately 1800 certified financial
planners and (ii) marketing and licensing agreements regarding use of its
proprietary Mortgage Maximizer software by mortgage brokers that originate
residential loans and (iii) an agreement with Buyer in connection with the
training and recruitment of certified financial planners to become part time
employees of Buyer as outside mortgage loan consultants (all of the foregoing
contracts of PlanMax, which are more particularly described in Schedule 1.2(b),
are hereinafter referred to as
1
<PAGE>
the "P1anMax Contracts"); (iv) Mortgage Maximizer, a Windows(C) based software
package that provides mortgage brokers, consumers, and financial planners with
illustrations and servicing options for variable mortgage payment plans; and
CSC is a party to a Letter of Intent with BuildNet, Inc. ("BuildNet")
dated April 22nd, 1999 (the "BuildNet LOI" attached hereto as Schedule A) which
shall be terminated in consideration for the agreement of BuildNet to enter into
an Internet Marketing and Co-Branded Web Site Agreement (the "Co-Brand
Contract") and an ABA Net Branch and Member Web Site Development Agreement (the
"Private Label Contract") with CSC which will be assigned to Capital Savings at
Closing as hereinafter defined (the Co-Brand and Private Label Contracts are
hereto referred as the "BuildNet Contracts"); and
CSC is the owner of record and beneficially of all of the issued and
outstanding shares of ACM/USA. ACM/USA is in the business of operating and
managing mortgage brokerage businesses through various joint ventures with
owners of real estate businesses and independent real estate agents working out
of such businesses. These joint ventures are affiliated business arrangements,
as that term is defined in The Real Estate Settlement Procedures Act ("RESPA"),
and each joint venture consists of a limited liability company (hereinafter the
" ACM/LLC") pursuant to which ACM/USA owns a 30% membership interest represented
by Class A voting shares, and pursuant to a management agreement between ACM/USA
and ACMILLC, ACM/USA operates the mortgage brokerage business for the ACM/LLC on
the premises of the Class B member, which is the owner of the real estate
business and whose ownership in the ACM/LLC is typically represented by a 30%
interest which may or may not be voting. The independent real estate agents
working out of the premises of the Class B owner typically are represented as a
group owning an aggregate 40% interest represented by Class C non voting stock;
and
Buyer and Seller entered into a Letter of Intent on July 291h , 1999
(the "Ballenger LOI" attached hereto as Schedule B) pursuant to which Buyer paid
$250,000 to Seller (the Option Price") to obtain the exclusive option (the
"Option") to enter into a definitive agreement to acquire (i) Seller's rights in
the BuildNet LOI upon certain conditions as more fully set forth therein; (ii)
the shares of ACM/LJSA and P1anMax for a one million dollar down payment in
common stock of Buyer, valued at sixty dollars per share, with Seller having the
right to earn additional amounts based on revenues of certain of the acquired
companies, up to a maximum of twenty five million dollars, also payable in
common stock of Buyer but valued on the date any such incentive payments are
due, and (iii) the shares of Capital Savings for six hundred and fifty thousand
dollars payable in common stock of Buyer valued at sixty dollars per share. The
Ballenger LOI also contemplates that in the event of exercise of the Option,
Buyer would employ Todd Ballenger and Bo Batchelder in management positions. The
Ballenger LOI further contemplates that during the sixty-day term of the Option,
Buyer would conduct its due diligence purchase investigation and that the
parties would cooperate in structuring the transaction as a taxfree
reorganization.
During the due diligence period the parties to the Ballenger LOI have
determined to make certain material modifications with respect to the
transactions contemplated therein, to wit: (i) CSC transferred all of its rights
and interest in the BuildNet LOI to Capital Savings; (ii) Buyer shall not
purchase the stock of PlanMax but instead acquire substantially all of its
assets and
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accept an assignment of certain of its contracts referred to below, (iii) Buyer
shall not purchase the stock or assets of ACM/USA but instead accept an
assignment of the Net Branch Agreements (the "ACM Net Branch Agreements") or
Developer/Marketing Agreements (the "ACM Developer Agreements") entered into by
ACM/USA, which agreements constitute substantially all of the assets of ACM/USA,
(iv) Buyer shall not purchase the stock or assets of Capital Savings, but
instead, Acquisition Corp. will merge with and into Capital Savings in a reverse
triangular merger and (v) Buyer shall acquire certain assets of CSCMS and accept
an assignment of certain of its contracts.
It is therefore agreed that all of the above recitals are true and
correct, and as follows:
1. MERGER OF CAPITAL SAVINGS AND ACQUISITION CORP., TRANSFER AND
ASSIGNMENT OF PLANMAX CONTRACTS AND ASSETS TO BUYER, ASSIGNMENT OF
ACM/USA CONTRACTS TO BUYER, TRANSFER AND ASSIGNMENT OF CSC MARKETING
SERVICES LLC CONTRACTS AND ASSETS TO BUYER
1.1. MERGER OF ACQUISITION CORP. WITH AND INTO CAPITAL SAVINGS. On
the Closing Date, Acquisition Corp. shall be merged with and
into Capital Savings, with Capital Savings surviving, under
the provisions of the Florida Business Corporation Act and the
North Carolina Business Corporation Act, as further set forth
in the Plan of Merger attached hereto as EXHIBIT A, which is
herein incorporated by reference (the "Plan of Merger"). At
the Effective Time of the Merger, the separate existence of
Acquisition Corp. shall cease, and the Articles of
Incorporation and Bylaws of Capital Savings shall become the
Articles of Incorporation and Bylaws of Acquisition Corp. The
parties hereto agree to take such action to execute and
deliver such further instruments, including Articles of
Merger, as may be necessary to carry out the terms of this
Agreement and the Plan of Merger. Seller hereby represents
that the shares of Capital Savings are free and clear of all
liens, charges or encumbrances of whatsoever nature.
1.2. TRANSFER AND ASSIGNMENT OF PLANMAX CONTRACTS AND ASSETS.
(a) On the Closing Date, PlanMax shall sell to Buyer, and
Buyer shall buy fromPlanMax, all of the following
properties and assets of PlanMax situated in, on, or
about the premises of PlanMaxto be effective as of
Closing (the "P1anMax Contracts and Assets").
(i) All-inventory, equipment, and other assets,
work in process, mortgage loan pipeline,
orders for work in process, supplies and
other like items which are acceptable to
Buyer as more particularly described in
Schedule 1.2(a)(i).
(ii) All customer lists, telephone numbers,
including P1anMax's telephone number, names,
Mortgage Maximizer(C), including the company
name, "P1anMax", good will, trademarks,
trade names and cognates and derivatives
thereof owned by P1anMax or used by PlanMax
in
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PlanMax's business as more particularly
described in Schedule 1.2(a)(ii).
(b) All contracts to which PlanMax is a party shall be
assigned to Buyer at Closing are attached hereto in
Schedule 1.2(b). PlanMax shall take all necessary
steps to effectuate the assignment including, but-not
limited to, providing notice to, and acquiring
approval of, any interested third party related to
such contracts.
(c) Seller and PlanMax represent and warrant that the
PlanMax Contracts and Assets described in this
Section 1.2 will constitute substantially all of the
assets of PlanMax on the Closing Date.
1.3. ASSIGNMENT OF CONTRACTS OF ACM/USA. On the Closing Date,
ACM/USA shall assign to Buyer, and Buyer shall accept
assignment from ACM/USA of all Net Branch Agreements and
Developer/Marketing Agreements of ACM/USA as more fully set
forth in Schedule 1.3. Seller and ACM/USA represent and
warrant that the Net Branch Agreements and Developer/Marketing
Agreements will constitute substantially all of the assets of
ACM/LTSA on the Closing Date.
1.4. TRANSFER AND ASSIGNMENT OF CSC MARKETING SERVICES, LLC
CONTRACTS AND ASSETS.
(a) On the Closing Date, CSCMS shall sell to Buyer, and
Buyer shall buy fromCSCMS, all of the following
properties and assets of CSCMS situated in, on, or
about the premises of CSC Marketing Services, LLC to
be effective as of Closing (the "CSCMS Contracts and
Assets").
i. All inventory, equipment, and other assets,
work in process, mortgage loan pipeline,
orders for work in process, supplies and
other like items which are acceptable to
Buyer as more particularly described in
Schedule 1.4(a)(i).
ii. All customer lists, telephone numbers,
including CSCMS's telephone number, names,
including the company name, "CSC Marketing
Services, LLC", good will, trademarks, trade
names and cognates and derivatives thereof
owned by CSCMS or used by CSCMS in CSCMS's
business as more particularly described in
Schedule 1.4(a)(ii).
(b) All contracts to which CSCMS is a party shall be
assigned to Buyer at Closing are attached hereto in
Schedule 1.4(b). CSCMS shall take all necessary steps
to effectuate the assignment including, but not
limited to, providing notice to, and acquiring
approval of, any interested third party related to
such contracts.
1.5. CONSIDERATION FOR THE PLANMAX CONTRACTS AND ASSETS, THE CSCMS
CONTRACTS AND ASSETS AND THE ACM ASSIGNMENT. The consideration
to be paid to Seller
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for each of the PlanMax Contracts and Assets, and the CSCMS
Contracts and Assets, and the ACM Assignment shall be one
dollar, plus the Earn Out consideration described in Section
1.7.
a. Furthermore, at Closing, Buyer agrees to enter into a
loan agreement with CSC in a form reasonably
acceptable to Buyer and CSC which shall provide for a
loan by Buyer to CSC in the amount of Three Hundred
Thousand Dollars ($300,000) to be evidenced by a
promissory note of CSC bearing interest at the rate
of Eight and One Quarter Percent (8.25%) per annum
(The Bank Prime Loan rate of interest (known as the
"Prime Rate") as reported in the October 6, 1999
Federal Reserve Statistical Release H.1 S) . Payments
due thereunder shall be computed as interest only
payments and such payments shall be due on the first
business day of, each month following the execution
of the promissory note. The loan shall be due on
demand and shall be secured by i) any and all Earn
Out payments due hereunder; ii) personal guarantees
by Messrs. Ballenger and Batchelder in a form
reasonably acceptable to Buyer; and iii) any and all
bonus amounts payable under the Employment Agreements
as set forth hereunder in Section 1.11. CSC and
Shareholders of Seller hereby grant to Buyer a
security interest in all Earn Out payments due
hereunder and Shareholders of Seller hereby grant to
Buyer a security interest in the bonus amounts
payable under their respective Employment Agreements.
1.6 CONSIDERATION FOR CAPITAL SAVINGS MERGER. The consideration
for the merger of Acquisition Corp. with and into Capital
Savings shall be as set forth in the Plan of Merger.
1.7. EARN OUT CONSIDERATION. In addition to the consideration set
forth in Sections 1.5 and 1.6, Shareholders of Seller shall be
entitled to receive additional payments in full shares of
Buyer's Common Stock, based upon the revenues received by
Buyer from the operation of the contracts and assets described
in Sections 1.2, 1.3 and 1.4 and the BuildNet Contracts,
computed as more particularly described in Schedule 1.7, (the
"Earnout Revenue Base") and hereinafter referred to as the
"Earn Out": (i) on February 28, 2001, an amount equal to one
times the revenues realized from the Earnout Revenue Base for
the calendar year 2000; (ii) on February 28, 2002, an amount
equal to one half times the revenues realized from the Earnout
Revenue Base for the calendar year 2001; and (iii) on February
28, 2003, an amount equal to one quarter of the revenues
realized from the Earnout Revenue Base for the calendar year
2002. All Earn Out payments will be paid in Common Stock of
Buyer based on its value determined by its average closing
price for the thirty trading days prior to the date any Earn
Out payment is due. The maximum aggregate amount of the Earn
Out is Twenty Five Million Dollars ($25,000,000) of Buyer's
Common Stock, and all payments under this Section are further
subject to the security interest of Buyer set forth in Section
1.5(a) and the Provisions Regarding Buyers Common Stock as set
forth in greater detail herein.
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a. For the purpose of computing the Earn Out, revenues
for the Earnout Revenue Base shall be determined
according to generally accepted accounting principles
(hereinafter "GAAP"). Earn Out payments shall be
attributed to the respective businesses and BuildNet
Contracts acquired hereunder in proportion to the
revenues such businesses and contracts contribute to
the Earnout Revenue Base.
b. Buyer shall use commercially reasonable efforts to
operate the assets acquired that contribute to the
EarnOut Revenue Base, but shall have the right, in
its sole discretion, to operate, sell or discontinue
the operations of P1anMax, CSCMS and ACM and the
BuildNet Contracts, as shall be in the best interests
of Buyer and without regard to the impact of such a
sale on the Earn Out described above.
c. The Common Shares of Buyer delivered to Seller as
Earn Out consideration and consideration under
Section 1.6 shall be validly issued, fully paid and
non-assessable, and shall be subject to the
Provisions Regarding Buyers Common Stock, more fully
described in Section 3 of this Agreement and all such
shares shall bear a legend containing reference to
the terms of this Agreement and a restriction on
transfer indicating that the shares may not be
offered or sold and no transfer of them may be made
unless in compliance with the Securities Act of 1933
and applicable state securities laws. In the event
Buyer sells Capital Savings within twelve (12) months
of Closing, Buyer agrees to pay Seller one half of
the price received in excess of Six Hundred Fifty
Thousand Dollars ($650,000) payable in the same
manner and consideration as that received by Buyer.
d. Buyer shall keep reasonably detailed and accurate
records in connection with the Earn Out.
Contemporaneously with any payments required to be
made hereunder, Buyer shall provide Seller with a
schedule showing the calculations made in connection
herewith, in reasonable detail, and shall allow
Seller and its 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
Buyer. Seller or its independent outside accountants,
attorneys, or other representatives shall have the
right, at its expense, upon not less than ten (10)
business days' written notice and during Buyer's
normal business hours, disrupting as little as
possible Buyer's business operations, to inspect the
books and records of Buyer relating to this
Agreement, for the purpose of verifying any reports,
information or payments due to Seller under this
Agreement. If such audit shows that any of Buyer's
reports understated the actual amounts due to Seller
by more than ten percent (10%), then Buyer shall pay
Seller the amount determined to be due and reasonable
costs which may be incurred by Seller in conducting
such review.
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1.8. TIME AND PLACE OF CLOSING. The closing of the purchase and
sale provided for in this Agreement (the "Closing") shall be
held no later than the 29th day of October, 1999, at the
offices of Buyer, or such other place, date or time as may be
fixed by mutual agreement of the parties (the "Closing Date").
1.9. DELIVERY OF SHARES, ASSIGNMENT OF CONTRACTS AND OTHER
DOCUMENTS. At the Closing, Seller shall deliver to Buyer, as
provided below, certificates for the shares of Capital Savings
(the "Shares"), duly endorsed in blank for transfer or with
stock powers attached (duly executed in blank) together with
all such other documents as may be required to effect a valid
transfer of the Shares by Seller, free and clear of all liens,
encumbrances, charges or claims. In addition, at the Closing,
Seller shall deliver to Buyer such documents as are necessary
to effectuate the P1anMax Transfer and Assignment, the ACM
Assignment of Contracts and other such documents as set forth
elsewhere herein.
1.10. TAX FREE STATUS. The Parties hereto intend the transactions
described in Sections 1.2 and 1.3 to qualify as tax-free
reorganizations under Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the
transaction described in Section 1.1 to qualify as a tax-free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(e) of
the Code. However, Buyer makes no representations or warranty
to Seller regarding the tax treatment of these transactions,
whether these transactions will qualify as tax-free plans of
reorganization under the Code, or any of the tax consequences
to Seller, and Seller acknowledges that Seller is relying
solely on its own tax advisors in connection with this
Agreement. Seller understands that tax-free treatment of the
transactions described in Sections 1.2 and 1.3 is conditioned
upon Seller dissolving and liquidating P1anMax and ACM/USA,
respectively, as soon as practicable after the Closing Date.
1.11. EMPLOYMENT AGREEMENTS. At the Closing, Bo Batchelder and Todd
Ballenger will enter into employment agreements with Buyer
(hereinafter "Employment Agreements") in the form attached
hereto as Schedule 1.11 pursuant to which they will each be
full-time employees of Buyer and shall devote such time as is
customary in the industry, but not less than thirty-five (35)
hours per work week, in furtherance of their management
positions with Buyer.
2. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, and the Shareholders of Seller, jointly and severally make the
following representations and warranties to Buyer, each of which is true and
correct on the date hereof and shall be true and correct on the Closing Date and
at the Effective Time (as defined in the Plan of Merger), shall be unaffected by
any investigations heretofore or hereafter made by Buyer or any knowledge of
Buyer other than as specifically disclosed in writing to Buyer at the time of
execution of this Agreement, and shall survive the Closing Date and the
Effective Time:
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2.1. ORGANIZATION, APPROVAL AND STANDING. Capital Savings, CSCMS,
ACM and P1anMax (hereinafter collectively the "Companies") and
Seller are each duly organized, validly existing and in good
standing under the laws of the State of North Carolina, with
full power and authority to enter into and execute this
Agreement and to carry on their respective businesses as now
being conducted. None of the Companies are required by the
conduct of their business or the ownership of their property
to qualify to do business as a foreign corporation in any
other jurisdiction other than as set forth on Schedule 2.1.
The execution of this Agreement and the performance of the
obligations contemplated hereby have been validly authorized
by all necessary action on the part of the Seller, including
approval of their Board of Directors, shareholders and
members.
2.2. CORPORATE DOCUMENTS. Schedule 2.2 contains true and correct
copies of each of the Companies' Articles of Incorporation or
Organization, as amended to date, certified by the Secretary
of the State of North Carolina, and each of the Companies'
Stock Record Book and copies of each of the Companies' Bylaws
and Operating Agreements, as amended to date, certified by the
Secretary of each of Companies as being complete and correct.
2.3. CAPITAL STOCK OF CAPITAL SAVINGS. Schedule 2.3 shows the
authorized capital shares of Capital Savings, and its par
value; all of the shares shown on Schedule 2.3 are duly and
validly issued, outstanding, fully paid and non-assessable.
There are no outstanding options, warrants or agreements of
any kind for the issuance or sale of, or outstanding
securities convertible into any shares of capital stock of
Capital Savings. . The Seller has complete and unrestricted
power to sell, convey, assign, transfer and deliver the shares
to Buyer. The transfer of the shares pursuant to this
Agreement will pass to Buyer good, valid and marketable title
to the shares, free and clear of all liens, pledges, options,
charges and adverse claims of every nature. Upon delivery of
the shares to Buyer pursuant to this Agreement, Buyer will
have good, valid and marketable title to all the outstanding
shares of capital stock of Capital Savings, and the shares
will be, when delivered, duly authorized, validly issued,
fully paid and non-assessable.
2.4. FINANCIAL STATEMENTS. Attached as Schedule 2.4 are the balance
sheet of Capital Savings, P1anMax and CSCMS as of December
31St, 1998 and August 31St, 1999, and the related statements
of income and retained earnings and changes in financial
position for each of the periods then ended including in each
case the related footnotes thereof, all certified or prepared
by Thomas, Judy & Tucker, P.A., Certified Public Accountants,
16 East Rowan Street, Raleigh, North Carolina, (the "Financial
Statements"). The Financial Statements have been prepared in
accordance with GAAP applied on a basis consistent with that
of the preceding year and present fairly the financial
position of Capital Savings, P1anMax and CSCMS respectively as
of the dates set forth and the results of its operations for
the period indicated.
2.5. ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the
extent reflected or reserved against in the Financial
Statements as of December 31St, 1998 and
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August 31st, 1999, Capital Savings has no liabilities or
obligations (including refund obligations to present or past
customers asserted as of that date), secured or unsecured
(whether absolute or contingent) of a nature required to be
reflected in audited financial statements including notes
thereto. Neither Capital Savings nor the Seller know of or
have any reasonable grounds to know the basis for the
assertion against the Capital Savings as of December 31 St,
1998 and August 31 St, 1999 of any material claim or liability
of any nature not fully reflected or reserved against in the
Financial Statements or any material liability or claim of any
nature arising since that date except those incurred in the
ordinary course of business.
2.6. ABSENCE OF CHANGES. Except as scheduled on Schedule 2.6 and as
may be reflected in this Agreement or the other Schedules
hereto since September 1 St, 1999, there has not been (i) any
material adverse changes in the financial condition or in the
operations, business, prospects, properties or assets of the
Companies; (ii) any material damages, destruction or loss to
any of the properties or assets of the Companies, whether or
not covered by insurance, which might adversely affect or
impair the ability of the Companies to conduct their business;
(iii) any labor trouble or any event or condition of any
character related thereto which may materially and adversely
affect the business of the Companies'; (iv) any declaration,
setting aside or payment of any dividend or any distribution
with respect to the capital stock of the Companies; (v) any
contingent liability incurred by either of the Companies as a
guarantor or otherwise with respect to the obligations of
others; (vi) any mortgage, encumbrance or lien placed upon any
of the properties of the Companies and which remains in
existence on the date of this Agreement or on the Closing
Date; (vii) any purchase, sale or other disposition or any
other agreement for the purchase, sale or disposition of any
of the properties or assets of the Companies except in the
ordinary course of business; (viii) any change in compensation
in excess of ten percent (10%) per annum payable or to become
payable by the Companies to any of its officers, employees or
agents, or any bonus, payment or arrangement with respect to
any of such officers, employees or agents; (ix) any payment to
either Seller in the form of salary or other compensation; (x)
any expense allowance paid to any person whether in the form
of advance or loan except for reimbursement of expenses
previously incurred or reasonable expenses incurred in the
ordinary course of business.
2.7 CONDITIONS AFFECTING THE COMPANIES' BUSINESS. Except as set
forth in Schedule 2.7, there are no conditions known to Seller
or Shareholders of Seller with respect to the markets
facilities, personnel, suppliers or business relationships of
the Companies which may materially and adversely affect the
Companies' business or prospects. The Companies have received
no notice of any violation of any federal or state mortgage
banking, franchise, securities or other law, rule or
regulation, including environmental or zoning regulations or
other ordinances or laws with respect to their business or
properties, and the Companies are not in violation of any such
laws, rules or ordinances with respect to their business or
properties.
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2.8. ACCOUNTS RECEIVABLE. All accounts receivable arising from the
Capital Savings business are valid and subsisting amounts
owing to Capital Savings, have been acquired in the ordinary
course of business and are carried on the books at values
determined in accordance with GAAP, are not subject to
defenses, setoffs or claims of the mortgagor (other than those
already accounted or) arising from the acts or omissions of
Capital Savings. All accounts receivable arising from the
business of PlanMax, CSCMS and ACM are valid and subsisting
amounts owing to either entity, have been acquired in the
ordinary course of business and are carried on the books at
values determined in accordance with GAAP, are not subject to
defenses, setoffs or claims or the obligor (other than those
already accounted or) arising from the acts or omissions of
PlanMax.
2.9. REAL PROPERTY. Attached, as Schedule 2.9 is a list of all real
property, which is either owned or leased by any of the
Companies. Each of the leases set forth in Schedule 2.9 is
valid and in full force and effect in accordance with its
terms. There is no material default or claimed default under
any of the leases by the Companies, and there does not exist
any event which, with notice or lapse of time or both, would
constitute a default. No consent of any party to any of such
leases is necessary or required upon the transfer of the
Shares from Seller to Buyer.
2.10. PERSONAL PROPERTY. The Companies have good and marketable
title to all of the personal property used by them, free and
clear of all mortgages, security interests, pledges, liens,
conditional sales agreements, charges or encumbrances, except
as set forth in Schedule 2.10 and except as set forth therein,
there are no financing statements under the Uniform Commercial
Code which names either of the Companies as a debtor. At
Closing, Seller will cause each and all liens set forth in
Schedule 2.10 (except liens securing obligations which will
remain with the Companies) to be eliminated so that the
Companies will own all personal property free and clear of
liens, encumbrances and charges. To the best of Seller'
knowledge, all personal property used in the Companies'
business is in good and serviceable condition, normal wear and
tear excepted other than such personal property which may be
temporarily out of service in the normal course of business.
2.11. MORTGAGE BANKING BUSINESS AND COMPLIANCE WITH LAW. Capital
Savings has not taken or failed to take any action the effect
of which would operate to invalidate or materially impair the
approval, guarantee or commitment to insure of any Agency.
(such as Federal Housing Administration, Veteran's
Administration, Fannie Mae, Ginnie Mae, Freddie Mac or any
state regulatory agency with the authority to regulate the
business of the Companies) or private mortgage insurers with
which Capital Savings conducts business. Complete and accurate
records in all material respects for all present and past
accounts have been maintained consistent with the operations
of a mortgage brokerage business. All required disclosure
forms, reports and records have been prepared, completed,
maintained and filed in all material respects in accordance
with all applicable federal and state laws and regulations. In
addition, the Companies have complied with all applicable
federal, state, local or foreign laws, ordinances,
regulations, and rules,
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and all orders, writs, injunctions, awards, judgments, and
decrees applicable to it or to its assets, properties, and
business, including but not limited to its business of taking
applications for, originating, underwriting, processing and
selling mortgage loans (collectively, "Applicable Law").
Seller and each of its subsidiaries hold all valid licenses
and other governmental permits that are necessary and/or
legally required to be held by them to conduct their
respective businesses as presently conducted.
2.12. IMPROPER PAYMENTS. Seller has not, (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, (ii) made any
unlawful payment to foreign or domestic government officials
or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
2.13. CAPITAL SAVINGS PIPELINE. Schedule 2.13 is a complete and
accurate list of the Capital Savings loans in the Pipeline
(defined as loans originated by Capital Savings prior to the
Effective Time and not funded, and accrued as of August 31St,
and September 30d', 1999) on the date hereof, such list to be
updated upon the request of Buyer. Each of the loans listed is
owned by Capital Savings free and clear of all liens or
encumbrances whatsoever.
2.14. REPRESENTATIONS WITH RESPECT TO MORTGAGE LOANS AND CONTRACTS
AND ASSETS TRANSFERRED HEREUNDER. a) No breach or violation of
any representation, warranty or covenant exists which
individually or collectively would have an adverse effect,
material or otherwise, on Capital Savings with respect to any
mortgage loans, the ownership of which has been transferred by
Capital Savings to any person and notwithstanding the general
indemnity provisions contained in this Agreement, Seller shall
defend, indemnify and hold harmless Buyer, as more fully set
forth in Section 9, specifically with respect to any claims
against Buyer or Capital Savings by any transferee of any
mortgage loan originated or transferred by Capital Savings
prior the Closing Date. b) No breach or violation of any
representation, warranty or covenant exists which individually
or collectively would have an adverse effect, material or
otherwise, on the P1anMax or CSCMS assets transferred or
contracts assigned hereunder by PlanMax, CSCMS or ACM. Upon
closing of this Agreement, Buyer shall have good and
unencumbered title to the assets and contracts described
herein in Sections 1.2, 1.3 and 1.4.
2.15. TRADENAMES, TRADEMARKS, COPYRIGHTS AND OTHER INTELLECTUAL
PROPERTY. Schedule 2.15 is a true and complete listing of all
tradenames, trademarks, service marks, copyrights and the
registrations therefore owned or used by the Companies and a
brief description of each, and all Intellectual Property as
defined below necessary or required for the conduct of the
business of the Companies. To the best knowledge of Seller and
Shareholders of Seller, none of the Companies has infringed,
and is not now infringing, any tradename, service mark, or
copyright belonging to any other person. Except as set forth
in Schedule 2.15, none of the
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Companies is a party to any license, agreement or arrangement,
whether as a licensor, licensee or otherwise, with respect to
any trademark, tradename, service mark or copyright used by
the Companies. Except as expressly specified in Schedule 2.15,
the business of the Companies may be conducted without license
by others for the use of any tradename, trademark, service
mark or copyright. As used herein, the term "INTELLECTUAL
PROPERTY" means, collectively, all worldwide industrial and
intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks,
trademark registrations and applications therefor, trade dress
rights, trade names, service marks, service mark registrations
and applications therefor, logos Internet domain names,
Internet and World Wide Web URLs or addresses, copyrights,
copyright registrations and applications therefor, moral
rights, mask work rights, mask work registrations and
applications therefor, franchises, licenses, inventions, trade
secrets, know-how, customer lists, supplier lists, proprietary
processes and formulae, software source code and object code,
algorithms, net lists, architectures, structures, screen
displays, layouts, inventions, development tools, designs,
blueprints, specifications, technical drawings (or similar
information in electronic format) and all documentation and
media constituting, describing or relating to the foregoing,
including, without limitation, manuals, programmers' notes,
memoranda and records.
2.16. LITIGATION AND LABOR MATTERS. Except as set forth in Schedule
2.16, there is no suit, action, arbitration, or legal,
administrative or other proceeding or governmental
investigation pending or, to the knowledge of Seller or
Shareholders of Seller, threatened against the Seller, the
Companies or the Shareholders of Seller. No labor disputes are
pending, or to the knowledge of Seller or Shareholders of
Seller, threatened, nor is unionization threatened at either
of the Companies. None of the Companies are \ subject to any
order, writ, injunction or decree of any federal, state or
local court, department or agency or instrumentality. To the
best knowledge of Seller, each of the Companies have complied
in all material respects with all applicable laws, rules and
regulations relating to the employment of labor, including
laws relative to wages, hours and the payment or withholding
of taxes for its employees. With respect to any matters
scheduled on Schedule 2.16, and notwithstanding the general
indemnity provisions contained herein, Seller and Shareholders
of Seller shall defend, indemnify and hold harmless Buyer, as
more fully set forth in Section 9, with respect to any loss
with respect thereto.
2.17. CONTRACTS AND AGREEMENTS. Except for agreements listed
elsewhere in this Agreement or in other Schedules pertaining
hereto, Schedule 2.17 is a complete and accurate list of all
agreements, commitments and understandings, written or oral,
to which the Companies are a party or are bound, (the
"Contracts"). Except as set forth in Schedule 2.17, all the
Contracts are presently valid, existing and in full force and
effect, and there is no material default by the Companies or
the written claim of default by any party thereto, or any
threatened cancellation thereof known to Seller. True and
complete copies of the Contracts have been delivered to the
Buyer.
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2.18. TAX RETURNS. Each of the Companies have timely filed or caused
to be filed all federal, state and local tax returns for
income taxes, sales taxes, withholding and all payroll taxes,
property taxes, and all other taxes of every kind whatsoever
required by law to have been filed, and all such tax returns
are complete and accurate. Each of the Companies have paid or
caused to be paid all taxes which have become due, whether
pursuant to said returns or pursuant to any assessments or
otherwise, and there is no further liability (whether or not
disclosed on such returns or assessments) for any such taxes,
and no interest or penalties accrued or accruing with respect
thereto, except a may be set forth in the balance sheets and
statements of operations referred to herein. None of the
Companies or Seller has filed any consent for the Companies
under Section 341(I) of the Internal Revenue Code.
2.19. INSURANCE POLICIES. The Companies are each insured with
reputable insurers against such risks and in' such amounts
normally insured against by companies of the same type and in
the same line of business. All of the insurance policies,
binders or bonds maintained are in full force and effect and
none of the Companies is in default under any such policies.
Schedule 2.19 is a description of all insurance policies held
by the Companies concerning their business and properties.
Each of the Companies has maintained and will maintain such
insurance on assets and properties through the Closing and
purchase additional "tail" coverage to protect Buyer from any
and all claims incurred but not reported as of the Closing.
Seller shall provide Buyer with evidence of such insurance at
or prior to the Closing Date. After Closing, such insurance
will be terminated for the Companies, and Seller will take
appropriate action so that the Companies and Buyer will obtain
the benefits of the Companies' prepaid insurance.
2.20. AUTHORIZATION AND APPROVALS. The Board of Directors, the
shareholders and members of each of the Seller and the
Companies have approved the transactions contemplated by this
Agreement, have approved the execution and delivery of this
Agreement and have full power to authorize the consummation of
this Agreement without any further corporate authorization.
This Agreement is a valid and binding agreement of Seller,
Shareholders of Seller and the Companies in accordance with
its terms.
2.21. VIOLATION OF OTHER INSTRUMENTS. Neither the execution of this
Agreement nor the consummation of the transactions
contemplated by this Agreement will result in the breach of
any of the terms or provisions of, or constitute a default or
an event which, with notice or lapse of time or both, would
constitute a default under, the Articles of Incorporation or
Organization or the By-laws or Operating Agreement of the
Companies, or any lease, license, promissory note, conditional
sales contract, commitment, indenture, deed of trust,
instrument or other agreement to which Seller, Shareholders of
Seller or the Companies is a party or by which their property
is bound, or constitute an event which would permit any party
to any such agreement to terminate or accelerate such
agreement, or result in the creation or imposition of alien,
charge or encumbrance against any asset of the Companies.
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2.22. THIRD PARTY CONSENTS AND APPROVALS. No consent, approval or
other action by any governmental authority or third party
consent is required in connection with the execution, delivery
and performance of this Agreement which consent has not been
obtained.
2.23. INTEREST IN CREDITORS. Seller does not have any direct or
indirect interest in any creditor, competitor, supplier,
lessor or customer, including lessees, other than the
interests set forth in Schedule 2.23, or in the other
Schedules attached to this Agreement and neither the execution
nor performance of this Agreement or the Employment Agreements
will result in a conflict of interest
2.24. BANKS, SAFETY DEPOSIT BOXES. Schedule 2.24 lists the names and
addresses of all banks or financial institutions in which
either of the Companies have an account, deposit or safety
deposit box, with the names of all persons authorized to draw
on these accounts or deposits or to have access to all boxes.
2.25. POWERS OF ATTORNEY. None of the Companies have given any
outstanding power of attorney.
2.26. MINUTE BOOKS. The minute books of the Companies accurately
reflect all actions taken by its shareholders, board of
directors, members and committees at their respective
meetings. Seller will indemnify and hold Buyer harmless from
and against any third parties liability or claim based upon or
resulting from lack of formality or due authorization of
actions taken by the Companies prior to the Closing.
2.27. DATA PROCESSING. The Companies have good and valid title or
valid license to the data processing software (including
documentation, user manuals, upgrades and current release,
etc.) currently used by them and the data processing system
(software and hardware) is operating in the intended manner.
2.28. OUTSIDE EMPLOYMENT. Schedule 2.28 sets forth all current
written or oral employment agreements of Bo Batchelder or Todd
Ballenger in which either is an employer, employee,
independent contractor or owner of 5% or more of any
corporation, partnership, joint venture, sole proprietorship
or other business venture.
2.29. EMPLOYEES, ERISA AND OTHER COMPLIANCE. Schedule 2.29 is a list
of all employees of Capital Savings and their current rate of
pay, and all agreements, employment handbooks, policies;
practices or understandings (written or oral) concerning or
affecting the employees, or any employee bonus program,
incentive plan or employee benefit plan. Capital Savings is in
compliance in all material respects with all applicable laws,
agreements and contracts relating to employment, employment
practices, immigration, wages, hours, and terms and conditions
of employment, including, but not limited to, employee
compensation matters. Capital Savings does not have any
employment contracts or consulting agreements currently in
effect that are not terminable at will (other than
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agreements with the sole purpose of providing for the
confidentiality of proprietary information or assignment of
inventions).
(a) ERISA. Capital Savings does not have any pension plan
which constitutes, or has since the enactment of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA") constituted, a "multi-employer
plan" as defined in Section 3(37) of ERISA. No
pension plan of Capital Savings is subject to Title
IV of ERISA.
(b) CAPITAL SAVINGS BENEFIT ARRANGEMENTS. Schedule
2.29(b) lists each employment, severance or other
similar contract, arrangement or policy, each
"employee benefit plan" as defined in Section 3(3) of
ERISA and each plan or arrangement (written or oral)
providing for insurance coverage (including any
self-insured arrangements), workers' benefits,
vacation benefits, severance benefits, disability
benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other
forms of incentive compensation or post-retirement
insurance, compensation or benefits for employees,
consultants or directors which is entered into,
maintained or contributed to by Seller and covers any
employee or former employee of Seller. Such
contracts, plans and arrangements as are described in
this Section are hereinafter collectively referred to
as "Capital Savings Benefit Arrangements", Seller has
delivered to Buyer or its counsel a complete and
correct copy and description of each Capital Savings
Benefit Arrangement.
(c) COMPLIANCE. Each Capital Savings Benefit Arrangement
has been maintained in compliance in all material
respects with its terms and with the requirements
prescribed by any and all statutes, orders, rules and
regulations that are applicable to such Capital
Savings Benefit Arrangement, and each such Capital
Benefit Arrangement that is an "employee pension
benefit plan" as defined in Section 3(2) of ERISA
which is intended to qualify under Section 401(a) of
the Code has received a favorable determination
letter that such plan satisfied the requirements of
the Tax Reform Act of 1986 (a copy of which letters)
have been delivered to Buyer and its counsel).
Capital Savings has timely filed and delivered to
Buyer and its counsel the most recent annual report
(Form 5500) for each Capital Savings Benefit
Arrangement that is an "employee benefit plan" as
defined under ERISA. Capital Savings has never been a
participant in any "prohibited transaction", within
the meaning of Section 406 of ERISA with respect to
any employee pension benefit plan (as defined in
Section 3(2) of ERISA) which Capital Savings as
employer or in which Capital Savings participates as
an employer, which was not otherwise exempt pursuant
to Section 408 of ERISA (including any individual
exemption granted under Section 408(a) of ERISA), or
which could result in an excise tax under the Code.
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(d) CONTRIBUTIONS. All contributions due from Capital
Savings or any of its subsidiaries with respect to
any of the Capital Savings Benefit Arrangements have
been made or have been accrued on Seller's financial
statements, and no further contributions will be due
or will have accrued thereunder as of the Closing
Date.
(e) PARTICIPATION. All individuals who, pursuant to the
terms of any Capital Savings Benefit Arrangement, are
entitled to participate in any such Capital Savings
Benefit Arrangement, are currently participating in
such Capital Savings Benefit Arrangement or have been
offered an opportunity to do so and have declined in
writing.
(f) NO INCREASE IN EXPENSE. There has been no amendment
to, written interpretation or announcement (whether
or not written) by Capital Savings relating to, or
change in employee participation or coverage under,
any Capital Savings Benefit Arrangement that would
increase materially the expense of maintaining such
Capital Savings Benefit Arrangement above the level
of the expense incurred in respect thereof for
Capital Savings' most recent fiscal year.
(g) CONTINUATION OF COVERAGE; COBRA. The group health
plans (as defined in Section 4980B(g) of the Code)
that benefit employees of Seller are in compliance,
in all material respects, with the continuation
coverage requirements of Section 4980B of the Code as
such requirements affect Seller, its subsidiaries and
their employees. As of the Closing Date, there will
be no material outstanding, uncorrected violations
under the Consolidation Omnibus Budget Reconciliation
Act of 1985, as amended ("COBRA"), with respect to
any of Capital Savings Benefit Arrangements, covered
employees, or qualified beneficiaries that could
result in a material adverse effect on Seller, or in
a material adverse effect on Buyer after the Closing
Date.
2.30. ADEQUACY OF REPRESENTATIONS AND WARRANTIES. None of the
warranties and representations made by Seller and Shareholders
of Seller in this Agreement, or in the Schedules to this
Agreement, or in the certificates furnished by Seller under
this Agreement, contains or will contain any untrue statement
of a material fact, or omit to state a material fact necessary
in order to make the statements contained herein or therein
not misleading.
3. PROVISIONS REGARDING BUYER COMMON STOCK AND REGISTRATION RIGHTS.
3.1. INVESTMENT REPRESENTATIONS. Seller and each of the
Shareholders of Seller represent and warrant that it is their
present intention to acquire the shares of Buyer's Common
Stock received by them pursuant to this Agreement for
investment and not with a view to the distribution or resale
thereof, and agree to reaffirm this investment representation
in writing at any time that any such shares are issued to them
and further agree that Buyer may defer issuing any such shares
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if and so long as Seller or the Shareholders of Seller fail to
deliver such representation. Seller and the Shareholders of
Seller have conducted their own investigation and evaluation
of Buyer's business and financial condition and have had to
opportunity to obtain such information pertaining to Buyer as
has been requested.
3.2. AGREEMENT OF SELLER AND SHAREHOLDERS OF SELLER. Seller and
each of the Shareholders of Seller agrees that they will not
sell or transfer any of the shares of Buyer's Common Stock
received by them hereunder unless a determination is made that
registration of such shares under the Securities Act of 1933,
as amended (the "Act") is not required in connection with such
transaction, or unless a registration statement under the Act
is then in effect with respect to such shares and the
purchaser or transferee shall have been furnished with a
prospectus meeting the requirements of Section 10 of the Act,
in any of which events such shares will be transferable in
such transaction or pursuant to such registration statement.
For purposes of this Agreement a determination that
registration of shares of Buyers Common Stock under the Act is
not required in connection with a transaction shall be deemed
to have been made if and when an opinion of counsel acceptable
to Buyer is rendered to such effect.
3.3. LEGEND. Buyer shall endorse on the certificates for the shares
of Buyer Common Stock deliverable to the Seller and
Shareholders of Seller an appropriate reference to the
foregoing provisions of this Section 3, and the transfer agent
shall be instructed not to transfer any of such shares unless
it has been advised by Buyer or has otherwise been satisfied
that Seller and the Shareholders of Seller have complied with
such provision.
3.4. REGISTRATION RIGHTS. If Buyer proposes to register shares of
Buyer Common Stock under the Act as a result of the exercise
of demand registration rights held by the holders of the
Buyer's Common Stock, or otherwise registers the shares of the
Buyer's senior executive officers, Buyer will give reasonable
notice to Shareholders of Seller and upon the written request
of Shareholders of Seller, the Buyer will use reasonable
efforts to effect the registration of the shares that may be
issued hereunder.
a. In addition, if (x) Buyer's counsel does not issue a
tax opinion to Seller at closing that the
transactions contemplated hereby will be treated as
tax-free exchanges or (y) Seller or its owners either
(i) elects to report any transaction, or part
thereof, as a taxable transaction or (ii) Seller or
its owners report the transactions as tax-free
exchanges but the IRS or any state tax authority
challenges any transaction, or part thereof, as not
being a tax-free exchange and Seller or its owners
pay or agree to pay a tax with respect thereto, then
Buyer agrees to file a registration statement on Form
S-3 (or successor form, the " S-3 Registration
Statement") with the SEC to register the shares
issued to Seller hereunder and maintain its
effectiveness on the following conditions:
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i. Buyer will file a Form S-3 (or successor
form) within 60 days of becoming eligible to
file such registration statement, which
Seller understands currently would not be
until Buyer has been a '34 Act company for
12 months and had timely filed all of its
SEC periodic reports (Form 10-K, Forms
10-Qs, etc.).
ii. Buyer will not be obligated to file such
registration statement or maintain its
effectiveness at any time that Seller is
eligible to sell all of its shares of
Buyer's Common stock in ordinary brokerage
transactions pursuant to Rule 144.
iii. It is acknowledged and agreed that Buyer's
eligibility to utilize Form S-3 is dependent
on Buyer not having been late in any
periodic reports required to be filed under
the '34 Act, such as Form l OK or Form lOQ
and that ineligibility to use form S-3 due
to non-compliance with the conditions
required for use of such form shall not be
considered a breach hereunder. However,
Buyer agrees to use best efforts to timely
file such reports.
iv. Buyer shall not be required to file a Form
S-3 if the circumstances in clause (y) of
Section 3.4(a) are a consequence of Seller's
failure to dissolve and liquidate P1anMax
and ACM/USA, or either of them.
b. Notwithstanding the foregoing, if Buyer is otherwise
required to file the Form S-3 Registration Statement
pursuant to the terms of this Agreement, but is
unable to do so, or to maintain its effectiveness
because, in the opinion of Buyer's counsel, it does
not comply with any one or more of the eligibility
requirements for the use of Form S-3, such failure
shall not be deemed a breach of this Agreement and,
in such event, Seller shall have the right to receive
an advance payment of such portion of the Earnout as
shall be sufficient to pay the taxes then immediately
due on this transaction, up to a maximum amount equal
to [(x) the value of the shares received (determined
based upon their value on the date received)
multiplied by the effective federal (and, if
applicable, state) tax rate applicable to the shares
received minus (y) the sum of (i) the value of any
shares which may then be sold on the open market
under a then effective Form S-3, pursuant to Rule 144
or otherwise and (ii) the amount of proceeds realized
from the prior sale of any shares (reduced by any
amounts used (or designated to be used) to satisfy
federal or state income taxes attributable to either
the receipt or sale of shares) (the "Earnout
Advance"), and Seller shall have the right to set off
against the Earnout Advance any current or future
amounts that may be due to Seller under this
Agreement, and further any such Earnout Advance shall
be evidenced by a promissory note, in a form
acceptable to Buyer, with principal and interest
payable monthly over a period of three years, at the
prevailing prime rate of interest, and secured by any
shares of stock of Buyer paid as a down payment on
the purchase price, or pursuant to the Earnout as
described
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herein. Any Earnout Advance provided hereunder shall
be made at such time or times which enable the Seller
to make all required estimated and final federal and
state income tax payments, if any, attributable to
the receipt of the shares and shall be determined at
the time of any advance.
c. If, because of the size of this transaction, Buyer is
required to file audited financial statements with
the Securities and Exchange Commission (the "SEC")
for any period prior to closing, and if such
statements are not available and an audit cannot be
completed subsequent to the Closing on a timely
basis, Buyer shall not be required to register shares
of Seller during any period during which Buyer is not
eligible to use Form S-3 by reason of the absence of
such audited financial statements. If such audited
financial statements are required to be filed by
Buyer with the SEC after Closing but are not
available from Seller, Shareholders of Seller shall
be required to make representations required by
Buyer's accountants in order for Buyer's accountants
to perform and complete the required audit. Moreover,
it is acknowledged and agreed that Buyer would be
ineligible to utilize Form S-3 if acquisition of
Seller's businesses is a material acquisition
reportable on Form 8K and Buyer does not include with
the Form 8K report the required audited financial
statements of the acquired businesses, and such event
shall not be a breach of any of Buyer's obligations
hereunder if it occurs because the required audited
financial statements of such businesses cannot be
obtained.
d. If in connection with the registration of any
securities of Buyer hereunder, the managing
underwriter advises the Buyer that the total number
of securities requested to be registered by the
current, or future holders of registration rights
exceeds the number of securities that can be sold in
an orderly manner within an acceptable price range,
then the Buyer's securities shall be included first,
second the securities of all other holders of
registration rights who received such registration
rights prior to the Closing Date, and third the
shares of Buyer's Common Stock issued hereunder prior
to the effective date of such registration statement.
e. The Registration Rights granted hereunder shall
terminate as to Ballenger or Batchelder if the
Employment Agreement of either is terminated by the
Buyer prior to the expiration of the term thereof for
Cause as defined therein, or if terminated by either
Ballenger or Batchelder due to their voluntary
resignation prior to the-expiration of the Term of
such Employment Agreements.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND QUALIFICATION. The Buyer is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Florida whose shares are publicly
traded on NASDAQ. Acquisition Corp. is a corporation duly
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organized, validly existing and in good standing under the
laws of the State of Florida.
4.2 CONFLICTING AGREEMENTS, BY-LAWS AND CHARTER PROVISIONS.
Neither the execution or delivery of this Agreement, or any
other document to be delivered pursuant to this Agreement, nor
the fulfillment or compliance with the terms and provisions of
this Agreement, will conflict with the terms, conditions or
provisions of the articles or by-laws of the Buyer or
Acquisition Corp., or any agreements or instrument to which
Buyer or Acquisition Corp. is subject or by which their
respective properties are bound.
4.3 AUTHORIZATION AND APPROVALS. The Boards of Directors of the
Buyer and Acquisition Corp. have approved the transactions
contemplated in this Agreement and have authorized the
execution and delivery of this Agreement. The sole shareholder
of Acquisition Corp. has approved this Agreement and the Plan
of Merger. No further approval or authorization will be
necessary nor will the approval of any third person, entity or
governmental agency be required for the Buyer or Acquisition
Corp. to consummate this Agreement, which approval has not
been obtained. This Agreement is a valid and binding agreement
of the Buyer and Acquisition Corp. in accordance with its
terms.
5. ADDITIONAL COVENANTS AND AGREEMENTS
Between the date hereof and the Closing date, except with written
consent of the Buyer:
5.1. CONDUCT OF BUSINESS. Each of the Companies shall conduct its
business only in the usual and ordinary course and (i) the
character of such business shall not be changed; (ii) there
shall be no material change in the amount of any of the assets
or liabilities as shown on the Financial Statements; (iii)
there shall be no change in the Articles of Incorporation or
Organization or Bylaws or Operating Agreement; (iv) there
shall be no change in the authorized or issued shares; (v)
there shall be no increase made in the compensation paid or
payable by either of the companies to any of its directors,
officers, employees; (vi) no assets shall be sold except in
the ordinary course and for good and sufficient consideration;
(vii) none of the Companies shall enter into any written or
oral contract except in the ordinary course of business (viii)
none of the Companies shall amend, terminate or change any
contract described in any Schedule hereof to which it is a
party except in the ordinary course; (ix) none of the
Companies shall sell any stock, bonds or other securities; (x)
none of the Companies shall incur any obligation or liability
(absolute or contingent) except in the ordinary course of
business or as described in the Schedules attached hereto;
(xi) none of the Companies shall discharge or satisfy any lien
or encumbrance or pay any obligation or liability absolute or
contingent other than current liabilities shown on the balance
sheets heretofore delivered and current liabilities incurred
since that date except; (xii) none of the Companies shall make
any payment or distribution to its shareholders or purchase or
redeem any of its capital stock; (xiii) none of the Companies
shall mortgage, pledge or subject to lien or encumbrance any
of its assets, tangible or
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intangible; (xiv) none of the Companies shall cancel any debts
or claims or waive any rights; (xv) none of the Companies
shall sell assign or transfer any patent or other intangible
asset; (xvi) none of the Companies shall adopt any profit
sharing, pension or bonus plan.
5.2. CONSENTS AND APPROVALS. The parties shall jointly seek to
obtain the consent of any required regulatory authorities for
the transaction described in the Plan of Merger. Seller
acknowledges that it is Seller's sole responsibility to secure
such consents at Seller's expense.
5.3. FURTHER ASSURANCES. From time to time, at and after the
Closing, at either party's request, without further
consideration and without otherwise affecting the indemnities
set forth in Section 9, the other party shall execute and
deliver at its expense such additional instruments and take
such other action (excluding the bringing of suit) as the
requesting party may reasonably require to further the
purposes and intents of this Agreement.
5.4. REPRESENTATIONS AND WARRANTIES UNAFFECTED BY BUYER'S DUE
DILIGENCE. It is further acknowledged that any inquiry or
investigation made by Buyer independent of this Agreement
shall not in any way affect or lessen the representations and
the warranties made by Seller in this Agreement or the
survival of such representations and warranties at the
Closing.
5.5. NASDAQ LISTING OF SHARES. Buyer agrees to list with the NASDAQ
national market system all of the shares of Buyer's Common
Stock issued pursuant to this Agreement.
6. CONDITIONS PRECEDENT TO THE PERFORMANCE OF BUYER AND ACQUISITION CORP.
The obligations of Buyer and Acquisition Corp. to consummate
the transactions described herein and to perform their respective
covenants under this Agreement are subject to the satisfaction, on or
before the Closing, of all the conditions set forth in this Section.
Buyer and Acquisition Corp. may waive any and all of these conditions
in whole or in part without prior notice.
6.1 PERFORMANCE BY SELLER. Seller and Shareholders of Seller shall
have performed, satisfied and, complied with all covenants,
agreements and conditions required by this Agreement to be
performed or complied with on or before the Closing. Each of
the representations and warranties made in this Agreement, and
the statements contained in any Schedule hereto or in any
instrument, list, certificate or writing delivered hereunder
shall be true and correct in all material respects, and
acceptable to Buyer in its sole discretion, at and as of the
Closing Date as though such representations and warranties
were made or given on and as of the Closing Date, except for
any changes permitted by the terms of this Agreement or
consented to in writing by Buyer.
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6.2 RESIGNATIONS, RELEASES AND CORPORATE RECORDS. Seller shall
deliver to Buyer:
a. Resignations of all officers and directors of Capital
Savings with such resignations to be effective
immediately following the consummation of the
Closing;
b. General releases by all officers, directors and
shareholders of Capital Savings of any liability of
Capital Savings to them or any claim which they may
have against Capital Savings or Buyer; and
c. The minute books, stock record books and corporate
seal of Capital Savings.
6.3 OPINION OF SELLER'S COUNSEL. Buyer and Acquisition Corp. shall
receive from counsel for Seller an opinion, dated the Closing
Date, in form and substance satisfactory to Buyer and
Acquisition Corp., and their counsel, to the following effect:
a. Each of the Companies is duly organized, valid and
existing in good standing under the laws of the State
of North Carolina, with full power and authority to
own and or lease their properties and conduct their
business as now being conducted.
b. The Companies' issued and outstanding stock is as set
forth herein; that all of the shares are duly and
validly issued, outstanding, fully paid and
non-assessable, and that the Seller is the owner of
record of the stock of Capital Savings. There are no
outstanding options, rights or convertible securities
of either of the Companies.
c. Seller has complete and unrestricted power to sell,
convey, assign, transfer and deliver the shares of
Capital Savings to Buyer; such transfer will pass to
Buyer good, valid and marketable title to such
shares, free and clear of all liens, pledges,
options, charges and adverse claims of every nature
whatsoever, and upon delivery of such shares to Buyer
pursuant to this Agreement, Buyer will have good,
valid and marketable title to all of the outstanding
shares of capital stock of Capital Savings, and such
shares will be free and clear of all liens,
encumbrances, charges or claims.
d. The execution, delivery and performance of this
Agreement by Seller and the Companies (i) has been
duly authorized by all necessary corporate action,
(ii) does not violate any provision of the law or the
articles of incorporation or by-laws of the
Companies, and (iii) to the best of such counsel's
knowledge, will not result in a breach in, or cause a
default under, any indenture, agreement or instrument
to which the Companies is a party or is bound.
e. This Agreement has been duly and validly executed and
delivered by Seller and the Companies and is binding
and valid on each of them in accordance with its
terms, except as such terms may be limited by
bankruptcy,
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insolvency, reorganization, moratorium and other laws
affecting the rights of creditors generally.
f. Except as set forth in this Agreement or in the
Schedules to this Agreement, such counsel does not
know of any suit, action, arbitration or legal,
administrative or other proceeding or governmental
investigation pending or threatened against or
affecting either of the Companies, their business or
properties.
g. The business of the Companies has been conducted in
accordance with all applicable federal and state
laws, rules and regulations.
h. Such counsel does not know of any action, suit,
proceeding or claim pending or threatened against
either of the Companies, their properties or
businesses, or the transactions contemplated by this
agreement, except as set forth herein.
i. No consent, approval or order of any governmental or
administrative board or body is required for the
execution and delivery by the Seller of this
Agreement and the exchange of the shares of capital
stock of the Companies with Buyer pursuant hereto.
j. In rendering the foregoing opinion, such counsel may,
when reasonable, state their opinion on specific
matters of fact to the best of their knowledge, and
to the extent they deem such reliance proper, they
may rely on certificates of public officials and
officers of the Companies and the Seller. Copies of
any such certificates shall be delivered to the Buyer
and its counsel.
6.4 ABSENCE OF LITIGATION. No action or other litigation
pertaining to the transaction contemplated by this Agreement
or to its consummation shall be instituted or threatened on or
before the Closing.
6.5 OTHER AGREEMENTS. All other agreements and covenants referred
to in this Agreement shall have been executed or satisfied by
Seller and the Companies. Seller represents and warrants that
all agreements listed in Schedule 6.5 have been terminated
prior to Closing.
6.6 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
financial condition or prospects of the Companies has occurred
other than changes in the mortgage banking industry generally.
7. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
The obligations of Seller to consummate the transactions
described herein and perform its covenants under this Agreement are
subject to the satisfaction, at or before the Closing, of all the
following conditions set forth below in this Section. Seller may waive
any or all of these conditions in whole or in part without prior
notice.
23
<PAGE>
7.1 PERFORMANCE BY BUYER AND ACQUISITION CORP. Buyer and
Acquisition Corp. shall have performed, satisfied and complied
with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by Buyer and
Acquisition Corp., respectively, on or before the Closing.
7.2 OPINION OF BUYER'S COUNSEL. Seller shall receive from counsel
for Buyer and Acquisition Corp., an opinion, dated the Closing
Date, in form and substance satisfactory to Seller and its
counsel, to the following effect:
a. The Buyer and Acquisition Corp. are each duly
organized, valid and existing in good standing under
the laws of the State of Florida, with full power and
authority to own and or lease their respective
properties and conduct their respective businesses as
now being conducted.
b. Buyer has complete and unrestricted power to sell,
convey, assign, transfer and deliver the shares of
Buyer to Seller required hereunder. The transfer of
Buyer's Common Stock to Seller on the Closing Date
will pass to Seller good, valid and marketable title
to such shares of Buyer, free and clear of all liens,
pledges, options, charges and adverse claims of every
nature whatsoever, and upon delivery of the shares of
Buyer to Seller on the Closing Date pursuant to this
Agreement, Seller will have good, valid and
marketable title to said shares.
c. The execution, delivery and performance of this
Agreement by Buyer and Acquisition Corp. (i) has been
duly authorized by all necessary corporate action on
the part of each corporation, (ii) does not violate
any provision of the law or the articles of
incorporation or by-laws of the Buyer or Acquisition
Corp., and (iii) to the best of such counsel's
knowledge, will not result in a breach in, or cause a
default under, any indenture, agreement or instrument
to which the Buyer or Acquisition Corp. is a party or
is bound.
d. This Agreement has been duly and validly executed and
delivered by Buyer and Acquisition Corp. and is
binding and valid in accordance with its terms,
except as such terms may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws
affecting the rights of creditors generally.
e. Except as set forth in this Agreement or in the
Schedules to this Agreement, such counsel does not
know of any suit, action, arbitration or legal,
administrative or other proceeding or governmental
investigation pending or threatened against or
affecting the Buyer or Acquisition Corp., or their
respective businesses or properties.
f. Such counsel does not know of any action, suit,
proceeding or claim pending or threatened against
either the Buyer or Acquisition Corp., their
respective properties or businesses, or the
transactions contemplated by this Agreement, except
as set forth herein.
24
<PAGE>
g. No consent, approval or order of any governmental or
administrative board or body is required for the
execution and delivery by the Buyer and Acquisition
Corp. of this Agreement and the merger of Acquisition
Corp. with and into Capital Savings.
h. In rendering the foregoing opinion, such counsel may,
when reasonable, state their opinion on specific
matters of fact to the best of their knowledge, and
to the extent they deem such reliance proper, they
may rely on certificates of public officials and
officers of the Buyer and Acquisition Corp. Copies of
any such certificates shall be delivered to the
Seller and its counsel.
8. DELIVERIES AT CLOSING
The following actions shall take place at the Closing, all of
which shall be deemed to be delivered simultaneously:
8.1 DOCUMENTS DELIVERED BY SELLER. On the Closing Date and at the
Closing, Seller shall deliver or cause to be delivered to
Buyer the following instruments:
a. The shares of capital stock of Capital Savings which
are the subject of this Agreement duly endorsed with
signature guaranteed by a banking institution or a
member firm of the New York Stock Exchange;
b. Such documents, bills of sale, assignments and
consents to assignments, or approvals as are
necessary to effectuate the transfer and assignment
of the assets and contracts of P1anMax, CSCMS and the
contracts of ACM to Buyer free and clear of all
liens, encumbrances or claims by third parties as
more particularly described in this Agreement.
c. The resignations and general releases, as applicable,
of all directors, officers and employees described in
Section 6.2(a).
d. A closing certificate setting forth the name of each
bank in which either of the Companies have an account
and the names of all persons authorized to draw
thereon or who have access thereto.
e. The minute books, stock record books, corporate seals
and other corporate instruments of Capital Savings as
described in Section 6.2(c).
f. The opinion of counsel referred to in Section 6.3.
g. The Plan of Merger executed by Capital Savings.
h. Articles of Merger executed by Capital Savings that
are in form and substance suitable for filing with
the States of Florida and North Carolina.
i. Execution of appropriate financing statements to
perfect the security interest granted pursuant to
Section 1.5(a).
25
<PAGE>
8.2 DOCUMENTS DELIVERED BY BUYER. Buyer shall deliver to Seller the
following:
a. The Shares of Common Stock of Buyer as provided by the Plan of
Merger.
b. The opinion of Buyer's counsel referred to in Section 7.2.
c. The Plan of Merger executed by Acquisition Corp. and Buyer.
d. Articles of Merger executed by Acquisition Corp. that are in
form and substance suitable for filing with the States of
Florida and North Carolina.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, AND INDEMNIFICATION
All statements contained in any schedule, document, certificate or
other instrument delivered by or on behalf of any party to this Agreement, or in
connection with the transactions contemplated by this Agreement, shall also be
deemed to be representations and warranties made pursuant to this Agreement,
only limited as specifically provided by the terms hereof. All representations
and warranties shall survive for a period of five (5) years from the Closing
when they shall terminate, unless notice in writing of breach thereof was given
prior to termination, except that representation and warranties for income taxes
set forth in Section 2.18 shall survive until extinguished by the appropriate
statute of limitations period for the tax returns for which such warranties
relate.
9.1 INDEMNIFICATION BY SELLER AND RIGHT OF SET OFF. Seller and
Shareholders of Seller, jointly and severally agree to
indemnify, defend and hold Capital Savings, and Buyer (each an
"Indemnitee") harmless from and against any and all claims,
demands, losses, expenses, costs, obligations, damages,
liabilities, including interest, penalties and reasonable
attorneys fees, (including appellate fees and costs), which
they, or any of them, may incur, suffer or sustain, which
arise, result from or relate to any breach of or failure by
Seller or Shareholders of Seller to perform any of their
representations, warranties, covenants or agreements under
this Agreement or in any Schedule to this Agreement, including
(i) the operation of the Companies' business prior to the
Closing, or (ii) the Companies' federal, state and local
income taxes involving any period of time whatsoever prior to
the Closing, which were not (a) listed or described on the
Schedules and were required to be so listed or described
pursuant to the terms of this Agreement. Buyer shall have the
right to set off as follows: if Buyer pays any amount required
to be paid hereunder, Buyer shall have the right to reduce the
Earnout by the amount paid.
9.2 INDEMNITEE'S PROCEDURE. An Indemnitee shall promptly and
timely notify Seller in writing of the existence of any claim,
liability, suit, demand or other matter to which such
Indemnitee claims indemnification under Section 9.1, including
in such notice reasonable specificity as to the nature and
amount of Indemnitee's claim under such indemnification, and
shall give Seller or Shareholders of Seller,
26
<PAGE>
as the case may be, a reasonable opportunity to defend
(including the right to compromise, adjust or settle) the same
at its own expense, with counsel of its own expense, with
counsel of its own selection, in the name of the Companies or
otherwise, as Seller or Shareholders of Seller elect; provided
the Indemnitee, at all times, has the right to participate
fully in the defense at the Indemnitee's own expense. If,
within thirty (30) days or such lesser period of time after
written notice as is specified in such notice and is
reasonable under the circumstances, Seller or Shareholders of
Seller, as the case may be, fail to defend, an Indemnitee has
the right, but not the obligation to undertake the defense of,
and compromise or settle, the claim or other matters on behalf
and for the account and at the risk of Seller or Shareholders
of Seller, if Seller or Shareholders of Seller would have
responsibility to indemnify under this Section. If the claim
is one that cannot by its nature be defended solely by Seller
or Shareholders of Seller without the assistance ofthe
Indemnitee, the Indemnitee shall make available all
information and assistance (at Seller's or Shareholders of
Seller's expense) that Seller or Shareholders of Seller may
reasonably request.
9.3 INDEMNIFICATION BY BUYER. Except as otherwise expressly
provided for in this Agreement and subject to the requirements
of subsection 9.4 and the other conditions and limitations
expressly set forth in this Section 9, Buyer agrees to
indemnify, defend and hold harmless the Seller from and
against any and all claims, demands, losses, expenses, costs,
obligations, damages, liabilities, including interest,
penalties and reasonable attorneys fees, (including appellate
fees and costs), which they, or any of them, may incur, suffer
or sustain, which arise, result from or relate to any breach
of or failure by Buyer to perform any of its representations,
warranties, covenants or agreements under this Agreement or in
any Schedule to this Agreement.
9.4 SELLER PROCEDURE. Seller shall promptly and timely notify
Buyer in writing of the existence of any claim, liability,
suit, demand or other matter to which Seller claims
indemnification under Section 9.3, , including in such notice
reasonable specificity as to the nature and amount of Seller's
claim under Buyer's indemnification, and shall give Buyer a
reasonable opportunity to defend (including the right to
compromise, adjust or settle) the same at its own expense. If,
within thirty (30) days or such lesser period of time after
written notice as is specified in such notice and is
reasonable under the circumstances, Buyer fails to defend,
Seller has the right, but not the obligation to undertake the
defense of, and compromise. or settle, the claim or other
matters on behalf and for the account and at the risk of
Buyer, if Buyer would have responsibility to indemnify under
this Section. If the claim is one that cannot by its nature be
defended solely by Buyer without the assistance of Seller,
Seller shall make available all information and assistance (at
Buyer's expense) that Seller may reasonably request.
10. MISCELLANEOUS
10.1 NO BROKER. Each of the parties represents and warrants that it
has dealt with no broker or finder in connection with any of
the transactions contemplated by this
27
<PAGE>
Agreement, and, insofar as it knows, no broker or other person
is entitled to any commission or finders' fee in connection
with any of these transactions.
10.2 EACH PARTY PAYS OWN COSTS. Each of the parties shall pay costs
and expenses incurred or to be incurred by it in negotiating
and preparing this Agreement and in closing and carrying out
the transactions contemplated by this Agreement.
10.3 HEADINGS. The subject headings of the paragraphs and
subparagraphs of this Agreement are included for the purposes
of convenience only and shall not affect the construction or
interpretation of any of its provisions.
10.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous
agreements, representations and understandings of the parties.
No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by all of the
parties. No waiver of any of provisions of this Agreement
shall be deemed or shall continue a waiver of any other
provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
10.5 COUNTERPARTS. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
10.6 CHOICE OF LAW, INTERPRETATION, VENUE, AND ATTORNEY'S FEES. The
interpretation of this agreement shall be governed by the law
of the state of Florida, and venue for any action brought to
enforce or interpret any of the provisions hereof shall be
exclusively in Broward County, Florida and the prevailing
party in any such action shall be entitled to an award of
attorney's fees and court costs.
10.7 SUCCESSORS. This Agreement will be binding upon and will inure
to the benefit of the parties and their respective legal
representatives, heirs, successors and assigns, except as
otherwise expressly otherwise provided herein.
10.8 ASSIGNMENT. Neither Seller or Shareholders of Seller may
assign any of their rights or obligations hereunder to any
other person without the prior written consent of the -Buyer
which may be withheld without regard to reason.
10.9 SEVERABILITY. If any provision of this Agreement, or the
application of a provision to any person or circumstance, is
held invalid, the remainder of this Agreement, or the
application of such provision to persons or circumstances
other than those to which it is held invalid, will not be
affected thereby.
10.10 PUBLICITY. Without the prior written consent of Buyer, Seller,
Shareholders of Seller, P1anMax, CSCMS and ACM/USA agree not
to disclose the existence of
28
<PAGE>
this Agreement to any third party, except for attorneys,
accountants and other representatives employed by such Parties
in connection with this Agreement.
10.11 NO THIRD PARTY RIGHTS. The provisions of this Agreement are
for the exclusive benefit of the parties hereto and no other
party, including without limitation, any creditor of any
party, will have any right or claim by reason of this
Agreement or be entitled to enforce any provision of the
Agreement against any party.
10.12 FREE ACCESS. Between the date of execution hereof and the
Closing Date, Buyers representatives shall be given full
access to the books of account, minute books and reports of
the Companies.
10.13 NOTICES. All notices or other communications to a party
required or permitted by this Agreement will be in writing and
will be hand delivered by messenger or courier services,
tele-communicated, or mailed by registered or certified mail
(postage prepaid) return receipt requested, the party at the
address set forth below. Notices will be effective upon
receipt if delivered by hand or telecommunication, or on the
second day after mailing provided however that if delivery of
a notice is refused, the date of delivery will be the date on
which delivery is refused. Notices will be sent to the
following:
If to Buyer: Mr. Seth Werner, CEO
8751 Broward Boulevard, Fifth Floor
Plantation, Florida 33324
Telephone: 954 452 0000
Facsimile: 954 472 0800
With a copy to: Michael Brenner
General Counsel
8751 Broward Boulevard
Plantation, Florida 33324
Telephone: 954 452 0000
Facsimile: 954 472 0800
If to Seller: Todd Ballenger
2507 Falls Drive
Chapel Hill, North Carolina 27514
Telephone:
Facsimile:
With a copy to: Michael S. Colo, Esq.
Attorney at Law
Poyner & Spruill
130 South Franklin Street
Rocky Mount, North Carolina 27804
Telephone: 252 972 7105
29
<PAGE>
Facsimile: 252 972 7045
IN WITNESS WHEREOF, the parties hereto caused their duly authorized
officers to execute this agreement as of the date set forth above.
Mortgage.com, inc.
By: /s/ JOHN HOGAN
--------------------------------
Name: John Hogan
Title: Executive Vice President
MDCM Acquisition Corp.
By: /s/ JOHN HOGAN
--------------------------------
Name: John Hogan
Title: Executive Vice President
CSC Holdings, LLC
By: /s/ TODD BALLENGER
--------------------------------
Name:
Title:
Capital Savings Company Inc.
By: /s/ TODD BALLENGER
--------------------------------
Name:
Title:
PlanMax, Inc.
By: /s/ TODD BALLENGER
--------------------------------
Name:
Title:
CSC Management Services, LLC.
By: /s/ TODD BALLENGER
--------------------------------
Name:
Title:
30
<PAGE>
ACM/USA, Inc.
By: /s/ TODD BALLENGER
--------------------------------
Name:
Title:
SHAREHOLDERS OF SELLER:
By: /s/ TODD BALLENGER
--------------------------------
Name: Todd Ballenger
By: /s/ BO BATCHELDER
--------------------------------
Name: Bo Batchelder
31
EXHIBIT 10.23
-----------------------------------------------------------
-----------------------------------------------------------
SECOND AMENDED AND RESTATED
WAREHOUSING CREDIT AND SECURITY AGREEMENT
(SYNDICATED AGREEMENT)
BETWEEN
MORTGAGE.COM, INC.,
f/k/a First Mortgage Network, Inc.
a Florida corporation
AND
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
AND
CERTAIN OTHER LENDERS THERETO
---------------------------------------------
Dated as of November 12, 1999
-----------------------------------------------------------
-----------------------------------------------------------
<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 CREDIT LIMIT ................................................13
2.2 SWINGLINE FACILITY AMOUNT ..................................14
2.3 PROCEDURES FOR OBTAINING ADVANCES ...........................15
2.5 NOTES.......................................................18
2.6 INTEREST PAYMENTS............................................18
.
2.7 PRINCIPAL PAYMENTS...........................................19
2.8 FEES.........................................................23
2.9 WAREHOUSING FEES.............................................24
2.10 MISCELLANEOUS CHARGES ......................................24
2.11 INTEREST LIMITATION .........................................24
2.12 INCREASED COSTS; CAPITAL REQUIREMENTS .......................25
2.13 BILLING AND PAYMENT .........................................26
2.14 EXPIRATION OF COMMITMENTS ..................................27
3 . COLLATERAL...........................................................27
3.1 APPOINTMENT OF COLLATERAL AGENT .............................27
3.2 DELIVERY OF COLLATERAL ......................................27
3.3 GRANT OF SECURITY INTEREST ..................................27
3.4 RELEASE OF SECURITY INTEREST IN COLLATERAL ..................29
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<PAGE>
3.5 DELIVERY OF ADDITIONAL COLLATERAL OR MANDATORY PREPAYMENT....31
3.6 RELEASE OF COLLATERAL........................................31
3.7 COLLECTION AND SERVICING RIGHTS..............................32
3.8 RETURN OF COLLATERAL AT MATURITY ............................32
4. CONDITIONS PRECEDENT.................................................33
4.1 INITIAL ADVANCE..............................................33
4.2 EACH ADVANCE.................................................35
5 . REPRESENTATIONS......................................................36
5.1 ORGANIZATION; GOOD STANDING; SUBSIDIARIES....................36
5.2 AUTHORIZATION AND ENFORCEABILITY.............................37
5.3 APPROVALS....................................................37
5.4 FINANCIAL CONDITION..........................................37
5.5 LITIGATION...................................................38
5.6 COMPLIANCE WITH LAWS.........................................38
5.7 REGULATION U ................................................38
5.8 INVESTMENT COMPANY ACT.......................................38
5.9 PAYMENT OF TAXES.............................................39
5.10 AGREEMENTS...................................................39
5.11 TITLE TO PROPERTIES..........................................39
5.12 ERISA........................................................40
5.13 ELIGIBILITY..................................................40
5.14 PLACE OF BUSINESS............................................41
5.15 SPECIAL REPRESENTATIONS CONCERNING COLLATERAL................41
5.16 SERVICING....................................................43
ii
<PAGE>
5.17 NO ADVERSE SELECTION.........................................43
5.18 YEAR 2000 COMPLIANCE.........................................43
5.19 ASSUMED NAMES................................................43
6. AFFIRMATIVE COVENANTS................................................44
6.1 PAYMENT OF NOTES ............................................44
6.2 FINANCIAL STATEMENTS AND OTHER REPORTS.......................44
6.3 MAINTENANCE OF EXISTENCE: CONDUCT OF BUSINESS................46
6.4 COMPLIANCE WITH APPLICABLE LAWS..............................46
6.5 INSPECTION OF PROPERTIES AND BOOKS...........................46
6.6 NOTICE.......................................................47
6.7 PAYMENT OF DEBT, TAXES, ETC .................................47
6.8 INSURANCE....................................................48
6.9 CLOSING INSTRUCTIONS.........................................48
6.10 SUBORDINATION OF CERTAIN INDEBTEDNESS........................48
6.11 OTHER LOAN OBLIGATIONS.......................................49
6.12 USE OF PROCEEDS OF ADVANCES..................................49
6.13 SPECIAL AFFIRMATIVE COVENANTS CONCERNING COLLATERAL..........49
6.14 TRANSFER OF FHA INSURANCE ON TITLE I MORTGAGE LOANS..........50
7. NEGATIVE COVENANTS...................................................51
7.1 CONTINGENT LIABILITIES.......................................51
7.2 SALE OR PLEDGE OF SERVICING CONTRACTS........................51
7.3 MERGER; SALE OF ASSETS; ACQUISITIONS.........................51
7.4 DEFERRAL OF SUBORDINATED DEBT................................51
7.5 LOSS OF ELIGIBILITY..........................................51
iii
<PAGE>
7.6 DEBT TO TANGIBLE NET WORTH RATIO ............................51
7.7 MINIMUM TANGIBLE NET WORTH .................................52
7.8 MINIMUM CURRENT RATIO ......................................52
7.9 LOSS LIMITATION ............................................52
7.10 DIVIDENDS ..................................................52
7.11 ACQUISITION OF RECOURSE SERVICING CONTRACTS ................52
7.12 GESTATION FACILITIES .......................................52
7.13 TRANSACTIONS WITH AFFILIATES ...............................52
7.14 SPECIAL NEGATIVE COVENANTS CONCERNING COLLATERAL.............53
8. DEFAULTS; REMEDIES ..................................................53
8.1 EVENTS OF DEFAULT ..........................................53
8.2 REMEDIES ...................................................57
8.3 APPLICATION OF PROCEEDS ....................................61
8.4 CREDIT AGENT APPOINTED ATTORNEY-IN-FACT ....................62
8.5 RIGHT OF SETOFF ............................................62
8.6 SHARING OF PAYMENTS .........................................63
9. THE CREDIT AGENT ....................................................63
9.1 APPOINTMENT ................................................63
9.2 DUTIES OF CREDIT AGENT .....................................64
9.3 STANDARD OF CARE ...........................................64
9.4 DELEGATION OF DUTIES .......................................64
9.5 EXCULPATORY PROVISIONS .....................................65
9.6 RELIANCE BY CREDIT AGENT ...................................65
9.7 NON-RELIANCE ON CREDIT AGENT OR OTHER LENDERS ..............66
9.8 CREDIT AGENT IN INDIVIDUAL CAPACITY ........................66
iv
<PAGE>
9.9 SUCCESSOR CREDIT AGENT .....................................67
10. NOTICES .............................................................67
11. REIMBURSEMENT OF EXPENSES; INDEMNITY ................................68
11.1 REIMBURSEMENT OF EXPENSES AND INDEMNIFICATION BY THE COMPANY..68
11.2 INDEMNIFICATION BY THE LENDERS ..............................69
12. FINANCIAL INFORMATION ...............................................69
13. MISCELLANEOUS .......................................................69
13.1 TERMS BINDING UPON SUCCESSORS; SURVIVAL OF REPRESENTATIONS ...69
13.2 LENDERS IN INDIVIDUAL CAPACITY ..............................70
13.3 PARTICIPATION AND ASSIGNMENTS ...............................70
13.4 COMMITMENT INCREASES ........................................71
13.5 AMENDMENTS ...................................................71
13.6 OPERATIONAL REVIEWS .........................................72
13.7 GOVERNING LAW ...............................................73
13.8 RELATIONSHIP OF THE PARTIES .................................73
13.9 SEVERABILITY ................................................73
13.10 COUNTERPARTS ................................................73
13.11 CONSENT TO CREDIT REFERENCES ................................74
13.12 CONSENT TO JURISDICTION .....................................74
13.13 COUNTERPARTS .................................................74
13.14 ENTIRE AGREEMENT .............................................74
13.15 WAIVER OF JURY TRIAL .........................................74
v
<PAGE>
EXHIBITS
Exhibit A-1 Warehousing Promissory Note
Exhibit A-2 Swingline Promissory Note
Exhibit B Commitment Amounts
Exhibit C-SF Request for Advance Against Single
Family Mortgage Loans
Exhibit D-SF Procedures and Documentation for
Warehousing Single-Family Mortgage
Loans
Exhibit E Schedule of Servicing Contracts
Exhibit F Subordination of Debt Agreement
Exhibit G Subsidiaries
Exhibit H Legal Opinion
Exhibit I-SF Officer's Certificate
Exhibit J Schedule of Existing Warehouse Lines
Exhibit K-1 Funding Bank Agreement (Wire)
Exhibit K-2 Funding Bank Agreement (Checks)
Exhibit L Collateral Agency Agreement
Exhibit M Terms Applicable to Advances
Against Eligible Loans
Exhibit N Advance Certificate
Exhibit 0 Commitment Summary Report
Exhibit P RFConnects Pledge Agreement
Exhibit Q Assumed Names
vi
<PAGE>
THIS SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AND SECURITY
AGREEMENT, dated as of November 12, 1999, by and among MORTGAGE.COM, INC., a
Florida corporation, f/k/a First Mortgage Network, Inc. (the "Company"), having
its principal office at 8751 Broward Boulevard, Plantation, FL 33324,
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation ("RFC"), and BANK
UNITED, a federal savings bank ("Bank United") (RFC, Bank United and any
Additional Lender as may from time to time become parties hereto being referred
to individually as a "Lender" and collectively as the "Lenders"), and RFC as
credit agent for the Lenders (in such capacity, the "Credit Agent").
WHEREAS, the Company and RFC have entered into a First Amended and
Restated Warehousing Credit and Security Agreement dated June 8, 1998, as
amended by the First Amendment to Warehousing Credit and Security Agreement
dated as of June 30, 1998, the Second Amendment to First Amended and Restated
Warehousing Credit and Security Agreement dated as of July 31, 1998, the Third
Amendment to First Amended and Restated Warehousing Credit and Security
Agreement dated as of December 29, 1998, and the Fourth Amendment to First
Amended and Restated Warehousing Credit and Security Agreement dated as of March
26, 1999 (as so amended, the "Prior RFC Credit Agreement"); and
WHEREAS, the Company and the Lenders desire to amend and restate the
Prior RFC Credit Agreement to add Bank United as a party thereto and set forth
the terms and conditions upon which the Lenders 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:
"ADDITIONAL LENDER" means a Person admitted as a Lender under
the Agreement by the terms of an amendment hereto.
"ADVANCE" means a disbursement by the Lenders pursuant to
Section 2.1 of this Agreement.
"ADVANCE CERTIFICATE" has the meaning set forth in Section 2.2
hereof.
"ADVANCE REQUEST" has the meaning set forth in Section 2.3(a)
hereof.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.
1
<PAGE>
"AGENCY SECURITY" means a Mortgage-backed Security issued or
guarantied by Fannie Mae, Freddie Mac or Ginnie Mae.
"AGREEMENT" means this Second Amended and Restated Warehousing
Credit and Security Agreement, 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 Credit Agent 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.
"BUSINESS DAY" means any day excluding Saturday or Sunday and
excluding any day on which national banking associations are closed for
business.
"CALENDAR QUARTER" means the 3-month period beginning on any
January 1, April 1, July 1, or October 1.
"CASH COLLATERAL ACCOUNT" means a demand deposit account
maintained at the Funding Bank in the name of the Credit Agent for the
benefit of the Lenders, 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 Credit Agent for the clearing of checks written by the
Company to fund the closing of Pledged Mortgage Loans.
"CLOSING DATE" means November __, 1999.
"COLLATERAL" has the meaning set forth in Section 3.3 hereof.
"COLLATERAL AGENCY AGREEMENT" means the agreement dated as of
the date hereof between the Company, the Credit Agent, and the
Collateral Agent substantially in the form of EXHIBIT L hereto, as the
same may be amended or modified from time to time.
"COLLATERAL AGENT" means RFC, in its capacity as collateral
agent for the Credit Agent under the Collateral Agency Agreement.
"COLLATERAL DOCUMENTS" means, with respect to each Mortgage
Loan: (a) the Mortgage Note, the Mortgage, and all other documents
executed in connection with or otherwise relating to the Mortgage Loan,
(b) as applicable, the original lender's ALTA
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Policy of Title Insurance or its equivalent, documents evidencing the
FHA Commitment to Insure or the VA Guaranty, the appraisal, Private
Mortgage Insurance, the Regulation Z Statement, certificates of
casualty or hazard insurance, credit information on the maker(s) of the
Mortgage Note, the HUD-1 or corresponding purchase advice, and (c) any
other documents that are customarily desired for inspection or transfer
incidental to the purchase of any Mortgage Note by an Investor or which
are customarily executed by the seller of a Mortgage Note to an
Investor.
"COLLATERAL VALUE" means (a) with respect to any Eligible Loan
as of the date of determination, the lesser of (i) the amount of any
Advance made against such Eligible Loan under Section 2.1(c) hereof or
(ii) the Fair Market Value of such Eligible Loan; or (b) in the event
Pledged Mortgages have been exchanged for Agency Securities, the lesser
of (i) the amount of any Advances outstanding against the Eligible
Loans backing such Agency Securities or (ii) the Fair Market Value of
such Pledged Securities; and (c) with respect to cash, the amount of
such cash.
"COMMITMENT FEE" means a fee payable by the Company in
consideration of each Lenders' issuance of its Maximum Commitment. The
amount of the Commitment Fee, if any, is set forth in Section 2.8(a)
hereof.
"COMMITMENT SUMMARY REPORT" has the meaning set forth in
Section 6. 2 (d).
"COMMITTED PURCHASE PRICE" means for an Eligible 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 Eligible Loan, or (b) in the event such Mortgage Loan is to be
used to back an Agency Security, the price (expressed as a percentage),
as set forth in a Purchase Commitment for such Agency Security.
"COMPANY" has the meaning set forth in the first paragraph of
this Agreement.
"CREDIT AGENT" means RFC, in its capacity as credit agent for
the Lenders hereunder, and any successor pursuant to Section 9.9
hereof.
"CREDIT LIMIT" means at any date the sum of the Maximum
Commitments of the Lenders at such date, with the initial Credit Limit
being $90,000,000.
"CREDIT SCORE" means a mortgagor's overall consumer credit
rating, represented by a single numeric credit score calculated
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using the Fair, Isaac consumer credit scoring system, as provided by a
credit repository acceptable to the Credit Agent and the Investor that
issued the Purchase Commitment covering the related Mortgage Loan.
"CURRENT RATIO" means the ratio of the current assets of the
Company (and its Subsidiaries, on a consolidated basis) to the current
liabilities of the Company (and its Subsidiaries, on a consolidated
basis), each determined in accordance with GAAP; provided, however,
current assets shall not include assets that were originated or
acquired by the Company more than one year prior to the date of
calculation of the current ratio.
"DEBT" means, with respect to any Person at any date, the sum
of (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, (b) all indebtedness or other obligations of such
Person for borrowed money or for the deferred purchase price of
property or services, and (c) to the extent not reflected on its
financial statements, all amounts financed by such Person for the sale
of Mortgage Loans, participation interests, and other assets under a
repurchase agreement, participation agreement, Gestation Agreement, or
other temporary financing arrangement; 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.
"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 2.6(e)
hereof.
"DEPOSITORY BENEFIT" shall mean the compensation received by a
Lender, directly or indirectly, as a result of the Company's
maintenance of Eligible Balances with such Lender as its Designated
Bank.
"DESIGNATED BANK" means any bank(s) designated from time to
time by a Lender as a Designated Bank, but only for as long as the
Lender has an agreement under which such Lender can receive a
Depository Benefit.
"ELECTRONIC ADVANCE REQUEST" means an electronic transmission
through RFConnects Delivery containing the same
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information as EXHIBIT C-SF to this Agreement, together with the
RFConnects Pledge Agreement, duly executed by the Company, and a list
of the Mortgage Loans (including mortgagor's name, loan number and loan
amount) to be funded with the Advance sent to the Lender by facsimile.
"ELIGIBLE BALANCES" means all funds of or maintained by the
Company and its Subsidiaries in accounts at a Lender or Designated
Bank, less balances to support float, reserve requirements, and such
other reductions as may be imposed by governmental authorities from
time to time.
"ELIGIBLE LOAN" means a Single Family Mortgage Loan secured by
a Mortgage on real property located in one of the states of the United
States or the District of Columbia that is designated as such on
EXHIBIT M attached hereto and made a part hereof.
"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 Collateral Agent.
"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 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 Eligible
Loan or Agency Security, determined by the Credit Agent based on market
data for similar Mortgage Loans or Agency Securities and such other
criteria as the Lender deems appropriate.
"FANNIE MAE" means Fannie Mae, a corporation created under the
laws of the United States, and any successor thereto.
"FHA" means the Federal Housing Administration and any
successor thereto.
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"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.
"FREDDIE MAC" means Freddie Mac, a corporation created under
the laws of the United States, and any successor thereto.
"FUNDING BANK" means Bank One, NA or any other bank designated
from time to time by the Credit Agent.
"FUNDING BANK AGREEMENT" means the letter agreement
substantially in the form of EXHIBIT K-1 hereto, or the letter
agreement substantially in the form of EXHIBIT 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 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 an Agency Security backed by such Mortgage Pool is issued.
"GINNIE MAE" means the Government National Mortgage
Association, an agency of the United States government, 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.
"HUD" means the Department of Housing and Urban Development
and any successor thereto.
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"HUD 203(K) MORTGAGE LOAN" means an FHA insured closed-end
First Mortgage Loan secured by a First Mortgage, of which a portion
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 Section
11.1 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 Fannie Mae, Freddie Mac or a financially
responsible private institution which is deemed acceptable by the
Credit Agent from time to time in its sole discretion with respect to a
particular category of Pledged Mortgages.
"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) month periods of certain
U.S. banks 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
Bloomberg L.P. LIBOR shall be rounded, if necessary, to the next higher
one sixteenth of 1/160. 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 Notes, the
Collateral Agency Agreement, 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.
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"MAJORITY LENDERS" means at any date, one or more Lenders
whose aggregate Percentage Shares are at least 66.67%. Notwithstanding
the foregoing, if there are only 2 Lenders the term "Majority Lenders"
shall, except for purposes of Section 8.2(c), include both of the
Lenders.
"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
Regulation 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 August 31, 2000, as such date may be extended from time to
time in writing by all the Lenders, in their sole discretion, on which
date the Maximum Commitments shall expire of their own terms, and
without the necessity of action by the Lenders, and (b) the date the
Advances become due and payable pursuant to Section 8.1 below.
"MAXIMUM COMMITMENT" means, for any Lender at any date, that
dollar amount designated as such opposite such Lender's name on EXHIBIT
B hereto, as the same may be amended from time to time in accordance
with this Agreement.
"MISCELLANEOUS CHARGES" 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 applicable real property law).
"MORTGAGE-BACKED SECURITIES" means securities that are secured
or otherwise backed by Mortgage Loans.
"MORTGAGE LOAN" means any loan evidenced by a Mortgage Note
and secured by a Mortgage.
"MORTGAGE NOTE" means a promissory note secured by a Mortgage.
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"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.
"NASDAQ" means National Association of Securities Dealers
Automated Quotation system.
"NOTES" has the meaning set forth in Section 2.5 hereof.
"NOTICES" has the meaning set forth in Article 10 hereof.
"OBLIGATIONS" means any and all indebtedness, obligations and
liabilities of the Company to the Lenders, the Credit Agent and the
Collateral Agent (whether now existing or hereafter arising, voluntary
or involuntary, whether or not jointly owned 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 acceptable to the Credit Agent 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 Eligible Loan not funded by an Advance
made against such Eligible Loan and for returning any excess payment
from an Investor for a Pledged Mortgage or Pledged Security.
"PARTICIPANT" has the meaning set forth in Section 13.3
hereof.
"PERCENTAGE SHARE" means, for any Lender at any date, that
percentage which such Lender's Maximum Commitment bears to the Credit
Limit.
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"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
3.3(a) hereof.
"PLEDGED SECURITIES" has the meaning set forth in Section 3 .
3(b) hereof.
"PRIOR RFC CREDIT AGREEMENT" has the meaning set forth in the
recitals hereto.
"PURCHASE COMMITMENT" means a written commitment, in form and
substance satisfactory to the Credit Agent, issued in favor of the
Company by an Investor pursuant to which that Investor commits to
purchase Mortgage Loans or Mortgage-backed Securities.
"RELEASE AMOUNT" has the meaning set forth in Section 3.4(g)
hereof.
"RFC" means Residential Funding Corporation, a Delaware
corporation, and any successor thereto.
"RFCONNECTS DELIVERY" means the Lender's proprietary service
to support the electronic exchange of information between the Lender
and the Company, including, but not limited to, Advance Requests,
shipping requests, payoff requests, activity reports and exception
reports.
"RFCONNECTS PLEDGE AGREEMENT" means a pledge agreement in the
form of Exhibit P to the Agreement.
"SECOND MORTGAGE" means a Mortgage which constitutes a second
Lien on the property covered thereby.
"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.
"SECURED PARTIES" has the meaning set forth in Section 3.1
hereof.
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"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 serviced by such Person under
Servicing Contracts.
"SINGLE FAMILY MORTGAGE LOAN" means a Mortgage Loan secured by
a Mortgage covering improved real property containing one to four
family residences.
"STATEMENT DATE" means the date of the most recent financial
statements of the Company (and, if applicable, its Subsidiaries, on a
consolidated basis) delivered to the Lenders under the terms of this
Agreement.
"SUBLIMIT" means the aggregate amount of Advances (expressed
as a dollar amount or as a percentage of the Commitment Amount) that is
permitted to be outstanding at any one time against a specific type of
Eligible Loan.
"SUBORDINATED DEBT" means (a) all indebtedness of the Company
for borrowed money which is effectively subordinated in right of
payment to all other present and future Obligations either (i) pursuant
to a Subordination of Debt Agreement in the form of EXHIBIT F hereto or
(ii) otherwise on terms acceptable to the Credit Agent, and (b) 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.
"SUBSIDIARY" means any corporation, association or other
business entity in which more than 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.
"SWINGLINE ADVANCE" means an Advance made by the Swingline
Lender under Section 2.2 hereof.
"SWINGLINE FACILITY AMOUNT" means the maximum amount of
Swingline Advances to be made by the Swingline Lender from time to
time, but not to exceed the then undisbursed portion of the aggregate
Maximum Commitment of all the Lenders.
"SWINGLINE LENDER" means RFC.
"SWINGLINE NOTE" has the meaning set forth in Section 2.5
hereof.
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"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 6.2 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
Majority Lenders in their sole discretion.
"TITLE I MORTGAGE LOAN" means an FHA co-insured closed-end
First Mortgage Loan or Second Mortgage Loan 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
the Credit Agent and pursuant to which the Collateral Agent may deliver
any document relating to the Collateral to the Company for correction
or completion.
"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.
"WAREHOUSE PERIOD" means, for any Eligible Loan, the maximum
number of days an Advance against that type of Eligible Loan is
permitted to remain outstanding as set forth on EXHIBIT M attached to
this Agreement.
"WAREHOUSING PROMISSORY NOTE" means the promissory note
evidencing the Company's Obligations with respect to Advances made
against Eligible Loans, in the form of EXHIBIT A-1 attached hereto.
"WET SETTLEMENT ADVANCE" means an Advance pursuant to Section
2.3(b) of this Agreement, in respect of the closing or
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settlement of a Mortgage Loan, for which the Collateral Documents have
not yet been delivered to the Collateral Agent; however, the term "Wet
Settlement Advance" shall no longer apply to the Advance once the
Lender has received all of the Collateral Documents as provided in
Section 2.2 (b) and the applicable Exhibit referenced therein.
"WIRE DISBURSEMENT ACCOUNT" means a demand deposit account
maintained at the Funding Bank in the name of the Credit Agent for the
clearing of wire transfers requested by the Company to fund the closing
of Pledged Mortgages.
"YEAR 2000 PROBLEM" means the risk that computer applications
may not be able to properly perform date-sensitive functions after
December 31, 1999.
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 CREDIT LIMIT.
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 Lenders agree, severally, and not jointly, from time to
time during the period from the Closing Date, but not including, the
Maturity Date, to make Advances to the Company, pro rata in accordance
with their respective Percentage Shares, provided the total aggregate
principal amount outstanding at any one time of all such Advances shall
not exceed the Credit Limit. Within the Credit Limit, 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 Notes and for the performance of all the Obligations.
On the date of this Agreement, the Company shall be deemed to have
requested Advances in an amount sufficient to repay in full the
outstanding principal amount of the loans outstanding under the Prior
RFC Credit Agreement.
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2.1(b) Advances shall be used by the Company solely for the
purpose of funding the acquisition or origination of Eligible Loans and
shall be made at the request of the Company, in the manner hereinafter
provided in Section 2.3 hereof, against the pledge of such Eligible
Loans as Collateral therefor. The limitations on the use of Advances
set forth on EXHIBIT M attached hereto and made a part hereof shall be
applicable. In addition, the following limitations on the use of
Advances shall be applicable:
(1) No Advance shall be made against any Mortgage
Loan which was closed more than 60 days prior to the date of
the requested Advance.
(2) 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.
2.1(c) No Advance shall exceed the following amount applicable
to the type of Eligible Loan at the time it is pledged to secure an
Advance hereunder:
(1) For an Eligible Loan pledged hereunder, the
amount set forth on EXHIBIT M attached hereto and made a part
hereof.
2.2 SWINGLINE FACILITY AMOUNT. On the terms and subject to the
conditions set forth herein, the Swingline Lender agrees that from time
to time up to, but not including, the Maturity Date, it may agree to
make Advances requested by the Company in amounts not to exceed the
Swingline Facility Amount. Such Swingline Advances shall be evidenced
by the Swingline Note. A Swingline Advance shall bear interest, from
the date of such Swingline Advance, until paid in full, at the Floating
Rate. The Lenders hereby agree to purchase from the Swingline Lender an
undivided participation interest in all outstanding Swingline Advances
held by the Swingline Lender at any time in an amount equal to each
Lender's Percentage Share of such Swingline Advances. The Swingline
Lender may at any time in its sole and absolute discretion (and shall
no less frequently than weekly and upon the acceleration of the
Obligations following an Event of Default) request the Lenders to make
Advances in principal amounts equal to their Percentage Shares in the
aggregate amount necessary to repay the outstanding Swingline Advances;
each Lender absolutely and unconditionally agrees to fund such
Advances, regardless of any Default or Event of Default or other
condition that would otherwise excuse such Lender from funding
Advances, provided that no Lender shall be required to make Advances to
repay Swingline Advances which would cause such
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Lender's aggregate Advances then outstanding to exceed the amount of
such Lender's Maximum Commitment. Each Lender shall deliver each such
Advance directly to the Swingline Lender in immediately available funds
at the office of the Credit Agent by 12:00 noon on the day of the
request therefor by the Swingline Lender, if such request is made on or
before 11:00 a.m., or by 9:00 a.m. on the first (1st) Business Day
following such request therefor, if such request is made after 11:00
a.m., and each such Advance shall be promptly applied against the
outstanding Swingline Advances. At any time following the receipt of
funds from all the Lenders, and no less than weekly, the Credit Agent
shall deliver to each Lender a certificate in the form of EXHIBIT N
attached hereto (the "Advance Certificate"), certified by the Credit
Agent.
2.3 PROCEDURES FOR OBTAINING ADVANCES.
2.3(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 2.3 and in EXHIBIT D-SF
with respect to Advances, attached hereto and made a part
hereof including the delivery of all documents listed in
EXHIBIT D-SF, as applicable (the "Collateral Documents") to
the Collateral Agent. Requests for Advances shall be initiated
by the Company by delivering to the Credit Agent, with a copy
to the Collateral Agent (unless they are the same Person), no
later than 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 Credit Agent. The current forms
in use by the Credit Agent is EXHIBIT C-SF for Advances,
attached hereto and made a part hereof. The Credit Agent shall
have the right, on not less than 3 Business Days' prior Notice
to the Company, to modify any of said Exhibits to conform to
current legal requirements or Credit Agent practices, and, as
so modified, said Exhibits shall be deemed a part hereof. If
the Credit Agent and the Collateral Agent are the same Person,
the Company shall only be required to be deliver the Advance
Request to the Credit Agent.
2.3(b) In the case of any Wet Settlement Advance, the
Company shall follow the procedures and, at or prior to the
Lenders' making of such Wet Settlement Advance, shall deliver
to the Collateral Agent 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
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the Collateral Agent within 7 Business Days after the date of
the Wet Settlement Advance relating thereto.
2.3(c) The Collateral Agent shall have 1 Business Day
under ordinary circumstances to (i) examine the Collateral
Documents (ii)reject Collateral that does not meet the
requirements of this Agreement and (iii) verify the Advance
amount. Unless the Collateral Agent and the Credit Agent are
the same Person, before the Credit Agent funds any requested
Advance, the Credit Agent shall have received from the
Collateral Agent Notice (telephonic followed by written
notice) of the amount that may be advanced pursuant to Section
2.1(c).
2.3(d) The Company shall hold in trust for the
Lenders, and the Company shall deliver to the Collateral Agent
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
Collateral Agent 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 Collateral Agent or Credit Agent may
request, including, without limitation, 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.
2.3(e) Neither the Credit Agent nor the Collateral
Agent nor any Lender shall incur any liability to the Company
in acting upon any telephone notice, referred to in this
Agreement, that the Credit Agent, the Collateral Agent or such
Lender believes in good faith to have been given by a duly
authorized officer or other Person authorized to borrow on
behalf of the Company or for otherwise acting in good faith
under this Section. Upon the funding of Advances by the
Lenders in accordance with this Agreement pursuant to
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any telephonic notice, the Company shall have effected
borrowings hereunder. Once made in any form permitted
hereunder, an Advance Request shall be irrevocable, and the
Company shall be bound to accept an Advance in accordance
therewith. However, the Company may ask to revoke the Advance
Request by giving telephone notice, electronic notice or other
Notice to both the Credit Agent and the Collateral Agent;
then, if both the Credit Agent and the Collateral Agent (each
acting in its sole and absolute discretion) concur, they may
consider the Advance Request revoked.
2.3(f) To make an Advance, the Credit Agent 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 Credit
Agent 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.
2.3(g) If, pursuant to the authorization given by
the Company in the Funding Bank Agreement, for the purpose of
funding a Mortgage Loan against which the Credit Agent has
made an Advance in accordance with a Request for Advance (i)
the Credit Agent debits the Company's Operating Account at the
Funding Bank to the extent necessary to cover a wire to be
initiated by the Credit Agent, or (ii) the Credit Agent
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 Swingline
Lender may make an additional Swingline Advance to fund such
overdraft.
2.3(h) Upon an Event of Default, and without the
necessity of prior demand or notice from the Credit Agent, the
Company authorizes the Credit Agent to cause the Funding Bank
to charge the Company's Operating Account for any Obligations
due and owing the Lenders.
2.4 NON-RECEIPT OF FUNDS BY THE CREDIT AGENT. If the Credit
Agent receives notice from a Lender that such Lender does not intend to
make its Percentage Share of any Advance, neither the Credit Agent nor
any other Lender shall have any obligation to fund such Lender's
Percentage Share. Notwithstanding the foregoing, unless a Lender
notifies the Credit Agent by 12:00 noon on the date of a proposed
Advance that it does not intend to make its Percentage Share of such
Advance at such time and on such date available to the Credit Agent,
the Credit Agent may assume that such Lender will make such amount
available to the
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Credit Agent to be advanced to the Company, and in reliance on such
assumption, the Credit Agent may, at its option, make a corresponding
amount available to the Company.
2.4(a) If the Credit Agent makes such corresponding
amount available to the Company and such amount is not made
available to the Credit Agent by such Lender by close of
business on the date of the Advance, such Lender shall pay
such amount to the Credit Agent upon demand plus interest to
the date of payment at the rate per annum equal to per annum
over the Federal Funds Rate.
2.4(b) If such Lender fails to pay as provided
herein, the Company shall pay such amount to the Credit Agent
upon demand plus interest (at the rate applicable to the
Company for such Advance) to the date of repayment.
2.4(c) Nothing in this Subsection shall relieve any
Lender from its obligation to fund its Percentage Share of any
Advance, or prejudice any rights the Company may have against
any Lender as a result of such Lender's failure to make its
Percentage Share of any Advance available to the Company.
2.5 NOTES. The Company's Obligations in respect of Advances
shall be evidenced by Warehousing Promissory Notes of the Company in
favor of each Lender, substantially in the form of EXHIBIT A-1 attached
hereto, and a promissory note (the "Swingline Note") of the Company in
favor of the Swingline Lender in the form of EXHIBIT A-2 attached
hereto (collectively, the "Notes"). The terms "Warehousing Promissory
Note," "Swingline Note," "Note" or "Notes" shall include all
extensions, renewals and modifications of the Notes and all
substitutions therefor. All terms and provisions of the Notes are
hereby incorporated herein.
2.6 INTEREST PAYMENTS.
2.6(a) Except as otherwise provided in Section 2.6(d)
or Section 2.6(e) hereof, the unpaid amount of each Advance
against an Eligible Loan shall bear interest at the rate(s)
per annum set forth on EXHIBIT M attached hereto and made a
part hereof.
2.6(b) [intentionally omitted]
2.6(c) 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,
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commencing with the first month following the Closing Date and
on the Maturity Date.
2.6(d) If, for any reason, no interest is due on an
Advance, the Company agrees to pay to the Credit Agent an
administrative fee equal to 1 day of interest on such Advance
at the rate of interest applicable to such Advance, 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.
2.6(e) Upon Notice to the Company, after the
occurrence and during the continuation of an Event of Default,
the Credit Agent may give Notice to the Company that 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 4% in excess of the rate of interest otherwise
applicable to the Advance or, if no rate is applicable, the
highest rate then applicable to any outstanding Advances.
2.6(f) 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.
2.7 PRINCIPAL PAYMENTS.
2.7(a) The outstanding principal amount of all
Advances shall be payable in full on the Maturity Date.
2.7(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.
2.7(c) The Company shall be obligated to pay to the
Credit Agent for the pro rata benefit of the Lenders, without
the necessity of prior demand or notice from the Credit Agent,
and the Company authorizes the Credit Agent 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.
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(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 Credit Agent.
(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 60 days or more.
(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 or the Pledged Security backed
thereby 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 or Pledged Security 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) On the date on which the Company knows,
or has reason to know, or receives notice from the
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.
2.7(d) Upon Notice to the Company by the Credit Agent, the
Company shall be obligated to pay to the Credit Agent for the pro rata
benefit of the Lenders, and the Company authorizes the Credit Agent 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 any Pledged Mortgage, the number of
days set forth for the applicable type of Eligible
Loan on EXHIBIT M attached hereto and made a part
hereof as the "Warehouse Period" elapse from the date
of the initial
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Advance made by the Credit Agent against such Pledged
Mortgage.
(2) For any Pledged Mortgage secured by a
Second Mortgage, payment of any lien prior to such
Pledged Mortgage is delinquent, and remains
delinquent for a period of 60 days or more.
(3) 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 a Mortgage Pool, without the
purchase being made or an Eligible Mortgage Pool
being initially certified, or upon rejection of the
Pledged Mortgage as unsatisfactory by an Investor or
an Approved Custodian.
(4) Seven (7) Business Days elapse from the
date a Wet Settlement Advance was made without
receipt by the Collateral Agent of all Collateral
Documents relating to such Pledged Mortgage, or such
Collateral Documents, upon examination by the
Collateral Agent, are found not to be in compliance
with the requirements of this Agreement or the
related Purchase Commitment.
(5) With respect to any Pledged Mortgage,
any of the items described in Section 2.2(d), upon
examination by the Collateral Agent, are found not to
be in compliance with the requirements of this
Agreement or the related Purchase Commitment.
2.7(e) The outstanding amount of any Advance made
pursuant to Section 2.3(g) shall be payable in full within 1
Business Day after the date of such Advance.
2.7(f) In addition to the payments required pursuant
to Sections 2.7(c), 2.7(d), 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 Credit Agent, without
the necessity of prior demand or notice from the Credit Agent,
and the Company authorizes the Credit Agent to cause the
Funding Bank to charge the Company's Operating Account for the
amount of such prepayment, to be applied to such Advance.
2.7(g) The proceeds of the sale or other disposition
of Pledged Mortgages and Pledged Securities shall be paid
directly by the Investor to the Cash Collateral Account. The
Company shall give Notice to the Collateral Agent of the
Pledged Mortgages or Pledged Securities for which proceeds
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have been received. The Company may give the Notice through
RFConnects Delivery; otherwise, the Notice shall be by
telephone, followed by written confirmation thereof. Upon
receipt of such Notice, the Advances against such Pledged
Mortgages or the Pledged Securities shall be repaid from such
proceeds and such Pledged Mortgages or Pledged Securities
shall be considered to have been redeemed from pledge. The
Credit Agent 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 Credit
Agent 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 Credit Agent shall return any excess payment from an
Investor for Pledged Mortgages or Pledged Securities to the
Company.
2.7(h) Prior to the occurrence of an Event of Default
and acceleration of all Advances outstanding hereunder or
termination of the commitments of the Lenders to make Advances
hereunder, amounts received by the Credit Agent as proceeds of
the sale or other disposition of Pledged Mortgages or Pledged
Securities and, including without limitation, all amounts from
time to time deposited in the Cash Collateral Account, shall
be allocated among the Lenders as follows:
(1) First, to the Swingline Lender until the
principal amount of the Swingline Advances have been
paid in full; and
(2) Second, pro rata to the Lenders in
accordance with their respective Percentage Shares,
until the principal amount of the Advances initially
made against such Pledged Mortgages has been paid in
full;
Unless the Advances outstanding against such sold or disposed
of Pledged Mortgages or Pledged Securities are Swingline
Advances, the application of repayment amounts to the
Swingline Advances under this Section 2.7 (h) shall be deemed
to be (i) a repayment by the Company of the Advances
outstanding against such Pledged Mortgages or Pledged
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Securities and (ii) a refunding by the Lenders of other
Swingline Advances through Advances made by the Lenders in
accordance with Section 2.2 hereof.
2.7(i) Following the occurrence of an Event of
Default and acceleration of any Obligations outstanding
hereunder or termination of the commitments of the Lenders to
make Advances hereunder, all amounts received by the Credit
Agent on account of the Obligations shall be disbursed by the
Credit Agent in accordance with the provisions of Section 8.3
hereof.
2.8 FEES. The Company shall pay the following fees:
2.8(a) To each Lender, through the Credit Agent, a
Commitment Fee in the amount of 1/8% per annum of the amount
of such Lender's Maximum Commitment, which Commitment Fee
shall be paid quarterly in advance and shall be computed on
the basis of a 365-day year and applied to the actual number
of days elapsed in such Calendar Quarter. On the Closing Date,
the Company shall pay the prorated portion of the quarterly
Commitment Fee due from the Closing Date to the last day of
the current Calendar Quarter. If any Lender increases its
Maximum Commitment, or if an Additional Lender becomes a party
hereto, the Company shall pay the Commitment Fee on the amount
of such increase or the amount of such Additional Lender's
Maximum Commitment from the effective date thereof to the last
day of the current Calendar Quarter. In all other cases, the
Company shall make quarterly payments of the Commitment Fee on
the first day of each Calendar Quarter. If the Maturity Date
is other than the last day of a Calendar Quarter, the Company
shall pay the prorated portion of the quarterly Commitment Fee
due from the beginning of the then current Calendar Quarter to
and including the Maturity Date. The Company shall not be
entitled to a reduction in the amount of the Commitment Fee in
the event the amount of any Lender's Maximum Commitment is
reduced at the request of the Company, or in the event that
any Lender's Maximum Commitment is terminated prior to its
stated expiration date as a result of an Event of Default
hereunder. If the commitments of the Lenders hereunder
terminate prior to the Maturity Date, the unpaid balance of
the Commitment Fee shall be due and payable in full on the
date of such termination. However, if there has been no
Default and the Commitment is terminated, upon Company's
payment of the outstanding obligations, at Company's request,
no additional Commitment Fee installment will be due.
Nonetheless, the Company will not be entitled to a refund of a
Commitment Fee installment once paid,
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Despite any early termination or reduction of the Commitment.
2.8(b) To the Collateral Agent, for its own account,
such fees as shall be required under the Collateral Agency
Agreement.
2.8(c) To the Credit Agent, for its own account, such
fees as shall be separately agreed between the Company and the
Credit Agent.
2.8(d) To the Credit Agent for the benefit of the
Lenders, such fees as shall be separately agreed between the
Company and the Lenders.
2.9 WAREHOUSING FEES. The Company agrees, at the time of each
Advance, to pay to the Collateral Agent a Warehousing Fee for each such
Mortgage Loan pledged as Collateral for such Advance in such amount as
shall be separately agreed between the Company and the Collateral
Agent.
2.10 MISCELLANEOUS CHARGES. In addition to all fees payable
pursuant to Section 2.8 hereof, the Company agrees to reimburse the
Credit Agent for miscellaneous charges and expenses (collectively,
"Miscellaneous Charges") incurred by or on behalf of the Credit Agent
in connection with the handling and administration of Advances, and to
reimburse the Collateral Agent for Miscellaneous Charges incurred by or
on behalf of the Collateral Agent 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 30 days after receipt of an invoice or an
account analysis statement from the Credit Agent or the Collateral
Agent, as the case may be.
2.11 INTEREST LIMITATION. All agreements between the Company
and the Lenders are hereby expressly limited so that in no contingency
or event whatsoever, whether by reason of acceleration of maturity of
this Agreement or the Notes or otherwise, shall the amount paid or
agreed to be paid to the Lenders 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 Notes, or any other
document securing this Agreement at any time given shall
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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 Lenders 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 Notes and not to the payment of interest thereunder. This provision
shall control every other provision of all agreements between the
Company and Lenders and shall also be binding upon and available to any
subsequent holder of the Notes.
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 any Lender with any request or directive (whether or not
having the force of law) by any governmental or monetary authority:
2.12(a) Does or shall subject any 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 such 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 such Lender by
the jurisdiction in which such 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 such 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 such 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 such Lender or any Person controlling such
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 such Lender
for such additional cost or reduced amounts receivable or reduced rate
of return as determined by such Lender with respect to this Agreement
or Advances made hereunder. If a Lender becomes entitled to claim
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any additional amounts pursuant to this Section, it shall notify the
Company through the Credit Agent of the event by reason of which it has
become so entitled and the Company shall pay such amount within 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 a Lender, through the Credit Agent, 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.
2.13 BILLING AND PAYMENT.
2.13(a) The Credit Agent shall on or before the 5th
Business Day of each month deliver to the Company billings for
interest due and payable. On or before the 10th Business Day
of each month, the Company shall pay to the Credit Agent the
full amount of interest and fees billed for the immediately
preceding month.
2.13(b) All payments made on account of the
Obligations shall be made by the Company to the Credit Agent
for distribution to the Lenders, except for Balance Deficiency
Fees, which shall be made directly to the applicable Lender,
and fees payable to the Credit Agent or the Collateral Agent
for its own account. All payments made on account of the
Obligations shall be made without setoff or counterclaim, free
and clear of and without deduction for any taxes, fees or
other charges of any nature whatsoever imposed by any taxing
authority, and must be received by the Credit Agent by 12:00
noon on the day of payment, it being expressly agreed and
understood that if a payment is received after 12:00 noon by
the Credit Agent such payment will be considered to have been
made on the next succeeding Business Day and interest thereon
shall be payable by the Company at the then applicable rate
during such extension. No principal payments resulting from
the sale of Pledged Mortgages or Pledged Securities shall be
deemed to have been received by the Credit Agent until the
Collateral Agent has also received the Notice required under
Section 2.7 (g) hereof. All payments shall be made in lawful
money of the United States of America in immediately available
funds transferred via wire to accounts designated by the
Credit Agent from time to time. If any payment required to be
made by the Company hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and interest
shall be payable on Advances so extended at the then
applicable rate during such extension.
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2.13(c) All amounts received by Credit Agent on
account of the Obligations (except amounts received in respect
of fees or expenses payable hereunder to the Credit Agent or
the Collateral Agent for their own accounts or amounts payable
to the Swingline Lender for Swingline Advances) shall be
disbursed to the Lenders by wire transfer on the date of
receipt if received by Credit Agent by the applicable
deadlines for payment thereof as specified in Section 2.13(b)
hereof, or if received later, by 12:00 noon on the next
succeeding Business Day, without any interest payable by the
Credit Agent thereon.
2.14 EXPIRATION OF COMMITMENTS. Unless extended or terminated
earlier as permitted hereunder, the Commitments shall expire of their
own terms; and without the necessity of action by the Credit Agent, at
the close of business on the Maturity Date.
3. COLLATERAL.
3.1 APPOINTMENT OF COLLATERAL AGENT. Pursuant to the
Collateral Agency Agreement, RFC has been appointed as Collateral Agent
to act as agent, bailee, and custodian for the exclusive benefit of the
Lenders and the Credit Agent (collectively, the "Secured Parties") with
respect to the Collateral.
3.2 DELIVERY OF COLLATERAL. As described in Section 2.3 hereof
and in the Collateral Agency Agreement, from time to time the Company
shall deliver Collateral or cause Collateral to be delivered to the
Collateral Agent hereunder.
3.3 GRANT OF SECURITY INTEREST. As security for the payment of
the Notes and for the performance of all of the Company's Obligations,
the Company hereby assigns and transfers to the Credit Agent, for the
pro rata benefit of the Secured Parties, all right, title and interest
in and to, and grant a security interest to the Credit Agent, for the
pro rata benefit of the Secured Parties, in, the following described
property (the "Collateral"):
3.3(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 Collateral Agent (including delivery to a
third party on behalf of the Collateral Agent), come into the
possession, custody or control of any of the Lenders, the
Credit Agent or the Collateral Agent for the purpose of
assignment or pledge or in respect of which an Advance has
been made by the Lenders hereunder, including without
limitation all Mortgage Loans in respect of which Wet
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Settlement Advances have been made by the Credit Agent (the
"Pledged Mortgages").
3.3(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 Collateral Agent
or its agent, bailee or custodian as assignee, or pledged to
the Collateral Agent, or for such purpose are registered by
book-entry in the name of, the Collateral Agent (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 Lenders hereunder
(the "Pledged Securities").
3.3(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.
3.3(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 Collateral) and other information and data of the
Company relating to the Collateral.
3.3(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 the Collateral,
including without limitation, all rights to payment arising
under such Hedging Arrangements.
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3.3 (f) All now existing or hereafter acquired cash
delivered to or otherwise in the possession of the Credit
Agent, the Collateral Agent or their agents, bailee or
custodian or designated on the books and records of the
Company as assigned and pledged to the Credit Agent,
including, without limitation, all cash deposited in the Cash
Collateral Account.
3.3(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.
3.4 RELEASE OF SECURITY INTEREST IN COLLATERAL.
3.4 (a) Pledged Mortgages shall be released from the
Credit Agent's security interest only against payment to the
Credit Agent of the Release Amount in connection with such
Pledged Mortgages.
3.4 (b) If Pledged Mortgages are to be transferred to
a pool custodian or to Freddie Mac or Fannie Mae for inclusion
in a Mortgage Pool, the Credit Agent's security interest in
such Pledged Mortgages shall be released only against payment
to the Credit Agent of the Release Amount in connection with
such Pledged Mortgages. If the Credit Agent'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 Credit Agent's security
interest shall continue in such Pledged Mortgages and the
Pledged Security. The Credit Agent shall be entitled to
possession of such Pledged Security in the manner provided
below.
3.4(c) If Pledged Mortgages are transferred to an
Approved Custodian and included in an Eligible Mortgage Pool,
the Credit Agent'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 Credit Agent's security interest in such
Pledged Security shall be released only against payment to the
Credit Agent of the Release
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Amount in connection with the Pledged Mortgages backing such
Pledged Security. The Credit Agent shall be entitled to
possession of such Pledged Security in the manner provided
below.
3.4(d) The Collateral Agent 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 Credit Agent 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
Credit Agent. The Credit Agent 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 designee only against payment
therefor. The Company acknowledges that the Credit Agent 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 Credit Agent, 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.
3.4 (e) Prior to the occurrence of an Event of
Default, the Company may redeem a Pledged Mortgage or Pledged
Security from the Credit Agent's security interest by
notifying the Credit Agent 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 Credit
Agent, for application to prepayment of the principal balance
of the Notes, the Release Amount in connection with such
Pledged Mortgage or Pledged Security, or (b) delivering
substitute Collateral which, in addition to being acceptable
to the Collateral Agent in its sole discretion will, when
included with the Collateral, result in a Collateral Value of
all Collateral held by the Collateral Agent which is at least
equal to the aggregate outstanding Advances.
3.4(f) Following the occurrence of a Default or Event
of Default, unless otherwise instructed by the Majority
Lenders, the Credit Agent may, with no liability to the
Company or any Person, continue to release its security
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interest in any Pledged Mortgage or Pledged Security against
payment of the Release Amount in connection with such Pledged
Mortgage or Pledged Security. Following the occurrence of a
Default or Event of Default, at the direction of all the
Lenders and with no liability to Company or any Person, the
Credit Agent shall refuse to release its security interest in
any item of Collateral and shall instruct the Collateral Agent
to cease the delivery of Collateral to the Company or any
Person.
3.4 (g) The Release Amount in connection with any
Pledged Mortgage shall be (i) prior to the occurrence of an
Event of Default and the receipt by the Credit Agent of
instructions from the Majority Lenders to exercise its
remedies as provided in Section 8.2 hereof, 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 and receipt by the Credit Agent of
instructions from the Majority Lenders to exercise its
remedies as provided in Section 8.2 hereof, the Committed
Purchase Price of such Pledged Mortgage or, if there is no
Purchase Commitment therefor, the amount paid to the Credit
Agent in a commercially reasonable disposition thereof.
3.5 DELIVERY OF ADDITIONAL COLLATERAL OR MANDATORY PREPAYMENT.
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
Credit Agent may request, and the Company shall within 2 Business Days
after Notice by the Credit Agent (a) deliver to the Collateral Agent
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.
3.6 RELEASE OF COLLATERAL.
3.6(a) The Collateral Agent may deliver documents
relating to the Collateral to the Company for correction or
completion pursuant to a Trust Receipt and Section 4.3 of the
Collateral Agency Agreement.
3.6(b)Prior to the occurrence of a Default or Event
of Default, upon delivery by the Company to the Collateral
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Agent of shipping instructions pursuant to EXHIBIT D-SF, the
Collateral Agent will transmit Pledged Mortgages or Pledged
Securities and all related loan documents or pool documents to
the applicable Investor, Approved Custodian or other party in
accordance with Section 4.4 of the Collateral Agency
Agreement.
3.6(c) Upon receipt of Notice from the Company under
Section 2.7 (g) 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 Collateral Agent to the Company.
3.7 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 Credit Agent 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 Credit Agent or its designee in its sole
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 Credit Agent so requests, hold in trust for the
benefit of the Lenders and forthwith pay to the Credit Agent 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 Credit Agent as to the source of such funds, and (c) all amounts so
received and collected by the Credit Agent shall be held by it as part
of the Collateral.
3.8 RETURN OF COLLATERAL AT MATURITY. If (a) the commitments
of the Lenders evidenced hereby shall have expired or been terminated,
and (b) no Advances, interest or other Obligations shall be outstanding
and unpaid, the Credit Agent shall deliver or release its security
interest and the Collateral Agent 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 Secured
Parties 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 Lenders to make the
initial Advance under this Agreement is subject to the satisfaction, in
the sole discretion of the Lenders, on or before the date thereof of
the following conditions precedent:
4.1(a) The Credit Agent shall have received the following, all
of which must be satisfactory in form and content to the Lenders, in
their sole discretion:
(1) A copy of this Agreement duly executed by all
parties hereto.
(2) The notes duly executed by the Company.
(3) A copy of the Collateral Agency Agreement duly
executed by all parties thereto.
(4) 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 that certain Prior RFC Credit Agreement, and certificates
of good standing dated no less recently than 90 days prior to
the date of this Agreement.
(5) 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.
(6) 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 Credit Agent being entitled to rely
thereon until a new such certificate has been furnished to the
Credit Agent).
(7) A favorable written opinion of counsel to the
Company (or of separate counsel at the option of the Company),
dated as of the date of this Agreement
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substantially in the form of EXHIBIT H attached hereto,
addressed to the Credit Agent for the benefit of the Lenders.
(8) Uniform Commercial Code, tax lien and judgment
searches of the appropriate public records for the Company,
which searches shall not have disclosed the existence of any
prior Lien on the Collateral other than in favor of the Credit
Agent 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 Credit Agent.
(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 Credit
Agent, showing compliance by the Company as of the date of
this Agreement with the related provisions of Section 6.8
hereof.
(11) Executed financing statements in recordable form
covering the Collateral and ready for filing in all
jurisdictions required by the Credit Agent.
(12) Receipt by the Credit Agent of all Fees due on
the date hereof, including but not limited to, Commitment Fees
and document production fees, due the Credit Agent and the
Lenders on or prior to the date of this Agreement.
(13) 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.
(14) An agreement among the Company, the Credit Agent
and Fannie Mae, pursuant to which Fannie Mae agrees to send
all cash proceeds of Mortgage Loans sold by the Company to
Fannie Mae to the Cash Collateral Account.
(15) Assumed Name Certificate dated no less recently
than 90 days prior to the date of this Agreement for any
assumed name used by the Company in the conduct of its
business.
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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,
which indebtedness has a term of more than 1 year or is in
excess of $25,000 shall have subordinated such indebtedness to
the Obligations, by executing a Subordination of Debt
Agreement, in the form of EXHIBIT F hereto; and the Credit
Agent 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.
4.2 EACH ADVANCE. The obligation of the Lenders to make the
initial and each subsequent Advance under this Agreement is subject to
the satisfaction, in the sole discretion of the Credit Agent, as of the
date of each such Advance, of the following additional conditions
precedent:
4.2(a) The Company shall have delivered to the Credit
Agent the original Advance Request, and the Company shall have
delivered to the Collateral Agent a copy of the Advance
Request, a current Commitment Summary Report, the Collateral
Documents, and documents relating to Wet Settlement Advances,
called for under, and shall have satisfied the procedures set
forth in, Section 2.3 hereof and the applicable Exhibits
hereto described in that Section, according to the type of the
requested Advance. All items delivered to the Credit Agent or
the Collateral Agent, as the case may be, shall be
satisfactory to the Credit Agent or the Collateral Agent, in
form and content, and the Credit Agent or the Collateral
Agent, as the case may be, may reject such of them as do not
meet the requirements of this Agreement or of the related
Purchase Commitment.
4.2(b) The Collateral Agent shall have given
telephonic notice to the Credit Agent of the Mortgage Loans
against which Advances may be made, followed by a Loans
Warehoused Report as provided for and defined in the
Collateral Agency Agreement.
4.2(c) The Credit Agent 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
Credit Agent in the Collateral under the Uniform Commercial
Code or other applicable law.
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4.2(d) 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.
4.2(e) 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(f) 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(g) The .Credit Agent shall have received from counsel for
the Company, if requested by the Credit Agent in its sole discretion,
an updated opinion, in form and substance satisfactory to the Credit
Agent, addressed to the Credit Agent on behalf of the Lenders and dated
as of the date of such Advance, covering such of the matters as the
Credit Agent 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 Lenders, as
of the date of this Agreement, the date of each Advance Request and the
date of 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
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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 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
Notes 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 Notes 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
Notes, the Collateral Agency Agreement 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 and by general
principles of equity.
5.3 APPROVALS. The execution and delivery of this Agreement,
the Notes and all other Loan Documents and the performance of the
Company's obligations hereunder and thereunder and 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 each Lender, fairly present the financial
condition of the Company (and its Subsidiaries) as of the Statement
Date and the results of its
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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 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
Lenders 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 Notes 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 Notes or
any other Loan Document.
5.7 REGULATION 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"
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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 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 their own right or as transferee of
the assets of, or as successor to, any other Person. No tax Liens have
been filed and no material claims are being asserted with respect to
any such taxes, fees or charges.
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
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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.
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) Ginnie Mae approved seller/servicer of
Mortgage Loans and issuer of Mortgage-backed Securities
guaranteed by Ginnie Mae.
5.13(b) Fannie Mae approved seller/servicer of
Mortgage Loans eligible to originate, purchase, hold, sell,
and service Mortgage Loans to be sold to Fannie Mae.
5.13(c) Freddie Mac approved seller/servicer of
Mortgage Loans, eligible to originate, purchase, hold, sell
and service Mortgage Loans to be sold to Freddie Mac.
5.13(d) Lender in good standing under the VA loan
guarantee program eligible to originate, purchase, hold, sell
and service VA-guaranteed Mortgage Loans.
5.13(e) 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 Boulevard, Plantation, FL 33324.
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5.15 SPECIAL REPRESENTATIONS CONCERNING COLLATERAL. The
Company hereby represents and warrants to the Lenders, 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 Credit Agent, subject to no other
Liens.
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 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 an open-ended Pledged Loan secured by a Second
Mortgage, has been fully advanced in the face amount thereof,
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 60 days under any Mortgage Loan included in the
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Pledged Mortgages without the Advance against such Pledged
Mortgage having been repaid in accordance with Section
2.7(c)(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 Credit Agent.
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.
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, agency or other
Person 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 Ginnie Mae Mortgage-backed Securities, the Company has
received from Ginnie Mae a Confirmation Notice or Confirmation
Notices for Request Additional Commitment Authority and for
Request Pool Numbers, and there remains
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available thereunder a commitment on the part of Ginnie Mae
sufficient to permit the issuance of Ginnie Mae
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 Ginnie Mae
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 Ginnie Mae 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.
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.
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 repay the credit.
5.19 ASSUMED NAMES. The Company does not originate Mortgage
Loans or otherwise conduct business under any names other than its
legal name and the assumed name(s) set forth on EXHIBIT O attached
hereto and made a part hereof. The Company has made all filings and
taken all other action as may be required under the laws of any
jurisdiction in which it originates Mortgage Loans or otherwise
conducts business under any assumed name. The Company's use of assumed
name(s) set forth herein does not conflict with any other Person's
legal rights to any such
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name(s), nor otherwise give rise to any liability by the Company to any
other Person.
6. AFFIRMATIVE COVENANTS.
The Company hereby covenants and agrees with the Lenders that,
so long as the commitments of the Lenders are 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 NOTES. Punctually pay or cause to be paid all
obligations payable hereunder and under the Notes in accordance with
the terms hereof and thereof.
6.2 FINANCIAL STATEMENTS AND OTHER REPORTS. Deliver to each
Lender:
6.2 (a) As soon as available and in any event within
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
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 (which
opinion shall not be qualified due to possible failure to take
all appropriate steps to successfully address Year 2000
Problem) in form and substance satisfactory to the Lenders and
prepared by an accounting firm reasonably satisfactory to the
Lenders, or other independent certified public accountants of
recognized standing selected by the Company and acceptable to
the Lenders, 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.
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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, 7.8, 7.9, 7.10 and 7.13
hereof as of the end of such month or year (or, if the Company
is not in compliance, showing the extent of noncompliance 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
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
30 days after the end of each calendar month, a commitment
summary and pipeline report substantially in the form of
EXHIBIT O (the "Commitment Summary Report") dated as of the
end of such month.
6.2(e) Reports in respect of the Pledged Mortgages
and Pledged Securities, in such detail and at such times as
any Lender in its discretion may reasonably request at any
time or from time to time.
6.2(f) Copies of any audits completed by Ginnie Mae,
Fannie Mae or Freddie Mac, and copies of the Mortgage Bankers'
Financial Reporting Forms (Freddie Mac Form 1055/Fannie Mae
Form 1002) which the Company is required to have filed, as any
Lender may reasonably request.
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6.2(g) Within 1 day of any filing of any document
regarding the Company with the Securities and Exchange
Commission, a notice describing the SEC form used for the
filing, and either: (1) the exact World Wide Web address at
which the document is located or (2) if the document is not
immediately available on the World Wide Web, a complete and
accurate copy of the document.
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 any 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 efficient
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; and not change its
name, state of incorporation or principal place of business.
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.
6.5 INSPECTION OF PROPERTIES AND BOOKS. Permit authorized
representatives of the Credit Agent, the Collateral Agent, any Lender
or any Participant to discuss the business, operations, assets and
financial condition of the Company and its Subsidiaries with their
officers and employees and to examine their books of account and make
copies or extracts thereof, all at such reasonable times as the Credit
Agent, the Collateral Agent, any 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
Credit Agent, the Collateral Agent, any Lender or any Participant or
any authorized representative of any Lender or any Participant may
address to them in reference to the financial condition or affairs of
the Company and its Subsidiaries. The
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Company may have its representatives in attendance at any meetings
between the officers or other representatives of the Credit Agent, the
Collateral Agent, any Lender or any Participant and the Company
accountants held in accordance with this authorization.
6.6 NOTICE. Give prompt Notice to the Credit Agent 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
$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 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 or 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 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
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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, naming Credit
Agent as the loss payee, 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 30 days after Notice
from the Lender, obtain such additional insurance as the Credit Agent
shall reasonably require, all at the sole expense of the Company.
Copies of such policies shall be furnished to the Credit Agent without
charge upon request of the Credit Agent.
6.9 CLOSING INSTRUCTIONS. Indemnify and hold the Secured
Parties 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. The Collateral Agent 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 to be included as Collateral pursuant hereto.
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, which
indebtedness has a term of more than 1 year or is in excess of $25,000
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 Credit Agent 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.
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 Credit Agent in
writing of a declared default under or the termination, cancellation,
reduction or non-renewal 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
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lines of credit or agreements as of the date hereof and the Company
hereby agrees to give the Credit Agent at least 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 Secured Parties 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 Credit Agent such
Uniform Commercial Code financing statements with respect to
the Collateral as the Credit Agent may request. The Company
shall also execute and deliver to the Credit Agent such
further instruments of sale, pledge or assignment or transfer,
and such powers of attorney, as required by the Credit Agent,
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 Secured Parties under
this Agreement. The Credit Agent shall have all the 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 Collateral Agent within 2 Business
Days of any default under, or of the termination of, any
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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 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 Credit Agent, or in the office
of a computer service bureau engaged by the Company and
approved by the-Credit Agent, and, upon request, shall make
available to the Collateral Agent, the originals, or copies in
any case where the originals have been delivered to the
Collateral Agent or to an Investor, of its Mortgage Notes and
Mortgages included in Pledged Mortgages, Mortgage-backed
Securities delivered to the Collateral Agent 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 Credit Agent 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 Credit Agent or a Person designated by the
Credit Agent 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 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.
The Company hereby covenants and agrees with Lenders that, so
long as the commitments of the Lenders are 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 all the
Lenders:
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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 Credit Agent for the benefit of the
Secured Parties, 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.
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 the Company (and its
Subsidiaries, on a consolidated basis) at any time to exceed 10 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 $20,000,000.
7.8 MINIMUM CURRENT RATIO. Permit the Current Ratio to be less
than 1.05 to 1 on the last day of any month of the Company.
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7.9 LOSS LIMITATION. In any fiscal quarter permit the net loss
of the Company and its Subsidiaries for that quarter (determined on a
consolidated basis in accordance with GAAP), to exceed the amount set
forth below for such fiscal quarter:
-----------------------------------------------------------------------
Fiscal Quarter Ended Maximum Loss
-----------------------------------------------------------------------
December 1999 $12,514,000
March 2000 $10,920,000
June 2000 $10,131,000
Thereafter $0
-----------------------------------------------------------------------
7.10 DIVIDENDS. For each fiscal year, declare or make any
distributions to the shareholders in excess of 1000 of the Company's
net after-tax income earned in such fiscal year (as determined on a
fiscal year-to-date basis), less distributions previously declared or
authorized in such fiscal year. Any distributions declared or
authorized based on the Company's income for any fiscal year must be
paid by the end of the second quarter of the next succeeding fiscal
year.
7.11 ACQUISITION OF RECOURSE SERVICING 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
refinance Pledged Mortgages under any Gestation Agreements or other
warehousing facility, other than a repurchase agreement with Greenwich
Capital Financial Products, Inc. and a $10,000,000 warehouse line with
Superior Bank, FSB.
7.13 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.
7.14 SPECIAL NEGATIVE COVENANTS CONCERNING COLLATERAL.
7.14 (a) The Company shall not amend or modify, or
waive any of the terms and conditions of, or settle or
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compromise any claim in respect of, any Pledged Mortgages or
Pledged Securities.
7.14(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.
7.14(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.
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 10 days after the due date; or failure to pay, within
any applicable grace period, any other Obligations of the
Company due the Lenders; 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
$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 contained in
Sections 6.3, 6.12 and 6.13 or in any Section of Article 7 of
this Agreement; or
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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 30 days after the
earliest of (i) receipt by the Company of Notice from the
Credit Agent of such default, (ii) receipt by the Credit Agent
of Notice from the Company of such default, or (iii) the date
the Company should have notified the Credit Agent 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, any Subsidiary of the Company now or
hereafter in effect, which decree or order is not stayed; the
Company, 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, 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, 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, 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, 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, any Subsidiary of the Company, and the
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continuance of any such events in Subsection (2) above for 60
days unless dismissed, bonded off or discharged; or
8.1(g) The Company, 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, any Subsidiary
of the Company of any assignment for the benefit of creditors;
or the inability or failure of the Company, any Subsidiary of
the Company, or the admission by the Company, 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
$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 $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 30 days or in any event later than 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 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 $25,000 (or in
the case of a termination
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involving the Company or any of its 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 $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 Credit Agent's security interest
on any portion of the Collateral shall become unenforceable or
otherwise impaired; provided that, subject to the Majority
Lenders' 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 10 days of the
date of such impairment; or
8.1(n) Seth Werner shall cease to be the chief
executive officer of the Company; or
8.1(0) The Company's common stock is no longer traded
on NASDAQ; or
8.1 (p) 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 of its property, or (ii) obtains priority that is equal
or greater than the priority of the Lender's security interest
in any of the Collateral; or
8.1 (q) 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.
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8.2 REMEDIES.
8.2(a) If a Lender shall have knowledge of a Default
or an Event of Default, it shall forthwith give Notice thereof
to the Credit Agent. If the Credit Agent shall have knowledge
of a Default or an Event of Default, it shall forthwith give
Notice thereof to each Lender and to the Company. The Credit
Agent shall not be deemed to have knowledge or Notice of the
occurrence of a Default or an Event of Default unless the
Credit Agent has received Notice from a Lender or the Company.
8.2(b) Upon the occurrence of any Event of Default
described in Sections 8.1 (f) or 8.1(g), the Commitments of
the Lenders shall be terminated and all unpaid principal
amounts of and accrued interest on the Notes 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(c) Upon the occurrence of any Event of Default,
other than those described in Sections 8.1 (f) and 8.1(g), the
Majority Lenders may, by Notice to the Company, terminate the
Commitments of all the Lenders 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 Lenders to make
any Advances shall thereupon terminate.
8.2(d) Upon the occurrence of any Event of Default,
the Credit Agent, on behalf of the Secured Parties, 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 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 Credit Agent, on behalf of the Secured Parties,
and that all payments thereon are to be made directly
to the Credit Agent or such other party as may be
designated by the Credit Agent; 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
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Collateral, on terms acceptable to the Credit Agent;
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 Credit Agent at a
place to be designated by the Credit Agent.
(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 Credit Agent deems necessary for the
purpose of effectuating its rights under this
Agreement and any other Loan Document.
(6) Prior to the disposition of the
Collateral, prepare it for disposition in any manner
and to the extent the Credit Agent 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 cash
or credit or future delivery, on such terms and in
such manner as the Credit Agent may determine,
including, without limitation, sale
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pursuant to any applicable Purchase Commitment. If
notice is required under such applicable law, the
Credit Agent will give the Company not less than 10
days' notice of any such public sale or of the date
after which any private sale may be held. The Company
agrees that 10 days' notice shall be reasonable
notice. The Credit Agent 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 Credit Agent until the selling price
is paid by the purchaser thereof, but the Credit
Agent 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 Credit Agent 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
Notes.
The Credit Agent shall follow the instructions of the
Majority Lenders in exercising or not exercising its
rights under this Section 8.2(d), but (i) the Credit
Agent shall have no obligation to take or not to take
any action which it believes may expose it to any
liability, and (ii) the Credit Agent may, but shall
be under no obligation to, await instructions from
the Majority Lenders before exercising or not
exercising its rights under this Section 8.2(d).
8.2(e) Neither the Credit Agent nor any
other Secured Party shall incur any 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 Credit Agent and each other
Secured Party arising by
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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 Credit
Agent 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.
8.2(f) 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
Credit Agent may purchase any Pledged Mortgages or
Pledged Securities at a private sale of such
Collateral.
8.2(g) 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
Credit Agent 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 Credit Agent 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(h) The Credit Agent 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 Credit Agent or any Lender in
exercising any right, power or remedy conferred by
this Agreement, or in the enforcement
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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
Notes.
8.2(i) No failure on the part of the Credit Agent or
any other Secured Party 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 Credit Agent or any
other Secured Party 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 are cumulative and are not exclusive of any remedies
provided at law or in equity.
8.2(j) The Credit Agent 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 Lenders' benefit
until the Obligations are paid in full.
8.3 APPLICATION OF PROCEEDS. The proceeds of any sale,
disposition or other enforcement of the Secured Parties' security
interest in all or any part of the Collateral shall be applied by the
Credit Agent as follows:
FIRST, to the payment of the costs and expenses of such sale
or enforcement, including reasonable compensation to the Credit Agent's
and Collateral Agent's agents and counsel, and all expenses,
liabilities and advances made or incurred by or on behalf of the Credit
Agent and Collateral Agent in connection therewith; and all fees due
and owing the Collateral Agent;
SECOND, to the payment of the costs and expenses of such sale
or enforcement, including reasonable compensation to the Lenders'
agents and counsel, and all expenses,
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liabilities and advances made or incurred by or on behalf of any Lender
in connection therewith;
THIRD, to the Swingline Lenders, until all principal, interest
and Balance Deficiency fees (if any) in respect of the Swingline
Advances have been paid in full;
FOURTH, to the Lenders, pro rata in accordance with the amount
of accrued interest (and fees under Section 2.6) owed to each of them,
until interest at the following rates is paid in full: (a) prior to
acceleration of all Obligations of the Company, at the applicable
interest rates pursuant to Section 2.6, and (b) following such
acceleration, at the Default Rate;
FIFTH, to the Lenders, pro rata in accordance with their
respective Percentage Shares, until the principal amounts of all
Advances outstanding are paid in full;
SIXTH, to the Lenders, pro rata in accordance with their
respective Percentage Shares, until all fees and other Obligations
accrued by or due each Lender and the Credit Agent are paid in full;
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 CREDIT AGENT APPOINTED ATTORNEY-IN-FACT. The Credit Agent
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
Credit Agent 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 Credit Agent 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
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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 SETOFF. The Company hereby grants to the Credit
Agent, to each Lender and to any assignee or Participant of any Lender
a right of setoff, to secure the repayment of the Obligations, upon any
and all monies, securities, or other property of the Company, and the
proceeds thereof, now or hereafter held or received by or in transit to
such Person, from or for the account of the Company, whether for
safekeeping, custody, pledge, transmission, collection or otherwise,
and all deposits (general or special, time or demand, provisional or
final) and credits of the Company and any and all claims of the Company
against such Person at any time existing. Upon the occurrence and
during the continuance of any Event of Default, such Person is hereby
authorized, at any time and from time to time, without notice, to
setoff and to appropriate or apply any and all items hereinabove
described against and on account of the Obligations, irrespective of
whether or not the Lenders shall have made any demand hereunder and
whether or not said Obligations shall have matured.
8.6 SHARING OF PAYMENTS. If upon the occurrence of an Event of
Default and acceleration of the Obligations any Lender shall hold or
receive and retain any payment, whether by setoff, application of
deposit balance or security, or otherwise, in respect of the
Obligations, then such Lender shall purchase from the other Lenders for
cash and at face value and without recourse, such participation in the
Obligations held by them as shall be necessary to cause such payment to
be shared ratably as aforesaid with each of them; provided, that if
such payment or part thereof is thereafter recovered from such
purchasing Lender, the related purchases from the other Lenders shall
be rescinded ratably and the purchase price restored as to the portion
of such excess payment so recovered, but without interest thereon
unless the purchasing Lender is required to pay interest on such
amounts to the Person recovering such payment, in which case with
interest thereon, computed at the same rate, and on the same basis, as
the interest that the purchasing Lender is required to pay. If any
Lender receives a payment from the Company not in respect of the
Obligations, but relating to another relationship of such Lender and
the Company, such Lender may apply the payment first to the
indebtedness
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arising out of the other relationship and then against the Obligations
as provided for above.
9. THE CREDIT AGENT.
9.1 APPOINTMENT. Each Lender hereby irrevocably designates and
appoints the Credit Agent as the agent of such Lender under the Loan
Documents and each such Lender hereby irrevocably authorizes the Credit
Agent to take such action on its behalf under the provisions of the
Loan Documents and to exercise such powers and perform such duties as
are expressly delegated to the Credit Agent by the terms of the Loan
Documents, together with such other powers as are reasonably incidental
thereto. The Credit Agent hereby accepts such appointment and agrees to
act in accordance with this Agreement.
9.2 DUTIES OF CREDIT AGENT. The provisions of the Loan
Documents set forth the exclusive duties of the Credit Agent and no
implied duties or obligations shall be read into the Loan Documents
against the Credit Agent. The Credit Agent shall not be bound in any
way by any agreement or contract other than the Loan Documents and any
other agreement to which it is a party.
9.3 STANDARD OF CARE. The Credit Agent shall act in accordance
with customary standards for those engaged as credit agents of
commercial transactions in similar capacities.
9.3(a) The Credit Agent shall not be required to
ascertain or inquire as to the performance or observance of
any of the conditions or agreements to be performed or
observed by any other party, except as specifically provided
in the Loan Documents. The Credit Agent disclaims any
responsibility for the validity or accuracy of the recitals to
this Agreement and any representations and warranties
contained herein, unless specifically identified as recitals,
representations or warranties of the Credit Agent.
9.3(b) The Credit Agent shall have no responsibility
for ascertaining the value, collectibility, insurability,
enforceability, effectiveness or suitability of any
Collateral, the title of any party therein, the validity or
adequacy of the security afforded thereby, or the validity of
this Agreement (except as to Credit Agent's authority to enter
into this Agreement and to perform its obligations hereunder).
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9.3(c) No provision of this Agreement shall require
the Credit Agent to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its
duties hereunder or in the exercise of any of its rights or
powers, if, in its sole judgment, it shall believe that
repayment of such funds or adequate indemnity against such
risk or liability is not assured to it.
9.3(d) The Credit Agent is not responsible for
preparing or filing any reports or returns relating to
federal, state or local income taxes with respect to this
Agreement, other than for the Credit Agent's compensation or
for reimbursement of expenses.
9.4 DELEGATION OF DUTIES. The Credit Agent may execute any of
its duties under the Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning
all matters pertaining to such duties. The Credit Agent shall not be
responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
9.5 EXCULPATORY PROVISIONS. Neither the Credit Agent nor any
of its respective officers, directors, employees, agents,
attorneys-in-fact or Affiliates shall be (a) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection with the Loan Documents (except for its or such Person's own
gross negligence or willful misconduct), or (b) responsible in any
manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Company or any officer
thereof contained in the Loan Documents or in any certificate, report,
statement or other document referred to or provided for in, or received
by the Credit Agent under or in connection with, the Loan Documents or
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of the Loan Documents or for any failure of the Company to
perform its obligations under any Loan Document. The Credit Agent shall
not be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in,
or conditions of, the Loan Documents or to inspect the properties,
books or records of the Company or any of its Subsidiaries.
9.6 RELIANCE BY CREDIT AGENT. The Credit Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, consent, certification, affidavit,
letter, cablegram,
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telegram, telecopy, telex or teletype message, statement, order or
other document or conversation reasonably believed by it to be correct
and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including, without
limitation, counsel to the Company), independent accountants and other
experts selected by the Credit Agent. The Credit Agent may deem and
treat the payee of any Note as the owner thereof for all purposes. As
to the Lenders: (a) the Credit Agent shall be fully justified in
failing or refusing to take any action under the Loan Documents unless
it shall first receive such advice or concurrence of the Majority
Lenders or all of the Lenders, as appropriate, or it shall first be
indemnified to its satisfaction by the Lenders ratably in accordance
with their respective Percentage Shares against any and all liability
and expense which may be incurred by it by reason of taking or
continuing to take any action (except for liabilities and expenses
resulting from the Credit Agent's gross negligence or willful
misconduct), and (b) the Credit Agent shall in all cases be fully
protected in acting, or in refraining from acting, under the Loan
Documents in accordance with a request of the Majority Lenders or all
of the Lenders, as appropriate, and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the
Lenders.
9.7 NON-RELIANCE ON CREDIT AGENT OR OTHER LENDERS. Each Lender
expressly acknowledges that neither the Credit Agent nor any of its
respective officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to such Lender
and that no act by the Credit Agent hereafter taken, including any
review of the affairs of the Company, shall be deemed to constitute any
representation or warranty by the Credit Agent to any Lender. Each
Lender represents to the Credit Agent that it has, independently and
without reliance upon the Credit Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, operations,
property, financial and other condition and creditworthiness of the
Company and made its own decision to enter into and make Advances under
the Credit Agreement. Each Lender also represents that it will,
independently and without reliance upon the Credit Agent or any other
Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under the
Credit Agreement, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial
and other
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condition and creditworthiness of the Company. Except for notices,
reports and other documents expressly required to be furnished to the
Lenders by the Credit Agent hereunder, the Credit Agent shall have no
duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, financial or
other condition or creditworthiness of the Company or any Subsidiary
which may come into the possession of the Credit Agent or any of its
respective officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
9.8 CREDIT AGENT IN INDIVIDUAL CAPACITY. The Credit Agent may
make loans to, accept deposits from and generally engage in any kind of
business with the Company as though the Credit Agent was not the Credit
Agent hereunder. With respect to the Advances made or renewed by them
and any Note issued to them, the Credit Agent shall have the same
rights and powers under the Loan Documents as any Lender and may
exercise the same as though it were not the Credit Agent, and the terms
"Lender" and "Lenders" shall include the Credit Agent in its individual
capacity.
9.9 SUCCESSOR CREDIT AGENT. The Credit Agent may resign as
such at any time upon giving 60 days Notice to the Company and the
Lenders. The Credit Agent may be removed immediately with cause or at
any time upon 10 days Notice from the Majority Lenders to the Credit
Agent and the Company. Upon Notice of such resignation or removal, the
Majority Lenders may appoint a successor Credit Agent (which successor
Credit Agent, assuming that no Default or Event of Default exists,
shall be reasonably acceptable to the Company). The date on which the
Company, the Collateral Agent and Lenders have received Notice from
such successor of its acceptance of appointment as the Credit Agent
shall constitute the effective date of resignation or removal of the
resigning or removed Credit Agent. If no successor Credit Agent
shall have been so appointed by the Majority Lenders, and shall have
accepted such appointment within the allotted time period, then, upon 5
days' Notice to the Company, the resigned or removed Credit Agent may,
on behalf of the Lenders, appoint a successor. Upon the effective date
of resignation or removal of the resigning or removed Credit Agent,
such successor will thereupon succeed to and become vested with all the
rights, powers, privileges, and duties of the resigning or removed
Credit Agent, but the resigning or removed Credit Agent shall not be
discharged from any liability as a result of its or its directors',
officers', agents', or employees' gross negligence or willful
misconduct in the performance of its duties and obligations under this
Agreement prior to the effective date
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of its resignation or removal. Upon the effective date of its
resignation or removal, the Credit Agent shall assign all of its right,
title and security interest in and to all Collateral to its successor,
without recourse, warranty or representation, express or implied.
10. 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
party hereto at its address set forth opposite the name of such party
on the signature pages of this Agreement 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.
11. REIMBURSEMENT OF EXPENSES; INDEMNITY.
11.1 REIMBURSEMENT OF EXPENSES AND INDEMNIFICATION BY THE
COMPANY. The Company shall: (a) pay such additional documentation
production fees as the Credit Agent may require and all out-of-pocket
costs and expenses of the Credit Agent and the Collateral Agent and
each Lender, including, without limitation, reasonable fees, service
charges and disbursements of counsel (including allocated costs of
internal counsel), in connection with the preparation, negotiation,
amendment, enforcement and administration of this Agreement, the Notes,
and other Loan Documents and the making and repayment of the Advances
and the payment of interest thereon; (b) indemnify, pay, and hold
harmless the Lenders and any holder of the Notes from and against, any
and all present and future stamp, documentary and other similar taxes
with respect to the foregoing matters and save the Lenders and the
holder or holders of the Notes 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 Credit Agent,
the Collateral Agent and each Lender and any of their respective
officers, directors, employees or agents and any subsequent holder of
the Notes (collectively called the "Indemnitees") from and against any
and all liabilities, obligations, losses, damages,
68
<PAGE>
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 Notes, 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 (c)
shall survive the expiration or termination of this Agreement and the
payment in full of the Notes. 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.
11.2 INDEMNIFICATION BY THE LENDERS. The Lenders agree to
indemnify each of the Credit Agent and the Collateral Agent in its
respective capacity as such (to the extent not reimbursed by the
Company and without limiting the obligation of the Company to do so),
ratably according to the respective amounts of their Percentage Shares,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including without
limitation at any time following the payment of the Obligations) be
imposed on, incurred by or asserted against the Credit Agent or the
Collateral Agent in any way relating to or arising out of the Loan
Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Credit Agent or the Collateral Agent
under or in connection with any of the foregoing; provided that no
Lender shall be liable for the payment of any portion
69
<PAGE>
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the
Credit Agent's or the Collateral Agent's gross negligence or willful
misconduct. The agreements in this Section shall survive the payment of
the Obligations and the termination of this Agreement. 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.
12. FINANCIAL INFORMATION.
All financial statements and reports furnished to the Credit
Agent 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).
13. MISCELLANEOUS.
13.1 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 Notes,
and shall be effective so long as any Lender's commitment is
outstanding hereunder or there remain any Obligations to be paid or
performed.
13.2 LENDERS IN INDIVIDUAL CAPACITY. The Lenders and their
Affiliates may make loans to, accept deposits from and generally engage
in any kind of business with the Company, any Subsidiary, regardless of
the capacity of the Lenders hereunder. The Lenders may disclose to the
other Lenders information regarding other relationships which they may
have with the Company and the Company hereby consents to these
disclosures.
13.3 PARTICIPATION AND ASSIGNMENTS. This Agreement and the
Obligations of the Company may not be assigned by the Company. Any
Lender may, subject to the limitations set forth below, assign or
transfer, in whole or in part, this Agreement and the other Loan
Documents and further may sell participations in all or any part of its
Advances or Maximum
70
<PAGE>
Commitment or any other interest in the Obligations or any of its
obligations hereunder to another Person, in which event: (a) in the
case of an assignment, upon notice thereof by such Lender to the
Company and consent of the Credit Agent, the assignee shall have, to
the extent of such assignment (unless otherwise provided thereby), the
same rights and benefits as it would have if it were a "Lender"
hereunder, and, if the assignee has expressly assumed, for the benefit
of the Company, such Lender's obligations hereunder, such Lender shall
be relieved of its obligations hereunder to the extent of such
assignment and assumption, provided that the Credit Agent shall have no
obligation to consent to there being more than a total of 4 Lenders (a
Participant is not a Lender); and (b) in the case of a participation,
the participating Person's (a "Participant") rights against the Lender
from whom it has purchased such participation in respect of such
participation are those set forth in the agreement executed by such
Lender in favor of the Participant relating thereto. Such Lender shall
remain solely responsible to the other parties hereto for the
performance of such Lender's obligations under the Loan Documents,
whether or not such Lender shall remain the holder of any Note. Such
Lender shall retain all voting rights with respect to such Note, the
Advances hereunder and the Lender's Maximum Commitment. The Company,
the Credit Agent and the other Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights
and obligations under the Loan Documents. Notwithstanding the
foregoing, nothing contained herein shall in any manner or to any
extent affect the right of any Lender to assign its Note and its right
to receive and retain payments on its Note provided such Lender remains
primarily and directly liable pursuant to the terms and conditions of
this Agreement to keep, observe and perform all of its obligations
under this Agreement, and all such assignments shall be treated,
considered and administered as a sale of a participation and not as an
assignment and shall be subject to and governed by the provisions of
this Section. Any Lender may furnish any information concerning the
Company in the possession of such Lender from time to time to
Affiliates of such Lender and to assignees and Participants (including
prospective assignees and Participants) and the Company hereby consents
to the provision of such information.
13.4 COMMITMENT INCREASES.
13.4 (a) At any time and from time to time after the
Closing Date, the Credit Limit may be increased either by an
Additional Lender establishing a Maximum Commitment or by one
or more then existing Lender ("Increase Lender") increasing
its Maximum Commitment
71
<PAGE>
(each such increase by either means, a "Commitment Increase")
provided that no Commitment Increase shall become effective
unless and until (i) the Company, the Credit Agent and the
Additional Lender or the Increase Lender shall have executed
and delivered an amendment to this Agreement with respect to
such Commitment Increase, and (ii) if, after giving effect
thereto, the Credit Limit would exceed $200,000,000, such
Commitment Increase shall have been consented to by each of
the other Lenders. Prior to the effective date ("Effective
Date") of any Commitment Increase, the Company shall issue a
promissory note to the Additional Lender, or to an Increase
Lender, against surrender of its existing Note, in the amount
of such Lender's Maximum Commitment after giving effect to
such Commitment Increase. Such new promissory note or notes
shall constitute a "Note" or "Notes" for the purposes of the
Loan Documents.
13.4(b) On the Effective Date of such Commitment
Increase, the Credit Agent shall recompute the Percentage
Share for each Lender based on the new Credit Limit which
results from the Commitment Increase, and within two (2)
Business Days, the Credit Agent shall request Advances from or
shall direct prepayments to each Lender so that the total
amount of all then outstanding Advances are shared pro rata
with each Lender, pursuant to Section 2.1 hereof.
13.5 AMENDMENTS.
13.5(a) This Agreement may not be amended or terms or
provisions hereof waived unless such amendment or waiver is in
writing and signed by the Majority Lenders, the Credit Agent
and the Company; provided, however, that without the prior
written consent of 1000 of the Lenders, no amendment or waiver
shall: (1) waive or amend any term or provision of `Section
6.3, 6.12, 6.13, 7.6, 7.7, 7.8, 7.9 or 7.10 hereof or the
definition of any type of Collateral or the provisions of
Section 3.5 hereof, (2) reduce the principal of, or rate of
interest or fees on, the Advances or any Lender's Maximum
Commitment, (3) modify the Credit Limit, (4) except as
expressly contemplated by Sections 13.3 and 13.4 hereof,
modify any Lender's Percentage Share of the Credit Limit, (5)
modify the definition of "Majority Lenders," (6) extend the
Maturity Date, (7) amend any part of EXHIBIT M, or (7) amend
this Section. It is expressly agreed and understood that the
failure by the Majority Lenders to elect to accelerate amounts
outstanding hereunder or to terminate the obligation of the
Lenders to make Advances
72
<PAGE>
hereunder shall not constitute an amendment or waiver of any
term or provision of this Agreement.
13.5(b) The Company hereby agrees that it shall, upon
requesting any amendment of this Agreement or any other Loan
Document or any waiver of any material term or provision of
this Agreement or any other Loan Document (except an extension
of the Maturity Date), pay at the time of such request a
modification fee (1) to the Credit Agent in a minimum amount
of $1,000 or such greater amount as may be notified to the
Company by the Credit Agent in its sole discretion and (2) to
each Lender (except any Lender which becomes party to the
Agreement by virtue of such amendment) in a minimum amount of
$500 or such greater amount as may be notified to the Company
by the Majority Lenders, acting through the Credit Agent, in
their sole discretion. The payment of such modification fees
shall be in addition to and shall not limit the Company's
reimbursement obligations pursuant to Article 11 hereof, and
any other fee or charge imposed by the Administrative Agent or
the Lenders as a condition to any amendment.
13.6 OPERATIONAL REVIEWS. From time to time upon request, the
Company shall permit the Credit Agent, any Lender or their
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.
13.7 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.
13.8 RELATIONSHIP OF THE PARTIES. This Agreement provides for
the making of Advances by the Lenders, in their capacities as lenders,
to the Company, in its capacity as a borrower, and for the payment of
interest and repayment of principal by the Company to the Lenders, and
for the payment of certain fees by the Company to the Lenders, the
Credit Agent and the Collateral Agent. The relationship between the
Secured Parties 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 Secured
Parties to protect their interests in assuring payments of interest and
repayment of principal and payment of certain fees, and
73
<PAGE>
nothing contained in this Agreement shall be construed as permitting or
obligating any Secured Party to act as a financial or business advisor
or consultant to the Company, as permitting or obligating any Secured
Party to control the Company or to conduct the Company's operations, as
creating any fiduciary obligation on the part of the Lenders to the
Company, or as creating any joint venture, agency, or other
relationship between or among any 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 Lenders for credit and to execute and deliver this Agreement.
13.9 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.
13.10 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.
13.11 CONSENT TO CREDIT REFERENCES. The Company hereby
consents to the disclosure of information regarding the Company and its
relationships with the Lenders to Persons making credit inquiries to
the Lenders. This consent is revocable by the Company at any time upon
Notice to the Lenders as provided in Section 10 hereof.
13.12 CONSENT TO JURISDICTION. The Company, the Credit Agent
and each of the Lenders hereby agree that any action or proceeding
under the Loan Documents, the Notes 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 such Person at its address last designated
under the Notices provisions herein. The Company, the Credit Agent and
each of the Lenders agree that any such suit, action or proceeding
arising out of or relating to this
74
<PAGE>
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,
the Credit Agent and each of the Lenders hereby waive 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.
13.13 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.
13.14 ENTIRE AGREEMENT. This Agreement, the Notes 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.
13.15 WAIVER OF JURY TRIAL. THE COMPANY, THE CREDIT AGENT AND
EACH OF THE LENDERS HEREBY (a) COVENANTS AND AGREES NOT TO ELECT A
TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (b) FULLY
WAIVES ANY RIGHT TO TRIAL BY JURY TO THE EXTENT THAT ANY SUCH RIGHT NOW
EXISTS OR HEREAFTER ARISES. THE COMPANY, AGENT AND EACH OF THE LENDERS
GIVES THIS WAIVER OF RIGHT OF JURY TRIAL KNOWINGLY AND VOLUNTARILY.
THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY
AND VOLUNTARILY, BY THE COMPANY, THE CREDIT AGENT AND EACH OF THE
LENDERS, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH
INSTANCE AND EACH ISSUE FOR WHICH THE RIGHT OF A JURY TRIAL WOULD
OTHERWISE ACCRUE. THE CREDIT AGENT, THE LENDERS AND THE COMPANY ARE
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 THIS WAIVER OF THE RIGHT TO JURY
TRIAL. FURTHER, THE CREDIT AGENT, THE COMPANY AND EACH OF THE LENDERS
HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF ANY OF THEM,
RESPECTIVELY, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF THE
UNDERSIGNED THAT THE CREDIT AGENT, THE COMPANY OR ANY OF THE LENDERS
WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
COMPANY:
MORTGAGE.COM, INC.,
a Florida corporation,
f/k/a First Mortgage Network, Inc.
By: /s/ MICHAEL BRENNER
-------------------------------------------
Its: SVP and General Counsel
------------------------------------------
Notice Address:
Mortgage.Com, Inc.
8751 Broward Boulevard
Plantation, FL 33324
Attention: Edwin Johnson,
CFO
-------------------------------------------
Telecopier No.: (954) 472-0800
-------------------------------
CREDIT AGENT:
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /S/ JIM CLAPP
-------------------------------------------
Its: Director
Notice Address:
4800 Montgomery Lane
Suite 300
Bethesda, Maryland 20814
Attention: Jim Clapp
Director
Telecopier No.: (301) 215-6288
LENDERS:
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /S/ JIM CLAPP
-------------------------------------------
Its: Director
Notice Address:
4800 Montgomery Lane
Suite 300
Bethesda, Maryland 20814
Attention: Jim Clapp
Director
Telecopier No.: (301) 215-6288
76
<PAGE>
BANK UNITED,
a federa1 savings bank
By: /S/ JOHN WEST
-------------------------------------------
Its: Director
Notice Address:
3200 Southwest Freeway, Suite 2660
Houston, TX 77027
Attention: Janet Grove, Esq.
Telecopier No. (713) 543-6469
STATE OF FLORIDA FLORIDA )
) ss
COUNTY OF BROWARD BROWARD )
On November 12, 1999 before me, a Notary Public, personally appeared
Michael Brenner, the Sr. VP/General Counsel of MORTGAGE.COM, INC., a Florida
corporation, f/k/a First Mortgage Network, Inc., 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/ RITA A. OCCHIONERO
----------------------------------------------
Notary Public
(SEAL) My Commission Expires: 12/18/01
[NOTARY PUBLIC STAMP]
RITA A. OCCHIONERO
COMISSION #CC 703550
EXPIRES DEC 18, 2001
BONDED THRU
ATLANTIC BONDING CO., INC.
77
<PAGE>
STATE OF MARYLAND )
) ss
COUNTY OF MONTGOMERY )
On November 15, 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 von dem HAGEN
----------------------------------------------
Notary Public
My Commission Expires:
------------------------
(SEAL)
[NOTARY PUBLIC STAMP]
STEPHANIE von dem HAGEN
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires October 15, 2001
STATE OF GEORGIA )
) ss
COUNTY OF FULTON )
On November 16, 1999 before me, a Notary Public, personally appeared
John West, the Director of BANK UNITED, a federal savings bank, 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/ CATHY WILLIAMS
----------------------------------------------
Notary Public, Fulton County, Georgia
My Commission Expires September 30, 2001
(SEAL)
[NOTARY PUBLIC STAMP]
NOTARY PUBLIC, FULTON COUNTY, GEORGIA
MY COMMISSION EXPIRES SEPTEMBER 30, 2001
78
EXHIBIT 10.23a
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED
WAREHOUSING CREDIT AND SECURITY AGREEMENT
(SYNDICATED AGREEMENT)
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED WAREHOUSING CREDIT
AND SECURITY AGREEMENT (SYNDICATED AGREEMENT) (this "Amendment") is entered into
as of this 17th day of December, 1999, by and among MORTGAGE.COM, INC., a
Florida corporation, f/k/a First Mortgage Network, Inc. (the "Company"),
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation ("RFC"), and BANK
UNITED, a federal savings bank ("Bank United") (RFC, Bank United and any
Additional Lender as may from time to time become parties hereto are referred to
as the "Lenders"), and RFC as credit agent for the Lenders (in such capacity,
the "Credit Agent").
WHEREAS, the Company, the Lenders and the Credit Agent have entered
into a revolving warehouse facility with a present Credit Limit of $90,000,000
(the "Commitment"), as evidenced by a Second Amended and Restated Warehousing
Credit and Security Agreement (Syndicated Agreement) dated November 12, 1999, as
the same may have been amended or supplemented (the "Agreement");
WHEREAS, the Company has requested the Lenders to increase the wet
settlement sublimit, and the Lenders have agreed to such increase in the wet
settlement sublimit 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
December 21, 1999, the date on which the Company has complied with all the terms
and conditions of this Amendment.
3. The EXHIBIT M attached to the Agreement is hereby deleted in its
entirety and replaced with the new EXHIBIT M attached to this Amendment. All
references in the Agreement to EXHIBIT M shall be deemed to refer to the new
EXHIBIT M.
1
<PAGE>
4. The Company shall deliver to the Credit Agent (a) an original of
this Amendment, executed by the Company, the Lenders and the Credit Agent, (b)
an executed Certificate of Secretary with corporate resolutions, (c) a
modification fee in the amount of $500 each payable to Bank United and RFC; and
(d) a documentation fee in the amount of $125 payable to the Credit Agent.
5. The Company represents, warrants and agrees that (a) 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,
(b) the Lenders are not in default under any of the Loan Documents and the
Company has no offset or defense to their performance or obligations under any
of the Loan Documents, (c) the representations contained in the Loan Documents
remain true and accurate in all respects, and (d) there have been no material
adverse change in the financial condition of the Company, from the date of the
Agreement to the date of this Amendment.
6. 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.
7. 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 Lenders have caused this
Amendment to be duly executed on their behalf by their duly authorized officers
as of the day and year above written.
COMPANY:
MORTGAGE.COM, INC.,
a Florida corporation,
f/k/a First Mortgage Network, Inc.
By: /S/ EDWIN JOHNSON
-------------------------------
Its: CFO
-----------------------------
Notice Address:
Mortgage.Com, Inc.
8751 Broward Boulevard
Plantation, FL 33324
Attention: Edwin Johnson
Telecopier No.: 1-888-351-9588
-------------------
2
<PAGE>
STATE OF FLORIDA )
) ss
COUNTY OF BROWARD )
On December 22, 1999 before me, a Notary Public, personally appeared
Edwin Johnson, the CFO of MORTGAGE.COM, INC., a Florida corporation, f/k/a First
Mortgage Network, Inc., 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/ RITA A. OCCHIONERO
-----------------------------
Notary Public
(SEAL) My Commission Expires: 12/18/01
3
<PAGE>
CREDIT AGENT:
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ JIM CLAPP
-------------------------------
Its: Director
Notice Address:
4800 Montgomery Lane
Suite 300
Bethesda, Maryland 20814
Attention: Jim Clapp
Director
Telecopier No.: (301) 215-6288
LENDERS:
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ JIM CLAPP
-------------------------------
Its: Director
Notice Address:
4800 Montgomery Lane
Suite 300
Bethesda, Maryland 20814
Attention: Jim Clapp
Director
Telecopier No.: (301) 215-6288
STATE OF MARYLAND )
) ss
COUNTY OF MONTGOMERY )
On December 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 VON DEM HAGEN
--------------------------------------
Notary Public
My Commission Expires:
(SEAL) ----------------
STEPHANIE von dem HAGEN
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires October 15, 2001
4
<PAGE>
BANK UNITED,
a federal savings bank
By: [ILLEGIBLE]
-----------------------------------
Its: Regional Director
----------------------------------
Notice Address:
1629 Indian River Drive
--------------------------------------
Cocoa, Florida 32922
--------------------------------------
Attention:
----------------------------
Telecopier No. (407) 638-3399
------------------------
STATE OF FLORIDA )
) ss
COUNTY OF BREVARD )
On December 22, 1999 before me, a Notary Public, personally appeared
Melanie Canington, the Regional Director of BANK UNITED, a federal savings bank,
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/ ANNIE CHARLENE WHALEY
-----------------------------------------
Notary Public
My Commission Expires: December 1, 2001
(SEAL) -------------------
5
EXHIBIT 10.25
FIRST AMENDMENT TO MASTER LEASE AGREEMENT NO. 10571
This First Amendment dated November 5, 1998, to Master Lease Agreement No. 10571
dated April 1, 1998 (the "Lease"), is entered into by and between First Mortgage
Network, Inc. (the "Lessee") and Dominion Ventures, Inc. (the "Lessor").
WHEREAS, Lessee has requested that additional equipment be purchased under the
Master Lease Line;
NOW THEREFORE, the parties hereto agree to amend the Lease as follows:
1. The Funding Expiration Date of June 30, 1998 as set forth in
the Master Lease Agreement No. 10571 shall be amended to
February 26, 1999.
2. The Master Lease Line shall be increased by $925,000.00 for a
total of $1,595,500.00.
3. The Advance Rental Amount of $37,682.10 as specified in the
Master Lease Agreement shall be increased by $51,985.00 (plus
applicable taxes) for a total of $89,667.10(plus applicable
taxes), which shall be paid to Lessor upon execution of the
First Amendment and shall be credited to the last complete
calendar month's rent for each item of Equipment, subject to
the conditions set forth in paragraph 5 of the Lease.
4. The second sentence in Paragraph S of the Leas.; shall be
deleted and replaced with the following:
"A pro-rata portion of the Advance Rental shall be deemed
to prepay as of the date of this Lease the first and last
Rental Payment for each schedule."
Except as specifically provided herein, all terms and conditions of the Lease
shall remain in full force and effect, without waiver or modification.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed
as of the date first written above.
LESSEE: FIRST MORTGAGE NETWORK, INC.
By: /s/ SETH WERNER
------------------------------------
Its: President / CEO
LESSOR: DOMINION VENTURES, INC.
By: /s/ [ILLEGIBLE]
------------------------------------
Its: President
EXHIBIT 10.33
LEASE
THIS LEASE AGREEMENT (the "Lease") is made and entered into as of the
23rd day of June, 1999 by and between ACP OFFICE I, L.L.C. ("Landlord"), whose
address for purposes hereof is 3440 Hollywood Boulevard, Suite #360, Hollywood,
Florida 33021 and MORTGAGE.COM, a Florida corporation ("Tenant"), whose
addresses for purposes hereof is 8751 Broward Blvd., Plantation, Florida 33324.
PREMISES
1. Subject to and upon the terms, provisions, covenants and conditions
set forth in this Lease, and each in consideration of the duties, covenants and
obligations of the other hereunder, Landlord leases, demises and lets to Tenant
and Tenant leases, demises and lets from Landlord the "Premises" (as hereinafter
defined) withih the office buildings designated as Buildings H and J on EXHIBIT
A attached hereto and made a part hereof having an address of 1643 North
Harrison Parkway, Sunrise, Florida 33323 ("collectively Building"). "Premises"
shall mean the 34,825 square feet of Rentable Area of office space on the second
floor of Building H ("Office Area") and the seventy-six thousand nine hundred
eighty-nine (76,989) square feet of Rentable Area of ground floor spaced located
on the ground floor of Building H and the portion of the ground floor of
Building J as shown on the floor plan attached hereto and made a part hereof as
EXHIBIT A ("Ground Floor Area"). The parties hereby agree that the "Rentable
Area" of the Premises is stipulated to be one hundred eleven thousand eight
hundred fourteen (111,814) square feet.
Notwithstanding anything contained in this Lease to the
contrary, even though the Premises are located on the property located in
Sunrise, Florida, described on EXHIBIT B ("Land"), the Tenant's use of portions
of the Land located outside of the Premises shall be the non-exclusive right to
use the "Common Areas" (as hereinafter defined) to the extent such Common Areas
are made available for use by tenants of the Project generally. Tenant
specifically acknowledges Landlord shall have the right and reserves for itself
the right to grant third parties, easements to use all exterior portions of the
Building and/or the Land, including, but not limited to, the drives, parking
area, landscape, covered walkways, exterior elevators, overhangs, green areas,
roof areas and such other areas as may be developed and/or redeveloped from time
to time upon the Land with any improvements thereon (the Land with all
improvements thereon is the "Project").
TERM
2.1 This Lease shall be for the term of one hundred twenty (120)
calendar months (the "Initial Term" or "Term"), commencing upon a date
("Commencement Date") which is the earlier of (i) Tenant's occupancy of the
Premises; or (ii) one-hundred twenty (120) days after issuance of a building
permit for leasehold improvements to the Premises; or (iii) one-hundred eighty
(180) days after June 23, 1999 unless sooner terminated or extended as provided
herein. Upon substantial completion of tenant improvements, defined as
completion of items required of Landlord on EXHIBIT "D" (exclusive of punch list
items), occupancy by Tenant of any part of the Premises for the
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conduct of its business therein or Landlord's receipt of a temporary or final
certificate of occupancy or such earlier date as the Commencement Date shall
occur, as above provided Tenant agrees to execute a Tenant Acceptance Letter
(attached as "EXHIBIT C") acknowledging acceptance of the Premises and the
Commencement Date of the Lease.
If Tenant, with Landlord's consent, shall occupy the Premises
prior to the beginning of the Term as specified above, all provisions of this
Lease shall be in full force and effect commencing upon such occupancy, and
"Rent" (as hereafter defined) for such period shall be paid by Tenant at the
same rate herein specified.
The first "Lease Year" shall begin on the Commencement Date
and shall extend through the last day of the twelfth (12th) full calendar month
thereafter. Thereafter, each "Lease Year" shall commence on the date following
the expiration of the preceding Lease Year and shall end on the expiration of
twelve (12) calendar months thereafter; provided, however, that the last "Lease
Year" shall end on the expiration date of this Lease.
2.2 The Tenant shall have the right to extend the Term of this Lease
for two (2) additional periods of five (5) years each (each period being an
"Extension Term"). The first period commencing on the day following the
expiration of the Initial Term ("Commencement of First Extension Term") and
ending on the last day of the calendar month in which the day preceding the
fifth anniversary of the Commencement of the First Extension Term occurs, unless
sooner terminated ("First Extension Term") and the second period commencing on
the day following the expiration of the First Extension Term ("Commencement of
the Second Extension") and ending on the last day of the calendar month on the
day preceding the fifth anniversary of the Commencement of the Second Extension
Term occurs, unless sooner terminated ("Second Extension Term"), provided that
(i) the Tenant shall give Landlord notice ("Extension Notice") at least twelve
(12) months prior to the expiration of the Term then in effect, and (ii) there
shall be no "Event of Default" (as hereinafter defined) of Tenant which remains
uncured as of the time of giving such Extension Notice.
Within thirty (30 ) days after receipt of each Extension
Notice, the Landlord will deliver a lease addendum specifying the "Market Rate"
for such extension ("Extension Addendum"). The Tenant will have fifteen (15)
days from receipt of Landlord's proposed Extension Addendum to execute such
Extension Addendum and deliver same to Landlord, which would constitute an
extension of this Lease. The Base Rent payable by Tenant to Landlord during each
Lease Year of the (a) first Extension Term shall be the Market Rate as set forth
in the Extension Addendum (as determined by Landlord within thirty (30) days
after Landlord's receipt of such Extension Notice as to the First Extension
Term) and (b) the second Extension Term shall be the Market Rate as set forth in
the Extension Addendum (as determined by Landlord within thirty (30) days after
Landlord's receipt of the Extension Notice with regard to the Second Extension
Term).
In addition to the Base Rent set forth above, the Tenant shall
pay throughout the Term all other monetary obligations attributable to the
Premises, including all Additional Rent, and shall
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be required to pay and perform all other obligations required to be paid and
performed pursuant to this Lease, except that the Base Rent shall be adjusted as
set forth above. Notwithstanding anything contained herein to the contrary, in
no event shall Tenant have the right to extend the Term unless Tenant timely and
properly exercises the Extension Notice with respect to such applicable
extension. The termination of this Lease during the Term hereof shall also
terminate and render void any remaining options or right on the part of Tenant
to extend the Term of this Lease.
2.3 The Initial Term as extended pursuant to Section 2.2 is referred to
as "Term" or "Lease Term."
BASE RENT
3.1 "Base Rent" shall mean the amount payable each Lease Year set forth
below, together with sales tax thereon.
(GROUND FLOOR AREA)
LEASE SQUARE RENT RENT/ RENT/
YEAR FOOT SQ/FT MONTH YEAR
----- ------ --------- ------------- --------------
1 76,989 $ 10.25 $ 65,761.44 $ 789,137.25
2 76,989 $ 10.45 67,044.59 804,535.05
3 76,989 $ 10.65 68,327.74 819,932.85
4 76,989 $ 10.86 69,675.05 836,100.54
5 76,989 $ 11.07 71,022.35 852,268.23
6 76,989 $ 11.29 72,433.82 869,205.81
7 76,989 $ 11.52 73,909.44 886,913.28
8 76,989 $ 11.75 75,385,06 904,620.75
9 76,989 $ 11.99 76,924.84 923,098.11
10 76,989 $ 12.24 78,528.78 942,345.36
(SECOND FLOOR AREA)
1 34,825 $ 13.00 37,727.08 452,725.00
2 34,825 13.28 38,539.67 462,476.00
3 34,825 13.57 39,381.27 472,575.25
4 34,825 13.86 40,222.88 482,674.50
5 34,825 14.16 41,093.50 493,122.00
6 34,825 14.47 41,993.15 503,917.75
7 34,825 14.79 42,921.81 515,061.75
8 34,825 15.12 43,879.50 526,554.00
9 34,825 15.46 44,866.21 538,394.50
10 34,825 15.81 45,881.94 550,583.25
Lease Aggregate Base Rent $13,626,241.23
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During any extension of the Term, the Base Rent would be based
on the Market Rate as provided in Section 2.2. Tenant shall pay Landlord,
without previous demand therefore, and without any off-sets or deductions
whatsoever, the Rent for each Lease Year during the Term, which Base Rent shall
be payable in equal monthly installments payable on the first day of each month
in advance.
3.2 Each payment of Base Rent and/or Additional Rent (collectively
referred to as "Rent") shall be without any offset or deduction whatever, on or
before the first day of the month, in lawful (legal tender for public or private
debts) money of the United States of America, at the ACP OFFICE I, L.L.C., 444
Brickell Avenue, Suite 1001, Miami, Florida 33131 or elsewhere as designated
from time to time by Landlord's written notice to Tenant.
In addition to Base Rent, Tenant shall pay to Landlord each
month a sum equal to any sales tax, tax on rentals, and any other charges, taxes
and/or impositions now in existence or hereafter imposed based upon the
privilege of renting the space leased hereunder or upon the amount of rentals
collected therefor. Nothing herein shall, however, be taken to require Tenant to
pay any part of any Federal and State Taxes on income imposed upon Landlord.
If a Rent payment is not received within five (5) business
days after its due date, Landlord shall be entitled, in addition to any other
remedy that may be available, to an administrative fee and late charge of five
percent (5%) of the rent payment or Two Hundred Dollars ($200.00), whichever
amount is greater.
3.3 In addition to the Base Rent, Tenant shall pay to Landlord without
demand on the first day of each month during the Term as Additional Rent,
"Tenant's Proportionate Share of Operating Expenses" and "Tenant's Proportionate
Share of Taxes" (as those terms are hereinafter defined).
"Tenant's Proportionate Share of Operating Expenses" shall
mean 17.39%.
"Tenant's Proportionate Share of Taxes" shall mean 17.39%.
In the event that additional rentable square footage is
constructed upon the Project, above and beyond that which exists as of the date
of the execution of this Lease by Landlord and Tenant, then the Tenant's
Proportionate Share of Operating Expenses and the Tenant's Proportionate Share
of Taxes shall be equitably adjusted based on the same formula that such
percentages were calculated by Landlord based on the existing square footage of
rentable area within the Project. Promptly following the Commencement Date and
each year thereafter with respect to each calender year ("Fiscal Year")
occurring during the Term of this Lease or any renewals thereof, Landlord shall
deliver to Tenant a documented statement setting forth Landlord's reasonable
estimate of the Operating Expenses and Taxes for the then current Fiscal Year
(and pro rata for any portion of the
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month) and Tenant shall pay, as Additional Rent, an amount equal to one-twelfth
(1/12) of the estimated Tenant's Proportionate Share of Operating Expenses and
Tenant's Proportionate Share of Taxes in advance on the first day of each month,
together with each payment of Base Rent. Landlord's failure to render or delay
in rendering Landlord's estimate of Operating Expenses and Taxes or any
component of Operating Expenses and Taxes shall not prejudice Landlord's right
to thereafter render an estimate of Operating Expenses and Taxes for such Fiscal
Year or any component nor shall the rendering of Landlord's estimate of
Operating Expenses and Taxes prejudice Landlord's right to thereafter render
corrected estimates) of Operating Expenses and Taxes. If, however, Landlord
shall not furnish any such estimates) or if Landlord shall delay in furnishing
any such estimate(s), then: (i) until the first day of the month following the
month which is thirty (30) days after the date such estimate is furnished to
Tenant, Tenant shall pay to Landlord on the first day of each month an amount
equal to the monthly sum payable by Tenant to Landlord in respect to the last
month of the preceding Fiscal Year; and (ii) if after such estimate is furnished
to Tenant, Landlord shall give notice to Tenant, stating whether the installment
of Operating Expenses and Taxes previously made for such Fiscal Year were
greater or less than the installment of Operating Expenses and Taxes which
should have been due for such Fiscal Year in accordance with such estimates and
(a) if there shall be a deficiency, the Tenant shall pay the amount thereof
within thirty (30) days after demand therefor or (b) if there shall have been an
overpayment, Landlord shall refund to Tenant the amount thereof within thirty
(30) days or apply same to the next installments of Operating Expenses and Taxes
payable by Tenant.
After the end of each Fiscal Year (and Landlord shall endeavor
to do so within one hundred eighty (180) days after the end of each Fiscal
Year), Landlord shall determine the actual Operating Expenses incurred during
the preceding Fiscal Year and shall furnish Tenant with a statement of such
actual Operating Expenses for such Fiscal Year ("Landlord's Statement") and
there shall be an adjustment between Landlord and Tenant, with payment to
Landlord or to Tenant, as the case may be, which shall be made within thirty
(30) days of the date of such Landlord's Statement. In any case provided in this
Section in which Tenant is entitled to receive a refund, the Landlord may, in
lieu of allowing such refund, credit against such future installments of Rent,
any amounts to which Tenant shall be entitled. Nothing in this Article shall be
construed so as to result in a decrease of the Rent hereunder. If this Lease
shall expire before any such credit shall have been fully applied, then
(provided Tenant is not in Default) Landlord shall refund to Tenant the
unapplied balance of such credit. Tenant (or its authorized representatives)
shall have the right, (at Tenant's sole cost and expense) at anytime after
delivery of Landlord's Statement for the prior Fiscal Year and prior to a date
ending ninety (90) days after delivery of such Landlord's Statement to inspect
Landlord's records which are directly relevant to the Operating Expenses for the
prior Fiscal Year ("Records"). In the event Tenant shall not object to
Landlord's Statement within such ninety (90) day period, then Landlord's
Statement shall be binding on the Tenant. In connection with any examination by
Tenant of Landlord's records, Tenant agrees to treat and to require its
employees, accountants and agents to treat all information as confidential and
not to disclose it to any other person; Tenant will confirm or cause its agents
or otherwise authorized representatives to confirm such agreement in a separate
written agreement, if requested by Landlord. In the event Tenant's
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inspection determines that Landlord has overstated Operating Expenses by more
than five percent (5%) of such Operating Expenses, then Landlord shall reimburse
Tenant for its reasonable expenses in auditing such Operating Expenses. In the
event Tenant's audit of Landlord's records discovers an overpayment or an
underpayment, Landlord and Tenant shall within thirty (30) days of such
determination, pay or credit to the other, as applicable, the amount of the
discrepancy.
Landlord's failure to render or delay in rendering a
Landlord's Statement with respect to any Fiscal Year or any component of the
Operating Expenses shall not prejudice Landlord's rights to thereafter render a
Landlord's Statement with respect to such Fiscal Year or any such component nor
shall the rendering of a Landlord's Statement for any Fiscal Year prejudice
Landlord's right to thereafter render a corrected Landlord's Statement for such
Fiscal Year. Landlord's failure to render or delay in rendering a bill with
respect to any installment of Taxes shall not prejudice Landlord's right to
thereafter render such a bill for such installment, nor shall the rendering of a
bill for any installment prejudice Landlord's right to thereafter render a
corrected bill for any such installment.
After the expiration of the Term, Landlord shall deliver to
Tenant a statement setting forth: (i) Tenant's Proportionate Share of Operating
Expenses prorated during the final Lease Year, up to and including the date of
expiration of the Term; and (ii) any underpayment or overpayment of same based
on Tenant's payment of Tenant's Proportionate Share of the projected Operating
Expenses made during the final Lease Year. In the event of any such
underpayment, Tenant shall pay the full amount of same to Landlord within
fifteen (15) days of demand. If Tenant has overpaid, Landlord shall reimburse
Tenant the full amount of such overpayment within fifteen (15) days of demand;
provided, however, in the event that the Tenant shall owe Landlord any monies,
then the Landlord shall have the right to apply the amount which would otherwise
be reimbursed to Tenant toward any monies owed by Tenant to Landlord. The
respective obligations of the parties hereto. pursuant to this Section shall
survive the termination of this Lease.
For purposes hereof, Operating Expenses shall be based upon
the Fiscal Year, and with respect to the share thereof to be paid by Tenant,
prorated for any partial Fiscal Year during the Term thereof.
Landlord agrees that the maximum amount that Tenant shall be
required to pay for Tenant's Proportionate Share of Operating Expenses and
Tenant's Proportionate Share of Taxes during the calendar year 1999 shall be an
aggregate of (i) Four Dollars ($4.00) per square foot of the Rentable Area of
the Office Area portion of the Premises (exclusive of electric and j anitorial
charges and exclusive of sales taxes); and (ii) Three and 50/100 Dollars ($3.50)
per square foot of the Rentable Area of the Ground Floor Area portion of the
Premises (exclusive of electric and janitorial charges and exclusive of sales
taxes).
Additionally, during the third Lease Year through the tenth
Lease Year, inclusive, the Landlord agrees that increases in Landlord's
controllable Operating Expenses (excluding taxes, insurance and utilities) will
not exceed five percent (5%) of the amount of such controllable
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Operating Expenses existing during the previous Lease Year. The parties
recognize and agree that the amount of the Operating Expenses which are not
controllable Operating Expenses, include, but are not limited to, taxes,
insurance and utility expenses.
"Operating Expenses" shall mean all expenses, costs and
disbursements, of every kind and nature which Landlord shall pay or become
obligated to pay because of or in connection with the ownership, maintenance
and/or operation of the Project, (which shall not include cost of individual
tenant improvements or management cost associated with leasing activities). By
way of explanation and clarification, but not by way of limitation, these
Operating Expenses will include the following:
(a) Wages and salaries of all employees engaged in operation
and maintenance of the Project, employer's social security taxes, unemployment
taxes or insurance, and any other taxes which may be levied on such wages and
salaries, the cost of disability and hospitalization insurance, pension or
retirement benefits, and any other fringe benefits for such employees.
(b) All supplies and materials used in operation and
maintenance of the Project.
(c) Cost of all utilities, including water, sewer,
electricity, gas and fuel oil used by the Project and not charged directly to
another tenant.
(d) Cost of Project management, janitorial services,
accounting and legal services, trash and garbage removal, servicing and
maintenance of all systems and equipment including, but not limited to,
elevators, plumbing, heating, air conditioning, ventilating, lighting,
electrical, security and fire alarms, fire pumps, fire extinguishers and hose
cabinets, mail chutes, guard service, alarm system, painting, window cleaning,
landscaping and gardening.
(e) Cost of casualty and liability insurance applicable to the
Project and Landlord's personal property used in connection therewith.
(f) Cost of capital improvements, provided said capital
improvements are intended to reduce other Operating Expenses or are a result of
government requirements, excluding any such capital improvements required to
cure existing violations of law as of the date hereof. Said capital improvements
shall be amortized over their deemed useful life.
(g) Costs arising from implementation of Legal Requirements of
Legal Authorities (defined below).
Landlord agrees to maintain accounting books and records
reflecting Operating Expenses of the Project in accordance with generally
accepted accounting principles.
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(i) Notwithstanding the above, Operating Expenses shall
exclude marketing or advertising costs for the Project, leasing and brokerage
commissions and fees, executive or managerial salaries above the level of
management, consulting fees, fees paid to architects, engineering, attorneys or
other professionals, penalties incurred by the Landlord as a result of its
failure to pay taxes or any other obligation on time, points, fees and interest
charges, principal payments or other payments of any kind related to Landlord's
financing of the Project or any part thereof, any cost resulting from Landlord's
default under a lease or other agreement, the cost of containing, removing or
otherwise remediating any contamination or other environmental liability, any
cost resulting from the sale or transfer of the Project or any portion thereof,
expenses resulting from defective construction or other work, costs arising for
the negligent or other improper performance or non-performance of Landlord,
coifs which are reimbursed by any tenant or occupant of the Project or by
insurance, or any cost of work which is performed at the expense of Landlord
under any other provision of this Lease.
"Taxes" shall mean all impositions, taxes, assessments
(special or otherwise), water and sewer charges and rents, and other
governmental liens or charges of any and every kind, nature and sort whatsoever,
ordinary and extraordinary, foreseen and unforeseen, and substitutes therefor,
including all taxes whatsoever (except only those taxes of the following
categories: any inheritance, estate succession, transfer or gift taxes imposed
upon Landlord or any income taxes specifically payable by Landlord as a separate
tax paying entity without regard to Landlord's income source as arising from or
out of the Project and/or the land on which it is located) attributable in any
manner to the Project, the land on which the Building is located, the ground
leasehold interest of Landlord, or the rents (however the term may be defined)
receivable therefrom or any part thereof, or any use thereof, or any facility
located therein or thereon or used in conjunction therewith or any charge or
other payment required to be paid to any governmental authority, whether or not
any of the foregoing shall be designated "real estate tax", "sales tax", "rental
tax", "excise tax", "business tax", or designated in any other manner.
Landlord's calculation of Taxes shall be made using the maximum discount allowed
by Law.
Additional Rent due by reason of the provisions of this
subsection 3.3 for the final months of this Lease is due and payable even though
it may not be calculated until subsequent to the termination date of the Lease;
the Operating Expenses and Taxes for the calendar year during which the Lease
terminates shall be prorated according to that portion of said calendar year
that this Lease was actually in effect. Tenant expressly agrees that Landlord,
at Landlord's sole discretion, may apply the security deposit specified in
section 5 hereof, if any, in full or partial satisfaction of any Additional Rent
due under this Lease and not paid when required to be paid. If said security
deposit is greater than the amount of any` such Additional Rent and there are no
other sums or amounts owed Landlord by Tenant by reason of any other terms,
provisions, covenants or conditions of this Lease, then within thirty (30) days
after the end of the Term Landlord shall refund the balance of said security
deposit to Tenant as provided in section 5. Nothing herein contained shall be
construed to relieve Tenant, or imply that Tenant is relieved, of the liability
for or the obligation to pay any Additional Rent due for the final month of this
Lease by reason of the provisions of this Lease if said
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security deposit is less than such Additional Rent, nor shall Landlord be
required to first apply said security deposit to such Additional Rent if there
are any other sums or amounts owed Landlord by Tenant by reason of any other
terms, provisions, covenants or conditions of this Lease.
3.4 It shall be the responsibility of Tenant to pay for all
utilities with respect to the Premises when due to Landlord or to utility
companies, as applicable. Tenant shall take all necessary actions to assure that
no liens arise against the Premises or other portion of the Project as a result
of Tenant's failure to pay for water, sewer, electricity, telephone or other
charges, which expenses shall in no event exceed that which Tenant would pay if
the Premises had been separately metered. To the extent that the utilities are
separately metered the Tenant shall pay all such utilities directly to the
applicable utility authority. To the extent the utilities are submetered then
the Tenant shall pay to Landlord the amount reasonably determined and allocated
by Landlord as being the utilities incurred in connection with Tenant's use of
the Premises. To the extent the utilities serving the Premises are not
separately metered or submetered, then the Landlord shall have the right to
cause such utilities for the Premises to be included as a portion of the
Operating Expenses. In no event shall Landlord be responsible for the quality,
quantity, failure or interruption of any of such utility services to the
Premises and/or any other portion of the Project unless the failure to provide
such utilities shall be caused by the willful act or omission of the Landlord.
Tenant shall not, without Landlord's prior written consent,
connect any additional electrical equipment of any type to the Project's
electrical distribution system, beyond that on Tenant's approved plans and
specifications for initial occupancy other than office machines which consume
comparable amounts of electricity. Tenant's use of electrical current shall
never exceed the capacity of the then existing electrical conductors and
equipment in or otherwise serving the Premises. In order to insure that such
capacity is not exceeded and to avert possible adverse effect on the Project's
distribution of electricity via the Project's electrical system, Tenant shall
not, without Landlord's prior written consent in each instance (which shall not
be unreasonably withheld, based on availability of electric energy in the
Project as allocated by Landlord to various areas of the Project), connect any
fixture, appliance or equipment (other than normal business machines which do
not materially increase Tenant's electrical consumption) to the Project's
electrical system or make any alterations or additions to the electrical system
of the Premises existing on the Commencement Date. Should Landlord grant such
consent, all additional risers or other equipment reasonably required therefor
shall be provided by Landlord, and the cost thereof shall be paid by Tenant to
Landlord within thirty (30) days of demand. Landlord shall have the right to
require Tenant to pay sums on account of such costs prior to the installation of
any such risers or equipment. Tenant will at all times comply with the
reasonable rules and regulations applicable to service, equipment, wiring, and
requirements of public utilities supplying electricity to the Building and such
reasonable rules and regulations enacted by Landlord with respect to minimizing
the unnecessary use of electrical service.
3.5 In addition to the foregoing Rent, all other payments to be made by
Tenant hereunder shall be deemed, for the purpose of securing the collection
thereof, to be Additional Rent
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hereunder, whether or not the same be designated as such, and shall be due and
payable on the earlier to occur of the date specified in this Lease or within
thirty (30) days of demand, and Landlord shall have the same rights and remedies
upon Tenant's failure to pay the same as for the nonpayment of the Rent.
Landlord, at its election, shall have the right (but not the obligation) to pay
for or perform any act which requires the expenditure of any sums of money by
reason of the failure or neglect of Tenant to perform any of the provisions of
this Lease beyond any applicable notice and/or cure period, and, in the event
Landlord shall, at its election, pay such sums or perform such acts requiring
the expenditure of monies, Tenant agrees to reimburse and pay Landlord, within
thirty (30) days of demand, or together with the next installment of Base Rent,
whichever shall first occur, all such sums which shall be deemed to be
Additional Rent hereunder and be payable by Tenant as such. If Landlord effects
such cure of any default by Tenant by bonding any lien which Tenant is required
to bond to satisfy any other obligation required to be performed by Tenant,
Tenant shall obtain and substitute a bond for Landlord's bond, at its sole cost
and expense, and reimburse Landlord for the cost of Landlord's bond.
3.6 Any reference in this Lease to "Rent" or "rent" includes
Base Rent and Additional Rent.
TIME OF PAYMENT
4. Tenant shall promptly pay Base Rent, as the same may be adjusted
from time to time, and Additional Rent and charges for work performed on order
of Tenant, and any other charges that accrue under this Lease, at the times and
place stated in this Lease.
SECURITY DEPOSIT
5. Tenant, concurrently with the execution of this Lease, will deliver
to Landlord a security deposit in the amount of Two Million Nine Hundred
Thirty-Nine Thousand Fifty and No/100 Dollars ($2,939,050.00) ("Security
Deposit"). In the event that Tenant shall incur hard costs in connection with
the installation of its "Tenant Work" (as hereinafter defined on EXHIBIT D),
which exceed the amount of the "Allowance Amount" (as those terms are
hereinafter defined) and provided Tenant shall notify Landlord of such fact
together with providing reasonable supporting documentation to Landlord in a
form reasonably acceptable to Landlord within thirty (30) days after the
Commencement Date then in such event the Security Deposit shall be reduced to an
amount equal to the greater of (i) Two Hundred Fifty Thousand and No/100 Dollars
($250,000) or (ii) Two Million Nine Hundred Thirty-Nine Thousand Fifty and
No/100 Dollars ($2,939,050.00) less the amount of hard costs incurred by Tenant
in connection with the Tenant Work for the Premises which exceed the Allowance
Amount as approved by Landlord, which approval shall not be unreasonably
withheld or delayed (such Two Million Nine Hundred Thirty-Nine Thousand Fifty
and No/100 Dollars [$2,939,050.00] as reduced, as provided above, if applicable,
is referred to as the "Specified Amount"). In the event that the Tenant is
current and in good standing of its obligations under this Lease as of each of
the following dates, then (i) on the first day of the Second (2nd) Lease Year
the
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Security Deposit will be reduced by an amount equal to one-fifth (1/5) of the
Specified Amount; (ii) on the first day of the third (3rd) Lease Year the
Security Deposit will reduce by an additional amount equal to one-fifth (1/5) of
the Specified Amount; (iii) on the first day of the fourth (4th) Lease Year the
Security Deposit shall be reduced by an additional amount equal to one-fifth
(1/5) of the Specified Amount; (iv) on the first day of the fifth (5th) Lease
Year the Security Deposit will be reduced by an additional amount equal to
one-fifth (1 /5) of the Specified Amount; and (v) on the first day of the sixth
(6th) Lease Year the Security Deposit will be reduced to Two Hundred Fifty
Thousand Dollars ($250,000). Notwithstanding anything contained herein to the
contrary with regard to the reduction of the amount of the Letter of Credit, at
no time shall the Letter of Credit be reduced to an amount less than Two Hundred
Fifty Thousand Dollars ($250,000). The form of the Security Deposit shall, at
Tenant's option, be either (i) cash or cashier's check, or (ii) a clean,
irrevocable letter of credit issued by a bank reasonably acceptable to the
Landlord and in the form EXHIBIT "E" ("Letter of Credit"). The Security Deposit
shall be retained by Landlord as security for the payment by Tenant of the Rent
and all-other payments herein agreed to be paid by Tenant, and for the faithful
performance by Tenant of the terms, provisions, covenants and conditions of this
Lease. It is agreed that Landlord, at Landlord's option, may at the time of any
Default by Tenant under any of the terms, provisions, covenants or conditions of
the Lease, draw on the Security Deposit in whole or in part, toward the payment
of the Rent and all other sums payable by Tenant under this Lease, and towards
the performance of each and every one of Tenant's covenants under this Lease,
but such covenants and Tenant's liability under this Lease shall thereby be
discharged only pro tanto; that Tenant shall remain liable for any amounts that
such sum shall be insufficient to pay; and in the event that Landlord does
utilize any of the Security Deposit during the Term, Tenant shall immediately
pay to Landlord such amount so that the Security Deposit shall remain in the
total amount of the Security Deposit described above; that Landlord may exhaust
any and all rights and remedies against Tenant before resorting to said sum, but
nothing herein contained shall require or be deemed to require Landlord to do
so; that, in the event the Security Deposit shall not be utilized for any such
purposes, then such Security Deposit shall be returned by Landlord to Tenant
within thirty (30) days after the end of the Term. In the event that the
Security Deposit is in the form of a Letter of Credit, then if the expiration
date under such Letter of Credit is less than thirty (30) days, the Tenant shall
extend such expiration date, and if at any time the expiration of the Letter of
Credit (as extended) is less than thirty (30) days, then Landlord shall be
entitled to draw on such Letter of Credit and hold the proceeds as the Security
Deposit hereunder.
USE
6. Tenant will use and occupy the Premises for the following use or
purpose and for no other use or purpose: General Office.
QUIET ENJOYMENT
7. Upon payment by Tenant of the Rents herein provided, and upon the
observance and performance of all terms, provisions, covenants and conditions on
Tenant's part to be observed and
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performed, Tenant shall, subject to all of the terms, provisions, covenants and
conditions of this Lease, peaceably and quietly hold and enjoy the Premises for
the Term.
INSURANCE PREMIUMS
8. If Landlord's insurance premiums exceed the standard premium rates
because the nature of Tenant's operation results in extra hazardous exposure,
then Tenant shall, upon receipt of appropriate invoices from Landlord, reimburse
Landlord for such increase in premiums. It is understood and agreed between the
parties hereto that any such increase in premiums shall be considered as rent
due and shall be included in any lien for rent.
RULES AND REGULATIONS
9. Except as may otherwise- conflict with the terms of this Lease,
Tenant agrees to comply with all reasonable rules and regulations Landlord may
adopt from time to time for operation of the Building and parking facilities and
protection and welfare of Building and parking facilities, its tenants, visitors
and occupants. The present rules and regulations, which Tenant hereby agrees to
comply with, entitled "Rules and Regulations" are attached to this Lease as
EXHIBIT "F". Any future reasonable rules and regulations shall become a part of
this Lease, and Tenant hereby agrees to comply with the same upon delivery of a
copy thereof to Tenant providing the same do not materially deprive Tenant of
its rights established under this Lease. Landlord shall not discriminate against
Tenant in the enforcement of such Rules and Regulations.
GOVERNMENTAL REQUIREMENTS
10. Tenant shall faithfully observe in the use of the Premises all
Legal Requirements of all Legal Authorities. Landlord agrees, at its sole cost
and expense, to comply with all Legal Requirements relating to the Building,
access to the Premises and the Common Areas (as such term is hereafter defined),
except to the extent such compliance relates solely to Tenant's specific use and
occupancy of the Premises. For purposes of Section 10, Tenant's specific use
shall mean general office use which includes, but is not limited to, call center
and other mortgage lending operations such as loan underwriting and funding as
currently conducted by Tenant in Broward County, Florida. For the purposes of
this Lease, "Legal Requirements" means any law, statute, code, rule, regulation,
ordinance, order, judgment, decree, writ, injunction, franchise, permit,
certificate, license (including any beer, wine, or liquor license),
authorization, registration, or other direction or requirement of any Legal
Authority, which is now or in the future applicable to the Premises, including
those not within the present contemplation of-the parties and "Legal Authority"
means any domestic or foreign federal, state, county, municipal, or other
government or governmental or quasi-governmental department, commission, board,
bureau, court, agency, or instrumentality having jurisdiction or authority over
Landlord, Tenant and/or all or any part of the Premises. Notwithstanding the
foregoing, Tenant shall only be responsible for compliance with the requirements
of the Americans With Disabilities Act (the "ADA") to the extent such compliance
relates to improvements to the
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interior non-structural portions of the Premises mandated by applicable
governmental authority as a result of Tenant's specific use and occupancy of the
Premises. All other improvements mandated by applicable governmental authority
as a condition for Tenant's use and occupancy of the Premises shall be the
responsibility of the Landlord.
Tenant shall:
A. neither cause nor permit the Premises to be used to
generate, manufacture, refine, transport, treat, store, handle, dispose,
transfer, produce, or process Hazardous Materials, except in compliance with all
Legal Requirements;
B. neither cause nor permit a release or threatened release of
Hazardous Materials onto the Premises or any other property as a result of any
intentional or unintentional act or omission on the part of Tenant;
C. comply with all applicable Legal Requirements related to
Hazardous Materials;
D. conduct and complete all investigations, studies, sampling,
and testing, and all remedial, removal, and other actions on, from, or affecting
the Premises in accordance with such applicable Legal Requirements and to the
satisfaction of Landlord when and to the extent required by applicable legal
authority;
E. upon the expiration or termination of this Lease, deliver
the Premises to Landlord free of all Hazardous Materials; and
F. defend, indemnify, and hold harmless Landlord and
Landlord's employees and other agents from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs, or expenses of any
kind or nature, known or unknown, contingent or otherwise (including, without
limitation, reasonable accountants' and attorneys' fees, including fees for the
services of paralegals and similar persons, consultant fees, investigation and
laboratory fees, court costs, and litigation expenses at the trial and all
appellate levels), arising out of, or in any way related to the Project and/or
otherwise affecting Landlord with respect to (a) the presence, disposal,
release, or threatened release, by or caused by Tenant or its agents, employees,
contractors or invitees ("Specified Parties"), of any Hazardous Materials which
are on, from, or affecting the soil, water, vegetation, buildings, personal
property, persons, animals or otherwise; (b) any personal injury, including
wrongful death, or damage to property, real or personal, arising out of or
related to such Hazardous Materials caused by Tenant or it's Specified Parties
or resulting from the use of the Premises; (c) any lawsuit brought, threatened,
or settled by Legal Authorities or other parties, or order by Legal Authorities,
related to such Hazardous Materials; and/or (d) any violation of Legal
Requirements related in any way to such Hazardous Materials caused by Tenant or
it's Specified Parties or resulting from the use of the Premises. The provisions
of this Section shall survive the
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expiration or termination of this Lease. Hazardous materials are any oil and
petroleum products and their byproducts, asbestos, polychlorobiphenols,
flammable explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous or toxic substances, or related materials as defined under any
Legal Requirements, including, without limitation, the following statutes and
the regulations promulgated under their authority: (a) the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C.ss.ss.9601 et seq.); (b) the Hazardous Materials Transportation Act, as
amended (49 U.S.C.ss.ss.1801 et seq.); (c) the Resource Conservation and
Recovery Act of 1976, as amended (42 U.S.C.ss.ss.6901 et seq.); and (d) the
Water Pollution and Control Act, as amended (33 U.S.C. 1317 et seq.).
G. Landlord represents and warrants to Tenant that, to the
best of Landlord's knowledge, no leak, spill, discharge, emission or disposal of
Hazardous Materials has occurred on or about the Premises, the Building or the
Common Areas (as such term is hereinafter defined). Landlord shall defend,
indemnify, and hold harmless Tenant and Tenant's employees and other agents from
and against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs, or expenses of any kind or nature, known or unknown, contingent
or otherwise (including, without limitation, reasonable accountants' and
attorneys' fees, including fees for the services of paralegals and similar
persons, consultant fees, investigation and laboratory fees, court costs, and
litigation expenses at the trial and all appellate levels), arising out of, or
in any way related to (a) the presence, disposal, release, or threatened
release, by or caused by Landlord or its agents, of any Hazardous Materials
which are on, from, or affecting the soil, water, vegetation, buildings,
personal property, persons, animals or otherwise; (b) any personal injury,
including wrongful death, or damage to property, real or personal, arising out
of or related to such Hazardous Materials; (c) any lawsuit brought, threatened,
or settled by Legal Authorities or other parties, or order by Legal Authorities,
related to such Hazardous Materials; (d) any violation of Legal Requirements
related in any way to such Hazardous Materials; and/or (e) any breach of
Landlord's representations and warranties contained herein. The provisions of
this Section shall survive the expiration or termination of this Lease.
SERVICES
11. Landlord will furnish the following services to Tenant:
A. Automatically operated elevator service, public stairs,
electrical current for lighting, incidentals and normal office use, and water at
those points of supply provided for general use of its tenants at all times and
on all days throughout the year.
B. Maintenance of the building structure, mechanical systems,
parking areas and common facilities of the Building.
C. There shall be twenty-four (24) hour roving security guard
service provided in connection with the Project.
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D. The Buildings in which the Premises are located shall be
equipped with a card key access system or other limited access system designated
by Landlord from time to time.
E. The Tenant shall have access to the Buildings in which the
Premises are located twenty-four (24) hours a day, seven (7) days a week,
fifty-two (52) weeks per year subject to casualty, condemnation and any limited
access security system provided for such Building(s).
F. The Landlord shall provide a telephone room with a main
feed to the Premises which shall be available to provide telephone access to the
Premises, the location of which shall be as designated by Landlord from time to
time and may be included in a portion of the Premises.
The services provided by Landlord shall be included as a
portion of the Operating Expenses.
Such services shall be provided as long as Tenant is not in
default beyond any applicable notice or cure period under any of the terms,
provisions, covenants and conditions of this Lease, subject to temporary
interruption caused by repairs, renewals, improvements, changes to service,
alterations, strikes, lockouts, labor controversies, inability to obtain fuel or
power, accidents, breakdowns, catastrophes, national or local emergencies,
hurricanes, natural disasters, windstorms, acts of God and conditions and cause
beyond the control of Landlord, and upon such happening, no claim for damages or
abatement of rent for failure to furnish any such services shall be made by
Tenant or allowed by Landlord. Notwithstanding the foregoing, should
interruption of services prevent Tenant from operating its business for more
than five (5) days, Tenant shall receive one (1) day of rent abatement for each
day Tenant is unable to operate its business, unless such interruption is a
result of a condition beyond the reasonable control of the Landlord.
TENANT IMPROVEMENTS
12. Improvements, if any, to be made to the Premises by Landlord are
specifically set forth as Landlord Work in the Work Letter attached as EXHIBIT
"D" and thereto are no others. All leasehold improvements (as distinguished from
trade fixtures and apparatus) installed in the Premises at any time, whether by
or on behalf of Tenant or by or on behalf of Landlord, shall not be removed from
the Premises at any time, unless such removal is consented to in advance by
Landlord (which consent shall not be unreasonably withheld); and at the
expiration of this Lease (either on the Termination Date or upon such earlier
termination as provided in this Lease), all such leasehold improvements shall be
deemed to be part of the Premises, and title thereto shall vest solely in
Landlord without payment of any nature to Tenant. All trade fixtures and
apparatus (as distinguished from leasehold improvements) owned by Tenant and
installed in the Premises shall remain the property of Tenant and shall be
removable at any time, including upon the expiration of the Term; provided
Tenant shall not at such time be in default of any terms or covenants of this
Lease, and provided further, that Tenant shall repair any damage to the Premises
caused by the removal of said trade fixtures and apparatus and shall restore the
Premises to substantially the same
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condition as existed prior to the installation of said trade fixtures and
apparatus. The taking of possession by Tenant (or any permitted assignee or
subtenant of Tenant) of all or any portion of the Premises for the conduct of
business will be deemed conclusive evidence that Tenant has found the Premises,
and all of their fixtures and equipment, acceptable, subject to any punch list
items to the extent such items are the obligation of Landlord as otherwise set
forth in this Lease.
Any charges against Tenant by Landlord for services or for
work done on the Premises by order of Tenant, or otherwise accruing under this
Lease, shall be considered as Rent due and shall be included in any lien for
Rent.
REPAIR OF LEASED PREMISES
13. Tenant shall, at Tenant's own expense, keep the interior Premises
in good repair and tenantable condition during the Term and- shall replace at
its own expense any and all broken glass caused by Tenant in and about the
Premises. Tenant shall make no alterations, additions or improvements in or to
the Premises without the written consent of Landlord (unless said improvement or
alteration does not exceed Ten Thousand Dollars ($10,000), does not require a
building permit, or does not affect the structural, mechanical or electrical
systems of the building), which shall not be unreasonably withheld, but may be
predicated upon but not limited to Tenant's use of contractors who are
acceptable to Landlord; and all additions, fixtures, carpet or improvements,
except only movable office furniture, and moveable trade fixtures shall be the
property of Landlord from date of location in the Premises and shall remain a
part of the Premises at the expiration of this Lease.
It is further agreed that this Lease is made by Landlord and
accepted by Tenant with the distinct understanding and agreement that Landlord
shall have the right and privilege to make and build additions to the Building
of which the Premises are a part, and make such alterations and repairs to said
Building as it may deem wise and advisable without any liability to the Tenant
therefor. Landlord agrees to use efforts to minimize any disruption to Tenant's
business operations.
Landlord covenants and agrees, at its expense, to keep,
maintain and replace, if necessary, the structural systems of the Building and
Common Areas, and the electrical, mechanical and plumbing systems, lines and
connections leading to the Premises in good condition and repair. In the event
the Premises become or are out of repair and not in good condition due to the
acts or omissions of Landlord, or its agents, employees, representatives or
contractors, or due to the failure of the Landlord to comply with the terms of
this Lease, or as a result of a structural condition or a latent defect, then
Landlord shall perform or cause to be performed, at its sole cost and expense,
any and all repairs necessary to restore the Premises to a state of good
condition and repair. Landlord shall promptly commence all repairs and shall
diligently and continuously pursue to complete the same within ten (10) days
after Landlord's receipt of written notice from Tenant or within a reasonable
period thereafter if such repairs cannot reasonably be completed within such ten
(10) day period.
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INDEMNIFICATION
14. Tenant further agrees that Tenant will pay all liens of
contractors, subcontractors, mechanics, laborers, materialmen, and other items
of like character, and will indemnify Landlord against all expenses, costs, and
charges, including bond premiums for release of liens and attorneys' fees and
costs reasonably incurred in and about the defense of any suit in discharging
the said Premises or any part thereof from any liens, judgments, or encumbrances
caused or suffered by Tenant. In the event any such lien shall be made or filed,
Tenant shall bond against or discharge the same within ten (10) days after the
same has been made or filed. It is understood and agreed between the parties
hereto that the expenses, costs and charges above referred to shall be
considered as rent due and shall be included in any lien for Rent.
Tenant herein shall not have any authority to create any liens
for labor or materials on Landlord's interest in the Premises and: all persons
contracting with Tenant for the destruction or removal of any facilities or
other improvements or for the erection, installation, alteration, or repair of
any facilities or other improvements on or about the Premises, and all
materialmen, contractors, subcontractors, mechanics, and laborers are hereby
charged with notice that they must look only to Tenant and to Tenant's interests
in the Premises to secure the payment of any bill for work done or material
furnished at the request or instruction of Tenant.
PARKING
15. Landlord shall provide Tenant the "Specified Number" (as
hereinafter defined) of unassigned parking spaces at no additional charge to
Tenant whereby Tenant shall park in up to the Specified Number of parking spaces
in the designated lots shown on EXHIBIT "G" attached hereto and made a part
hereof. In the event that Tenant expands into the portion of Building J not
presently included in the Premises, and Landlord is unable to provide Tenant
with the Specified Number of parking spaces in the lots shown on EXHIBIT "G",
then Landlord will provide additional parking spaces within the Project or
construct a surface parking lot within the Project to enable the Tenant to be
able to park in the Specified Number of unassigned parking spaces. The term
"Specified Number" of parking spaces shall mean six (6) unreserved parking
spaces for each one thousand (1,000) square feet of Rentable Area comprising the
Premises, which Specified Number of parking spaces shall be unassigned,
non-exclusive parking spaces for use by Tenant, its employees and invitees doing
business with Tenant. In the event Tenant leases other space as a portion of the
Premises in excess of the one hundred eleven thousand eight hundred fourteen
(111,814) square feet of Rentable Area, pursuant to its right of first offer set
forth in Section 52 below, then such additional portion of the Premises (if any)
will entitle Tenant to utilize an additional parking spaces on the basis of six
(6) unreserved parking spaces per one thousand (1,000) square feet of Rentable
Area comprising such Premises in excess of one hundred eleven thousand eight
hundred fourteen (111,814) square feet of the Net Rentable Area. With respect to
any additional Rentable Area Tenant may add other than pursuant to Section 52,
the amount of parking provided will be as specified as Landlord and may be less
than 6 unreserved parking spaces per one thousand square feet of Rentable
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Area. Landlord reserves the.right to require Tenant to park any or all employee
vehicles in specific areas of the parking lot at any time. Tenant shall comply
with Landlord's reasonable procedures and policies in operating the Building
parking areas. Landlord shall not be liable for any damage of any nature
whatsoever to, or any theft of, automobiles or other vehicles or the contents of
them, while in or about Building parking areas.
ESTOPPEL STATEMENT
16. From time to time, upon not less than ten (10) days prior written
request by Landlord, Tenant shall deliver to Landlord a statement in writing
certifying (a) that this Lease is unmodified and in full force and effect (or,
if there have been modifications, that the Lease as modified is in full force
and effect and stating the modifications); (b) the dates to which the rent and
other charges have been paid; (c) that Landlord is not in default under any
provisions of this Lease or, if in default, the nature thereof in detail; and
(d) such other matters pertaining to the Lease as Landlord may reasonably
request. It is intended that any such statement delivered pursuant to this
section may be relied upon by any prospective purchaser or mortgagee and their
respective successors and assigns and Tenant shall be liable for all loss, cost
or expense resulting from the failure of any sale or funding of any loan caused
by any failure to furnish the estoppel statement or misstatement contained in
such estoppel statement. Tenant hereby irrevocably appoints Landlord as
attorney-in-fact for Tenant with full power and authority to execute and deliver
in the name of Tenant such estoppel certificate if Tenant fails to deliver the
same within ten (10) days of Landlord's request therefor. This appointment is a
power coupled with interest and is a material inducement to Landlord to enter
into this Lease. From time to time, upon not less than ten (10) days prior
written request by Tenant, Landlord shall deliver to Tenant a statement in
writing certifying (a) that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that the Lease as modified is in
full force and effect and stating the modifications); (b) the dates to which the
rent and other charges have been paid; (c) that Tenant is not in default under
any provisions of this Lease or, if in default, the nature thereof in detail;
and (d) such other matters pertaining to the Lease as Tenant may reasonably
request.
SUBORDINATION
17. If the Building and/or Premises are at any time subject to a
mortgage and/or deed of trust or ground lease, and Tenant has received written
notice from Mortgagee or ground lessor of same, then in any instance in which
Tenant gives notice to Landlord alleging default by Landlord hereunder, Tenant
will also simultaneously give a copy of such notice to each Landlord's Mortgagee
and/or ground lessor and each Landlord's Mortgagee and/or ground lessor shall
have the right (but not the obligation) to cure or remedy such default during
the period that is permitted to Landlord hereunder, plus an additional period of
thirty (30) days, and Tenant will accept such curative or remedial action (if
any) taken by Landlord's Mortgagee and/or ground lessor with the same effect as
if such action had been taken by Landlord.
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This Lease shall be subject and subordinate to any mortgage
and/or ground lease now or hereafter encumbering the Building. This provision
shall be self-operative without the execution of any further instruments.
Notwithstanding the foregoing, however, Tenant hereby agrees to execute any
instruments) which Landlord may deem desirable to evidence the subordination of
this Lease to any and all such mortgages and/or ground lease. Landlord agrees
that the subordination of this Lease as hereinabove provided is expressly
conditioned upon the mortgagees) or future mortgagees) delivery to Tenant of a
non-disturbance agreement which provides that provided the Tenant is current and
in good standing of its obligations under this Lease the Tenant's possession of
the Premises will not be disturbed by such lender upon any foreclosure of its
mortgage.
ATTORNMENT
18. If the interests of Landlord under this Lease shall be transferred
voluntarily or by reason of foreclosure or other proceedings for enforcement of
any mortgage and/or ground lease on the Premises, Tenant shall be bound to such
transferee (herein sometimes called the "Purchaser") for the remaining balance
of the Term, and any extensions or renewals thereof which may be effective in
accordance with the terms and provisions hereof with the same force and effect
as if the Purchaser were Landlord under this Lease, and Tenant does hereby agree
to attorn to the Purchaser, including the Mortgagee under any such mortgage
and/or lessor under any such ground lease if it be the Purchaser, as its
Landlord, said attornment to be effective and self-operative without the
execution of any further instruments upon the Purchaser succeeding to the
interest of Landlord under this Lease. The respective rights and obligations of
Tenant and the Purchaser upon such attornment, to the extent of the then
remaining balance of the Term of this Lease and any such extensions and
renewals, shall be and are the same as those set forth herein. In the event of
such transfer of Landlord's interests, Landlord shall be released and relieved
from all liability and responsibility thereafter accruing to Tenant under this
Lease or otherwise and Landlord's successor by acceptance of rent from Tenant
hereunder shall become liable and responsible to Tenant in respect in all
obligations of the Landlord under this Lease effective as of the date of such
transfer.
ASSIGNMENT
19. Without the written consent of Landlord first obtained in each
case, which consent shall not be unreasonably withheld or delayed, Tenant shall
not sublease, assign, transfer, mortgage, pledge, or otherwise encumber or
dispose of this Lease or underlet the Premises or any part thereof or permit the
Premises to be occupied by other persons. Transfer of controlling ownership
interests in Tenant (which for purposes of this Lease means fifty-one percent
(51%) or more of the ownership and/or voting interest in Tenant) shall be deemed
an assignment for purposes of this section. Notwithstanding the foregoing,
Landlord's consent shall not be required in the event Tenant desires to assign
or sublet all or any portion of the Premises to a subsidiary or affiliate of
Tenant (an "Affiliate") or should Tenant merge with another entity (the
"Successor") provided the Successor's net worth (measured in accordance with
generally accepted accounting principles) at the time of the transfer,
assignment or subletting is at least equal to or greater than the net worth of
Tenant
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(measured in accordance with generally accepted accounting principles) at the
time of the transfer, assignment or subletting. In the case of a subletting,
Landlord's consent may be predicated, among other things, upon Landlord becoming
entitled to collect and retain fifty percent of all rentals payable under the
sublease, which are in excess of the rent due under the Lease. If this Lease be
assigned, or if the Premises or any part thereof be underlet or occupied by
anybody other than Tenant, Landlord may, after default by Tenant, collect or
accept rent from the assignee, undertenant, or occupant and apply the net amount
collected or accepted to the rent herein reserved, but no such collection or
acceptance shall be deemed a waiver of this covenant or the acceptance of the
assignee, undertenant, or occupant as Tenant, nor shall it be construed as or
implied to be a release of Tenant from the further observance and performance by
Tenant of the terms, provisions, covenants and conditions herein contained.
In lieu of consenting or not consenting, Landlord may at its
option (other than with respect to a permitted transfer to a Successor or
Affiliate) (i) in the case of the proposed assignment or subletting of Tenant's
entire leasehold interest, terminate this lease in its entirety, or (ii) in the
case of the proposed assignment or subletting of a portion of the Premises,
terminate this Lease as to that portion of the Premises which Tenant has
proposed to assign or sublet. In the event Landlord elects to terminate this
Lease pursuant to Clause (ii) of this section, Tenant's obligations as to Base
Rent and Additional Rent shall be reduced in the same proportion that the Net
Rentable Area of the portion of the Premises taken by the proposed assignee or
subtenant bears to the total Net Rentable Area of the Premises.
In the event Landlord shall consent to an assignment or
subletting of the Premises, Tenant shall pay, as Additional Rent, fifty percent
(50%) of the amount received by Tenant from its transferees (whether paid to
Tenant as consideration for Tenant's transfer of property or other assets other
than Tenant's furniture and trade equipment) any consideration from the
transferee in excess of the amount owed by Tenant to the Landlord under this
Lease after first deducting the reasonable expenses directly incurred by Tenant
in making such assignment or subletting, which Additional Rent shall be paid to
Landlord as and when received by Tenant.
SUCCESSORS AND ASSIGNS
20. All terms, provisions, covenants and conditions to be observed and
performed by Tenant and Landlord shall be applicable to and binding upon the
respective heirs, administrators, executors, successors and assigns or Landlord
and Tenant, subject, however, to the restrictions as to assignment or subletting
by Tenant as provided herein. All expressed covenants of this Lease shall be
deemed to be covenants running with the land.
It is expressly understood and agreed by and between the
parties that notwithstanding anything contained herein to the contrary, (a)
Tenant shall look solely to the interest of Landlord in the Premises, and (b) no
Landlord shall have any personal liability with regard to any obligations under
this Lease, and (c) to the extent of any monetary obligation of Landlord, such
obligation shall
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be limited to the Landlord's equity in the Premises provided that the provisions
of this paragraph shall not preclude Tenant's right to equitable relief (other
than monetary damages) against Landlord.
HOLD HARMLESS OF LANDLORD
21. In consideration of said Premises being leased to Tenant for the
above rent, Tenant agrees that Tenant, at all times, shall indemnify and keep
Landlord harmless from all losses, damages, liabilities and expenses, which may
arise or be claimed against Landlord and be in favor of any persons, firms or
corporations, consequent upon or arising from the use of occupancy of the
Premises by Tenant, or consequent upon or arising from any acts, omissions,
neglect or fault of Tenant, his agents, servants, employees, licensees,
visitors, customers, patrons or invitees, or consequent upon or arising from
Tenant's failure to comply with any laws, statutes, ordinances, codes or
regulations as herein provided; that Landlord shall not be liable to Tenant for
any damages, losses or injuries to the persons or property of Tenant which may
be caused by the acts, neglect, omissions or faults of any persons, firms or
corporations, except when such injury, loss or damage results from negligence or
intentional acts or omissions of Landlord, its agents, employees contractors,
licensees, visitors or invitees, and that Tenant will indemnify and keep
harmless Landlord from all damages, liabilities, losses, injuries, or expenses
which may arise or be claimed against Landlord and be in favor of any persons,
firms or corporations, for any injuries or damages to the person or property of
any persons, firms or corporations, where said injuries or damages arose about
or upon said Premises as a result of the negligence of Tenant, his agents,
employees, servants, licensees, visitors, customers, patrons, and invitees. All
personal property placed or moved into the Premises or Building shall be at the
risk of Tenant or the owner thereof, and Landlord shall not be liable to Tenant
for any damage to said personal property except as a result of damage caused by
Landlord's willful act or gross neglect. Tenant shall maintain at all times
during the Term an insurance policy or policies in an amount or amounts
sufficient, in Landlord's reasonable opinion, to indemnify Landlord or pay
Landlord's damages, if any, resulting from any matters set forth in this
section.
Landlord agrees that Landlord, at all times, shall indemnify and keep
Tenant harmless from all losses, damages, liabilities and expenses, which may
arise or be claimed against Tenant and be in favor of any persons, firms or
corporations, consequent upon or arising from any acts, omissions, neglect or
fault of Landlord, its agents, servants or employees, or consequent upon or
arising from Landlord's failure to comply with any laws, statutes, ordinances,
codes or regulations as herein provided; that Tenant shall not be liable to
Landlord for any damages, losses or injuries to the persons or property of
Landlord which may be caused by the acts, neglect, omissions or faults of any
persons, firms or coiporations, except when such injury, loss or damage results
from negligence or intentional acts or omissions of Tenant, its agents,
employees contractors, licensees, visitors or invitees, and that Landlord will
indemnify and keep harmless Tenant from all damages, liabilities, losses,
injuries, or expenses which may arise or be claimed against Tenant and be in
favor of any persons, firms or corporations, for any injuries or damages to the
person or property of any
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persons, firms or corporations, where said injuries or damages arose about or
upon said Premises as a result of the negligence of Landlord, his agents,
employees and servants.
In case Landlord shall be made a party to any litigation
commenced against Tenant, with respect to a matter for which Tenant has
indemnified Landlord in this Section 21, then Tenant shall protect and hold
Landlord harmless and shall pay all costs, expenses and reasonable attorneys'
fees incurred or paid by Landlord in connection with such litigation and any
appeal thereof. In case Tenant shall be made a party to any litigation commenced
against Landlord, with respect to a matter for Landlord has indemnified Tenant
in this Section 21, then Landlord shall protect and hold Tenant harmless and
shall pay all costs, expenses and reasonable attorneys' fees incurred or paid by
Tenant in connection with such litigation and any appeal thereof.
ATTORNEYS' FEES
22. If either party defaults in the performance of any of the terms,
provisions, covenants and conditions of this Lease and by reason thereof the
other party employees the services of an attorney to enforce performance of the
covenants, or to perform any service based upon defaults, then in any of said
events the prevailing party shall be entitled to reasonable attorneys' fees and
all expenses and costs incurred by the prevailing party pertaining thereto
(including costs and fees relating to any appeal) and in enforcement of any
remedy.
DAMAGE OR DESTRUCTION
23. In the event all or part of the Premises shall be destroyed or so
damaged or injured by fire, windstorm, hurricane, natural disaster, or other
casualty, during the Term, whereby the same shall be rendered untenantable, then
Landlord shall have the right, but not the obligation, to render such Premises
tenantable by repairs within one hundred eighty (180) days therefrom; Landlord
shall have the further right, at its election, to cancel this Lease as to all or
the untenantable portion of the Premises.
Landlord agrees that, within sixty (60) days following damage
or destruction, it shall notify Tenant in writing with respect to whether or not
Landlord intends to restore the Premises; provided, however, in the event that
the Premises can reasonably be restored within sixty (60) days of such damage,
then Landlord agrees upon receipt of its insurance proceeds with respect to such
casualty that it shall restore such Premises and will not elect to terminate the
Lease. If Landlord elects not to restore the Premises, then either party shall
have the right to terminate this Lease, which termination shall be effective as
of the date of the casualty and all rent and other charges shall be paid up to
such date. Landlord's failure to notify Tenant in writing within such sixty (60)
day period shall be deemed to constitute Landlord's election to restore the
Premises. If Landlord elects to restore the Premises, it shall promptly commence
such restoration and shall diligently and continuously proceed to complete the
same within one hundred eighty (180) days after the date of the casualty. If
said Premises are not rendered tenantable within the aforesaid one hundred
eighty
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(180) days plus an additional sixty (60) day grace period, it shall be optional
with either party hereto, no later than the date that Premises are in fact
rendered tenantable, to cancel this Lease as to the tenantable portion, and in
the event of such cancellation the rent shall be paid only to the date of such
fire or casualty. The cancellation herein mentioned shall be evidenced in
writing. During any time that all or a portion of the Premises are untenantable
due to causes set forth in this Section, the Base Rent or a just and fair
proportion thereof shall be abated.
Notwithstanding the foregoing, should damage or destruction
occur during the last twelve months of the Term (as same may be extended by any
timely extension of the Term) either Landlord or Tenant shall have the option to
terminate this Lease as to the untenantable portion of the Premises, effective
on the date of damage or destruction, provided notice to terminate is given
within thirty (30) days of the date of such damage or destruction.
The proceeds of all insurance coverage with regard to Tenant's
Premises and improvements shall be paid to the Landlord. Except as set forth
above, the Tenant shall not be entitled to terminate this Lease and Landlord
shall have no liability to Tenant for inconvenience, loss of business, annoyance
or any other reason arising from any repairs or restorations of any portion of
the Premises or building pursuant to any such casualty with respect to any such
portion of the Building and/or Premises. In the event Landlord elects to restore
the Premises, the Landlord will use reasonable efforts to make such repair,
restoration promptly and in a manner not to unreasonably interfere with Tenant's
use and occupancy of the Premises but Landlord shall not be required to do such
repair or restoration except during normal business hours of Landlord.
The Landlord is not required to carry insurance of any kind on
the Tenant's personal property and shall not be obligated to repair any damage
to or replace any of Tenant's personal property and Tenant agrees to look solely
to its insurance for recovery of any damage or loss to Tenant's personal
property.
INSURANCE
23A. The Landlord assumes no liability or responsibility whatsoever
with respect to the conduct and operation of the business to be conducted in the
Premises. The Landlord shall not be liable for any accident to or injury to any
person or persons or property in or about the Premises or the Project which are
caused by the conduct and operation of said business or by virtue of equipment
or property of the Tenant in said Premises. The Tenant agrees to hold the
Landlord harmless against all such claims.
(1) Tenant shall, at Tenant's sole expense, obtain and keep in
force during the Term and any extension or renewal hereof. (i) fire and extended
coverage insurance with vandalism and malicious mischief endorsements and a
sprinkler leakage endorsement (where applicable), on all of its personal
property, including removable trade fixtures, located in the Premises, and on
all leasehold improvements and any future additions and improvements made by
Tenant, with limits
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of coverage in an amount not less than the greater of Three Million Dollars
($3,000,000.00) or the full replacement cost value thereof; and (ii)
comprehensive general liability insurance, including contractual liability
coverage, insuring Landlord (as an additional insured) and Tenant against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto.
(2) Landlord shall, at Landlord's sole expense, obtain and
keep in force during the Term, and any extension or renewal of the Term: (i)
"all risk" hazard insurance, protecting with extended coverage and broad form
coverage against loss or damage to the Building and Common Areas (as such term
is hereafter defined) by hazards typically covered under an "all risk" type
insurance policy, in an amount not less than the full replacement value of the
Building and Common Areas, which insurance Landlord may maintain under a
"blanket" insurance policy covering not only the Building and Common Areas, but
also other properties owned by the Landlord; and (ii) comprehensive general
liability insurance, including contractual liability coverage insuring against
liability associated with the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto.
(3) All insurance required under this Section shall be with
insurance companies approved by Landlord, which approval shall not be
unreasonably withheld. Such companies shall be responsible insurance carriers
authorized to issue the relevant insurance, authorized to do business in Florida
and at least A-rated in the most current edition of BEST'S INSURANCE REPORTS.
Comprehensive general liability insurance, including contractual liability
coverage, shall have minimum limits of Three Million and No/100 Dollars
($3,000,000.00) for any loss of or damage to property from any one accident, and
Three Million and No/100 Dollars ($3,000,000.00) for death of or injury to any
one person from any one accident. Fire and extended coverage insurance with
vandalism and malicious mischief endorsements and a sprinkler leakage
endorsement shall have limits not less than the replacement cost of all property
(personal or otherwise) and capital improvements in the premises. The limits of
said insurance shall not, however, limit the liability of the Landlord or the
Tenant hereunder. The policies cannot contain provisions which deny coverage
because the loss is due to the fault of Landlord or Tenant. If Tenant shall fail
to procure and maintain said insurance, Landlord may, but shall not be required
to, after three (3) business days notice to Tenant, procure and maintain same,
but at the expense of Tenant. Tenant shall deliver to Landlord, prior to
occupancy of the Premises, copies of policies of liability insurance required
herein, or certificates evidencing the existence and amounts of such insurance,
with loss payable clauses satisfactory to Landlord. No policy shall be
cancelable or subject to reduction of coverage except after thirty (30) days
prior written notice to Landlord. Notwithstanding anything herein to the
contrary, Landlord shall have the right to review the Tenant's insurance once
every year and to reasonably require Tenant to alter its insurance coverage to
cover the effects of inflation and to include or eliminate certain provisions in
the Tenant's insurance policy which reflect the then-current industry standards
for this type of insurance coverage for similarly situated properties.
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EMINENT DOMAIN
24. If there shall be taken during the Term any part of the Premises,
parking facilities or Building, other than a part not interfering with
maintenance, operations, or use of the Building, Landlord may elect to terminate
this Lease or to continue same in effect. Tenant shall have the right to
terminate the Lease if the parking area is affected by eminent domain and
Landlord is unable to provide for Tenant's use substitute parking spaces in lieu
of those taken which are within the parking lots) as provided in this Lease. If
Landlord elects to continue the Lease, the Rent shall be reduced in proportion
to the area of the Premises so taken and Landlord shall repair any damage to the
Premises, resulting from such taking. If any part of the Premises is taken by
condemnation or Eminent Domain which renders the Premises unsuitable for its
intended use, the Tenant may elect to terminate this Lease, or if any part of
the Premises is so taken which does not render the Premises unsuitable for its
intended use, this Lease shall continue in effect and the rental shall be
reduced in proportion to the area of the Premises so taken and Landlord shall
repair any damage to the Premises resulting from such taking. If all of the
Premises is taken by condemnation or Eminent Domain, this Lease shall terminate
on. the date of the taking. All sums awarded (or agreed upon between Landlord
and the condemning authority) for the taking of the interest of Landlord and/or
Tenant, whether as damages or as compensation, and whether for partial or total
condemnation, will be the property of Landlord. If this Lease should be
terminated under any provisions of this section, Rent shall be payable up to the
date that possession is taken by the authority, and Landlord will refund to
Tenant any prepaid unaccrued Rent less any sum or amount then owing by Tenant to
Landlord. Tenant shall have the right to file a separate claim for business
losses, improvements to the premises made by Tenant and Tenant's equipment and
other personal property, provided said claim does not reduce Landlord's award.
ABANDONMENT
25. Deleted.
DEFAULT
26. The occurrence of any of the following during the Term shall
constitute an "Event of Default" by Tenant:
A. Tenant shall fail to pay when due Base Rent, Additional
Rent or any other charges, fees, costs or expenses that accrue under this Lease
and such failure shall continue for a period of two (2) business days after
Landlord notifies Tenant in writing of such failure. Notwithstanding the
foregoing, Landlord shall not be obligated to deliver any written notice of
monetary default, or allow any grace period, more than once in any calendar
year.
B. Tenant shall, other than in the manner permitted under this
Lease, make or permit or suffer to occur any assignment (including any transfer
of interest in Tenant which is
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deemed to be an assignment under this Lease), sublease or occupancy arrangement,
conveyance, transfer, conditional or collateral assignment, pledge,
hypothecation, or other encumbrance, whether by operation of law or otherwise,
of this Lease or any interest in this Lease;
D. Tenant shall fail in any other way in the performance or
observance of any of the non-monetary terms and conditions of this Lease and
such failure shall continue for a period of ten (10) days after Tenant's receipt
of written notice from Landlord; provided, however, if the nature of the default
is such that more than ten (10) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant promptly commences to cure
and diligently pursues such cure to completion;
E. There shall be filed by or against Tenant or any Guarantor
of this Lease in any court or other tribunal a petition in bankruptcy or
insolvency proceedings or for reorganization or for the appointment of a
receiver or trustee of all or substantially all of Tenant's, or any Guarantor's,
property, unless such petition shall be filed against Tenant or any Guarantor of
this Lease and Tenant or such Guarantor shall in good faith promptly thereafter
commence and diligently prosecute any and all proceedings appropriate to secure
the dismissal of such petition and shall secure such dismissal within sixty (60)
days of its filing;
F. Tenant or any Guarantor of this Lease shall be adjudicated
a bankrupt or an insolvent or take the benefit of any federal reorganization or
composition proceeding, make an assignment for the benefit of creditors, or take
the benefit of an insolvency law;
G. A trustee in bankruptcy or a receiver shall be appointed or
elected or had for Tenant or any Guarantor of this Lease, whether under federal
or state laws;
H. Tenant's interest under this Lease shall be sold under any
execution or process of law;
I. Subject to the notice and cure period provided in
subsection (D) above, Tenant shall fail to maintain current, duly issued
occupational licenses, or any other permit or license required by an applicable
legal authority for its operations at the Premises or Tenant shall fail to meet
the insurance requirements of this Lease and provide certificates of insurance
(or policies) as required by this Lease (and policies if requested) evidencing
such compliance.
J. If a default of the kind set forth in 26.A-I shall occur
and if either (i) Tenant shall cure such breach of this Lease within the
applicable cure period or (ii) Landlord shall, in its sole discretion, permit
Tenant to cure such breach after the applicable cure period has expired and if
in either such event a similar breach of this Lease shall occur more than one
additional time within the next three hundred sixty-five (365) days, then the
Tenant shall not be entitled to any notice or cure period with respect to any
such subsequent defaults and such subsequent defaults) shall constitute an Event
of Default under this Lease.
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REMEDIES
27. A. In the event of the occurrence of an Event of Default by Tenant,
Landlord, at Landlord's option, may, in addition to any and all other rights and
remedies available at law or in equity, elect to do one or more of the
following:
(1) Accelerate all of the remaining Rent for the
Term, in which event all Rent shall become immediately due and payable;
(2) Terminate this Lease as provided by this Section
and re-enter the Premises and remove all persons and property from the Premises,
either by summary proceedings or by any other suitable action or proceeding at
law, or otherwise; or
(3) Without terminating this Lease, re-enter the
Premises and remove all persons and property from the Premises, either by
summary proceedings or by any other suitable action or proceeding at law, or
otherwise, and relet all or any part of the Premises.
B. If Landlord elects to terminate this Lease:
(1) Landlord shall give notice of such termination,
which shall take effect ten (10) days after such notice is given, or such
greater number of days as is set forth in such notice, fully and completely as
if the effective date of such termination were the date originally set forth in
this Lease for the expiration of the Term;
(2) Tenant shall quit and peacefully surrender the
Premises to Landlord, without any payment by Landlord for doing so, on or before
the effective date of termination; and
(3) All Rent, including all Base Rent and Additional
Rent (including arrearages), shall become due and shall be paid up to the
effective date of termination, together with such expenses, including attorneys'
fees, as Landlord shall incur in connection with such termination.
C. No receipts of monies by Landlord from Tenant after
termination of this Lease shall reinstate, continue, or extend the Term, affect
any Notice previously given by Landlord to Tenant, or operate as a waiver of the
right of Landlord to enforce the payment of Rent.
D. If Landlord shall terminate this Lease, Landlord shall be
entitled to retain, free of trust, all sums then held by Landlord pursuant to
any of the provisions of this Lease. In the interim following such termination
until the retention of such sums by Landlord free of trust, such sums shall be
available to Landlord, but not to Tenant, pursuant to and for the purposes
provided by the terms and conditions of this Lease.
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E. In the event of any re-entry and/or dispossession by
summary proceedings or otherwise without termination of this Lease:
(1) All Rent shall become due and shall be paid up to
the time of such reentry and/or dispossession, together with such expenses,
including attorneys' fees, as Landlord shall incur in connection with such
re-entry and/or dispossession by summary proceedings or otherwise; and
(2) All Rent for the remainder of the Term may be
accelerated and due in full, the collection of such sums being subject to the
provisions of Subsection F, below; and
(3) Landlord may relet all or any part of the
Premises, either in the name of Landlord or otherwise, for a term or terms which
may, at Landlord's option, be equal to, less than, or greater than the period
which would otherwise have constituted the balance of the Term. In connection
with such reletting:
(a) Tenant or Tenant's representative shall pay,
as Additional Rent, to Landlord, as they are incurred by Landlord, such
reasonable expenses as Landlord may incur in connection with reletting,
including, without limitation, legal expenses, attorneys' fees, brokerage
commissions, and expenses incurred in altering, repairing, and putting the
Premises in good order and condition and in preparing the Premises for
reletting;
(b) Tenant or Tenant's representative shall pay
to Landlord, in monthly installments on the due dates for Rent payments for each
month of the balance of the Term, the amount by which any Rent payment exceeds
the net amount, if any, of the rents for such period collected on account of the
reletting of the Premises; any suit brought to collect such amount for any month
or months shall not prejudice in any way the rights of Landlord to collect the
deficiency for any subsequent month or months by a similar action or proceeding;
(c) At Landlord's option exercised at any time,
Landlord shall be entitled to recover immediately from Tenant, in addition to
any other proper claims, but in lieu of and not in addition to any amount which
would thereafter become payable under the preceding subsection, a sum equal to
the amount by which the sum of the Rent for the balance of the Term, compound
discounted at a reasonable rate selected by Landlord to its then-present worth,
exceeds the net rental value of the Premises, compound discounted at the same
annual rate to its then-present worth, for the balance of the Term. In
determining such net rental value of the Premises, the rent realized by any
reletting of the Premises, if such reletting is upon terms (other than rental
amounts) generally comparable to the terms of this Lease, shall be deemed to be
such net rental value; and
(d) At Landlord's option, Landlord may make such
alterations and/or decorations in or upon the Premises as Landlord, in
Landlord's sole judgment,
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considers advisable and necessary for the purpose of reletting the Premises; the
making of such alterations and/or decorations shall not operate or be construed
to release Tenant from liability under this Section; the cost of all such
alterations and/or decorations shall be paid by Tenant to Landlord as Additional
Rent.
F. Landlord shall have, receive, and enjoy as Landlord's sole
and absolute property, any and all sums collected by Landlord as rent or
otherwise upon reletting the Premises after Landlord shall resume possession of
the Premises as provided by this Lease, including, without limitation, any
amounts by which the sum or sums so collected shall exceed the continuing
liability of Tenant under this Lease. If Landlord shall have accelerated Rent
payments and collected same from Tenant, and subsequently shall have relet the
Premises, then Landlord, after deducting all costs related to reletting,
including, but not limited to, those described or anticipated in this Section,
shall pay to Tenant the amount remaining which is collected as Rent for each
month, to the extent Landlord shall have previously received the Rent for such
month from Tenant.
G. Landlord and Tenant agree that after the commencement of
suit for possession of the Premises or after final order or judgment for the
possession of the Premises, Landlord may demand, receive, and collect any monies
due or coming due without in any manner affecting such suit, order, or judgment.
All such monies collected shall be deemed to be payments on account of the use
and occupation of the Premises, or, at the election of Landlord, on account of
Tenant's liability under this Lease.
H. The words "re-enter" and "re-entry", as used in this
Section, are not and shall not be restricted to their technical legal meaning,
but are used in the broadest sense.
I. Tenant waives all rights of redemption which may otherwise
be provided by any legal requirement in the event that Landlord shall, because
of the occurrence of an Event of Default by Tenant, obtain possession of the
Premises under legal proceedings, or pursuant to present or future law or to the
terms and conditions of this Lease.
Tenant expressly waives any demand for possession of the
Premises and other property of Tenant thereon or any demand for payment of Rent
hereunder or any notice of intention of Landlord to terminate this Lease or to
reenter the Premises and Tenant expressly waives any other notice or demand
prescribed by the Statutes of the State of Florida or any other applicable law,
and Tenant agrees that service of the notices provided for herein may be made as
set forth in this Lease. If Tenant is in arrears in the payment of Rent, Tenant
waives Tenant's rights, if any, to designate the items to which any payment made
by Tenant are to be credited and Tenant agrees that Landlord may apply any
payment made by Tenant to such items as Landlord sees fit, irrespective of and
notwithstanding any designation or request by Tenant as to the items which any
such payment shall be credited. Tenant shall not interpose any counterclaim of
any kind in any action or proceeding commenced by Landlord to recover possession
of the Premises (other than compulsory counterclaims).
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J. Landlord, in addition to other rights and remedies it may
have, shall have the right to (a) keep in place and use all of the furniture,
fixtures, and equipment in the Premises, including that which is owned by or
leased to Tenant, and (b) to remove all or any part of Tenant's property from
the Premises and any property removed may be sold, disposed of, or stored in any
public warehouse or elsewhere at the cost of and for the account of Tenant.
Landlord shall not be responsible for the care or safekeeping of such property,
whether in transport, storage or otherwise. Tenant waives any and all claim
against Landlord for loss, destruction and/or damage or injury which may be
occasioned by any of the aforesaid acts; Tenant shall be liable to Landlord for
costs incurred by Landlord in connection with any storage, transport or other
acts anticipated in this Section and shall hold harmless and indemnify Landlord
from all loss, damage, cost, expense and liability in connection therewith. No
re-entry or taking possession of the Premises by Landlord shall be construed as
an election on Landlord's part to terminate this Lease unless a written notice
of such intention is given to Tenant. Notwithstanding any such re-letting
without termination, Landlord may at all times thereafter elect to terminate
this Lease for such previous default. Any such re-entry shall be allowed by
Tenant without hindrance, and Landlord shall not be liable in damages for any
such re-entry, or guilty of trespass or forcible entry.
K. Landlord shall be entitled, without notice or bond, to the
issuance of prejudgment writs of replevin, pre judgment distress writs,
attachment writs, break open orders, orders authorizing the locking of the
Premises to protect Landlord's lien on personal property, fixtures and
equipment, and such other orders as may be issued by a court of law or equity.
Landlord shall have the right to take possession as allowed under Chapter 78,
Florida Statutes. The remedies described in this Section are cumulative and in
addition to and without waiver of all remedies allowed Landlord by this Lease or
by case law, common law and statute now or hereinafter in effect. Tenant agrees
that the rights and remedies granted Landlord in this Section are commercially
reasonable.
ADMINISTRATIVE CHARGES
28. In the event a Rent payment is not received within five (5)
business days after its due date, interest shall be due thereon at the rate of
eighteen percent (18%) per annum, on the then total Rent due and unpaid. This
interest shall accrue on the amount unpaid, including prior interest and
administrative fees and late charges, and shall become immediately due and
payable from Tenant to Landlord, without notice or demand, at the place of
payment. In the event any check, bank draft or negotiable instrument given for
any payment under this Lease shall be dishonored at any time for any reason
whatsoever not attributable to Landlord, Landlord shall be entitled, in addition
to any other remedy that may be available, to an administrative charge of Two
Hundred Dollars ($200.00). These provisions for administrative fees and late
charges are not, and shall not be deemed, grace periods. Such administrative
fees and late charges are not penalties, but liquidated damages to defray
administrative, collection, and related expenses due to Tenant's failure to make
such Rent payment when due or failure to process the dishonored instrument. An
additional administrative fee and late charge shall become immediately due and
payable on the first day of each month for which
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all or a portion of a Rent payment (together with any administrative fee and
late charge) remains unpaid, and for each dishonored instrument.
WAIVER OF LANDLORD'S LIEN
29. Landlord hereby waives any contractual, statutory or other
Landlord's lien in any of Tenant's furnishings, equipment, fixtures, inventory
and other property of any kind belonging to Tenant, or the equity of Tenant in
such items, on the Premises or elsewhere, which are being financed.
WAIVER OF DEFAULT
30. Failure of either Landlord or Tenant to declare any default
immediately upon occurrence thereof, or delay in taking any action in connection
therewith, shall not waive such default, but each party shall have the right to
declare any such default at any time and take such action as might be lawful or
authorized hereunder, in law and/or in equity. No waiver by Landlord or Tenant
of a default by the other shall be implied, and no express waiver by Landlord or
Tenant shall affect any default other than the default specified in such waiver
and that only for the time and extension therein stated.
No waiver of any term, provision, condition or covenant of
this Lease by Landlord or Tenant shall be deemed to imply or constitute a
further waiver by Landlord or Tenant of any other term, provision, condition or
covenant of this Lease. In addition to any rights and remedies specifically
granted Landlord arid Tenant herein, Landlord and Tenant shall be entitled to
all rights and remedies available at law and in equity, whether existing at time
of execution or of enforcement of this Lease, in the event that either party
shall fail to perform any of the terms, provisions, covenants or conditions of
this Lease to be performed or if Tenant fails to pay Base Rent, Additional Rent
or any other sums due Landlord when due. All rights and remedies specifically
granted to Landlord and Tenant herein, by law and in equity shall be cumulative
and not mutually exclusive.
Notwithstanding anything to the contrary in this Lease, both parties'
claims for damages in connection with this Lease shall be limited to actual
damages and shall exclude consequential, incidental and punitive damages, and
Tenant's rights and remedies hereunder or at law and in equity are expressly
subject to the limitations and exclusions set forth elsewhere in this Lease.
RIGHT OF ENTRY
31. Landlord, or any of its agents, shall have the right to enter the
Premises during all reasonable hours and with reasonable notice to examine the
same or to make such repairs, additions or alterations as may be deemed
necessary for the safety, comfort, or preservation thereof, or to said Building,
or to exhibit said Premises at any time within one hundred fifty (150) days
before the expiration of this Lease. Said right of entry shall likewise exist
for the purpose of removing
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placards, signs, fixtures, alterations, or additions which do not conform to
this Lease. Landlord shall use its reasonable efforts to minimize disruption of
Tenant's business when entering the Premises.
NOTICE
32. Any notice given Landlord as provided for in this Lease shall be
sent to Landlord by registered mail, personal delivery or by nationally
recognized overnight delivery service addressed to Landlord at the office of
Landlord at 444 Brickell Avenue, Suite 1001, Miami, Florida 33131 or such other
address as may be designated from time to time by Landlord. Any notice to be
given Tenant under the terms of this Lease, unless otherwise stated herein,
shall be in writing and shall be personally delivered or sent by registered mail
or by nationally (U.S.) recognized overnight delivery service to the office of
Tenant in the Building. Notices shall be deemed to have been given and delivered
upon receipt or refusal of receipt. Either party, from time to time, by such
notice, may specify another address in the continental United States to which
subsequent notice shall be sent. Landlord shall send a copy of any notices of
default to Tenant to Bilzin, Sumberg, Dunn, Price & Axelrod LLP, 2500 First
Union Financial Center, Miami, FL 33131 Attn: John C. Sumberg.
LANDLORD CONTROLLED AREAS
33. Landlord hereby grants to Tenant, and Tenant's officers, employees,
agents, contractors, invitees, licensees, visitors, patrons and customers, the
non-exclusive right to use, in common with Landlord and all other tenants of the
Building, all automobile parking areas, driveways, entrances and exits thereto,
common areas, and other facilities furnished by Landlord, including all parking
areas, truck way or ways, loading areas, pedestrian walkways and ramps,
landscaped areas, stairways, corridors, lobbies, elevators, restrooms and other
areas and improvements provided by Landlord for the general use, in common, of
tenants, their officers, agents, employees, servants, invitees, licensees,
visitors, patrons and customers (collectively, the "Common Areas"). The Common
Areas shall be at all times subject to the exclusive control and management of
Landlord, and Landlord shall have the right from time to time to establish,
modify and enforce reasonable rules and regulations with respect to all
facilities and areas and improvements; to police same; from time to time to
change the area, level and location and arrangement of parking areas and other
facilities hereinabove referred to; to close all or any portion of said areas or
facilities to such extent as may in the opinion of Landlord's counsel be legally
sufficient to prevent a dedication thereof or the accrual of any rights to any
person or the public therein, so long as Tenant's access to and use and
enjoyment of the Premises and Tenant's rights under this Lease are not adversely
affected; to close temporarily all or any portion of the public areas, Common
Areas or facilities, so long as Tenant's access to and use and enjoyment of the
Premises and Tenant's rights under this Lease are not adversely affected; to
discourage non-tenant parking; and to do and perform such other acts in and to
said areas and improvements as, in the sole judgment of Landlord, Landlord shall
reasonably determine to be advisable with a view to the improvement of the
convenience and use thereof by tenants, their officers, agents, employees,
servants, invitees, visitors, patrons, licensees and customers. Landlord will
operate and maintain the
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Common Areas and other facilities referred to in such reasonable manner as
Landlord shall determine from time to time. Without limiting the scope of such
discretion, Landlord shall have the full right and authority to designate a
manager of the parking facilities and/or Common Areas and other facilities who
shall have full authority to make and reasonably enforce rules and regulations
regarding the use of the same or to employ all personnel and to make and enforce
all rules and regulations pertaining to and necessary for the proper operation
and maintenance of the parking areas and/or Common Areas and other facilities.
CONDITION OF PREMISES ON
TERMINATION OF LEASE AND HOLDING OVER
34. Tenant agrees to surrender to Landlord, at the end of the Term
and/or upon any cancellation of this Lease, said Premises in as good condition
as said Premises were at the beginning of the Term of this Lease, ordinary wear
and tear, damage by fire or other casualty and minor alterations or any
alterations approved by Landlord excepted. Tenant agrees that if Tenant does not
surrender said Premises to Landlord at the end of the Term then Tenant will pay
to Landlord double the amount of the current Rent for each month or portion
thereof that Tenant holds over plus all damages that Landlord may suffer on
account of Tenant's failure to so surrender to Landlord possession of said
Premises, and will indemnify and hold Landlord harmless from and against all
claims made by any succeeding Tenant of said Premises against Landlord on
account of delay of Landlord in delivering possession of said Premises to said
succeeding tenant so far as such delay is caused by failure of Tenant to so
surrender the Premises.
No receipt of money by Landlord from Tenant after termination of this
Lease or the service of any notice of commencement of any suit or final judgment
for possession shall reinstate, continue or extend the Term or affect any such
notice, demand, suit or judgment.
No act or thing done by Landlord or its agents during the Term shall be
deemed an acceptance of a surrender of the Premises, and no agreement to accept
a surrender of the Premises shall be valid unless it be made in writing and
subscribed by a duly authorized officer or agent of Landlord.
OCCUPANCY TAX
35. Tenant shall be responsible for and shall pay before delinquency
all municipal, county or state taxes assessed during the Term of this Lease
against any occupancy interest or personal property of any kind, owned by or
placed in, upon or about the Premises by Tenant.
SIGNS
36. Landlord shall have the right to install signs on the interior or
exterior of the Building and Premises and/or change the Building's name or
street address. The Tenant shall have the right
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to display its name and logo on Building H at a location selected by Landlord
provided that prior to Tenant installing such signage, all such signage shall be
subject to Landlord's prior written approval and approval of applicable
governmental authority. All such signage shall be in compliance with applicable
statutes, regulations, ordinances. Tenant shall, at its sole cost and expense,
install and maintain such signage in good condition. Upon any termination of
this Lease, Tenant shall remove all of its signage. Tenant agrees to repair at
its sole cost and expense, any damage caused to the Building and/or other
portions of the Project arising out the installation, maintenance and/or removal
of such signage. Except as set forth above, the Tenant shall not, without the
prior written consent of Landlord, install any other exterior signage on the
Premises or elsewhere in the Project.
TRIAL BY JURY
37. LANDLORD AND TENANT WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER ON ANY MATTERS
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF
LANDLORD AND TENANT, AND TENANT'S USE OR OCCUPANCY OF THE PREMISES. Tenant
further agrees that it shall not interpose any counterclaim or counterclaims,
except compulsory counterclaims, in a summary proceeding or in any action based
upon nonpayment of rent or any other payment required of Tenant hereunder. Upon
Landlord's request, Tenant shall participate in mediation of a dispute between
Landlord and Tenant; the cost of a mediator shall be borne equally by Landlord
and Tenant.
RELOCATION OF TENANT
38. Omitted Intentionally.
RESERVED RIGHTS
39. The Landlord reserves the right to change the name or address of
the Building and/or Project at any time and from time to time; provided,
however, in the event Landlord elects to change the name or address of the
Building and/or the Project, then Landlord shall have the right to do so.
Neither this Lease nor any use by Landlord shall give Tenant an easement or any
right in or to the use of any door, passage, concourse or plaza in connection
with the Building, with any other portion of the Project or to any public
conveniences and the use of such portions of the Project may, without notice to
Tenant, be regulated or discontinued at any time, provided Tenant shall be
permitted to utilize the Common Areas as provided in this Lease. The Landlord
may make such changes, alterations, additions and improvements in and to the
Project and the Common Areas, as well as in and to the streets, parking areas,
landscape areas and other areas of the Project, as Landlord shall deem necessary
or desirable, so long as Tenant's access to and use and enjoyment of the
Premises and Tenant's rights under this Lease are not adversely affected in any
material respect. Tenant acknowledges that the Landlord is leasing to Tenant a
portion of the interior of the Building and reserves all rights to permit other
third parties to utilize any other portions of the Building or any
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portion of the Project and/or exterior of the Building, including, but not
limited to, the roof of the Building. Tenant acknowledges that it has no right
to any development rights, air rights, easement for light or view or comparable
rights appurtenant to the Project and consents, without further consideration,
to any utilization of such rights by Landlord and Tenant agrees to promptly
execute and deliver any instruments which may reasonably be requested by
Landlord, including documents evidencing such acknowledgment and consent.
Landlord reserves the right, at any time during the term of
this Lease, to make changes, alterations, additions and improvements in and to
any portion of the Project (including, but not limited to, the right to
construct additional buildings and/or improvements within the Project without
incurring any liability to Tenant therefore; provided, however, changes may not
be made to the interior of the Premises without Tenant's consent unless such
changes will not adversely affect in any material manner Tenant's use of the
Premises as contemplated by this Lease; and provided further that Tenant's
access to and use and enjoyment of the Premises and Tenant's rights under this
Lease are not adversely affected in any material respect.
The Tenant shall permit Landlord to install, use, maintain,
replace and add additional pipes, lines, utilities, ducts and conduits within
walls, load bearing columns and ceilings located in or upon the Premises.
Landlord reserves the right, at its option, to install and maintain, use, repair
and replace pipes, ducts, conduits, utility lines and wires within the walls,
hung in ceiling space, column space and partitions and/or beneath the floor
slabs or above or below the Premises or other portions of the Building except
the Landlord shall not unreasonably interfere with and/or interrupt business
operation of Tenant within the Premises and the Landlord shall repair and
restore any damage to the Premises caused by Landlord in performing such work.
In the event Landlord desires to submit the Premises to a
Declaration of Protective Covenants in connection with the Project, then
Landlord shall have the right do so, so long as Tenant's access to and use of
the Premises for the uses permitted hereunder are not adversely affected in any
material respect. Tenant hereby acknowledges that Landlord and/or others, in its
sole and absolute discretion, shall have the right to develop and/or redevelop
the Project in such manner as the Landlord, its successors and assigns, desires
or shall have the right not to further develop. The Tenant understands that the
Project may now or in the future be developed and/or redeveloped and the Tenant
hereby agrees that it shall not and is hereby estopped from objecting to the
method or manner in which the Project is developed; provided, however, that the
development and/or redevelopment of the Project shall not materially affect
Tenant's ability to access and utilize the Premises for the uses permitted
pursuant to this Lease, affect the interior of the Premises nor preclude
Tenant's right to parking as provided in this Lease.
Tenant hereby agrees to join and to execute any and all
documents pertaining to all or any portion of the Project which are reasonably
requested by Landlord, including, but not limited to, land use amendments,
zoning applications, development of regional impact applications and/or other
permits, authorizations or documents which are to be filed with any governmental
or quasi-
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governmental authority with regard to the development of all or any part of the
Project which may now or in the future be owned by Landlord, its successors and
assigns ("Joinders"), provided that such Joinders shall be without additional
expense to Tenant and shall not unreasonably affect Tenant's ability to access
and utilize the Premises for the uses permitted under this Lease, affect the
interior of the Premises nor preclude Tenant's right to parking as provided in
this Lease.
INVALIDITY OF PROVISION
40. If any term, provision, covenant or condition of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term, provision, covenant or condition to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby and each term, provision, covenant or condition of this Lease shall be
valid and be enforceable to the fullest extent permitted by law. This Lease
shall be construed in accordance with the laws of the State of Florida.
TIME OF ESSENCE
41. Time is of the essence of all the terms, provisions, covenants and
conditions of this Lease.
MISCELLANEOUS
42. The terms Landlord and Tenant as herein contained shall include
singular and/or plural, masculine, feminine and/or neuter, heirs, successors,
executors, administrators, personal representatives and/or assigns wherever the
context so requires or admits. The terms, provisions, covenants and conditions
of this Lease are expressed in the total language of this Lease Agreement and
the section headings are solely for the convenience of the reader and are not
intended to be all inclusive. Any exhibit or attachment or formally executed
addendum to or modification of this Lease shall be expressly deemed incorporated
by reference herein unless a contrary intention is clearly stated therein.
EFFECTIVE DATE
43. Submission of this instrument for examination does not constitute
an offer, right of first refusal, reservation of or option for the Premises or
any other space or premises in, on or about the Building. This
instrument-becomes effective as a lease only upon the date ("Effective Date")
that this Lease has been executed by and a copy of such executed Lease delivered
to both Landlord and Tenant.
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ENTIRE AGREEMENT
44. This Lease contains the sole and entire agreement between the
parties hereto and supersedes all previous written or oral negotiations or
agreements between the parties with respect to the subject matter of this Lease,
and it may be modified only by an agreement in writing signed by Landlord and
Tenant. No surrender of the Premises, or of the remainder of the term of this
Lease, shall be valid unless accepted by Landlord in writing. Tenant
acknowledges and agrees that Tenant has not relied upon any statement,
representation, prior written or contemporaneous oral promises, agreements or
warranties except such as are expressed herein. All of the parties to this Lease
have participated in its negotiations and preparation; accordingly, this Lease
shall not be more strictly construed against any one of the parties.
BROKERAGE
45. Tenant represents and warrants that it has dealt with no broker,
agent or other person other than Landlord and Landlord's broker ACP Realty
Services, L.L.C. (which entity is related to Landlord) and Harbour Real Estate
Corporation (which entity represents the Tenant in this transaction) (the
aforementioned brokers are collectively referred to as "Authorized Brokers") in
connection with this transaction and that no broker, agent or other person,
other than Tenant, Landlord or Authorized Brokers brought about this
transaction. Tenant and Landlord each agree to indemnify and hold harmless the
other from and against any claims by any other broker, agent or other person
claiming a commission or other form of compensation by virtue or having dealt
with such indemnifying party with regard to this leasing transaction other than
the Authorized Brokers. The Landlord agrees to pay the Authorized Brokers a
brokerage commission in accordance with the , terms of a separate brokerage
agreement between the Landlord and the Authorized Brokers. The provisions of
this section shall survive the termination of this Lease.
FORCE MAJEURE
46. Neither Landlord nor Tenant shall be required to perform any term,
condition, or covenant in this Lease (other than the payment of Rent and other
charges and monies due and owing under this Lease) so long as such performance
is delayed or prevented by force majeure, which shall mean acts of God, labor
disputes (whether lawful or not), material or labor shortages, restrictions by
any governmental authority, civil riots, floods, and any other cause not
reasonably within the control of Landlord and which by the exercise of due
diligence Landlord is unable, wholly or in part, to prevent or overcome. Lack of
money shall not be deemed force majeure.
STATUTORY RADON GAS NOTICE
47. Radon Gas: Radon is a naturally occurring radioactive gas that when
it has accumulated in a building in sufficient quantity, may present health
risks to persons who are exposed to it over time. Levels of Radon that exceed
Federal and State guidelines have been found in
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buildings in Florida. Additional information regarding Radon and Radon testing
may be obtained from your County Public Health Unit.
NO WAIVER
48. No waiver by Landlord or Tenant of any breach by the other of any
term or condition of this Lease, and no failure by Landlord or Tenant to
exercise any right or remedy in respect of any such breach, shall constitute a
waiver or relinquishment for the future, or bar any right or remedy of Landlord
and Tenant, in respect of any other breach of such term or condition or any
breach of any other term or condition of this Lease. No payment by Tenant or
receipt of payment by Landlord of an amount less than the full amount then due
Landlord under this Lease shall be construed as anything other than a partial
payment of such sum then due and owing. No endorsement or statement on any check
or letter or any form of payment of accompanying document shall be deemed to be
an accord or satisfaction or other form of settlement; Landlord may accept any
such payment without prejudice to its rights to recover the balance of sums due
and owing under this Lease or to pursue any other remedy permitted under this
Lease.
SURVIVAL
49. All obligations of Tenant and Landlord which are or may be intended
by their nature to be performed and/or complied with after the expiration or
earlier termination of this Lease shall survive such expiration or termination.
Express provisions in this Lease which require or permit survival in specific
instances, or as to specific obligations, shall not be deemed a limitation upon
the generality of this survival clause.
PROVISIONS SEVERABLE
50. Every provision of this Lease shall be valid and be enforced to the
fullest extent permitted by law. If any provision of this Lease, or the
application of such provision to any person or circumstance, shall be determined
by appropriate judicial authority to be illegal, invalid, or unenforceable to
any extent, such provision shall, only to such extent, be deemed stricken from
this Lease as if never included. The remainder of this Lease, and the
application of such provision to persons or circumstances other than those as to
which such provision is held illegal, invalid, or unenforceable, shall not be
affected.
BINDING EFFECT
51. The terms and conditions of this Lease shall bind the parties and
their respective successors and assigns, and shall inure to the benefit of the
parties and their respective permitted successors and assigns. Any waiver of
rights by either party shall be deemed not only to be a waiver of such rights by
such party but also a waiver of such rights for and on behalf of such party's
successors and assigns. This Lease may be changed, amended, or modified only by
an agreement
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in writing signed by the party against whom such change, amendment, or
modification is sought to be enforced. If Tenant, with Landlord's consent, shall
occupy the Premises prior to the beginning of the Term as specified above, all
provisions of this Lease shall be in full force and effect commencing upon such
occupancy, and rent for such period shall be paid by Tenant at the same rate
herein specified. Tenant recognizes and acknowledges that the provisions of this
paragraph are material inducements to Landlord to enter into this Lease.
RIGHT OF FIRST OFFER
52. Provided Tenant is not in default at the time of exercise of the
right of first offer, and subject to the existing rights of existing tenants
under leases which predate this Lease, Tenant shall have a right of first offer
to expand the Premises into any available space in Building J for the initial
Term of this Lease (but not any renewal term), beginning at the Commencement
Date. In the event Tenant exercises its rights to expand the Premises into any
available space in Building J, the Tenant and Landlord shall enter into a lease
modification agreement which shall evidence, confirm and acknowledge such
expansion. All terms and conditions for such expansion space shall be the same
as provided in this Lease for the original Premises, except that Base Rent and
other concessions in respect of such expansion space shall be at prevailing fair
market rates, as reasonably determined by Landlord. Landlord shall notify
Tenant, in writing, no more than one hundred twenty (120) days prior to the
Availability Date (as such term is hereafter defined), of the location and size
of the space and the date in which such space will become available for
occupancy (the "Availability Date"). Tenant shall notify Landlord in writing no
more than five (5) days from the date of Tenant's receipt of Landlord's notice,
that it intends to exercise the right of first offer. Failure to notify Landlord
within such five (5) day period shall be deemed a rejection of the space, and
Landlord shall have the right to lease the space for a period of one year
thereafter without notice to Tenant. Should Tenant lease additional space
pursuant to this provision, the lease expiration date for the expansion Premises
shall be coterminous with the lease expiration date for the original Premises,
unless the expiration date of this Lease for the original Premises is within
five years of the lease commencement date of the expansion Premises, in which
event the Tenant shall exercise its option to extend the Term if the expiration
date of this Lease is within five (5) years of the date Landlord notifies Tenant
of the availability of such space.
The right of first offer set forth in this Paragraph 52 shall
expire upon any termination of this Lease. The provisions of this Paragraph 52
shall not be applicable during any period in which an Event of Default exists
and is continuing.
NO RECORDATION
53. Neither this Lease nor any memorandum of its terms shall be
recorded in the Public Records of Broward County, Florida.
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AS IS
54. Except for the items of Landlord Work set forth on Exhibit "D,"
Tenant accepts the condition of the Premises in its "as is" condition as of the
date hereof and Tenant, having fully inspected the condition of the Premises,
waives all claims as to the existing condition of the Premises whether patent,
latent or otherwise.
BINDING EFFECT
55. The terms and conditions of this Lease shall bind the parties and
their respective successors and assigns, and shall inure to the benefit of the
parties and their respective permitted successors and assigns (to extent
assignment is permitted as to Tenant). Any waiver of rights by either party
shall be deemed not only to be a waiver of such rights by such party but also a
waiver of such rights for and on behalf of such party's successors and assigns.
This Lease may be changed, amended, or modified only by an agreement in writing
signed by Landlord and Tenant. If Tenant, with Landlord's consent, shall occupy
the Premises prior to the beginning of the Term as specified above, all
provisions of this Lease shall be in full force and effect connecting upon such
occupancy, and Rent for such period shall be paid by Tenant at the same rate
herein specified. Tenant recognizes and acknowledges that the provisions of this
paragraph are material inducements to Landlord to enter into this Lease.
LANDLORD'S REPRESENTATIONS AND WARRANTIES.
56. Landlord represents and warrants to Tenant that: (i) Landlord is
the fee simple owner of the Premises, the Building and the Common Areas; (ii)
Landlord has the full right and authority to make this Lease; (iii) the
undersigned agent has full power, right and authority to execute this Lease for
and on behalf of the Landlord and to fully bind Landlord; and (iv) no
restrictive covenant, easement, lease or other written agreement restricts,
prohibits or otherwise affects Tenant's rights set forth in this Lease.
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IN WITNESS WHEREOF, the parties hereto, have signed, sealed and
delivered this Lease in quadruplicate, on the date and year first above written.
WITNESSES: LANDLORD:
ACP OFFICE 1 LLC, .
a Delaware limited liability company
BY: ACP SOUTH FLORIDA LLC,
--------------------------------------
a Florida limited liability company,
its operating member
/s/ STEVEN D. CASTER
- ------------------------------------- BY: ACP SOUTH FLORIDA CORP.
Name: Steven D. Caster ----------------------------------
-------------------------------- a Florida corporation.
its managing member
/s/ GLORIA SARDINAS
- ------------------------------------- By: /s/ RODOLFO PRIO TOUZET
Name: Gloria Sardinas -----------------------------
-------------------------------- Name: Rodolfo Prio Touzet
Title: Treasurer/Secretary
WITNESSES: TENANT:
MORTGAGE.COM, a Florida corporation
By: /s/ SETH S. WERNER
--------------------------------------
/s/ JOHN C. SCAMBY Seth S. Werner, its President
- -------------------------------------
Name: John C. Scamby
--------------------------------
/s/ MARIBEL CALDERIN
- -------------------------------------
Name: Maribel Calderin
--------------------------------
41
EXHIBIT 10.34
TERMINATION AGREEMENT
This Termination Agreement (the "Termination Agreement") is entered
into as of February 29, 2000 ("Effective Date"), 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., (f/k/a First
Mortgage Network, Inc.), a Florida corporation, with its principal place of
business at 1643 N. Harrison Parkway, Sunrise, Florida 33323 ("MDC"). ILSI and
MDC are hereinafter referred to as the "Parties."
WITNESSETH:
WHEREAS, the Parties entered into a Distribution, Marketing,
Facilities, and Services Agreement as of May 31, 1998 and Amendment Number One
To Distribution, Marketing, Facilities and Services Agreement dated July 22nd ,
1999 (" A-Paper Agreement"); and
WHEREAS, the Parties entered into a Subprime Agreement for
Distribution, Marketing, Facilities and Services as of May 26, 1999 and
Amendment Number One To Subprime Agreement for Distribution, Marketing,
Facilities and Services dated July 22(degree)d, 1999 ("SubPrime Agreement"); and
WHEREAS the Parties desire to terminate the A-Paper Agreement and the
SubPrime Agreement (collectively the "Agreements") as more particularly set
forth herein.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements contained herein, the
Parties hereto agree as follows:
1. All capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed to them in the Agreements.
2. In consideration for the mutual release set forth herein and the
payment by MDC to ILSI of twenty-five thousand two hundred seventy six
dollars ($25,276.00) on February 291h , 2000 (the "Termination Date")
via wire transfer, the Agreements shall terminate as of the Termination
Date. To the extent not inconsistent with this Termination Agreement
and except as specifically.-set forth in Sections 7.1, 7.2, 7.3, 7.4,
9.1 and 9.10 of the A-Paper Agreement, and 7.1, 7.2, 7.3, 7.4, 9.1 and
9.10 of the Subprime Agreement which shall survive following the
Termination Date, neither party shall have any further rights or
obligations under the Agreements except for rights and obligations with
respect to loans in process as of the Termination Date. In addition,
Articles IV (Compensation) and Article VI (Representations, Warranties
and Covenants) of both the A-Paper and the Subprime Agreement shall
apply as appropriate, for the sole purpose of completion of MDC's
obligations with respect to any loans in process.
<PAGE>
3. Except with respect to claims, demands, debts, liabilities, costs,
expenses, including attorney's fees, and causes of action related to
loans in process or related to or arising under the sections of the
Agreements which survive the Termination Date, each party
herebyreleases the other party from all claims, demands, debts,
liabilities, costs, expenses, including attorneys' fees, and causes of
action of any kind whatsoever, known or unknown, which each party has
or may have under the Agreements as of the Termination Date and each
party also expressly waives and relinquishes all rights and benefits of
the provisions of the California Code of Civil Procedure, Section 1542,
which reads as follows:
"1542. Certain claims not affected by general release. A
general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor."
4. This Termination Agreement and each of the terms hereof shall be kept
confidential, and each party agrees not to disclose to others any of
the terms hereof except to its accountants or attorneys or as may be
required by law.
5. Each party agrees not to engage in any form of conduct, or make any
statements or representations, that disparage or otherwise harm the
other party's reputation, good will or commercial interest.
6. This Termination Agreement may be executed in one or more counterparts
each of which shall be deemed an original.
7. This Agreement shall be governed by and construed in accordance with
the laws of California, without respect to its conflicts of law
principles.
IN WITNESS WHEREOF, each of the Parties has caused this Termination
Agreement to be signed and delivered by its duly authorized officer as of the
date first written above.
INTUIT LENDER SERVICES, INC. MORTGAGE.COM, INC.
By: /s/ CARL REESE By: /s/ MICHAEL BRENNER
--------------------------- ---------------------------
Name: Carl Reese Name: Michael Brenner
------------------------- -------------------------
Title: VP, Quicken Loans Title: Exec. VP/GC
------------------------ ------------------------
2
EXHIBIT 10.35
ADMINISTRATIVE SERVICES AND TECHNOLOGY SHARING AGREEMENT
This Administrative Services and Technology Sharing Agreement (the
"Agreement") is effective as of January 27, 2000 (the "Effective Date") by and
between OPENCLOSE.COM, INC., a Florida corporation (the "Client"), and
MORTGAGE.COM, INC., a Florida corporation ("MDCM").
FACTUAL BACKGROUND
A. The Client is a newly-formed, majority-owned subsidiary of
MDCM. MDCM's Openclose Division has developed, in cooperation with Fannie Mae, a
Web site whereby participating mortgage lenders, brokers and vendors can
exchange lender product and pricing information, automated underwriting data and
borrower application information in a neutral environment. This Web site,
http://www.openclose.com/ (the "Openclose Web Site") is designed to expand the
availability of important and useful underwriting information, which results in
faster transactions, cost savings for borrowers, brokers, and lenders by
eliminating unnecessary paperwork, and improved communications between lenders
and brokers. MDCM has transferred a co-ownership interest in the Openclose Web
Site to the Client. The Client also provides custom versions of the Openclose
Web Site to mortgage lenders and brokers for use in their own names ("Private
Label").
B. The Client believes that it may be more efficient to
"outsource" certain administrative, management and technology support related
functions, thereby providing the Client with access to higher quality and more
sophisticated level of support at a lower cost because of the ability to "share"
the cost with other customers of the "outsource" provider. Of course, the
Client, desiring to be a stand-alone business, will retain other administrative
and management functions "in-house" where it is necessary for the "core
business" and is more cost effective or is otherwise more desirable.
C. The Client desires to have access to and the use of certain
assets of which MDCM is the owner or licensee.
D. The Client also desires to engage MDCM to perform certain
technology services including Web hosting and source code development services.
NOW, THEREFORE, the parties hereto agree as follows:
1. MANAGEMENT AND TECHNOLOGY SERVICES.
(a) ENGAGEMENT. The Client hereby engages MDCM to provide the
following services:
(i) FINANCIAL AND ACCOUNTING MATTERS. MDCM shall
maintain Client's general ledger, accounts receivable and
accounts payable records, and fixed asset records and provide
billing and collection services. MDCM shall also
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prepare or cause to be prepared Client's federal, state and
local tax returns, and financial statements. MDCM shall also
provide, or cause to be provided, to Client payroll services,
including assistance with regulatory compliance matters. MDCM
shall maintain all past accounting, tax and payroll records
until such time as such records shall be disposed of in
accordance with applicable legal requirements and MDCM's
normal record disposal policies.
(ii) INSURANCE MATTERS. MDCM shall provide or cause
to be provided to Client insurance with the coverage,
insurers, and maximum deductibles set forth on SCHEDULE
1(a)(ii). All such insurance policies shall add Client as an
additional named insured and such insurers shall be required
to provide Client with no less than 5 days prior written
notice of any change or cancellation of any such insurance. In
the event of any such potential change which may have a
materially adverse affect on the Client, or in the event of
potential cancellation, Client shall be entitled to secure
replacement insurance at its own cost.
(iii) EMPLOYEE BENEFITS MATTERS. MDCM shall provide
or cause to be provided administrative services necessary to
the provision and maintenance of customary employee benefits,
including without limitation the Client's 401(k) Plan,
medical, dental, vision, and life insurance programs, and
stock option plan, and to the extent feasible, will permit the
employees of the Client to participate in MDCM's 401(k),
insurance and stock option plans.
(iv) LEGAL SERVICES. MDCM shall provide Client with
all legal services reasonably requested by Client which MDCM
in-house counsel currently provides to MDCM in the ordinary
course of business.
(v) FACILITIES MANAGEMENT SERVICES. As to the office
space described in Section 5, MDCM shall provide Client with
all facilities management services that MDCM currently
provides in the standard course of business in office space
occupied by MDCM. MDCM shall provide Client with the use of
computer equipment currently used in the Openclose Business.
(vi) IT SERVICES. MDCM shall provide certain general
information technology services and infrastructure including
assistance with, installation, and maintenance of telephonic
and computer equipment. As to the office space described in
Section 5, MDCM shall also provide Client with the use of
MDCM's existing and future telephone automatic call
distribution networks and systems and email systems. MDCM
shall provide such technical support and maintenance as Client
reasonably requests for Client and its clients and licensees
for the Software (as defined in the License Agreement) and the
Openclose Code. Client will not be charged for revisions or
updates provided under the License Agreement.
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(vii) WEB HOSTING AND MAINTENANCE OF OPENCLOSE WEB
SITE. MDCM will provide Web hosting services for the Openclose
Web Site pursuant to the Web Hosting Agreement attached as
EXHIBIT A. In consideration of hosting the Openclose Web Site,
Client shall pay to MDCM $5,000 per month, or such other
amount negotiated from time to time and stated in the Web
Hosting Agreement, commencing with the month following the
last month of a three-consecutive-month period in which Client
has positive net income, as reflected on the monthly financial
statements prepared by or for Client.
(viii) WEB HOSTING OF PRIVATE LABEL SITES. MDCM will
provide Web hosting services for Client's Private Label Web
sites for the following costs and charges: (i) for Private
Label Web sites provided to brokers under the Countrywide
Agreement, Client shall pay MDCM $20 per month per Private
Label Web site and (ii) for all other Private Label Web sites,
Client shall pay to MDCM monthly an amount equal to 10% of the
monthly receipts generated from each Private Label Web site,
such payment to be made within 30 days following the end of
the month for which receipts are being determined. Client
shall be entitled to offer to its clients MDCM's Private Label
Web Hosting services provided that the applicable agreement
includes provisions substantially similar to those set forth
in EXHIBIT A attached hereto, except that the limitation of
liability set forth therein and established at $100,000 shall
be modified as the parties mutually agree. Each such agreement
shall identify MDCM as an intended third party beneficiary of
such agreement and MDCM shall perform the hosting services
therein. In the event of termination of such Web Hosting
Services as permitted pursuant to the applicable agreement, if
the third party client requests and Client agrees, MDCM shall
transfer such site to Client or to such other location as
Client shall direct, for Client to assume hosting obligations.
Notwithstanding the foregoing, MDCM shall continue to provide
and shall comply with all of its obligations under the Web
site hosting agreements set forth on SCHEDULE 1(a)(viii)
hereto (the "Existing Client Web Site Hosting Agreements")
even if such agreements have been assigned to Client under the
Contribution Agreement, unless Client directs otherwise. MDCM
shall not terminate or modify such agreements without Client's
prior written consent unless termination is permitted by the
Existing Client Web Site Hosting Agreements. MDCM will use
commercially reasonable efforts to notify Client of the
reason(s) for such termination as soon as reasonably
practicable after such termination.
Openclose shall require the operator of each Private
Label Web site (other than existing operators of Private Label Web
sites identified on SCHEDULE 1(a)(viii)) to execute a Web hosting
agreement that includes provisions substantially similar to the Web
Hosting Agreement attached as EXHIBIT A, except that the limitation of
liability set forth therein and established at $100,000 shall be
modified as the parties mutually agree. Each such agreement shall
identify MDCM as an intended third party beneficiary. Except as
described in Section 7, nothing herein shall prevent Client from
offering additional Web hosting services through itself or third
parties.
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(ix) COOPERATION IN TRANSFERRING WEB SITES. In the
event Client moves its Openclose Web Site or any of its
Private Label Web sites to another host, MDCM shall reasonably
cooperate in the transfer of the Web sites to the new host.
(x) FANNIE MAE CONTENT. Pursuant to the Amended and
Restated Desktop Underwriter Seller/Servicer Software License
and Subscription Agreement between MDCM and Fannie Mae entered
into October 1998 (the "Fannie Mae Agreement"), MDCM has
access to certain technology made available by Fannie Mae (the
"Fannie Mae Content"). As part of its obligations as co-owner
of the Openclose Code, MDCM shall provide Client with access
to the results generated by the Fannie Mae Content and shall
assist Client in incorporating such results into the Openclose
Web Site. Client understands and agrees that use of and access
to the Fannie Mae Content under this Agreement is subject to
the terms and conditions of the Fannie Mae Agreement and that
such use and access shall terminate on the earlier of (i)
expiration or termination of Fannie Mae Agreement, (ii)
expiration or termination of this Agreement, or (iii) transfer
of MDCM's interest in the Openclose Code to Client as set
forth in Section 5.03 of the Contribution Agreement. MDCM
hereby represents and warrants that the Fannie Mae Agreement
is in full force and effect, that neither MDCM nor Fannie Mae
are in breach thereof, that MDCM is entitled to provide the
services and access hereunder provided to Client. MDCM hereby
agrees to use its best efforts to maintain the Fannie Mae
Agreement in full force and effect for the remaining term of
the Fannie Mae Agreement and any renewal terms provided for
therein and agrees to pursue on behalf of the Client any
remedies for indemnification or otherwise on behalf of the
Client.
(xi) DEVELOPMENT SUPPORT. MDCM shall perform such
specific consulting projects and research projects for source
code development, from time to time, as shall be requested by
the Client and upon such terms as may be agreed upon between
the Client and MDCM; provided that the cost of these services
to Client will equal MDCM's salary and benefits costs for the
employee-developers and other direct costs and expenses, plus
10%. It is understood between the parties that to the extent
that MDCM performs development services for the Client on or
in connection with the Openclose Web Site or Openclose Code,
Client shall own all rights in the results and proceeds of
such services (other than pre-existing works or material
licensed from third parties), unless the parties agree
otherwise in writing. Nothing herein shall prevent the Client
itself or through third parties from performing such
development services from time to time.
(xii) OTHER SERVICES PROVIDED BY MDCM. MDCM shall
provide and perform such other services, as shall be requested
by the Client and agreed upon between the Client and MDCM,
from time to time, at such price and on such terms as agreed.
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(xiii) GHR CONTRACT. Pursuant to the Technology
Sharing and Marketing Agreement between MDCM and GHR Systems,
Inc. dated August 31st, 1998, as amended ( the "GHR
Contract"), MDCM and GHR share certain technology, revenue,
business knowledge and marketing and sales capabilities,
portions of which apply to the Client's Business, as
hereinafter defined. To the extent that the obligations of GHR
under the GHR Contract pertain to or are necessary for
Client's Business, MDCM and Client agree to use their
reasonable best efforts to cooperate with each other in order
to ensure that MDCM and Client each receive the benefit of,
and discharge the responsibilities of, the GHR Contract that
pertain respectively to MDCM's Business and Client's Business,
as their interests may appear. Without limiting the generality
of the foregoing MDCM agrees upon receipt of notice from
Client to register with GHR prospects of Client under section
3.d of Schedule A of the GHR Contract, to pay to Client all
amounts received from GHR that pertain solely to marketing
related to Client's Business. MDCM further agrees not to
terminate the GHR Contract without Client's prior written
consent, which shall not be unreasonably withheld. MDCM
further agrees that in connection with a renegotiation or
renewal of the GHR Contract, Client shall have the right to
direct MDCM as to whether the renegotiated or renewed GHR
Contract provides GHR with any marketing or other rights with
respect to Openclose Code. Client agrees to reimburse MDCM for
any amounts required to be paid by MDCM to GHR that pertain to
Client's Business provided that to the extent it has a right
to do so, MDCM shall not incur any expenses that relate to
Client's Business without Client's prior written consent.
(xiv) DEXMA AGREEMENT, EXISTING WEB SITE HOSTING
AGREEMENTS AND LENDER/BROKER CONTRACTS. The parties
acknowledge that the Dexma Agreement and the Existing Web Site
Hosting Agreements entered into prior to the date hereof are
necessary for the operation of the Openclose Business but are
not being assigned contemporaneously herewith and that all or
a portion of the lender and broker agreements may not be
currently assigned. MDCM agrees to execute any necessary
documents, instruments or agreements necessary to assign these
agreements to Client upon Client's request and agrees that
until the earlier of the expiration of the term of each such
agreement (including any renewal periods contained therein) or
any such assignment, MDCM shall use its best efforts to keep
such agreements in full force and effect. MDCM further agrees
that until the assignment of each of the aforementioned
agreements, MDCM shall take all actions to enforce its rights
under the agreements at the direction of Client and shall
promptly remit to Client any proceeds, revenues or
consideration received in connection with such agreements.
(b) COMPENSATION. For services described in subsections
(a)(i), (a)(iii), (a)(iv), (a)(v) and (a)(vi) of this Section 1 (the
"Administrative Services"), MDCM shall be compensated based on the
following allocation of costs and expenses. Allocation of costs and
expenses for Administrative Services shall be determined by headcount
as follows: MDCM shall determine the ratio of MDCM employees working
full-time on Administrative Services for Client to the number of MDCM
full-time employees on its payroll. Such ratio shall be applied to
MDCM's total salary, benefits costs and other direct costs and expenses
for its employees to determine the pass-through cost to Client. For
example, if 75 MDCM employees are working full-time on Administrative
Services for Client and MDCM has 750 full-time employees on its
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payroll, Such ratio shall be applied to MDCM's total salary, benefits
costs and other direct costs and expenses for its employees to
determine the pass-through cost to Client. For example, if 75 MDCM
employees are working full-time on Administrative Services for CLient
and MDCM has 750 full-time employees on its payroll, Client will be
charged 10% of MDCM's total salary costs, employee benefits costs and
other direct costs and expenses relating to MDCM financial, accounting,
employee benefits, human resources, legal, facilities management and IT
services. The same headcount ratio shall be applied to the cost of
insurance provided under Section 1(a)(ii) to determine a pass-through
cost to Client. Additional compensation is as otherwise described in
the sections of this Agreement describing the services to be provided
to Client.
MDCM has attached as Schedule 1(b) its budget and estimate of
the costs anticipated to be incurred by Client in connection therewith for the
calendar years 2000 and 2001. Within 30 days prior to the commencement of each
calendar year of the term of this Agreement, MDCM shall provide to Client for
Client's approval a similar budget, adjusted for the forthcoming year. MDCM
shall not be entitled to incur any expense that is not set forth in such a
budget without Client's consent, which shall not be unreasonably withheld.
Nothing in the budget shall be construed to limit Client's ability to require
MDCM to provide services under Section 1(a) or limit the compensation to which
MDCM shall be entitled for services rendered to Client that are not described in
the budget.
2. OWNERSHIP AND USE OF INTELLECTUAL PROPERTY.
(a) OPENCLOSE CODE. The term "Openclose Code" refers to the
programming and other intellectual property identified in the
Contribution Agreement among MDCM, Client and the other parties
thereto, of even date herewith (the "Contribution Agreement"). Solely
in order to provide the services described in Section 1(a)(xi), MDCM
may retain a reasonable number of copies of the Openclose Code (in both
object code and source code forms) and all associated documentation
which MDCM shall treat as Confidential Information of Client in
accordance with this Agreement, and, upon termination or expiration of
this Agreement for any reason, MDCM shall deliver to Client any and all
copies of such Openclose Code, and modifications and derivative works
based thereon, in whatever form or medium. MDCM acknowledges and agrees
that Client shall be considered a joint owner and co-inventor of all
copyrights, trade secrets, inventions, proprietary rights and
intellectual property contained in the Openclose Code. MDCM warrants
that no other copies of the Openclose Code exist on the date hereof.
(b) DELIVERY OF MODIFICATIONS OF OPENCLOSE CODE. In the event
that MDCM at Client's request carries out any modifications of or
preparation of any derivative works based on the Openclose Code, MDCM
shall within ten (10) days of such services deliver to Client updated
source and object code, all copies and documentation in connection
therewith.
(c) DERIVATIVE WORKS OF OPENCLOSE CODE. All derivative works
based on the Openclose Code developed by MDCM pursuant to Section
1(a)(xi) of this Agreement
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("Derivative Openclose Code") shall be owned by Client. Such ownership
rights shall be confirmed in the written terms agreed upon by the
parties for such development or in any other agreement or document the
Client reasonably requests MDCM to execute. Nothing herein shall
entitle MDCM to create any such derivative works except pursuant to the
provisions of a separate written agreement between the parties pursuant
to Section 1(a)(xi) or otherwise.
(d) LICENSE TO MDCM CODE. MDCM shall grant Client a perpetual,
world-wide, irrevocable non-exclusive license to the object code and
source code versions of certain software, technology and other rights
("MDCM Code"), pursuant to the License Agreement attached hereto as
Exhibit B (the "License Agreement"). As provided in the License
Agreement, Client shall also be entitled to receive copies of the
object code and source code versions of future MDCM Code developed by
MDCM. MDCM shall be the exclusive owner of the MDCM Code.
(e) RESIDUAL KNOWLEDGE. The parties mutually acknowledge that
during development of the Openclose Code and the performance of
services as provided in Section 1(a)(xi), MDCM and its personnel and
agents have and may become acquainted with certain general ideas,
concepts, know-how, methods, techniques, processes, and skills
pertaining to the Openclose Code (the "Residual Knowledge").
Notwithstanding anything in this Agreement to the contrary, and
regardless of expiration or termination of this Agreement, Client
hereby grants MDCM a perpetual, worldwide, noncancelable, irrevocable,
royalty free license to use the Residual Knowledge in conducting its
business, other than the Openclose Code or Client's Proprietary and
Confidential Information. Such license includes the right for MDCM to
use the Residual Knowledge in providing services and/or creating and
licensing programming, technologies, and other materials for MDCM's
other clients and for MDCM itself and its subsidiaries and affiliates,
and Client acknowledges and agrees that it shall not assert against
MDCM, its personnel, or MDCM's other clients any claim, prohibition, or
restraint from using such Residual Knowledge. ANY SUCH LICENSE IS
GRANTED "AS IS" AND "WITH ALL FAULTS." CLIENT HEREBY DISCLAIMS ANY AND
ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
OF TITLE. CLIENT SHALL HAVE NO LIABILITY WHATSOEVER IN CONNECTION WITH
THE USE BY MDCM OF SUCH RESIDUAL KNOWLEDGE AND MDCM SHALL FOREVER
DEFEND, INDEMNIFY AND HOLD HARMLESS CLIENT IN THE EVENT OF ANY CLAIM OR
LOSS INCURRED BY CLIENT ARISING OUT OF USE BY MDCM OR ITS AFFILIATES,
SUBSIDIARIES, LICENSEES OR ASSIGNEES OF SUCH RESIDUAL KNOWLEDGE.
3. TERM. The term of this Agreement shall be twenty-five (25) 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 six (6) months prior to the termination date (including any termination
date as a result of any renewal period).
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4. BILLING. MDCM shall bill the Client, on a monthly basis, a fee
reflecting compensation due for services rendered in the preceding month
calculated as provided for in this Agreement. The bill shall be due and payable
within thirty days of receipt. The Client shall have full access to MDCM's
records to the extent necessary to verify and audit MDCM's billing procedures,
provided that the Client agrees to keep all such information confidential. The
Client shall have the right, at any time, to review and audit the bills, and in
the event that the Client believes the bills are not prepared by MDCM in a
reasonable and good faith manner, the Client may request that the bill be
independently reviewed and adjusted by an independent certified public
accountant reasonably acceptable to the Client and MDCM. To the extent that any
investigation or audit reveals a discrepancy in MDCM's favor in the amount of 5%
or more of amounts paid for the preceding month, MDCM shall bear the cost of
such audit or investigation.
5. LEASE OF OFFICE SPACE TO THE CLIENT. MDCM recognizes that Client
would receive certain benefits from having a portion of its operations located
at or near MDCM's offices. Therefore, MDCM will provide certain available office
space and office support services to the Client pursuant to the Sublease
Agreement in the form attached as Exhibit C, with such changes as may be
required by the landlord. Until such time as the Sublease Agreement has been
executed and consent of the landlord obtained, the Client will reimburse MDCM
for MDCM's occupancy expense under its prime lease from landlord occupied by
MDCM personnel involved in the provision of services to the Client pursuant to
this Agreement.
6. SEPARATE IDENTITY OF CLIENT. The Client desires to remain at all
times a separate company. Toward that end, all business records, reports and
files prepared or maintained by MDCM for the Client shall remain the sole and
exclusive property and records of the Client and the Client shall be entitled to
their return at any time upon request. Moreover, all of the Client's funds,
accounts receivable or other property shall at all times be clearly and
distinctly maintained as the Client's separate and distinct property and shall
not be combined or commingled with the property of MDCM. Moreover, MDCM shall
have no authority hereunder to enter into contracts on behalf of, or otherwise
legally bind, the Client. Although MDCM shall make recommendations to the Client
hereunder, all decisions whether to accept or reject the advice of MDCM are up
to the Client's total discretion.
7. Non-Competition.
(a) BY CLIENT. The Client covenants and agrees that it will
not directly or indirectly for the term of this Agreement and for a
period of two years following the termination of this Agreement:
(i) engage in, continue in or carry on any business
which competes with MDCM in MDCM's Business (as hereinafter
defined) or which is substantially similar thereto (except
that Client may engage in mortgage banking to develop and
maintain mortgage banking capability for the purpose of
obtaining and maintaining approval of and a seller/servicer
license with, Fannie Mae, Freddie Mac, Ginnie Mae and similar
institutions to the extent required to permit Client to obtain
and maintain a license to utilize any such institution's
automated underwriting software);
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(ii) offer employment to a person who is or was
employed by MDCM during the then immediately preceding twelve
(12) months, or assist any other person or entity in offering
employment to a person who is or was employed by MDCM, during
the then immediately preceding twelve (12) months, without the
prior written consent of MDCM;
(iii) undertake any business with or solicit the
business of any person, firm or company who shall have been a
customer of MDCM and with whom any executive of MDCM or their
subordinates has dealt with during the then immediately
preceding twelve (12) months which might adversely affect
MDCM's business relationship with such customer, but only if
such solicited business relates to MDCM's Business;
(iv) engage in any practice the purpose of which is
to evade the provisions of this covenant not to compete.
(b) BY MDCM. MDCM covenants and agrees that it will not
directly or indirectly for the term of this agreement and for a period
of two years following the termination of this Agreement:
(i) engage in, continue in or carry on any business
which competes with the Client in the Client's Business (as
hereinafter defined) or which is substantially similar
thereto, except that MDCM may provide Web site development,
marketing, hosting and operation services to those Mortgage
Brokers (as defined in the agreement between MDCM and
Countrywide Home Loans, Inc. (the "Countrywide Agreement"))
that:
(a) as of December 22, 1999 have entered
into a written agreement with MDCM whereby MDCM
provides to such Mortgage Broker services and/or
products other than or in addition to Web site
development or hosting services (and only so long as
that written agreement remains in effect); or
(b) are net branches or are affiliated with
a real estate broker or agent, builder or financial
planner, insurance agent or other financial advisor
that is not principally a mortgage broker and have
entered into or shall hereafter enter into a written
agreement with MDCM whereby MDCM provides to such
Mortgage Brokers mortgage banking services and/or
products other than or in addition to Web site
development or hosting services (and only for so long
as such affiliation and written agreement remains in
effect). For purposes of this subparagraph (b), "net
branches" shall mean written contractual
relationships by which MDCM hires a person or entity
to manage a loan origination office under a name
other than "mortgage.com", the principal purpose of
which is to originate mortgage loans and sell them to
MDCM.
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(ii) consult with, advise or assist in any way,
whether or not for consideration, any corporation,
partnership, firm or other business organization which is now
or becomes a Competitor of the Client if the principal purpose
of such consultation, advice or assistance is to permit such
corporation, partnership, firm or business organization to
compete with Client in the Client's Business, including, but
not limited to, advertising or otherwise endorsing the
products of any Competitor of the Client for such purpose;
soliciting customers or otherwise serving as an intermediary
for any such Competitor of the Client for such purpose;
loaning money or rendering any other form of financial
assistance to or engaging in any form of business transaction
with any Competitor of the Client for such purpose;
(iii) offer employment to a person who is or was
employed by the Client during the then immediately preceding
twelve (12) months, or assist any other person or entity in
offering employment to a person who is or was employed by the
Client, during the then immediately preceding twelve (12)
months, without the prior written consent of the Client;
(iv) undertake any business with or solicit the
business of any person, firm or company who shall have been a
customer of the Client and with whom any executive of the
Client or their subordinates has dealt with during the then
immediately preceding twelve (12) months which might adversely
affect the Client's business relationship with such customer,
but only if such solicited business relates to the Client's
Business; or
(v) engage in any practice the purpose of which is to
evade the provisions of this covenant not to compete.
(c) MDCM'S BUSINESS. "MDCM's Business" shall mean (i) the
conduct of mortgage banking services consisting of one or more of the
following: originating, processing, underwriting, closing, funding and
selling loans on its own behalf or on behalf of its lender clientele
and Mortgage Brokers identified in Section 7(b)(i); (ii) the
development, marketing, sale and operation of Web sites, the principal
purpose of which is for consumers to obtain from lenders (without
participation of brokers, other than Mortgage Brokers identified in
Section 7(b)(i)) the origination, refinancing, processing,
underwriting, funding and closing of residential and commercial
mortgages; and (iii) the development, marketing, sale and operation of
private label Web sites described in (ii) above for lenders to which
consumers but not brokers (other than Mortgage Brokers identified in
Section 7(b)(i)) would have access.
(d) "CLIENT'S BUSINESS". "Client's Business" shall mean (i)
the provision (including, but not limited to, development, licensing
and hosting) of business-to-business web site portals, or private label
versions thereof, to mortgage brokers, lenders, mortgage insurance
companies and similar vendors pursuant to which such participants
exchange through such portals information, including but not limited
to, lender product and pricing information, automated underwriting
data, mortgage insurance certificates
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and borrower application information, using results obtained from
Fannie Mae's Desktop Underwriter software, Freddie Mac's Loan
Prospector Software, or functionally equivalent software (collectively,
"Information"), except that "Client's Business" shall not restrict MDCM
from providing Information in connection with providing the services
described in the definition of "MDCM's Business"; (ii) providing "Web
Site Services" to "Countrywide Customers" as such terms are described
in the Countrywide Agreement; and (iii) providing Web site services to
mortgage brokers, including without limitation, development, marketing,
testing, sale, hosting and operation of Web sites for one particular
broker or many brokers.
(e) COMPETITOR. The term "Competitor" means any person,
entity, corporation, partnership, association, joint venture or other
organization that engages in or attempts to engage in the MDCM Business
or Client Business, respectively.
(f) SCOPE. The geographic scope of the covenant not to compete
shall extend world-wide. The Client and MDCM each hereby acknowledges
that the duration and scope of the covenants not to compete contained
in this section are reasonable.
(g) SURVIVAL. The provisions of this Section 7 shall survive
termination or expiration of this Agreement for any reason.
8. CONFIDENTIALITY. Subject to the License Agreement, the parties
agree, both during the Term of this Agreement and for a period of two years
after termination of this Agreement, but in no event less than ten (10) years
from the Effective Date, to hold each other's Proprietary or Confidential
Information in strict confidence. The parties agree not to make each other's
Proprietary or Confidential Information available in any form to any third party
or to use each other's Proprietary or Confidential Information for any purpose,
other than the implementation of and as specified in this Agreement and other
than use by Client in the Openclose Business. Each party agrees to take all
reasonable steps to ensure that Proprietary or Confidential Information of
either party is not disclosed or distributed by its employees, agents or
consultants in violation of the provisions of this Agreement. Each party's
Proprietary or Confidential Information shall remain the sole and exclusive
property of that party. Each party expressly agrees to include, maintain,
reproduce and perpetuate all notices or markings on all copies of all tangible
media comprising each party's Proprietary or Confidential Information in the
manner in which such notices or markings appear on such tangible media or in the
manner in which either party may reasonably request. The provisions of this
Section 8 shall survive termination or expiration of this Agreement for any
reason. For the purposes of this section, "Proprietary or Confidential
Information" shall mean knowledge and information not generally known in the
industry which provides a competitive advantage, including, without limitation,
technology, computer programs, research and development programs, formulas,
know-how, forecasts, sales and marketing methods, financing sources, customer
and mailing lists, customer usages and requirements, financial information and
all other confidential information, trade secrets and data. Proprietary or
Confidential Information includes, but is not limited to, the Openclose Code and
the MDCM Code and all derivative works based thereon and all trade secrets
related thereto. Openclose Code and MDCM Code derivative works shall be the
Proprietary and Confidential Information of its owner. Neither party shall have
any obligation with respect to Proprietary or Confidential
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Information which: (i) is or becomes generally known to the public by any means
other than a breach of the obligations of a receiving party; (ii) with respect
to Client, is Openclose Code and all derivative works based thereon and all
trade secrets related thereto, (iii) rightly received by the receiving party
from a third party after the date hereof, (iv) is independently developed by the
receiving party without reference to information derived from the other party;
and (v) subject to disclosure under court order or other lawful process.
9. EQUITABLE RELIEF. Each party acknowledges that the provisions and
restrictions contained in Section 7 and 8 of this Agreement are necessary to
protect the legitimate continuing interests of Client and MDCM and that any
breach or violation thereof may result in irreparable injury and damage to the
other party. Accordingly, each party hereby agrees that, in the event of such
breach, the other party may be entitled to seek equitable relief as granted by
any appropriate judicial body.
10. TERMINATION.
(a) BY CLIENT. The Client may terminate this Agreement
immediately upon delivery of written notice to MDCM. In addition, the
Client, from time to time, may expand or reduce the scope of services
provided by MDCM. For example, as illustration, Client may determine
that the number of employees at Client has increased to the level where
human resource management should now be handled "in-house" rather than
by MDCM. The parties recognize that this will be a flexible and
evolving relationship. If MDCM shall incur any expenses in connection
with and resulting from the Client's expansion, reduction, or
termination of any specific services or provision of technology
hereunder, Client shall reimburse MDCM for such costs or expenses
promptly upon receipt of an itemized account thereof.
(b) BY MDCM. MDCM may terminate the agreement upon not less
than 90 days written notice in the event that the Client has failed to
pay any outstanding invoice on the date due or within 30 days
thereafter.
(c) TERMINATION OF LEGAL SERVICES. Notwithstanding anything
herein to the contrary, MDCM's obligations hereunder to provide legal
services to Client as described in Section 1(a)(iv) hereof shall
automatically terminate as of the date MDCM ceases to hold, directly or
indirectly, a majority of the voting power of all classes of
outstanding voting stock of Client.
11. CHANGE OF CONTROL. The parties recognize that MDCM currently owns
more than a majority of the outstanding common stock of the Client. It is the
intention of the parties, and the parties hereto acknowledge and agree, that any
increase or decrease in MDCM's ownership of the Client's common stock shall have
no effect on MDCM's obligations hereunder, except as otherwise expressly
provided herein.
12. INDEPENDENT CONTRACTOR RELATIONSHIP. It is acknowledged and agreed
that MDCM's relationship with the Client is at all times hereunder an
independent contractor. The Client shall have no authority over MDCM's internal
business affairs and decisions. MDCM shall have no
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<PAGE>
authority to act on behalf of, or legally bind the Client, and MDCM shall not
hold itself out as having any such authority. This Agreement shall not be
construed as creating a partnership or joint venture.
13. LIMITATION OF LIABILITY AND DISCLAIMER OF WARRANTIES.
(a) MDCM hereby warrants and represents that: MDCM will
provide the services requested pursuant to this Agreement in a
workmanlike and professional manner; MDCM shall comply with all of its
obligations under the Web Site Hosting Agreements referred to under
Sections 1(a)(vii) and 1(a)(viii) hereunder and the License Agreement;
the results and proceeds of MDCM's services provided hereunder do not
and will not infringe upon the copyright, trademark or service mark
rights of third parties; to the best of MDCM's knowledge, the results
and proceeds of MDCM's services provided hereunder do not and will not
infringe upon the patent rights of third parties. MDCM shall use
reasonable efforts to provide the services and technology described
herein with substantially the same degree of care as it employs in
making the same services and technology available for its own
operations; provided however that MDCM shall not be liable to Client or
any other person for any loss, damage, or expense which may result
therefrom or from any change in the manner in which MDCM renders such
services, so long as MDCM deems such change necessary or desirable in
the conduct of its own operations.
(b) EXCEPT AS PROVIDED IN SECTION 13(a), THE OPENCLOSE CODE,
MDCM CODE, AND ALL OTHER PROGRAMMING AND SOFTWARE (COLLECTIVELY
"SOFTWARE") BUT NOT THE SERVICES TO BE PROVIDED OR PERFORMED HEREUNDER,
ARE PROVIDED "AS IS," WITH ALL FAULTS, AND WITHOUT WARRANTY OF ANY
KIND. EXCEPT AS PROVIDED IN SECTION 13(a), MDCM DISCLAIMS ALL
WARRANTIES, EXPRESS AND IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY, AND FITNESS FOR A PARTICULAR
PURPOSE. CLIENT EXPRESSLY AGREES AND ACKNOWLEDGES THAT USE OF THE
SOFTWARE HEREUNDER IS AT CLIENT'S SOLE RISK. MDCM DOES NOT WARRANT THAT
THE SOFTWARE AND ALL SERVICES TO BE PROVIDED OR PERFORMED HEREUNDER
WILL MEET CLIENT'S REQUIREMENTS, OR THAT THE OPERATION OF THE SOFTWARE
OR USE OF THE SERVICES WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT
DEFECTS IN THE SOFTWARE OR SERVICES WILL BE CORRECTED.
(c) IN NO EVENT SHALL MDCM OR ANY OF ITS OFFICERS, DIRECTORS,
OR AGENTS BE LIABLE TO CLIENT OR ANY THIRD PARTY FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, INDIRECT,
SPECIAL, PUNITIVE, OR EXEMPLARY DAMAGES FOR LOSS OF BUSINESS, LOSS OF
PROFITS, BUSINESS INTERRUPTION, LOSS OF DATA, OR LOSS OF BUSINESS
INFORMATION) ARISING OUT OF OR CONNECTED IN ANY WAY WITH THE SOFTWARE,
SERVICES, OR MDCM'S PERFORMANCE UNDER THIS AGREEMENT, OR USE OF OR
INABILITY TO
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<PAGE>
USE THE SOFTWARE OR SERVICES, OR FOR ANY CLAIM BY ANY OTHER PARTY, EVEN
IF MDCM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
14. CLIENT INDEMNITY.
Client shall indemnify and hold MDCM harmless against any and all
liabilities, losses, damages, judgments, claims, causes of action, and costs
(including attorneys fees and disbursements) which MDCM may hereafter incur,
suffer, or be required to pay, defend, settle, or satisfy as a result of third
party claims against MDCM based on or arising out of: (i) representations or
warranties made by Client to its Private Label customers that are not
substantially similar to those in EXHIBIT A or have not been approved in writing
by MDCM; or (ii) Client's failure to comply with its obligations under Section
1(a)(viii).
15. MISCELLANEOUS.
(a) FORCE MAJEURE. Neither party shall be in default of this
Agreement or liable to the other party for any delay or default in
performance where occasioned by any cause of any kind or extent beyond
its control, including but not limited to, armed conflict or economic
dislocation resulting therefrom; embargoes; shortages or labor, raw
materials, production facilities or transportation; labor difficulties;
civil disorders of any kind; action of any civil or military
authorities (including priorities and allocations); fires; floods;
telecommunications failures; Internet slow-downs; and accidents. The
dates on which the obligations of a party are to be fulfilled shall be
extended for a period equal to the time lost by reason of any delay
arising directly or indirectly from:
(i) Any of the foregoing causes; or
(ii) Inability of that party, as a result of causes
beyond its reasonable control, to obtain instruction or
information from the other party in time to perform its
obligations by such dates.
(b) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision hereof is held by a
court of competent jurisdiction to be prohibited or invalid, such
prohibition or invalidity shall not affect the remaining provisions of
this Agreement. In the event a court of competent jurisdiction shall
determine and hold that the covenants contained herein are invalid or
unenforceable for any reason, the parties hereby request that such
court reform the provisions hereof in a manner to cause the covenants
contained herein to be enforceable as closely as possible to the way in
which originally written.
(c) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which, when so executed, shall be deemed to be
an original, and all of which shall together constitute but a single
instrument.
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(d) FURTHER ASSURANCES. The parties hereby agree to execute
such other documents and perform such other acts as may be reasonably
necessary or desirable to carry out the purposes of this Agreement.
(e) NOTICES. Any and all notices provided for herein shall be
in writing and shall be considered as properly given if delivered to
the party or sent by registered or certified mail, postage prepaid, to
the parties hereto at the addresses set out below opposite their names
or such other address or to the attention of such other person as the
party shall have specified by prior written notice. Any notice under
this Agreement shall be deemed to have been given (a) if delivered in
person, when so delivered or refused; (b) if sent by facsimile or
overnight courier, one (1) business day following transmission or
delivery to courier (as the case may be; or (c) if by registered or
certified mail, three (3) days following deposit in the U. S. Mail.
If to the Client: Openclose.com, Inc.
1643 North Harrison Parkway
Sunrise, FL 33323
Attn: Chief Operating Officer
If to MDCM: Mortgage.com, Inc.
1643 North Harrison Parkway
Sunrise, FL 33323
Attn: General Counsel
Copies of all Notices to: Foley & Lardner
200 Laura Street
P.O. Box 240
Jacksonville, FL 32201-0240
Attention: Luther F. Sadler, Jr., Esq.
(f) BINDING EFFECT. This Agreement shall bind and inure to the
benefit of the parties, and their respective successors, heirs and
assigns.
(g) GOVERNING LAW. This Agreement and the obligations of the
parties hereunder shall be interpreted, construed and enforced in
accordance with the laws of the State of Florida.
(h) ATTORNEYS' FEES AND COSTS. If either party brings suit or
arbitration against the other to enforce the terms of this Agreement,
the prevailing party shall be entitled to recover all reasonable costs,
including attorneys' fees, from the other party as part of any judgment
or award.
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<PAGE>
(i) ASSIGNMENT. This Agreement shall not be assignable in
whole or in part by MDCM or Client without the other party's prior
written consent, and any attempted assignment without such consent
shall be void, provided that Client may assign this Agreement to any
person acquiring all or substantially all of its assets without
obtaining such consent.
(j) SURVIVAL. The provisions of this Agreement which by their
terms survive the termination of this Agreement, including Sections 7
and 8, or expressly require action subsequent to termination of this
Agreement shall survive the termination of this Agreement to the extent
set forth in such provisions.
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<PAGE>
IN WITNESS WHEREOF, the undersigned parties hereto have duly executed
this Agreement on the date first above written.
OPENCLOSE.COM, INC.
By: _____________________________________________
David Larson, President and Chief Operating
Officer
MORTGAGE.COM, INC.
By: _____________________________________________
Seth S. Werner, President and Chief Executive
Officer
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EXHIBIT 10.36
CONTRIBUTION AGREEMENT
DATED AS OF JANUARY 27, 2000
AMONG
MORTGAGE.COM, INC.,
THE INVESTORS LISTED ON SCHEDULE 1.05,
AND
OPENCLOSE.COM, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
1. CONTRIBUTION, ISSUANCE AND TERMS OF SHARES.....................................1
1.01. Contribution of Assets by MDCM...............................1
1.02. Excluded Assets..............................................3
1.04. Consideration to MDCM........................................4
1.05. The Preferred Shares.........................................4
1.06. The Conversion Shares........................................4
1.07. Contribution and Funding.....................................5
1.08. Use of Proceeds..............................................5
1.09. Tax Treatment of the Contributions...........................5
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................6
2.01. Organization, Standing and Power.............................6
2.02. Authority; Enforceability; No Conflict.......................6
2.03. Capitalization...............................................7
2.04. Subsidiaries.................................................7
2.05. Status of Shares.............................................7
2.06. Securities Act of 1933.......................................8
3. REPRESENTATIONS AND WARRANTIES OF MDCM.........................................8
3.01. Liabilities..................................................8
3.02. Indebtedness.................................................8
3.03. Title to Assets..............................................8
3.04. Actions Pending..............................................8
3.05. Compliance with Law..........................................8
3.06. Intentionally Omitted........................................9
3.07. Proprietary Rights...........................................9
3.08. Books and Records...........................................10
3.09. Material Agreements.........................................10
3.10. Governmental Approvals......................................10
3.11. Insurance...................................................11
3.12. Title to Contributed Assets.................................11
3.13. Organization, Standing and Power............................11
3.14. Authority; Enforceability; No Conflict......................11
3.15. Acquisition for Investment..................................12
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS...............................12
4.01. Organization and Standing...................................12
4.02. Authority; Enforceability; No Conflict......................13
4.03. Acquisition for Investment..................................13
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<S> <C>
5. COVENANTS OF MDCM.............................................................14
5.01. Other Agreements............................................14
5.02. Use of Openclose Code.......................................14
5.03. Transfer of MDCM's Interest in the Openclose Code...........14
5.04. Further Assurance...........................................14
6. COVENANTS OF THE COMPANY......................................................15
6.01. Other Agreements............................................15
7. CONDITIONS PRECEDENT..........................................................15
7.01. Conditions Precedent to the Investors' Obligations..........15
7.02. Conditions Precedent to the Company's Obligations...........18
7.03. Conditions Precedent to MDCM's Obligations..................19
8. ADDITIONAL AFFIRMATIVE COVENANTS OF THE COMPANY...............................19
8.01. Inspection Rights...........................................19
8.02. Budgets Approval............................................19
8.03. Financings..................................................20
8.04. Meetings of Directors.......................................20
8.05. Bylaws; Meetings and Indemnification........................20
8.06. Corporate Existence.........................................20
8.07. Properties, Business, Insurance.............................20
8.08. Expenses of Directors.......................................20
8.09. Compliance with Laws........................................20
8.10. Noncompetition Agreements...................................20
8.11. Keeping of Records and Books of Account.....................20
8.12. Rule 144A Information.......................................21
8.13. Reporting Requirements......................................21
9. NEGATIVE COVENANTS OF THE COMPANY.............................................22
9.01. Dealings with Affiliates....................................22
9.02. Compensation to Officers....................................22
9.03. Sale of Assets..............................................22
9.04. Mergers, Etc................................................23
9.05. Maintenance of Ownership of Subsidiaries....................23
9.06. Conduct of Business.........................................23
9.07. Investments in Other Corporations or Entities...............23
9.08. Transfers of Proprietary Rights.............................24
9.09. Amendments..................................................24
9.10. Other Agreements............................................24
9.11. Registration Rights Agreements..............................24
10. REGISTRATION RIGHTS...........................................................24
10.01. Demand Registrations........................................24
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10.02. Incidental Registration.....................................27
10.03. Registrations on Form S-3...................................28
10.04. Holdback Agreements.........................................28
10.05. Registration Procedures.....................................29
10.06. Indemnification.............................................31
10.07. Rule 144....................................................35
11. RIGHT OF FIRST OFFER..........................................................35
11.01. Right of First Offer........................................35
11.02. Notice of Acceptance........................................36
11.03. Conditions to Acceptances and Purchase......................36
11.04. Further Sale................................................37
11.05. Offer Participation Requirement.............................37
11.06. Termination and Waiver of Right of First Offer..............37
11.07. Exception...................................................37
12. DEFINITIONS AND ACCOUNTING TERMS..............................................37
12.01. Certain Defined Terms.......................................37
12.02. Accounting Terms............................................45
13. INDEMNIFICATION...............................................................45
13.01. Indemnities.................................................45
13.02. Indemnification Procedure...................................46
14. SECURITY INTEREST.............................................................47
15. MISCELLANEOUS.................................................................47
15.01. No Waiver; Cumulative Remedies..............................47
15.02. Amendments, Waivers and Consents............................47
15.03. Addresses for Notices.......................................48
15.04. Costs, Expenses and Taxes...................................48
15.05. Binding Effect; Assignment..................................49
15.06. Survival of Representations and Warranties..................49
15.07. Prior Agreements............................................49
15.08. Severability................................................49
15.09. Governing Law...............................................49
15.10. Headings....................................................49
15.11. Counterparts................................................50
15.12. Further Assurances..........................................50
15.13. Waiver......................................................50
15.14. Specific Enforcement........................................50
</TABLE>
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<PAGE>
EXHIBITS
Exhibit A - Contributed Assets
Exhibit B - Excluded Contracts
Exhibit C - Articles of Amendment
SCHEDULES
Schedule 1.05 - Investors
Schedule 2.02 - Defaults, Breaches or Violations
Schedule 2.03 - Capitalization
Schedule 3.01 - Liabilities
Schedule 3.02 - Indebtedness
Schedule 3.03 - Title to Assets
Schedule 3.05 - Compliance with Law
Schedule 3.06 - ERISA
Schedule 3.07 - Proprietary Rights
Schedule 3.09 - Material Agreements
Schedule 3.10 - Government Approvals
Schedule 3.11 - Insurance
Schedule 3.14 - No Conflict
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") shall be effective as of
11:59:59 p.m., Eastern Standard Time, on January 27, 2000 (the "Effective
Time"), among MORTGAGE.COM, INC. a Florida corporation ("MDCM"), the entities
listed on Schedule 1.05 hereto (individually, an "Investor" and collectively,
the "Investors") and OPENCLOSE.COM, INC., a Florida corporation (the "Company").
RECITALS
WHEREAS, MDCM desires to transfer to the Company certain assets
directly relating to the Openclose Business in exchange for a 51% ownership
interest in the Company and $24 million in cash;
WHEREAS, the Investors desire to contribute to the Company $30 million
in cash in exchange for a 49% ownership interest in the Company;
WHEREAS, immediately after the contributions by MDCM and the Investors
contemplated herein are effected, MDCM and the Investors (collectively, the
"CONTRIBUTING SHAREHOLDERS") will combined own 100% of all the outstanding
voting or nonvoting stock of the Company and will be treated as a group being in
control of the Company, as defined in Section 368(c) of the Code; and
WHEREAS, the parties hereto desire to effect the transactions
contemplated herein with the intent that, for federal and state tax purposes,
each contribution qualify as a transaction described in Section 351 of the Code.
NOW, THEREFORE, in consideration of the above premises and the mutual
promises and covenants herein contained, the parties agree as follows:
1. CONTRIBUTION, ISSUANCE AND TERMS OF SHARES
1.01. CONTRIBUTION OF ASSETS BY MDCM. Effective as of the Effective
Time, MDCM shall transfer, convey, assign and deliver to the Company, and the
Company shall acquire and accept, all of MDCM's right, title and interest in and
to all of the assets of MDCM used in the Openclose Business (except as set forth
in Section 1.02 and except for the MDCM Code, as to which a license shall be
granted pursuant to the License Agreement), together with all rights associated
with such assets (collectively, the "CONTRIBUTED ASSETS"), including without
limitation, the following:
(a) OPENCLOSE CODE. A one-half, undivided co-ownership
interest in and to the "OPENCLOSE CODE", and all copyrights, trade
secrets, inventions, Proprietary Rights, and intellectual property
appearing on, contained therein, including, without limitation, the
domain name "www.openclose.com". The term "Openclose Code" refers to
the programming and other intellectual property contained in,
comprising or used exclusively in conjunction with the OpenClose.com
Web site and/or the Openclose Business, including the items identified
in EXHIBIT A, other than those assets set forth in Section 1.01(d).
MDCM acknowledges and agrees that the Company shall be considered a
joint owner and co-inventor of all copyrights, trade secrets,
inventions, Proprietary Rights, and intellectual property
<PAGE>
contained in the Openclose Code. The Company shall have the exclusive
right to use and in any way copy, reproduce, disseminate, transmit,
perform, make derivative works and otherwise in any way exploit the
Openclose Code and to permit third-parties to exploit the Company's
rights therein. The Company shall have the exclusive right, but not the
obligation, to register, file or otherwise seek protection for any
copyright, trademark, patent or other component of the Openclose Code.
Within ten (10) days of the Effective Time, MDCM shall deliver to the
Company a master copy and all other copies of the Openclose Code (in
both object code and source code forms) and a master copy and all other
copies of all documentation identified in EXHIBIT A, which shall be in
a form suitable for copying, provided, however MDCM may retain only a
reasonable number of copies of the Openclose Code (in both object code
and source code forms) and all associated documentation, which shall be
held by MDCM in accordance with the confidentiality provisions
contained in the Administrative Services Agreement, subject also to
Section 5.02 hereof. MDCM shall bear all costs incurred in preparing
and delivering such physical objects to the Company. MDCM agrees to
execute any documents necessary to effectuate the Company's rights in
and to the Openclose Code, and will execute all papers and perform any
other lawful acts requested by the Company for the registration,
preparation, prosecution, procurement, and maintenance of any
trademark, copyright, patent, and/or other proprietary rights in and
for the Openclose Code, and will execute all papers and perform any
other lawful acts necessary to vest co- ownership title in the Company
to the Openclose Code. MDCM agrees that it will not be entitled to any
additional compensation for the foregoing assistance, but the Company
shall reimburse MDCM for actual out-of-pocket expenses incurred in
rendering such assistance.
(b) LICENSES; PERMITS. All licenses, permits, approvals,
certifications and registrations of MDCM that relate exclusively to the
operation of the Openclose Business to the extent assignable without
consent and except as specifically excluded in Section 1.02 hereof,
including the items identified in EXHIBIT A. With respect to those
licenses, permits, approvals, certifications and registrations of MDCM
that are utilized exclusively in the Openclose Business but the
assignment of which require consent of third parties, MDCM shall use
its best efforts to acquire such consent prior to the Closing Date.
(c) CONTRACTS. Except as provided in Section 1.02, all of
MDCM's rights in, to and under all contracts, agreements, Proprietary
Rights licenses, web site hosting agreements, site linking agreements,
lender contracts, broker agreements, purchase orders and sales orders
of MDCM that relate to the Openclose Business, including without
limitation, personal property leased by MDCM, contracts for the
development of new technology, installment sales agreements, agreements
with sales representatives, agreements relating to the purchase of
capital items and indemnification agreements (hereinafter "CONTRACTS"),
including the items identified in EXHIBIT A. To the extent that any
Contract for which assignment to the Company as provided herein is not
assignable without the consent of another party, this Agreement shall
not constitute an assignment or an attempted assignment thereof if such
assignment or attempted assignment would constitute a breach thereof or
of any other contract to which MDCM is party or cause any such Contract
to be void or voidable. If any such consent shall not be obtained, then
MDCM shall cooperate with the Company to continue to attempt to secure
such consent and, until such consent is obtained, shall cooperate with
the Company in any reasonable arrangement designed to provide to the
2
<PAGE>
Company the benefits intended to be assigned to the Company under the
relevant Contract, including enforcement at the cost and for the
account of the Company of any and all rights of MDCM against the other
party thereto arising out of the breach or cancellation thereof by such
other party or otherwise. Until any such assignment, MDCM shall
continue to perform its obligations under such contracts at the
direction of the Company.
(d) TRADE RIGHTS. Except as set forth in Section 1.02, all of
MDCM's interest in any Trade Rights utilized by or in the operation of
the Openclose Business, including the items identified in EXHIBIT A. As
used herein, the term "TRADE RIGHTS" shall mean and include: (i) all
trademark rights, business identifiers, trade dress, service marks,
trade names, and brand names, including but not limited to the service
marks "Openclose.com" and "Openclose by Fax" and all right, title and
interest in US Trademark applications 75/585,563 and 75/585,562,
together with all of the goodwill of the business to which the service
marks pertain; (ii) all copyrights and all other rights associated
therewith and the underlying works of authorship; (iii) all patents and
all Proprietary Rights associated therewith; (iv) all contracts or
agreements granting any right, title, license or privilege under the
intellectual property rights of any third party; (v) all inventions,
know-how, discoveries, improvements, designs, trade secrets, shop and
royalty rights, employee covenants and agreements respecting
intellectual property and non-competition and all other types of
intellectual property; and (vi) all registrations of any of the
foregoing, all applications therefor, all goodwill associated with any
of the foregoing, and all claims for infringement or breach thereof.
(e) PERSONAL PROPERTY. All machinery, equipment, vehicles,
tools, supplies, spare parts, furniture and all other personal property
owned, utilized or held for use by MDCM as of the Effective Time, in
each case relating exclusively to the Openclose Business, as identified
in EXHIBIT A.
(f) LITERATURE. All sales literature, promotional literature,
catalogs and similar materials of MDCM that relate exclusively to the
Openclose Business.
(g) RECORDS AND FILES. All records, files, invoices,
accounting records, business records, operating data and other data of
MDCM that relate exclusively to the Openclose Business.
1.02. EXCLUDED ASSETS. The provisions of Section 1.01 notwithstanding,
MDCM shall not transfer, assign, convey or deliver to the Company, and the
Company will not acquire or accept, the following assets of MDCM (collectively,
the "EXCLUDED ASSETS"):
(a) CASH AND CASH EQUIVALENTS. All cash and cash equivalents,
other than petty cash balances at the Openclose Business's various
places of business.
(b) TAX CREDITS AND RECORDS. Federal, state and local income
and franchise tax credits and tax refund claims and associated returns
and records.
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(c) EXCLUDED CONTRACTS. Amended and Restated Desktop
Underwriter Seller/Servicer Software License and Subscription Agreement
between MDCM and FANNIE MAE (the "Fannie Mae License"); all insurance
policies and any rights of MDCM under documents relating to policies of
insurance (including title insurance); and the Technology Sharing and
Marketing Agreement between MDCM and GHR Systems, Inc. dated August 31,
1998 (as amended, the "GHR CONTRACT"), and those contracts identified
in EXHIBIT B (collectively, "EXCLUDED CONTRACTS").
(d) SERVERS. Servers housing the Openclose Site and private
label versions thereof.
(e) TRADE RIGHTS. The service marks "mortgage.com" and "first
mortgage network".
1.03. MDCM CODE. Contemporaneously herewith, MDCM shall grant the
Company a perpetual, irrevocable, non-exclusive, world-wide license to the
object code and source code versions of certain software, technology and other
rights (the "MDCM CODE") pursuant to the License Agreement. As provided in the
License Agreement, the Company shall also be entitled to receive copies of the
object code and source code versions of future MDCM Code developed by MDCM. MDCM
shall be the exclusive owner of the MDCM Code.
1.04. CONSIDERATION TO MDCM. In consideration for the contribution of
the Contributed Assets by MDCM and grant of the license in the MDCM Code, the
Company shall issue, transfer and deliver to MDCM (a) 1,490,000 shares (the
"VOTING COMMON SHARES") of the Voting Common Stock of the Company, par value
$0.01 (the "VOTING COMMON STOCK") and 1,632,449 shares (the "NONVOTING COMMON
SHARES", and together with the Voting Common Shares, the "COMMON SHARES") of
Non-Voting Common Stock of the Company, par value $0.01 (the "NONVOTING COMMON
STOCK"), constituting in the aggregate a 51% ownership interest in the Company,
and (b) $24,000,000.00 in cash.
1.05. THE PREFERRED SHARES. The Company has authorized the issuance of
3,000,000 shares (the "PREFERRED SHARES") in the aggregate of its authorized but
unissued shares of PREFERRED STOCK, $.01 par value (the "PREFERRED STOCK")
designated Series A Preferred Stock (the "SERIES A PREFERRED STOCK"), in
exchange for a contribution of cash in the amount of $10.00 per share to the
entities designated as Investors in the respective amounts set forth in SCHEDULE
1.05 hereto. The designation, rights, preferences and other terms and provisions
of the Series A Preferred Stock are set forth in the Articles of Amendment
attached as EXHIBIT C hereto.
1.06. THE CONVERSION SHARES. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of
authorized but unissued shares of Voting Common Stock to satisfy the rights of
conversion of the Series A Holders of the Preferred Shares and of MDCM of the
Nonvoting Common Shares. Any shares of Voting Common Stock issuable upon
conversion of the Preferred Shares or the Nonvoting Common Shares (and such
shares when issued) are herein referred to as the "CONVERSION SHARES." The
Preferred Shares and the Conversion Shares are sometimes collectively referred
to as the "SHARES."
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1.07. CONTRIBUTION AND FUNDING. The Company agrees to issue and sell to
the Investors and MDCM and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Investors and MDCM, severally but not jointly, agree to make their
contributions and, thereby, acquire that number of the Preferred Shares and
Common Shares set forth opposite their respective names in Schedule 1.05. The
closing of the transactions contemplated hereby (the "CLOSING") shall take place
at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., Goodwin Square, 225
Asylum Street, Hartford, Connecticut 06103 at 10:00 a.m. on January 27, 2000
(the "CLOSING DATE"). At the Closing, the Company will deliver to each Investor
and to MDCM certificates for the number and series of Preferred Shares and
Common Stock set forth opposite its name under the headings "Number of Preferred
Shares and Common Shares" in Schedule 1.05 registered in such Investor's or in
MDCM's name (or any of their respective nominees), against, in the case of each
Investor, the delivery of a check or checks payable to the order of the Company,
a transfer of funds to the account of the Company by wire transfer, representing
the net cash consideration set forth opposite each such entity's name on
Schedule 1.05 and, in the case of MDCM, the conveyance of the Contributed
Assets.
1.08. USE OF PROCEEDS. The Company shall use the cash proceeds from the
issuance of the Preferred Shares and Common Shares for general working capital
purposes and for the transfer of cash to MDCM contemplated in Section 1.04
hereof and shall use the Contributed Assets in the conduct of its business.
1.09. TAX TREATMENT OF THE CONTRIBUTIONS.
(a) COMPLIANCE WITH THE CODE AND TREASURY REGULATIONS. The
contribution by MDCM of the Contributed Assets and the contribution by the
Investors of cash shall be treated as part of a single integrated transaction
qualifying under Section 351 of the Code, where MDCM and the Investors will be
treated as a group being in control (as defined in Section 368(c) of the Code)
of the Company. The Company is not an investment company within the meaning of
Section 351(e) of the Code and Treasury Regulations promulgated thereunder. This
Agreement is intended to comply with the requirements of Treasury Regulation
section 1.351-1.
(b) FEDERAL INCOME TAX TREATMENT OF MDCM. For federal income
tax purposes, the contribution by MDCM of the Contributed Assets in exchange for
the Common Shares and $24,000,000 in cash will qualify under Section 351 of the
Code, pursuant to which MDCM will recognize gain as required under Section
351(b)(1) of the Code. Under Section 358 of the Code, MDCM's basis in the Common
Shares received will be equal to MDCM's basis in the Contributed Assets
immediately prior to the contribution, increased by the gain recognized by MDCM.
No liabilities will be transferred by MDCM and assumed by the Company under
Section 357(c) of the Code.
(c) FEDERAL INCOME TAX TREATMENT OF INVESTORS. For federal
income tax purposes, the contribution by the Investors of $30,000,000 in cash in
exchange for the Preferred Shares will qualify under Section 351 of the Code,
pursuant to which the Investors will not recognize any gain or loss. Under
Section 358 of the Code, the Investors' aggregate basis in the Preferred Shares
received will be equal to $30,000,000.
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(d) FEDERAL INCOME TAX TREATMENT OF THE COMPANY. The Company
shall not recognize any gain or loss as a result of the contributions by MDCM of
the Contributed Assets and by the Investors of cash. Under Section 362(a) of the
Code, the basis of the Contributed Assets transferred to the Company shall be
equal to the basis of such property in the hands of MDCM immediately prior to
the contribution, increased by the gain recognized by MDCM.
(e) OBLIGATIONS OF CONTRIBUTING SHAREHOLDERS AND THE COMPANY.
Each Contributing Shareholder agrees to file the information required by
Treasury Regulations section 1.351-3 for such Contributing Shareholder's federal
income tax return for the taxable year in which the contributions occur, and the
Company agrees to furnish to each Contributing Shareholder the information
necessary to enable such shareholder to comply with the information reporting
requirements of Treasury Regulations section 1.351-3.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investors and MDCM as
follows:
2.01. ORGANIZATION, STANDING AND POWER. Each of the Company and the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of the
Company and the Subsidiaries has all requisite power and authority to own, lease
and operate its properties and assets and to conduct its business as now being
conducted and is duly qualified to do business in good standing in those foreign
jurisdictions in which such qualification is required.
2.02. AUTHORITY; ENFORCEABILITY; NO CONFLICT. The Company has all
requisite corporate power and authority to enter into this Agreement and each
Related Agreement to which it is a party, to issue the Shares, to accept the
Contributed Assets and to carry out its obligations hereunder and under each
Related Agreement to which it is a party. The execution, delivery and
performance of this Agreement and each Related Agreement to which it is a party
by the Company, the issuance of the Shares by the Company and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all requisite corporate proceedings on the part of the Company. This Agreement
is, and each Related Agreement to which it is a party when executed and
delivered by the Company will be, a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, rehabilitation, liquidation, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. Except as set
forth on SCHEDULE 2.02, the execution and delivery of this Agreement and each
Related Agreement to which it is a party by the Company does not, and the
consummation by the Company of the transactions contemplated hereby and thereby
will not result in or constitute: (a) a default, breach or violation of or under
the Articles of Incorporation or the Bylaws, (b) a default, breach or violation
of or under any mortgage, deed of trust, indenture, note, bond, license, lease
agreement or other instrument or obligation to which the Company or any
Subsidiary is a party or by which any of their respective properties or assets
are bound, (c) a violation of any statute, rule, regulation, order, judgment or
decree of any court, public body or authority by which the Company,
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any Subsidiary or any of their respective properties or assets are bound, (d) an
event which (with notice or lapse of time or both) would permit any Person to
terminate, accelerate the performance required by, or accelerate the maturity of
any indebtedness or obligation of the Company or any Subsidiary under any
agreement or commitment to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or by which any of their respective
properties or assets are bound, (e) the creation or imposition of any lien,
charge or encumbrance on any property of the Company or any Subsidiary under any
agreement or commitment to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or by which any of their respective
properties or assets are bound, or (f) an event which would require any consent
under any agreement to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or by which any of their respective
properties or assets are bound.
2.03. CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 10,000,000 shares of Voting Common Stock, of which 1,490,000
shares are to be issued pursuant hereto and 4,632,449 shares are reserved for
issuance upon conversion of the Series A Preferred Stock and the Nonvoting
Common Stock, (b) 10,000,000 shares of Nonvoting Common Stock, of which
1,632,449 shares are to be issued pursuant hereto, and (c) 10,000,000 shares of
Preferred Stock, of which 3,000,000 have been designated Series A Preferred
Stock. Except as provided herein or in any of the Related Agreements, there are
no outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon the Company for the purchase or
acquisition of any shares of capital stock of the Company or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock. All outstanding shares of
capital stock, convertible securities, rights, options and warrants of the
Company will be owned by the stockholders and in the numbers specified on
SCHEDULE 2.03. Except as required in the Articles of Amendment, the Company is
not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any convertible
securities, rights or options of the type described in the preceding sentence.
Except as provided herein, the Company is not a party to any agreement granting
registration rights to any person with respect to any of its equity or debt
securities. Except as set forth in the Shareholders Agreement and the Voting
Agreement, the Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company.
2.04. SUBSIDIARIES. The Company has no Subsidiaries.
2.05. STATUS OF SHARES. The Preferred Shares and Common Shares to be
issued at the Closing have been duly authorized by all necessary corporate
action on the part of the Company. When issued and paid for as provided in this
Agreement, the Preferred Shares and Common Shares will be validly issued and
outstanding, fully paid and nonassessable, and the issuance of such Preferred
Shares and Common Shares is not and will not be subject to preemptive or other
similar contractual rights of any other stockholder of the Company. The
Conversion Shares have been duly authorized by all necessary corporate action on
the part of the Company and have been duly reserved for issuance. When the
Conversion Shares are issued such shares will be validly issued and outstanding,
fully paid and nonassessable and the issuance of such shares will not be subject
to preemptive or other similar contractual rights of any other stockholder of
the Company.
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2.06. SECURITIES ACT OF 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
issuance of the Preferred Shares hereunder. Neither the Company nor anyone
acting on its behalf has or will sell, offer to sell or solicit offers to buy
the Preferred Shares or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any Person, so as to bring the issuance and sale of the
Preferred Shares under the registration provisions of the Securities Act and
applicable state securities laws.
3. REPRESENTATIONS AND WARRANTIES OF MDCM
MDCM hereby represents and warrants to the Investors and the Company as
follows:
3.01. LIABILITIES. SCHEDULE 3.01 sets forth all material liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) that would be required to
be disclosed on a consolidated balance sheet of the Company (including the notes
thereto) in conformity with GAAP which will be relevant to the Company as a
result of acquiring the Contributed Assets.
3.02. INDEBTEDNESS. SCHEDULE 3.02 sets forth all outstanding secured
and unsecured Indebtedness of the Company or MDCM, or for which MDCM or the
Company has commitments which will be relevant to the Company as a result of
acquiring the Contributed Assets. Neither MDCM nor the Company is in default
with respect to any such Indebtedness.
3.03. TITLE TO ASSETS. Upon Closing, the Company will acquire good and
marketable title to all of the real and personal property identified on Exhibit
A, free of any mortgages, pledges, charges, liens, security interests or other
encumbrances, except those indicated on Schedule 3.03. The Company will enjoy
peaceful and undisturbed possession under all leases under which it will operate
as a result of acquiring the Contributed Assets, and all said leases are valid
and subsisting and in full force and effect.
3.04. ACTIONS PENDING. There is no action, suit, claim, investigation
or proceeding pending or, to the knowledge of MDCM, threatened against the
Company or MDCM which questions the validity of this Agreement or any Related
Agreement or any action taken or to be taken pursuant hereto or thereto. There
is no action, suit, claim, investigation or proceeding pending or, to the
knowledge of MDCM, threatened against or involving the Company or MDCM or any of
the properties or assets of the Openclose Business which will be relevant to the
Company as a result of acquiring the Contributed Assets. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against MDCM or the Company which
will be relevant to the Company as a result of acquiring the Contributed Assets.
3.05. COMPLIANCE WITH LAW. The Openclose Business has been and is
presently being conducted so as to comply with all applicable federal, state,
and local governmental laws, rules, regulations and ordinances (including,
without limitation, all rules and regulations pertaining to the producing,
processing, underwriting, selling and servicing of residential mortgage loans,
loan brokerage operations and the sale of "business opportunities"). MDCM has
and will transfer with the Contributed Assets all franchises, permits, licenses,
consents and other governmental or
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regulatory authorizations and approvals necessary for the conduct of the
Openclose Business as now being conducted by MDCM. Except as identified on
Schedule 3.05 hereto, all of MDCM's franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals relevant to the
proposed operation of the Company are being contributed among the Contributed
Assets and identified on Exhibit A.
3.06. INTENTIONALLY OMITTED.
3.07. PROPRIETARY RIGHTS. SCHEDULE 3.07(i) contains a complete and
accurate list of (a) all patented and registered Proprietary Rights owned by
MDCM and included in the Contributed Assets, (b) all pending trademark and
patent applications and applications for registration of other Proprietary
Rights filed by MDCM and included in the Contributed Assets, (c) all
unregistered trade names and corporate names owned by MDCM and included in the
Contributed Assets and (d) all unregistered trademarks, service marks,
copyrights, computer software and other Proprietary Rights owned by MDCM and
included in the Contributed Assets. SCHEDULE 3.07(ii) contains a complete and
accurate list of all licenses and other rights granted by MDCM to any third
party with respect to Proprietary Rights included in the Contributed Assets and
a short description of the nature of such licenses and rights granted. To the
best of its knowledge, MDCM has provided to the Company complete and accurate
copies of the documents by which all such licenses and rights were granted.
SCHEDULE 3.07(iii) contains a complete and accurate list of any Proprietary
Rights that are not owned by MDCM but which are part of the Contributed Assets
and are used by MDCM by license in the operation of the Openclose Business,
together with a short description of each such Proprietary Right, license and
licensor. To the best of its knowledge, MDCM has provided to the Company
complete and accurate copies of all such licenses. MDCM owns or has the right to
use pursuant to a valid and enforceable license described in SCHEDULE 3.07(iii)
all Proprietary Rights included in the MDCM Code and the Contributed Assets. The
Contributed Assets and the MDCM Code include all Proprietary Rights used in the
operation of the Openclose Business, other than the Fannie Mae License and the
GHR Contract, the benefits of each of which are to be provided to the Company
pursuant to the Administrative Services Agreement, and those Proprietary Rights
set forth on SCHEDULE 3.07(iv) and other Excluded Assets. MDCM has the right to
grant the license to the MDCM Code, and the license to the MDCM Code shall be
free and clear of all liens, encumbrances, security interests, charges, pledges,
royalties, payments or other charges whatsoever. No loss or expiration of any
Proprietary Right owned or used by MDCM and included in the Contributed Assets
or the MDCM Code is pending or, to the best of the Company's knowledge,
threatened. MDCM has taken all necessary actions to maintain and protect the
Proprietary Rights which it owns or uses to the extent they are relevant to the
Openclose Business. MDCM has no knowledge that the owners of any Proprietary
Rights licensed to MDCM and included in the Contributed Assets have not taken
all necessary actions to maintain and protect the Proprietary Rights which are
subject to such licenses. Except as set forth on SCHEDULE 3.07(v), (i) there are
no material claims against MDCM asserting the invalidity, misuse,
unenforceability or ownership of any Proprietary Rights owned or used by MDCM
and included in the Contributed Assets or the MDCM Code, and to the best of
MDCM's knowledge, no such claims are threatened and there are no grounds for the
same, (ii) MDCM has not received a notice of nor is aware of any facts which in
MDCM's reasonable judgment indicate a reasonable likelihood of any conflict with
the asserted Proprietary Rights of others within the last five years and (iii)
the conduct of MDCM's business has not infringed or misappropriated and does not
infringe or misappropriate any Proprietary Rights of other Persons, nor
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do the Proprietary Rights included in the Contributed Assets infringe any
Proprietary Rights of other Persons and, to the best of MDCM's knowledge, the
Proprietary Rights owned by MDCM are not currently being infringed or
misappropriated by other Persons to the extent they are relevant to the business
to be conducted by the Company. The Company will acquire good and marketable
title to all of the Proprietary Rights set forth in SCHEDULE 3.07(i), and will
acquire valid and enforceable licenses to the Proprietary Rights set forth in
SCHEDULE 3.07(iii), all free and clear of any liens or encumbrances, security
interests, charges, pledges, royalties, payments or other charges, except as set
forth in SCHEDULE 3.07(vi). To the best of its knowledge, all of the Contributed
Assets and the MDCM Code that are comprised of computer software are free of
material defects in design and workmanship, including, without limitation,
Trojan horses, worms and disabling devices and none of such computer software or
the performance thereof was adversely affected in performance and/or operation
by the change of centuries. The Contributed Assets include all Trade Rights
utilized by or in the operation of the Openclose Business, except as set forth
in SCHEDULE 3.07(vii).
3.08. BOOKS AND RECORDS. The records and documents of MDCM included in
the Contributed Assets accurately and completely reflect in all material
respects information relating to the Openclose Business, the location and
collection of the assets used in connection with such business, including,
without limitation, the Contributed Assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of MDCM included in the
Contributed Assets, including, but not limited to, any obligations identified in
EXHIBIT A.
3.09. MATERIAL AGREEMENTS. Except as set forth on SCHEDULE 3.09(a),
MDCM is not a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission as an exhibit to a registration statement on
Form S-1 or Form S-18 if the Company or any Subsidiary were registering
securities under the Securities Act, or any other agreement relevant to the
business to be conducted by the Company. MDCM and, to the best of MDCM's
knowledge, each other party thereto have in all material respects performed all
the obligations required to be performed by them to date, have received no
notice of default and are not in default under any lease, agreement or contract
now in effect to which MDCM is a party or by which they or their property may be
bound which is relevant to the business to be conducted by the Company. Except
as set forth on SCHEDULE 3.09(b), each of the contracts or agreements listed on
SCHEDULE 3.09(a) is in full force and effect and there exists no default,
anticipated or threatened default or failure of performance or observance of any
obligations or conditions contained therein, and none of the foregoing parties
nor MDCM has provided any notice of default or of its intention to terminate
these agreements. Except as identified on SCHEDULE 3.09(c), all rights enuring
to MDCM under the contracts listed on SCHEDULE 3.09(a) are among the Contributed
Assets identified in EXHIBIT A.
3.10. GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE 3.10 and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or federal securities laws (which, if
required, shall be filed on a timely basis), no authorization, consent,
approval, license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution and delivery by the Company and MDCM of this Agreement, for the
contribution and acceptance of the assets, or for the performance by the
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Company and MDCM of their respective obligations under this Agreement and each
Related Agreement to which it is a party.
3.11. INSURANCE. MDCM carries insurance as set forth on SCHEDULE 3.11
covering the properties and business which constitute the Contributed Assets,
which insurance is adequate and customary for the type and scope of the
properties, assets and business which constitute the Contributed Assets, and
which is similar to that of companies of comparable size and condition similarly
situated in the same industry in which the Openclose Business operates, but in
any event in amounts sufficient to prevent MDCM or the Company from becoming a
co-insurer or self-insurer, with provision for reasonable deductibles. Except as
set forth on SCHEDULE 3.11, the benefits under all insurance policies carried
with respect to the properties, assets and business which constitutes the
Contributed Assets are among the Contributed Assets identified in EXHIBIT A.
3.12. TITLE TO CONTRIBUTED ASSETS. MDCM is in possession of and, has
good, valid and marketable title to, or has a valid leasehold interest in or
valid rights under contract to use, all of the Contributed Assets. All the
Contributed Assets are free and clear of all liens except for Permitted Liens.
3.13. ORGANIZATION, STANDING AND POWER. MDCM is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation.
3.14. AUTHORITY; ENFORCEABILITY; NO CONFLICT. MDCM has all requisite
corporate power and authority to enter into this Agreement and each Related
Agreement to which it is a party, to contribute the Contributed Assets and to
carry out its obligations hereunder and under each Related Agreement to which it
is a party. The execution, delivery and performance of this Agreement and each
Related Agreement to which it is a party by MDCM and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate proceedings on the part of MDCM. This Agreement is, and each
Related Agreement to which it is a party when executed and delivered by MDCM
will be, a valid and binding obligation of MDCM, enforceable against MDCM in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium, rehabilitation, liquidation,
conservatorship, receivership or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. Except as set forth on SCHEDULE 3.14, the
execution and delivery of this Agreement and each Related Agreement to which it
is a party by MDCM does not, and the consummation by MDCM of the transactions
contemplated hereby and thereby will not result in or constitute: (a) a default,
breach or violation of or under the articles of incorporation or the bylaws of
MDCM, (b) a default, breach or violation of or under any mortgage, deed of
trust, indenture, note, bond, license, lease agreement or other instrument or
obligation to which MDCM or any of its Subsidiary is a party or by which any of
their respective properties or assets are bound, (c) a violation of any statute,
rule, regulation, order, judgment or decree of any court, public body or
authority by which MDCM, any Subsidiary or any of their respective properties or
assets are bound, (d) an event which (with notice or lapse of time or both)
would permit any Person to terminate, accelerate the performance required by, or
accelerate the maturity of any indebtedness or obligation of MDCM or any
Subsidiary under any agreement or commitment to which MDCM or any Subsidiary is
a party or by which MDCM
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or any Subsidiary is bound or by which any of their respective properties or
assets are bound, (e) the creation or imposition of any lien, charge or
encumbrance on any property of MDCM or any Subsidiary under any agreement or
commitment to which MDCM or any Subsidiary is a party or by which MDCM or any
Subsidiary is bound or by which any of their respective properties or assets are
bound except as provided herein and in the Related Agreements, or (f) subject to
Section 1 hereof, an event which would require any consent under any agreement
to which MDCM or any Subsidiary is a party or by which MDCM or any Subsidiary is
bound or by which any of their respective properties or assets are bound.
3.15. ACQUISITION FOR INVESTMENT. MDCM is an "accredited investor" as
defined in Regulation D under the Securities Act, and is acquiring the Common
Shares solely for its own account for the purpose of investment and not with a
view to, or for sale in connection with, any distribution thereof, and it has no
present intention or plan to effect any distribution of the Common Shares. MDCM
acknowledges that it is able to bear the financial risks associated with an
investment in the Common Shares and that it has been given full access to such
records of the Company and to the officers of the Company as it has deemed
necessary and appropriate to conducting its due diligence investigation. The
Common Shares may bear the following legends:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the laws of
any state and may not be sold or transferred except in compliance with
that Act and such laws.
The securities represented by this certificate are subject to the terms
and conditions of a certain Voting Agreement and a certain Shareholders
Agreement, each dated as of January 27, 2000, as amended from time to
time, among the Corporation and certain holders of its capital stock.
Copies of such Agreement may be obtained at no cost by written request
made by the holder of record of this certificate to the Secretary of
the Corporation."
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each of the Investors severally but not jointly hereby represents and
warrants to the Company and MDCM as follows:
4.01. ORGANIZATION AND STANDING. Each of the Investors is a
corporation, partnership, limited liability company or trust duly incorporated
or organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
4.02. AUTHORITY; ENFORCEABILITY; NO CONFLICT. Each of the Investors has
all requisite corporate, partnership, limited liability company or trust power
and authority to enter into this Agreement and each Related Agreement to which
it is a party and to carry out its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and each Related Agreement
to which it is a party by each of the Investors have been duly and validly
authorized by all requisite corporate, partnership, limited liability company or
trust proceedings on the part of each of the Investors. This Agreement and each
Related Agreement to which it is a party when executed and delivered by each of
the Investors is a valid and binding obligation of such
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Investor, enforceable against it in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, rehabilitation, liquidation, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. The execution and
delivery of this Agreement and each Related Agreement to which it is a party by
each of the Investors does not, and consummation by such Investor of the
transactions contemplated hereby will not, result in or constitute (a) a
default, breach or violation of or under the organizational documents of such
Investor if such Investor is a corporation or partnership, (b) a default, breach
or violation of or under any mortgage, deed of trust, indenture, note, bond,
license, lease agreement or other instrument or obligation to which such
Investor is a party or by which any of its properties or assets are bound,
except for any defaults, breaches or violations which would not, individually or
in the aggregate, have a material adverse effect on such Investor or prevent or
materially delay the consummation by such Investor of the transactions
contemplated hereby, or (c) a violation of any statute, rule, regulation, order,
judgment or decree of any court, public body or authority, except for any
violations which would not, individually or in the aggregate, have a material
adverse effect on such Investor or prevent or materially delay the consummation
by such Investor of the transactions contemplated hereby.
4.03. ACQUISITION FOR INVESTMENT. Each of the Investors is an
"accredited investor" as defined in Regulation D under the Securities Act, and
is acquiring the Preferred Shares solely for its own account, or on behalf of an
affiliated "accredited investor", for the purpose of investment and not with a
view to, or for sale in connection with, any distribution thereof, and it has no
present intention or plan to effect any distribution of the Preferred Shares.
Each of the Investors acknowledges that it is able to bear the financial risks
associated with an investment in the Preferred Shares and that it has been given
full access to such records of the Company and to the officers of the Company as
it has deemed necessary and appropriate to conducting its due diligence
investigation. The Preferred Shares may bear a legend to the following effect:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the laws of
any state and may not be sold or transferred except in compliance with
that Act and such laws.
The securities represented by this certificate are subject to the terms
and conditions of a certain Voting Agreement and a certain Shareholders
Agreement, each dated as of January 27, 2000, as amended from time to
time, among the Corporation and certain holders of its capital stock.
Copies of such Agreement may be obtained at no cost by written request
made by the holder of record of this certificate to the Secretary of
the Corporation."
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5. COVENANTS OF MDCM
5.01. OTHER AGREEMENTS. MDCM shall execute the following agreements:
(a) Administrative Services Agreement;
(b) Service Mark Agreement;
(c) Bill of Sale;
(d) Assignment and Assumption Agreement;
(e) Web Hosting Agreement;
(f) License Agreement; and
(g) Sublease.
5.02. USE OF OPENCLOSE CODE. MDCM's sole right to use its co-ownership
interest in the Openclose Code shall be limited to the fulfillment of its
obligations under the Administrative Services Agreement. Except as set forth in
this Agreement or as agreed otherwise by the parties in writing, MDCM shall have
no other right to use the Openclose Code. Except as provided in Section 5.03
hereof, MDCM shall not rent, sell, assign, lease, sublicense, or otherwise
transfer or encumber the Openclose Code. The Company shall not be obligated to
account to or pay MDCM for any profits, proceeds or other revenue derived from
the Openclose Code.
5.03. TRANSFER OF MDCM'S INTEREST IN THE OPENCLOSE CODE. Upon written
request of the Company, MDCM shall transfer its co-ownership interest in the
Openclose Code to the Company, such that the Company shall become the sole and
exclusive owner of all right, title, and interest in the Openclose Code. On
receipt of such request, MDCM shall promptly transfer, grant, convey, assign,
and relinquish to the Company all of its remaining interest in and to the
Openclose Code, and all copyrights, trade secrets, inventions, proprietary
rights, and intellectual property contained therein. MDCM agrees that it will
not be entitled to any additional compensation for the foregoing assistance, but
the Company shall reimburse MDCM for actual expenses incurred in rendering such
assistance.
5.04. FURTHER ASSURANCE. From time to time, at the Company's written
request and without further consideration, MDCM will execute and deliver to the
Company such documents and take such other action as the Company may reasonably
request in order to consummate more effectively the transactions contemplated
hereby and to vest in the Company good, valid and marketable title to the
business and assets being transferred hereunder including, without limitation,
executing such documents as may be necessary to enable the Company to reflect
the transfers contemplated hereby in any government office. MDCM agrees that it
will not be entitled to any additional compensation for the foregoing
assistance, but the Company shall reimburse MDCM for actual expenses incurred in
rendering such assistance.
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6. COVENANTS OF THE COMPANY.
6.01. OTHER AGREEMENTS. The Company shall execute the following
agreements:
(a) Administrative Services Agreement;
(b) Web Hosting Agreement;
(c) License Agreement;
(d) Sublease; and
(e) Assignment and Assumption Agreement.
7. CONDITIONS PRECEDENT
7.01. CONDITIONS PRECEDENT TO THE INVESTORS' OBLIGATIONS. The
obligations of the Investors to this Agreement to effect the transactions
contemplated hereunder shall be subject to satisfaction of the following
conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of the Company and MDCM contained herein shall be true
and correct.
(b) COMPLIANCE WITH THIS AGREEMENT AND RELATED AGREEMENTS. The
Company and MDCM shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions
required by this Agreement or any Related Agreement to be performed,
satisfied or complied with by such party at or prior to the Closing.
(c) CHIEF EXECUTIVE OFFICER'S CERTIFICATE FROM THE COMPANY.
The Investors shall have received certificates of an officer of the
Company, dated the Closing Date, (a) attesting to all corporate action
taken by the Company including the resolutions of the Board of
Directors authorizing (i) the approval of the Articles of Amendment,
(ii) the approval of an amendment to the Articles of Incorporation to
authorize Preferred Stock and designate the rights, preferences and
limitations of 3,000,000 shares of Series A Preferred Stock and
designate shares of Nonvoting and Voting Common Stock, (iii) the
execution, delivery and performance by the Company of this Agreement
and each Related Agreement to which it is a party, (iv) the issuance of
the Preferred Shares and the Common Shares, and (v) the execution,
delivery and performance by the Company of all other agreements or
matters contemplated hereby or executed in connection herewith, (b)
certifying the names and true signatures of the officers of the Company
authorized to sign this Agreement and the Related Agreements to which
it is a party, the certificates for the Preferred Shares and the Common
Shares and the other documents, instruments or certificates to be
delivered pursuant hereto and thereto, together with the true
signatures of such officers and (c) verifying that the Articles of
Incorporation and the Bylaws (as attached thereto) are true, correct
and complete as of the Closing Date.
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(d) SECRETARY'S CERTIFICATE FROM MDCM. The Investors shall
have received certificates of the Secretary or an Assistant Secretary
of MDCM, dated the Closing Date, (a) attesting to all corporate action
taken by MDCM including the resolutions of the Board of Directors
authorizing (i) the execution, delivery and performance by MDCM of this
Agreement and each Related Agreement to which it is a party and (ii)
the execution, delivery and performance by MDCM of all other agreements
or matters contemplated hereby or executed in connection herewith, (b)
certifying the names and true signatures of the officers of MDCM
authorized to sign this Agreement and the Related Agreements to which
it is a party and the other documents, instruments or certificates to
be delivered pursuant hereto and thereto, together with the true
signatures of such officers and (c) verifying that the Articles of
Incorporation and the Bylaws (as attached thereto) are true, correct
and complete as of the Closing Date.
(e) OFFICER'S CERTIFICATE FROM THE COMPANY. The Investors
shall have received a certificate of the President and Treasurer of the
Company, dated the Closing Date, which shall certify that the
representations and warranties of the Company contained herein are true
and correct as of the Closing Date and that all conditions required to
be performed prior to or at the Closing have been performed as of the
Effective Time.
(f) OFFICER'S CERTIFICATE FROM MDCM. The Investors shall have
received a certificate of the President and Treasurer of MDCM, dated
the Closing Date, which shall certify that the representations and
warranties of MDCM contained herein are true and correct as of the
Closing Date and that all conditions required to be performed prior to
or at the Closing have been performed as of the Effective Time.
(g) CONSENTS, LICENSES, APPROVALS, ETC. Subject to Section 1,
the Investors shall have received certified true copies of all
consents, licenses and approvals required or advisable in connection
with the execution, delivery, performance, validity and enforceability
of this Agreement, and each Related Agreement, and such consents,
licenses and approvals shall be in full force and effect and be
reasonably satisfactory in form and substance to the Investors.
(h) GOOD STANDING CERTIFICATES. The Investors shall have
received a certificate of the appropriate public official in the
jurisdiction of incorporation of each of the Company, its Subsidiaries
and MDCM as to the due incorporation and good standing of such entity,
together with certified copies of all charter documents of such entity.
(i) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall
have been commenced and no investigation by any governmental authority
shall have been threatened against the Company, any Subsidiary, MDCM,
or any of their respective officers or directors seeking to restrain,
prevent or change the transactions contemplated by this Agreement, and
each Related Agreement, or seeking damages in connection with such
transactions.
(j) ARTICLES OF AMENDMENT. The Articles of Amendment creating
the Series A Preferred Stock of the Company, setting forth, without
limitation, the designations,
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preferences, powers, qualifications, special or relative rights and
privileges of the Series A Preferred Stock (the "Articles of
Amendment"), in form and substance reasonably satisfactory to the
Investors, shall have been filed with the Secretary of State of
Florida.
(k) LEGAL OPINION. The Investors shall have received a legal
opinion from Foley & Lardner, outside counsel to MDCM, the Company and
the Subsidiaries, dated the Closing Date and in form and substance
reasonably satisfactory to the Investors.
(l) MANAGEMENT RIGHTS AGREEMENTS. The Company and TCV IV, L.P.
shall have entered into a Management Rights Agreement, in form and
substance reasonably satisfactory to TCV IV, L.P. The Company and
Canaan Equity II L.P. (QP) shall have entered into a Management Rights
Agreement, in form and substance reasonably satisfactory to Canaan
Equity II L.P. (QP).
(m) INDEMNIFICATION AGREEMENT. The Company and each Series A
Director shall have entered into an Indemnification Agreement (the
"DIRECTORS' INDEMNIFICATION AGREEMENT"), in form and substance
reasonably satisfactory to the Investors.
(n) SHAREHOLDERS AGREEMENT. Each of the Investors, MDCM and
the Company shall have entered into a Shareholders Agreement (as
amended from time to time, the "SHAREHOLDERS AGREEMENT"), in form and
substance reasonably satisfactory to the Investors.
(o) VOTING AGREEMENT. Each of the Investors, MDCM and the
Company shall have entered into a Voting Agreement (as amended from
time to time, the "VOTING AGREEMENT"), in form and substance reasonably
satisfactory to the Investors.
(p) ASSIGNMENT AND ASSUMPTION AGREEMENT. MDCM and the Company
shall have entered into an Assignment and Assumption Agreement (the
"ASSIGNMENT AND ASSUMPTION AGREEMENT"), in form and substance
reasonably satisfactory to the Investors.
(q) BILL OF SALE. MDCM shall have executed a Bill of Sale (the
"BILL OF SALE").
(r) OTHER RELATED AGREEMENTS. MDCM and the Company shall have
executed and delivered, to the extent it is a party thereto, an
Administrative Services Agreement (the "ADMINISTRATIVE SERVICES
AGREEMENT"), a Service Mark Agreement (the "SERVICE MARK AGREEMENT"), a
Web Hosting Agreement (the "WEB HOSTING AGREEMENT"), a License
Agreement (the "LICENSE AGREEMENT") and a Sublease for Office Space
(the "SUBLEASE"), all in form and substance reasonably satisfactory to
the Investors.
(s) EXPENSES. All fees and disbursements required to be paid
pursuant to Section 15.04 hereof shall have been paid in full.
(t) OTHER INVESTORS. No Investor shall have failed to execute
and deliver this Agreement or to accept delivery of or make payment for
the Preferred Shares to be purchased by it on the Closing Date.
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(u) BOARD OF DIRECTORS. The members of the Board of Directors
immediately following the Funding shall consist of not more than seven
members, who initially shall be Seth Werner, David Larson, John Hogan,
George Naddaff, Stephen Green, Michael Lee and C. Toms Newby III. The
Board of Directors shall establish an Executive Committee, an Executive
Compensation Committee and an Audit Committee. The Executive Committee
and the Executive Compensation Committee each shall consist of not more
than three (3) members, two of whom shall be Series A Directors. The
Audit Committee shall consist of no more than three (3) members.
(v) PROCEEDINGS SATISFACTORY. All proceedings taken in
connection with the issuance and sale of the Shares and all documents
and papers relating thereto shall be satisfactory in form and substance
to the Investors. Each Investor shall have received copies of such
documents and papers as such Investor may reasonably request in
connection with this Agreement and the Related Agreements.
(w) SECURITY INTEREST FILINGS. All UCC financing statements
and other filings necessary to perfect the Company's security interest
in the Openclose Code shall have been filed in the appropriate
jurisdictional offices.
7.02. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS. The
obligations of the Company to effect the transactions contemplated hereunder
shall be subject to satisfaction of the following conditions precedent:
(a) Execution by MDCM of the following:
(i) the Administrative Services Agreement;
(ii) the Service Mark Agreement;
(iii) the Bill of Sale;
(iv) the Assignment and Assumption Agreement;
(v) the Web Hosting Agreement;
(vi) the License Agreement; and
(vii) the Sublease.
(b) The representations and warranties of MDCM and the
Investors contained herein shall be true and correct.
(c) Each of the obligations hereunder of each of MDCM and the
Investors shall have been duly performed on or before the Effective
Time.
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7.03. CONDITIONS PRECEDENT TO MDCM'S OBLIGATIONS. The obligations of
MDCM to effect the transactions contemplated hereunder shall be subject to
satisfaction of the following conditions precedent:
(a) Execution by the Company of the following:
(i) the Administrative Services Agreement;
(ii) the Web Hosting Agreement;
(iii) the License Agreement;
(iv) the Sublease; and
(v) Assignment and Assumption Agreement.
(b) The representations and warranties of the Company and the
Investors contained herein shall be true and correct.
(c) Each of the obligations hereunder of each of the Company
and the Investors shall have been duly performed on or before the
Effective Time.
8. ADDITIONAL AFFIRMATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees that on and after the Closing Date and
until the consummation of a Qualified Public Offering it will:
8.01. INSPECTION RIGHTS. Permit during normal business hours, upon
reasonable request and reasonable notice, MDCM and each Investor or any
employees, agents or representatives thereof, to examine and make copies of and
extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any Subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
Subsidiary with any of its officers, consultants, directors, Key Employees,
attorneys or independent accountants.
8.02. BUDGETS APPROVAL. At least thirty (30) days prior to the
commencement of each fiscal year, prepare and submit to, and obtain in respect
thereof the approval of the majority of the members of the Board of Directors, a
business plan and monthly operating budget in detail for each fiscal year,
monthly operating expenses and profit and loss projections and cash flow
projections and a capital expenditure budget for the fiscal year.
8.03. FINANCINGS. Promptly, fully and in detail, inform all of the
members of the Board of Directors of any discussions, offers or contracts
relating to possible financings of any material nature for the Company or any
Subsidiary, whether initiated by the Company, any Subsidiary or any other
Person.
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8.04. MEETINGS OF DIRECTORS. Hold meetings of the Board of Directors
not less than on a quarterly basis.
8.05. BYLAWS; MEETINGS AND INDEMNIFICATION. Use its best efforts to at
all times cause its Bylaws to provide that (a) any Series A Director shall have
the right to call a meeting of the Board of Directors, (b) any holder or holders
of at least 10% of the outstanding shares of Series A Preferred Stock shall have
the right to call a meeting of stockholders, and (c) a quorum for any special
meeting of the Board of Directors or any committee thereof of which a Series A
Director is a member shall require the attendance of at least one Series A
Director unless the Series A Directors have received at least 5 days prior
written notice of such special meeting. The Company shall at all times maintain
provisions in the Bylaws or the Articles of Incorporation indemnifying all
officers and directors against liability to the maximum extent permitted under
the laws of the state of its incorporation.
8.06. CORPORATE EXISTENCE. Maintain, and cause each of its
Subsidiaries, to maintain their respective corporate existence, Proprietary
Rights, other rights and franchises in full force and effect to the extent
appropriate in accordance with good business practice.
8.07. PROPERTIES, BUSINESS, INSURANCE. Maintain, and cause each of its
Subsidiaries, to maintain as to their respective properties and business, with
financially sound and reputable insurers, insurance against such casualties and
contingencies and of such types and in such amounts as is customary for
companies of a similar size and financial condition similarly situated within
the same industry.
8.08. EXPENSES OF DIRECTORS. Promptly reimburse in full each director
of the Company who is not an officer or employee of the Company for all of his
reasonable out-of-pocket expenses incurred in attending each meeting of the
Board of Directors or any committee thereof.
8.09. COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which could have a material adverse effect on its business, assets,
operations or condition, financial or otherwise.
8.10. NONCOMPETITION AGREEMENTS. Enter into, and cause each Subsidiary
to enter into, noncompetition, nondisclosure and proprietary information
agreements with each executive officer, Key Employee, consultant and any other
employee of the Company or any Subsidiary as may be requested by any of the
Investors, subsequent to the Closing Date, the format and content of which shall
be approved by the Board of Directors.
8.11. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep, and cause each
Subsidiary to keep, adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied, reflecting
all financial transactions of the Company and such Subsidiary, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
8.12. RULE 144A INFORMATION. At all times during which the Company is
neither subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, promptly as practicable (in any event not later
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than twenty (20) days after initial request) in written form, upon the written
request of any Investor or a prospective buyer of Shares from any Investor,
furnish all information required by Rule 144A(d)(4)(i) of the General
Regulations promulgated by the Commission under the Securities Act ("RULE 144A
INFORMATION"). The Company further covenants, upon written request, as promptly
as practicable (in any event not later than twenty (20) days after initial
request) to cooperate with and assist any Investor or any member of the NASD
system for Private Offerings Resales and Trading through Automated Linkage
("PORTAL") in applying to designate and thereafter maintain the eligibility of
the Shares for trading through PORTAL. The Company's obligations under this
Section 8.12 shall at all times be contingent upon the relevant Investor's
obtaining from a prospective Investor an agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to anyone
other than a person who will assist such Investor in evaluating the purchase of
the Shares.
8.13. REPORTING REQUIREMENTS. Furnish the following to each Investor:
(a) MONTHLY REPORTS: as soon as available and in any event
within 30 days after the end of each fiscal month of the Company, consolidated
and consolidating balance sheets of the Company and the Subsidiaries as of the
end of such period and consolidated and consolidating statements of income and
statements of cash flows and changes in stockholders' equity of the Company and
the Subsidiaries for such period and for the period commencing at the end of the
previous fiscal year and ending with the end of such period, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year, including comparisons to the budget or
business plan and an analysis of the variances from the budget or business plan,
prepared in accordance with GAAP consistently applied;
(b) ANNUAL REPORTS: as soon as available and in any event
within 90 days after the end of each fiscal year of the Company, a copy of the
annual audit report for such year for the Company and the Subsidiaries,
including therein consolidated and consolidating balance sheets of the Company
and the Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income and statements of cash flows and changes in
stockholders' equity of the Company and the Subsidiaries for such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, all such consolidated statements to be duly certified by
the chief financial officer of the Company and an independent public accountant
of recognized national standing approved by the Board of Directors;
(c) REPORTS AND OTHER INFORMATION: within 10 days after
receipt, publication, commencement or occurrence, copies of all consulting
reports, management reports, notices of all material actions, filings made with
the Commission, such information as the Company or any Subsidiary shall make
available to any of its stockholders, and such other information as any Investor
shall reasonably request;
(d) OFFICER'S CERTIFICATE: as soon as possible and in any
event within 30 days after the end of a fiscal quarter, a certificate executed
by a duly authorized officer of the Company representing as to the compliance of
the Company with the provisions of Section 5 and Section 6;
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(e) ACCOUNTANTS' LETTERS: within 10 days after receipt, copies
of all accountants' letters, reviews and reports to management;
(f) BUDGETS AND OPERATING PLAN: as soon as available and in
any event at least 30 days before the beginning of each fiscal year of the
Company, a business plan and monthly operating budgets for the forthcoming
fiscal year;
(g) NOTICE OF ADVERSE CHANGES: promptly after the occurrence
thereof and in any event within 10 days after each occurrence, notice of any
default under any material agreement; or any material litigation, proceedings,
suits or investigations affecting the Company or any Subsidiary; or any material
adverse change in the business, assets, operations or condition of the Company
or any Subsidiary;
(h) SEC FILINGS: within 10 days of occurrence, copies of all
filings made with the Commission; and
(i) BUSINESS INFORMATION: informational reports and other data
useful in the understanding and management of the Company's or any Subsidiary's
business supplied to the Chief Executive Officer of the Company or such
Subsidiary in the ordinary course of business.
9. NEGATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees that on and after the Closing Date and
until the consummation of a Qualified Public Offering it will not:
9.01. DEALINGS WITH AFFILIATES. Enter into, or permit any Subsidiary to
enter into, any material transaction, including, without limitation, any loan or
extension of credit, release of guarantee, management contract or royalty
agreement, deferred or contingent compensation agreement, consulting or other
agreement with any Affiliate.
9.02. COMPENSATION TO OFFICERS. Amend, modify or waive, or permit any
Subsidiary to amend, modify or waive, in any material respect any employment,
benefit or compensation arrangement with any Key Employee, or pay to any Key
Employee, senior manager or officer compensation (including salary and bonus) in
excess of that approved by the Executive Compensation Committee of the Board of
Directors.
9.03. SALE OF ASSETS. Sell, lease, assign, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, assign, transfer
or otherwise dispose of, any material portion of its now owned or hereafter
acquired property (including, without limitation, shares of stock and
indebtedness, receivables and leasehold interests), except (a) for the sale or
other disposition of property no longer used or useful in the conduct of its
business and (b) that the Company or any Subsidiary may sell, lease, assign, or
otherwise transfer its property to the Company or any wholly- owned Subsidiary.
9.04. MERGERS, ETC. Merge or consolidate with, or sell, assign, lease
or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets
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(whether now owned or hereafter acquired) to, any Person, or acquire all or
substantially all of the assets or the business of any Person (or enter into any
agreement to do any of the foregoing), or permit any of its Subsidiaries to do
so, except that the Company or any Subsidiary may merge into or consolidate with
or transfer assets to the Company or any wholly-owned Subsidiary.
9.05. MAINTENANCE OF OWNERSHIP OF SUBSIDIARIES. Sell or otherwise
dispose of any shares of capital stock of any Subsidiary, except to a
wholly-owned Subsidiary, or permit any Subsidiary to issue, sell or otherwise
dispose of any shares or rights to acquire any of its capital stock or the
capital stock of any Subsidiary, except to the Company or a wholly-owned
Subsidiary; provided, however, that the Company may liquidate, merge or
consolidate any Subsidiary into or with itself, provided that the Company is the
surviving entity, or into or with a wholly-owned Subsidiary, or the Company may
sell all or a portion of any Subsidiary to a wholly-owned Subsidiary.
9.06. CONDUCT OF BUSINESS. Engage, or permit any Subsidiary to engage,
in any business other than the business engaged in or proposed to be engaged in
by the Company or any Subsidiary on the date hereof and any businesses or
activities substantially similar or related thereto.
9.07. INVESTMENTS IN OTHER CORPORATIONS OR ENTITIES. Make or permit any
Subsidiary to make, any loan or advance to any Person, or purchase, otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire, the capital
stock, assets comprising the business of, obligations of, or any interest in,
any other corporation or entity which will not be operated as a wholly-owned
Subsidiary, except:
(a) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America or any
state or public subdivision thereof;
(b) investments by the Company or a Subsidiary in certificates
of deposit, notes, acceptances and repurchase agreements having a maturity of
not more than one year from the date of acquisition issued by a fiscally sound
and reputable bank organized in the United States having capital, surplus and
undivided profits of at least $500,000,000;
(c) investments by the Company or a Subsidiary in the
highest-rated commercial paper;
(d) investments by the Company or a Subsidiary in "Money
Market" fund shares, or in money market accounts fully insured by the Federal
Deposit Insurance Corporation and sponsored by banks and other financial
institutions, provided that the investments consist principally of the types of
investments described in clauses (a), (b) or (c) of this Section 9.07;
(e) loans or advances from a Subsidiary to the Company or from
the Company to a wholly-owned Subsidiary;
(f) mortgage loans originated by the Company or a Subsidiary
in the ordinary cause of business;
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(g) advances or investments in the ordinary course of business
to or in Controlled Business Arrangements or members thereof which do not exceed
$50,000; or
(h) investments by the Company or any Subsidiary in such
financial instruments and with such financial advisors, as may be approved from
time to time by the Board of Directors.
9.08. TRANSFERS OF PROPRIETARY RIGHTS. Transfer, sell, dispose of,
assign, lease, license or donate, or permit any Subsidiary to transfer, sell,
dispose of, assign, lease or donate, any ownership or other interest in, or
material rights relating to, any of its Proprietary Rights to any person or
entity other than the Company or a wholly-owned Subsidiary except for the
licensing of software to customers in the ordinary course of business.
9.09. AMENDMENTS. Amend or waive any provision of the Articles of
Incorporation, the Bylaws, or any other agreement providing preemptive,
conversion, redemption, registration or other rights relating to, or options,
warrants or other rights to purchase, any shares of the Company's capital stock
in any way that would adversely affect the liquidation preferences, dividend
rights, voting rights or redemption rights of the Series A Holders.
9.10. OTHER AGREEMENTS. Enter into any agreement in which the terms of
such agreement would restrict or impair the right to perform of the Company or
any Subsidiary under this Agreement or any other Related Agreement.
9.11. REGISTRATION RIGHTS AGREEMENTS. Enter into an agreement with any
Person which grants rights to register their securities in any Registration
("REGISTRATION RIGHTS") to such Person unless such agreement expressly
subordinates the right of such Person to include securities held by them in any
such Registration to the priority of the Investors to include the securities
held by them in such Registration as set forth in Section 10.01(e) and Section
10.02(b).
10. REGISTRATION RIGHTS
The Investors, MDCM and the permitted transferees of MDCM's Voting
Common Stock, shall have the right to register their Registrable Securities in
accordance with the following provisions:
10.01. DEMAND REGISTRATIONS.
(a) At any time and from time to time commencing on the
earlier of (i) the fifth anniversary of the Closing Date, and (ii) the date
which is six months after the Initial Public Offering, upon the written request
of the Holders of at least 30% of the Registrable Securities (the "INITIATING
HOLDERS") that the Company effect the Registration under the Securities Act
(such a written request being hereinafter referred to as a "DEMAND
REGISTRATION") of any of the Registrable Securities, the Company will promptly
give written notice to all other Holders of Registrable Securities that a Demand
Registration has been received. For a period of 20 days following delivery of
such notice, the other Holders of Registrable Securities may request that the
Company also register their Registrable Securities and after the expiration of
such 20 day period, the Company shall notify all Holders of Registrable
Securities of the number of Registrable Securities to be registered.
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Thereupon, the Company will use its reasonable best efforts to cause the prompt
Registration under the Securities Act, subject to the provisions of this Section
10, of all Registrable Securities which the Holders thereof have requested the
Company to register, and in connection therewith, prepare and file on such
appropriate form as the Company, in its reasonable discretion, shall determine,
a Registration Statement under the Securities Act to effect such Registration.
With respect to any Registration Statement filed, or to be
filed, pursuant to this Section 10.01(a) or Section 10.03 below, if the Company
shall furnish to the Holders of Registrable Securities a certified resolution of
the Board of Directors stating that in the Board of Directors' good faith
judgment it would (because of the existence of, or in anticipation of, any
acquisition or financing, merger, sale of assets, recapitalization or other
similar corporate activity, or the unavailability for reasons beyond the
Company's control of any required audited financial statements, or any other
event or condition of similar significance to the Company) be materially
disadvantageous (a "DISADVANTAGEOUS CONDITION") to the Company or its
stockholders for such a Registration Statement to be maintained Effective, or to
be filed and become Effective, and setting forth the general reasons for such
judgment, the Company shall be entitled to cause such Registration Statement to
be withdrawn and the effectiveness of such Registration Statement terminated,
or, in the event no Registration Statement has yet been filed, shall be entitled
not to file any such Registration Statement, until such Disadvantageous
Condition no longer exists (notice of which the Company shall promptly deliver
to all Holders of Registrable Securities); PROVIDED that the Company shall be
entitled to withdraw or delay the filing of a Registration Statement in
connection with a Disadvantageous Condition for a period of not more than 90
days and only once during any twelve month period. Upon receipt of any such
notice of a Disadvantageous Condition, such Holders of Registrable Securities
will forthwith discontinue use of the disclosure document contained in such
Registration Statement and, if so directed by the Company, each such Holder will
deliver to the Company all copies, other than permanent file copies then in such
Holder's possession, of the disclosure document then covering such Registrable
Securities current at the time of receipt of such notice, and, in the event no
Registration Statement has yet been filed, all drafts of the disclosure document
covering such Registrable Securities. In the event that the Company shall give
any notice of a Disadvantageous Condition, the Company shall at such time as it
in good faith deems appropriate file a new Registration Statement covering the
Registrable Securities that were covered by such withdrawn Registration
Statement, and shall use its reasonable best efforts to file such new
Registration Statement within 90 days of receipt of the resolution by the
Holders of Registrable Securities, and such Registration Statement shall be
maintained Effective for such time as may be necessary so that the period of
effectiveness of such new Registration Statement, when aggregated with the
period during which such initial Registration Statement was Effective, shall be
such time as may be otherwise required by Section 10.01(c).
The Holders of at least 66% of the Registrable Securities
requested to be registered may, at any time prior to the Effective Date of the
Registration Statement relating to such Registration, revoke such request,
without liability to any of the other Holders of Registrable Securities, by
providing a written notice to the Company revoking such request.
(b) NUMBER OF REGISTRATIONS; EXPENSES. The Company shall not
be obligated to effect more than three Registrations of Registrable Securities
pursuant to requests from the Holders of Registrable Securities under this
Section 10.01 during the term of this Agreement. The Company
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shall pay all Registration Expenses in connection with the three Registrations
which the Holders of Registrable Securities are entitled to request pursuant to
this Section 10.01. However, each Holder of Registrable Securities shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to this
Section 10.01. Notwithstanding any other provisions contained in this Section
10.01, the Company shall not be required to register any Registrable Securities
pursuant to an Effective Registration Statement in connection with a request for
such Registration made in accordance with this Section 10.01 if any previous
Registration Statement became Effective less than 180 days prior to such
request.
(c) EFFECTIVE REGISTRATION STATEMENT. A Registration requested
pursuant to this Section 10.01 shall not be deemed to have been effected unless
the Registration Statement relating thereto (i) has become Effective under the
Securities Act and all of the Registrable Securities of the Holders thereof
included in such Registration have actually been sold thereunder, and (ii) has
remained Effective for a period of at least 180 days (or such shorter period in
which all Registrable Securities included in such Registration have actually
been sold thereunder); PROVIDED, HOWEVER, that if any Effective Registration
Statement requested pursuant to this Section 10.01 is discontinued in connection
with a Disadvantageous Condition, such Registration Statement shall not be
included as one of the Registrations which may be requested pursuant to this
Section 10.01; PROVIDED FURTHER, that if after any Registration Statement
requested pursuant to this Section 10.01 becomes Effective (x) such Registration
Statement is subject to any stop order, injunction or other order or requirement
of the Commission or other governmental agency or court solely due to the
actions or omissions to act of the Company or (y) less than 100% of all of the
Registrable Securities included in such Registration have been sold thereunder,
such Registration Statement shall not be included as one of the Registrations
which such Holders of Registrable Securities are entitled to request pursuant to
Section 10.01(b).
(d) SELECTION OF UNDERWRITERS. If any requested Registration
pursuant to this Section 10.01 is in the form of an underwritten offering, the
Company shall have the right to select the investment banker and manager or
co-managers that will administer the offering, subject to the approval of the
Holders holding a majority of the Registrable Securities in respect of which
Registration has been requested.
(e) PRIORITY IN REQUESTED REGISTRATIONS. If a requested
Registration pursuant to this Section 10.01 involves an underwritten offering
and the managing underwriter shall advise the Company that, in its view, the
number of equity securities requested to be included in such Registration
exceeds the largest number of securities which can be sold without having an
adverse effect on such offering, including the price at which such securities
can be sold, the Company will include in such Registration (i) first,
Registrable Securities proposed to be registered by Holders thereof, pro rata
based on the number of securities proposed to be registered by each such Holder
and (ii) second, securities that the Company proposes to issue and sell for its
own account and all other securities proposed to be registered by the holders
thereof, pro rata based on the number of securities proposed to be registered by
each such Person; PROVIDED, HOWEVER, that if in any such underwritten offering
the Company includes in such Registration Statement less than 100% of the
Registrable Securities requested to be included therein by any Holder thereof,
then such Registration Statement
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shall not be included as one of the Registrations which the Holders of
Registrable Securities are entitled to request pursuant to Section 10.01(b).
10.02. INCIDENTAL REGISTRATION.
(a) If the Company at any time proposes to register any of its
equity securities under the Securities Act (other than a Registration (i)
relating to shares of Common Stock issuable upon exercise of employee stock
options or in connection with any employee benefit or similar plan of the
Company, (ii) in connection with an acquisition by the Company of another
company, or (iii) pursuant to Section 10.01) in a manner which would permit
Registration of Registrable Securities for sale to the public under the
Securities Act, it shall each such time, subject to the provisions of Section
10.02(b), give prompt written notice to all Holders of record of Registrable
Securities of its intention to do so and of such Holders' rights under this
Section 10.02, at least 20 days prior to the anticipated filing date of the
Registration Statement relating to such Registration. Such notice shall offer
all such Holders the opportunity to include in such Registration Statement such
number of Registrable Securities as each such Holder may request. Upon the
written request of any such Holder made within 10 days after the receipt of the
Company's notice (which request shall specify the number of Registrable
Securities intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use its reasonable best efforts to effect
the Registration under the Securities Act of all Registrable Securities which
the Company has been so requested to register by the Holders thereof; PROVIDED,
that (x) if such Registration involves an underwritten offering, all Holders of
Registrable Securities requesting to be included in the Company's Registration
must sell their Registrable Securities to the underwriters selected by the
Company on the same terms and conditions as apply to the Company; and (y) if, at
any time after giving written notice of its intention to register any securities
pursuant to this Section 10.02(a) and prior to the Effective Date of the
Registration Statement filed in connection with such Registration, the Company
shall determine for any reason not to register such securities, the Company
shall give written notice to all Holders of Registrable Securities and shall
thereupon be relieved of its obligation to register any Registrable Securities
in connection with such Registration (without prejudice, however, to rights of
the Holders of Registrable Securities under Section 10.01). If a Registration
pursuant to this Section 10.02(a) involves an underwritten public offering, any
Holder of Registrable Securities requesting to be included in such Registration
may elect, in writing prior to the Effective Date of the Registration Statement
filed in connection with such Registration, not to register such Registrable
Securities in connection with such Registration. No Registration effected under
this Section 10.02 shall relieve the Company of its obligations to effect
Registrations upon request under Section 10.01 or Section 10.03. The Company
shall pay all Registration Expenses in connection with each Registration of
Registrable Securities requested pursuant to this Section 10.02. However, each
Holder of Registrable Securities shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Registrable Securities pursuant to a Registration Statement
effected pursuant to this Section 10.02.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If a Registration
pursuant to this Section 10.02 involves an underwritten offering and the
managing underwriter advises the Company that, in its good faith view, the
number of equity securities (including all Registrable Securities) which the
Company, the Holders of Registrable Securities and any other persons intend to
include in such Registration exceeds the largest number of securities which can
be sold without having an
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adverse effect on such offering, including the price at which such Registrable
Securities can be sold, the Company will include in such Registration (i) first,
securities that the Company proposes to issue and sell for its own account, (ii)
second, Registrable Securities proposed to be registered by the Holders thereof,
pro rata based on the number of securities proposed to be registered by each
such Person and (iii) third, all other securities proposed to be registered by
the holders thereof, pro rata based on the number of securities proposed to be
registered by each such Person.
10.03. REGISTRATIONS ON FORM S-3. In addition to the rights provided
the Holders of Registrable Securities in Section 10.01 and Section 10.02, if the
registration of Registrable Securities under the Securities Act can be effected
on Form S-3 (or any similar form promulgated by the Commission), then upon the
written request of the Initiating Holders, the Company will so notify each
Holder of Registrable Securities, including each Holder who has a right to
acquire Registrable Securities, and then will, as expeditiously as possible, use
its reasonable best efforts to effect qualification and registration under the
Securities Act on Form S-3 of all or such portion of the Registrable Securities
as the Holder or Holders shall specify; PROVIDED, HOWEVER, the Company shall not
be required to effect a registration pursuant to this Section 10.03 unless the
market value of the Registrable Securities to be sold in any such Registration
shall be estimated to be at least $5,000,000 at the time of filing such
Registration Statement; and FURTHER PROVIDED that the Company shall not be
required to effect more than one Registration under this Section 10.03 during
any twelve (12) month period. The Company shall pay all Registration Expenses in
connection with each Registration of Registrable Securities requested pursuant
to this Section 10.03. However, each Holder of Registrable Securities shall pay
all underwriting discounts and commissions and transfer taxes, if any, relating
to the sale or disposition of such Holder's Registrable Securities pursuant to a
Registration Statement effected pursuant to this Section 10.03.
10.04. HOLDBACK AGREEMENTS.
(a) If any Registration of Registrable Securities shall be in
connection with an underwritten public offering, each Holder of Registrable
Securities agrees not to effect any sale or distribution, including any private
placement or any sale pursuant to Rule 144 or any successor provision, under the
Securities Act, of any Registrable Securities, and not to effect any such sale
or distribution of any other equity security of the Company or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (in each case, other than as part of such underwritten public offering)
during the seven days prior to, and during the 90 day period which begins on the
Effective Date of such Registration Statement (except as part of such
Registration) provided that (i) each Holder of Registrable Securities has
received written notice of such Registration at least two Business Days prior to
the anticipated beginning of the seven day period referred to above; (ii) all
directors and officers of the Company and 1% stockholders agree to the same
lockup; (iii) such agreement shall provide that any discretionary waiver or
termination of the restrictions of such agreements by the Company or
representatives of the underwriters shall apply to all persons subject to such
agreements pro rata based on the number of shares subject to such agreements;
(iv) such agreement shall apply only in connection with the Initial Public
Offering; and (v) such agreement shall not apply to shares of Common Stock
purchased by a Holder in or after the Initial Public Offering.
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(b) If any Registration of Registrable Securities shall be in
connection with an underwritten public offering, the Company agrees (i) not to
effect any sale or distribution of any of its equity securities or of any
security convertible into or exchangeable or exercisable for any equity security
of the Company (other than any such sale or distribution of such securities in
connection with any merger or consolidation by the Company or any Affiliate or
the acquisition by the Company or an Affiliate of the Company of the capital
stock or substantially all the assets of any other Person or in connection with
an employee stock ownership or other benefit plan) during the seven days prior
to, and during the 90 day period which begins on, the Effective Date of such
Registration Statement (except as part of such Registration) and (ii) that any
agreement entered into after the date hereof pursuant to which the Company
issues or agrees to issue any privately placed equity securities shall contain a
provision under which the Holders of such securities agree not to effect any
sale or distribution of any such securities during the period referred to in the
foregoing clause (i), including any sale pursuant to Rule 144, or any successor
provision, under the Securities Act (except as part of such Registration, if
permitted).
10.05. REGISTRATION PROCEDURES. In connection with any offering of
Registrable Securities registered pursuant to this Section 10, the Company
shall:
(a) Prepare and file with the Commission within 90 days after
receipt of a request for Registration, a Registration Statement on any form for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the sale of the Registrable
Securities in accordance with the intended methods of distribution thereof, and
use its reasonable best efforts to cause such Registration Statement to become
and remain Effective as provided herein, PROVIDED that before filing with the
Commission a Registration Statement or disclosure document constituting part of
a Registration Statement or any amendments or supplements thereto, the Company
will (x) furnish to one counsel selected by the Holders of a majority of the
Registrable Securities covered by such Registration Statement copies of all such
documents proposed to be filed for said counsel's review and comment and (y)
notify each Holder of Registrable Securities covered by such Registration
Statement of any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered.
(b) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and any disclosure document
constituting part of such Registration Statement used in connection therewith as
may be necessary to keep Effective such Registration Statement for a period of
not less than nine months (or one year in the case of a Registration pursuant to
Section 10.03) or such shorter period which will terminate when all Registrable
Securities covered by such Registration Statement have been sold (but not before
the expiration of the 90 day period, if applicable, referred to in Section 4(3)
of the Securities Act and Rule 174 under the Securities Act, or any successor
thereto, if applicable), and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement.
(c) Furnish to each Holder and each underwriter, if any, of
Registrable Securities covered by such Registration Statement such number of
copies of such Registration Statement, each
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amendment and supplement thereto (in each case including all exhibits thereto),
and the disclosure document included in such Registration Statement (including
each preliminary disclosure document), in conformity with the requirements of
the Securities Act, and such other documents as any Holder of Registrable
Securities may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Holder.
(d) Use its best efforts to register or qualify such
Registrable Securities under such other state securities or "blue sky" laws of
such jurisdictions as any Holder, and underwriter, if any, of Registrable
Securities covered by such Registration Statement reasonably requests and do any
and all other acts and things which may be reasonably necessary or advisable to
enable such Holder and each underwriter, if any, to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such Holder;
PROVIDED that the Company will not be required to (x) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 10.05(d), (y) subject itself to taxation in any such
jurisdiction or (z) consent to general service of process in any such
jurisdiction.
(e) Use its best efforts to cause the Registrable Securities
covered by such Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the Holder or Holders thereof
to consummate the disposition of such Registrable Securities.
(f) Immediately notify each Holder of such Registrable
Securities at any time when a disclosure document relating thereto is required
to be delivered under the Securities Act of the happening of any event which
comes to the Company's attention if as a result of such event the disclosure
document included in such Registration Statement contains an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and promptly
prepare and furnish to such Holder a supplement or amendment to such disclosure
document so that, as thereafter delivered to the offerees of such Registrable
Securities, such disclosure document will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(g) Use its reasonable best efforts to cause all such
Registrable Securities to be listed on a national securities exchange (including
NASDAQ) and on each securities exchange on which similar securities issued by
the Company may then be listed, and enter into such customary agreements
including a listing application and indemnification agreement in customary form,
and to provide a transfer agent and registrar for such Registrable Securities
covered by such Registration Statement no later than the Effective Date of such
Registration Statement.
(h) Enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions as the
Holders of at least 30% of the Registrable Securities being covered by such
Registration Statement or the underwriters retained by such Holders, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities, including customary representations, warranties,
indemnities and agreements.
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(i) Make available for inspection by any Holder of Registrable
Securities covered by such Registration Statement, any underwriter participating
in any disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by any such Holder or underwriter
(collectively, the "INSPECTORS"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively, "RECORDS"), if
any, as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's and its Affiliates' officers,
directors and employees to supply all information and respond to all inquiries
reasonably requested by any such Inspector in connection with such Registration
Statement.
(j) Use its reasonable best efforts to obtain a "cold comfort"
letter from the Company's independent public accountants in customary form and
covering such matters of the type customarily covered by "cold comfort" letters
as the Holders of a majority in interest of the Registrable Securities being
sold reasonably request.
(k) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to the
Holders of Registrable Securities, as soon as reasonably practicable, an
earnings statement covering a period of at least twelve months, beginning with
the first month after the Effective Date of the Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
It shall be a condition precedent to the obligation of the
Company to take any action with respect to securities of a Holder of Registrable
Securities that such Holder shall furnish to the Company such information
regarding the securities held by such Holder and the intended method of
disposition thereof as the Company shall reasonably request and as shall be
required in connection with the action taken by the Company.
Each Holder of Registrable Securities agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 10.05(f), such Holder will forthwith discontinue
disposition of Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended disclosure document contemplated by Section
10.05(f) and, if so directed by the Company, such Holder will deliver to the
Company (at the Company's expense) all copies (including, without limitation,
any and all drafts), other than permanent file copies, then in such Holder's
possession, of the disclosure document covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Section 10.05(b) shall be extended
by the greater of (x) three months or (y) the number of days during the period
from and including the date of the giving of such notice pursuant to Section
10.05(f) to and including the date when each Holder of Registrable Securities
covered by such Registration Statement shall have received the copies of the
supplemented or amended disclosure document contemplated by Section 10.05(f).
10.06. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
Registration of any securities of the Company under the Securities Act pursuant
to this Agreement, the Company will indemnify and hold harmless, to the full
extent permitted by law, each of the Holders of any Registrable Securities
covered by such Registration Statement, their respective directors and officers,
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general partners, limited partners and managing directors, each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls, is controlled by or is under common
control with any such Holder or any such underwriter within the meaning of the
Securities Act (and directors, officers, controlling persons, partners and
managing directors of any of the foregoing), against any and all losses, claims,
damages or liabilities, joint or several, and expenses (including any amounts
paid in any settlement effected with the Company's consent, which consent will
not be unreasonably withheld) to which such Holder, any such director, officer,
general or limited partner, managing director, any such underwriter or
controlling person may become subject under the Securities Act, state securities
or "blue sky" laws, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained, on the Effective Date thereof,
in any Registration Statement under which such securities were registered under
the Securities Act, any preliminary, final or summary disclosure document
contained therein, or any amendment or supplement thereto, (ii) any omission or
alleged omission to state in such Registration Statement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of any
federal, state or common law rule or regulation applicable to the Company and
relating to action required of or inaction by the Company in connection with any
such Registration. The Company shall reimburse each such Holder and each such
director, officer, general partner, limited partner, managing director or
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending such
loss, claim, liability, action or proceeding, PROVIDED, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement or amendment or supplement
thereto or in any such preliminary, final or summary disclosure document in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such Holder in its capacity as a
Holder of Registrable Securities in the Company or any such director, officer,
general or limited partner, managing director or underwriter specifically
stating that it is for use in the preparation thereof; and, PROVIDED FURTHER,
that the Company shall not be liable to any Holder of Registrable Securities,
any person who participates as an underwriter in the offering or sale of
Registrable Securities, if any, or any other person, if any, who controls such
underwriter within the meaning of the Securities Act, pursuant to this Section
with respect to any preliminary disclosure document or the final disclosure
document or the final disclosure document as amended or supplemented as the case
may be, to the extent that any such loss, claim, damage or liability of such
underwriter or controlling person results from the fact that such underwriter
sold Registrable Securities to a person to whom there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the final
disclosure document or of the final disclosure document as then amended or
supplemented, whichever is most recent, if the Company has previously furnished
copies thereof to such underwriter and such final disclosure document, as then
amended or supplemented, had corrected any such misstatement or omission. The
indemnity provided for herein shall remain in full force and effect regardless
of any investigation made by or on behalf of such Holder or any such director,
officer, general partner, limited partner, managing director, underwriter or
controlling person and shall survive the transfer of such securities by such
Holder.
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(b) INDEMNIFICATION BY THE HOLDERS OF REGISTRABLE SECURITIES
AND UNDERWRITERS. The Company may require, as a condition to including any
Registrable Securities in any Registration Statement filed in accordance with
the provisions hereof, that the Company shall have received an undertaking
reasonably satisfactory to it from the Holders of such Registrable Securities or
any underwriter, to indemnify and hold harmless (in the same manner and to the
same extent as set forth in paragraph (a) above) the Company and its directors,
officers, controlling persons and all other prospective sellers and their
respective directors, officers, general and limited partners, managing
directors, and their respective controlling persons with respect to any untrue
statement or alleged untrue statement in or omission or alleged omission from
such Registration Statement, any preliminary, final or summary disclosure
document contained therein, or any amendment or supplement, if such untrue
statement or untrue alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company or its representatives through an instrument duly executed by or on
behalf of such Holder or underwriter specifically stating that it is for use in
the preparation of such Registration Statement, preliminary, final or summary
disclosure document or amendment or supplement, or a document incorporated by
reference into any of the foregoing. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any of the Holders of Registrable Securities, underwriters or any of their
respective directors, officers, general or limited partners, managing directors
or controlling persons and shall survive the transfer of such securities by such
Holder, provided, however, that no such Holder shall be liable in the aggregate
for any amounts exceeding the product of the sale price per Registrable Security
and the number of Registrable Securities being sold pursuant to such
Registration Statement or disclosure document by such Holder.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 10.06, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, promptly give
written notice to the indemnifying party of the commencement of such action,
PROVIDED that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subsections of this Section, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties exists in respect of such claim, the
indemnifying party will be entitled to participate in and, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, to
the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties arises in
respect of such claim after the assumption of the defense thereof, and the
indemnifying party will not be subject to any liability for any settlement made
without its consent (which consent shall not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such
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claim or litigation. An indemnifying party who is not entitled to, or elects not
to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel in any single jurisdiction for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels as may be
reasonably necessary. Notwithstanding anything to the contrary set forth herein,
and without limiting any of the rights set forth above, in any event any party
will have the right to retain, at its own expense, counsel with respect to the
defense of a claim.
(d) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subsections of this Section 10.06 (with appropriate
modifications) shall be given by the Company and each Holder of Registrable
Securities with respect to any required Registration or other qualification of
securities under any federal or state law or regulation or governmental
authority other than the Securities Act.
(e) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section is for any reason held to be unenforceable although applicable in
accordance with its terms, the Company, the Holders of Registrable Securities
and the underwriters shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by the Company, the Holders of Registrable Securities and the
underwriters, in such proportions that the underwriters are responsible for that
portion represented by the percentage that the underwriting discount appearing
in the disclosure document bears to the initial public offering price appearing
therein and the Company and the Holders of Registrable Securities are
responsible for the balance; PROVIDED, HOWEVER, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. As between the Company and the
Holders of Registrable Securities, such parties shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect (x) the relative benefits received by the Company, on the
one hand, and the Holders of the Registrable Securities included in the offering
on the other hand, from the offering of the Registrable Securities and any other
securities included in such offering, and (y) the relative fault of the Company,
on the one hand, and the Holders of the Registrable Securities included in the
offering, on the other, with respect to the statements or omissions which
resulted in such loss, liability, claim, damage or expense, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and the Holders of the
Registrable Securities on the other, with respect to such offering shall be
deemed to be in the same proportion as the sum of the total purchase price paid
to the Company in respect of the Registrable Securities plus the total net
proceeds from the offering of any other securities included in such offering
(before deducting expenses) received by the Company bears to the amount by which
the total net proceeds from the offering of Registrable Securities (before
deducting expenses) received by the Holders of the Registrable Securities with
respect to such offering exceeds the purchase price paid to the Company in
respect of the Registrable Securities, and in each case the net proceeds
received from such offering shall be determined as set forth in the disclosure
document. The relative fault shall be determined by reference to, among other
things,
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whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Holders of the Registrable Securities, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the Holders of the
Registrable Securities agree that it would not be just and equitable if
contribution pursuant to this Section were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to herein. Notwithstanding anything to the
contrary contained herein, the Company and the Holders of Registrable Securities
agree that any contribution required to be made by any Holder pursuant to this
Section 10.06(e) shall not exceed the net proceeds from the offering of
Registrable Securities (before deducting expenses) received by such Holder with
respect to such offering. For purposes of this Section, each Person, if any, who
controls a Holder of Registrable Securities or an underwriter within the meaning
of Section 15 of the Securities Act shall have the same rights to contribution
as such Holder or underwriter, and each director of the Company, each officer of
the Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as the Company.
10.07. RULE 144. At all times after a public offering of any of the
Company's securities, the Company agrees that it will file in a timely manner
all reports required to be filed by it pursuant to the Exchange Act, and, if at
any time the Company is not required to file such reports, it will make
available to the public, to the extent required to permit the sale of Shares by
any Holder of Registrable Securities pursuant to Rule 144 under the Securities
Act, current information about itself and its activities as contemplated by Rule
144 under the Securities Act, as such Rule may be amended from time to time.
Notwithstanding the foregoing, the Company may deregister any class of its
equity securities under Section 12 of the Exchange Act or suspend its duty to
file reports with respect to any class of its securities pursuant to Section
15(d) of the Exchange Act if it is then permitted to do so pursuant to the
Exchange Act and the rules and regulations thereunder.
11. RIGHT OF FIRST OFFER
11.01. RIGHT OF FIRST OFFER. Before the Company shall issue, sell or
exchange, agree or obligate itself to issue, sell or exchange, or reserve or set
aside for issuance, sale or exchange, any (a) shares of Common Stock, (b) any
other equity security of the Company, including without limitation, shares of
Preferred Stock, (c) any convertible debt security of the Company including
without limitation, any debt security which by its terms is convertible into or
exchangeable for any equity security of the Company, (d) any security of the
Company that is a combination of debt and equity, or (e) any option, warrant or
other right to subscribe for, purchase or otherwise acquire any such equity
security or any such debt security of the Company, the Company shall, in each
case, first offer to sell such securities (the "OFFERED SECURITIES") to those
Investors then holding capital stock of the Company and MDCM (the "OFFEREES") as
follows: the Company shall offer to sell to each Offeree (x) an amount of the
Offered Securities (the "BASIC AMOUNT") sufficient to allow each Offeree to
maintain a proportional interest in the Company equal to a fraction, (i) the
numerator of which is the number of shares of Common Stock (including for the
purposes of such calculation the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock or upon conversion or exercise of
other securities or options of the Company) then held by such Offeree and (ii)
the denominator of which is the total number of shares of Common Stock issued
and
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outstanding and the number of shares of Common Stock issuable upon conversion of
the Series A Preferred Stock or upon the conversion or exercise of other
securities or options of the Company, determined immediately prior to the issue,
sale or exchange of the Offered Securities, and (y) such additional portion of
the Offered Securities as such Offeree shall indicate it will purchase should
the other Offerees subscribe for less than their Basic Amounts (the
"UNDERSUBSCRIPTION AMOUNT"), at a price and on such other terms as applicable to
such issuance, sale or exchange of Offered Securities. Such terms and price, and
the Offerees' respective Basic Amounts, shall be specified by the Company in
writing delivered to the Offerees (the "OFFER"), which Offer by its terms shall
remain open and irrevocable for a period of 30 days from receipt of the Offer.
11.02. NOTICE OF ACCEPTANCE. Notice of each Offeree's intention to
accept, in whole or in part, any Offer made pursuant to Section 11.01 shall be
evidenced by a writing signed by such Offeree and delivered to the Company prior
to the end of the 30-day period of such offer, setting forth such of the
Offeree's Basic Amount as such Offeree elects to purchase and, if such Offeree
shall elect to purchase all of its Basic Amount, such Undersubscription Amount
as such Offeree shall elect to purchase (the "NOTICE OF ACCEPTANCE"). If the
Basic Amounts subscribed for by all Offerees are less than the total Offered
Securities, then each Offeree who has set forth Undersubscription Amounts in its
Notice of Acceptance shall be entitled to purchase, in addition to the Basic
Amounts subscribed for, all Undersubscription Amounts it has subscribed for;
PROVIDED, HOWEVER, that should the Undersubscription Amounts subscribed for
exceed the difference between the Offered Securities and the Basic Amounts
subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each Offeree who has
subscribed for any Undersubscription Amount shall purchase only that portion of
the Available Undersubscription Amount as the Undersubscription Amount
subscribed for by such Offeree bears to the total Undersubscription Amounts
subscribed for by all Offerees, subject to rounding by the Board of Directors to
the extent it reasonably deems necessary.
11.03. CONDITIONS TO ACCEPTANCES AND PURCHASE.
(a) PERMITTED SALES OF REFUSED SECURITIES. In the event that
Notices of Acceptance are not given by the Offerees in respect of all the
Offered Securities, the Company shall have 90 days from the expiration of the
30-day period set forth in Section 11.01 to sell all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by the Offerees
(the "REFUSED SECURITIES") to any Person or Persons, but only for cash and
otherwise in all respects upon terms and conditions, including, without
limitation, unit price and interest rates, which are no more favorable, in the
aggregate, to such other Person or Persons or less favorable to the Company than
those set forth in the Offer.
(b) REDUCTION IN AMOUNT OF OFFERED SECURITIES. In the event
the Company shall propose to sell less than all the Offered Securities (any such
sale to be in the manner and on the terms specified in Section 11.03(a) above),
then each Offeree shall have the right, but not the obligation, to reduce the
number of shares or other units of the Offered Securities specified in its
respective Notice of Acceptance to an amount which shall be not less than the
amount of the Offered Securities which such Offeree elected to purchase pursuant
to Section 11.02 multiplied by a fraction, (i) the numerator of which shall be
the amount of Offered Securities which the Company actually proposes to sell,
and (ii) the denominator of which shall be the amount of all Offered Securities.
In the event that any Offeree so elects to reduce the number or amount of
Offered Securities specified in its
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respective Notice of Acceptance, the Company may not sell or otherwise dispose
of more than the reduced amount of the Offered Securities until such securities
have again been offered to the Offerees in accordance with Section 11.01.
(c) CLOSING. Upon the closing, which shall include full
payment to the Company, of the sale to such other Person or Persons of all or
less than all the Refused Securities, the Offerees shall purchase from the
Company, and the Company shall sell to the Offerees, the number of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 11.03(b) if the Offerees have so elected, upon the terms and conditions
specified in the Offer. The purchase by the Offerees of any Offered Securities
is subject in all cases to the preparation, execution and delivery by the
Company and the Offerees of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Offerees and
their respective counsel.
11.04. FURTHER SALE. In each case, any Offered Securities not purchased
by the Offerees or other Person or Persons in accordance with Section 11.03 may
not be sold or otherwise issued until they are again offered to the Offerees
under the procedures specified in Sections 11.01, 11.02 and 11.03.
11.05. OFFER PARTICIPATION REQUIREMENT. The rights of each Offeree
under this Section 11 shall not be afforded to such Offeree with respect to any
Offer occurring subsequent to any Offer in which such Offeree has failed to
purchase its Basic Amount so long as such Offeree shall have been afforded the
right to participate in such prior Offer to the extent of its Basic Amount and
shall have not waived its right to participate at the request of the Company.
11.06. TERMINATION AND WAIVER OF RIGHT OF FIRST OFFER. The rights of
the Offerees under this Section 11 shall terminate immediately prior to the
effectiveness of the Registration Statement with respect to a Qualified Public
Offering, but expressly conditioned on the consummation of a Qualified Public
Offering.
11.07. EXCEPTION. The rights of the Offerees under this Section 11
shall not apply to the following: (a) Common Stock issued as a stock dividend to
holders of Common Stock or upon any subdivision or combination of shares of
Common Stock; (b) Series A Preferred Stock issued upon any subdivision or
combination of shares of Series A Preferred Stock; (c) 1,000,000 shares of
Common Stock, or options exercisable therefor, issued or to be issued under the
Stock Option Plan and any additional shares required to be issued thereunder to
adjust for any stock split, stock dividend or combination of Common Stock; (d)
shares of Voting Common Stock issued upon conversion of the Series A Preferred
Stock and (e) shares of Voting Common Stock issued upon conversion of the
Nonvoting Common Stock .
12. DEFINITIONS AND ACCOUNTING TERMS
12.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"Administrative Services Agreement" shall have the meaning assigned to
such term in Section 7.01.
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"Affiliate" shall mean any employee, consultant, officer or director of
the Company or any Subsidiary or holder of five percent (5%) or more of any
class of capital stock of the Company or any Subsidiary, or any member of their
respective immediate families or any corporation or other entity directly or
indirectly controlled by one or more of such employees, consultants, officers,
directors or 5% stockholders or members of their immediate families.
"Agreement" shall mean this Contribution Agreement, including all
amendments, modifications or supplements thereto.
"Applicable Conversion Value" shall have the meaning assigned to such
term in the Articles of Amendment.
"Articles of Amendment" shall mean the Articles of Amendment creating
the preferences, rights and limitations of the Series A Preferred Stock as set
forth as Exhibit C.
"Articles of Incorporation" shall mean the Articles of Incorporation of
the Company, including all amendments, modifications or supplements thereto.
"Assignment and Assumption Agreement" shall have the meaning assigned
to such term in Section 7.01.
"Available Undersubscription Amount" shall have the meaning assigned to
such term in Section 11.02.
"Basic Amount" shall have the meaning assigned to such term in Section
11.01.
"Bill of Sale" shall have the meaning assigned to such term in Section
7.01.
"Board of Directors" shall mean the board of directors of the Company
as constituted from time to time.
"Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks in the States of New York and Florida are
authorized by law or executive order to close.
"CFR" shall mean the United States Code of Federal Regulations.
"Closing" shall have the meaning assigned to such term in Section 1.07.
"Closing Date" shall have the meaning assigned to such term in Section
1.07.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act or Exchange Act.
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"Common Stock" shall mean (a) the Company's Voting Common Stock, $.01
par value, as authorized on the date of this Agreement, (b) the Company's
Nonvoting Common Stock, $.01 par value, as authorized on the date of this
Agreement, (c) any other capital stock of any class or classes (however
designated) of the Company, authorized on or after the date hereof, the holders
of which shall have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends and liquidating dividends after
the payment of dividends and distributions on any shares entitled to preference,
and the holders of which shall ordinarily, in the absence of contingencies or in
the absence of any provision to the contrary in the Articles of Incorporation,
be entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency or provision), and (d) any other securities into which or for which
any of the securities described in (a), (b) or (c) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise.
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Contracts" shall have the meaning assigned to such term in Section
1.01(c).
"Contributed Assets" shall have the meaning assigned to such term in
Section 1.01.
"Contributing Shareholders" shall have the meaning assigned to such
term in the Recitals to this Agreement.
"Controlled Business Arrangement" shall mean any joint venture or
similar agreement or arrangement between the Company and any other Person
pursuant to which the Company provides technical support, financing or other
assistance to such arrangement.
"Conversion Shares" shall have the meaning assigned to such term in
Section 1.06.
"Demand Registration" shall have the meaning assigned to such term in
Section 10.01(a).
"Disadvantageous Condition" shall have the meaning assigned to such
term in Section 10.01(a).
"Effective" shall mean that all requirements under the Securities Act
with respect to a Registration Statement have been satisfied and that the
Commission has officially approved the public distribution or circulation of the
Registration Statement in connection with a public offering of Registrable
Securities.
"Effective Date" shall mean the date on which a Registration Statement
is declared to be Effective.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated pursuant thereto.
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"Excluded Assets" shall have the meaning given to such term in Section
1.02.
"Excluded Contracts" shall have the meaning given such term in Section
1.02(c).
"Fannie Mae License" shall have the meaning given such term in Section
1.02(c).
"Form S-3" shall mean such form under the Securities Act as in effect
on the date hereof or any registration form under the Securities Act
subsequently adopted by the Commission that similarly permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the Commission.
"Function" shall have the meaning assigned to such term in the
definition of "Openclose Business."
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a consistent
basis.
"GHR Contract" shall have the meaning assigned to such term in Section
1.02(c).
"Holder" shall mean any Investor or MDCM owning Registrable Securities
to whom rights of a Holder under Section 10 of this Agreement have been
transferred in accordance with Section 15.05.
"Indebtedness" shall mean (a) any liability for borrowed money or
evidenced by a note or similar obligation given in connection with the
acquisition of any property or other assets (other than trade accounts payable
incurred in the ordinary course of business); (b) all guaranties, endorsements
and other contingent obligations, in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business, and (c) the present value of any lease payments due under leases
required to be capitalized in accordance with GAAP.
"indemnified party" shall have the meaning given such term in Section
13.02.
"Initial Public Offering" shall mean the first offering for sale of
Common Stock for the account of the Company or for the account of any holder of
securities that has Registration Rights pursuant to an Effective Registration
Statement.
"Initiating Holders" shall have the meaning given such term in Section
10.01(a).
"Inspectors" shall have the meaning given such term in Section
10.05(i).
"Investor" shall have the meaning assigned to such term in the preamble
to this Agreement and shall include the original Investor and any holder of the
Preferred Shares or Conversion Shares issued upon conversion of Preferred
Shares.
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"Key Employee" shall mean and includes the Chairman, President, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, any
executive officer of the Company or any Subsidiary with policy-making functions
including, without limitation, the head of each Subsidiary, or any other
individual so designated by the Board of Directors, and in any event shall be
deemed to include David Larson.
"License Agreement" shall have the meaning assigned to such term in
Section 7.01.
"Margin Stock" means "margin stock" within the meaning of any
regulation, interpretation or ruling of the Board of Governors of the Federal
Reserve System, all as from time to time in effect.
"Material Adverse Effect" shall mean any material adverse effect on (a)
the business, profits, properties or condition of the Company and the
Subsidiaries, taken as a whole, (b) the ability of the Company to perform its
obligations under the Agreement or any Related Agreement and (c) the binding
nature, validity or enforceability of this Agreement or any Related Agreement,
which, in each case, arises from, or reasonably could be expected to arise from,
any action or omission of action on the part of the Company or any Subsidiary or
the occurrence of any event or the existence of any fact or condition in respect
of the Company or any Subsidiary or any of their respective properties.
"MDCM" shall have the meaning given such term in the preamble to this
Agreement.
"MDCM Code" shall have the meaning assigned to such term in Section
1.03.
"Multiemployer Plan" shall have the meaning given such term in Section
3.06.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations System.
"Nonvoting Common Shares" shall have the meaning assigned to that term
in Section 1.04.
"Nonvoting Common Stock" shall have the meaning assigned to that term
in Section 1.04.
"Notice of Acceptance" shall have the meaning assigned to that term in
Section 11.02.
"Offer" shall have the meaning assigned to such term in Section 11.01.
"Offered Securities" shall have the meaning assigned to such term in
Section 11.01.
"Offerees" shall have the meaning assigned to such term in Section
11.01.
"Openclose Code" shall have the meaning assigned to such term in
Section 1.01(a).
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"Openclose Business" shall mean (i) the development, marketing, sale
and operation of www.openclose.com (the "OPENCLOSE SITE") which is accessible by
member lenders (the "PARTICIPATING LENDERS") and member brokers (the
"PARTICIPATING BROKERS"), with the principal purpose of permitting such
Participating Lenders and Participating Brokers to share loan application
information in a neutral environment for a fee (the "FUNCTION"); (ii) the
development, marketing, sale and operation of private label versions of the
Openclose Site for lenders and their brokers with the same Function; (iii) the
provision of "Web Site Services" to "Countrywide Customers" as those terms are
described in that certain Master Web Services Agreement between MDCM and
Countrywide Home Loans, Inc. dated December 22, 1999; and (iv) the provision of
business to business web site portals and Internet sites or private label
versions thereof, to mortgage brokers, lenders, mortgage insurance companies and
similar vendors pursuant to which such participants operate in a neutral
environment to exchange lender product and pricing information, automated
underwriting data, mortgage insurance certificates and borrower application
information, using results obtained by MDCM from Fannie Mae's Desktop
Underwriter software or functionally equivalent software.
"Openclose Site" shall have the meaning assigned to such term in the
definition of "Openclose Business."
"Participating Brokers" shall have the meaning assigned to such term in
the definition of "Openclose Business."
"Participating Lenders" shall have the meaning assigned to such term in
the definition of "Openclose Business."
"Permitted Liens" means: (i) liens for current taxes not yet delinquent
for which appropriate reserves in accordance with GAAP have been created; (b)
statutory liens imposed by law which are incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers and
materialmen.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, university, or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Plans" shall have the meaning assigned to such term in Section 3.06.
"PORTAL" shall have the meaning assigned to such term in Section 8.12.
"Preferred Shares" shall have the meaning assigned to such term in
Section 1.05.
"Preferred Stock" shall have the meaning assigned to such term in
Section 1.05.
"Proprietary Rights" means all of the following along with all income,
royalties, damages and payments thereon (including damages and payments for past
or future infringements or misappropriations thereof), the rights to sue and
recover for past infringements and misappropriations thereof and any and all
corresponding rights that, now or hereafter, may be secured throughout the
world: (i) patents, patent applications, patent disclosures and inventions
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(whether or not patentable and whether or not reduced to practice) and any
reissues, continuations, continuations-in-part, revisions, extensions or
reexaminations thereof; (ii) trademarks, service marks, trade dress, trade names
and corporate names and registrations, renewals and applications for
registration thereof, together with the goodwill associated therewith; (iii)
copyrights and copyrightable works and registrations, renewals and applications
for registration thereof; (iv) mask works and registrations and applications for
registration thereof; (v) computer software (including all databases, data and
documentation); (vi) trade secrets and other confidential information (including
ideas, formulas, compositions, inventions, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial and marketing plans and member, customer and
supplier lists and information), (vii) other intellectual property rights;
(viii) internet domain names; and (ix) copies and tangible embodiments thereof
(in whatever form or medium).
"Qualified Public Offering" shall mean a fully underwritten, firm
commitment public offering pursuant to an Effective Registration Statement filed
under the Securities Act covering the offer and sale by the Company of shares of
its Common Stock in which the aggregate price paid by the public for such shares
shall equal or exceed $20,000,000 and in which the price per share of Common
Stock to the public equals or exceeds 300% of the then Applicable Conversion
Value applicable to the Series A Preferred Stock.
"Records" shall have the meaning assigned to that term in Section
10.05(i).
"Refused Securities" shall have the meaning assigned to that term in
Section 11.03(a).
"Registrable Securities" shall mean (a) the Conversion Shares, (b) the
Voting Common Shares and (c) the shares of capital stock of the Company acquired
by the Investors pursuant to Section 11 or any shares of capital stock of the
Company acquired after the date hereof by any such Investor or MDCM, including
shares of Common Stock issuable on the conversion of other securities or the
exercise of options acquired by the Investors pursuant to Section 11 or
otherwise; PROVIDED, HOWEVER, that such securities shall cease to be Registrable
Securities if and when (x) a Registration Statement with respect to the
disposition of such securities shall have become Effective under the Securities
Act and such securities shall have been disposed of pursuant to such Effective
Registration Statement, (y) such securities shall have been otherwise
transferred, if new certificates or other evidences of ownership for such
securities not bearing a legend restricting further transfer and not subject to
any stop transfer order or other restrictions on transfer shall have been
delivered by the Company, and subsequent disposition of such securities shall
not require Registration or qualification of such securities under the
Securities Act, or (z) such securities shall have ceased to be outstanding.
"Registration" shall mean the satisfaction by the Company of all
applicable requirements under the Securities Act as evidenced by the official
approval of the Commission in connection with a public offering by the Company
of Registrable Securities.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with its obligations under Section 10 of
this Agreement, including, without limitation, all Commission and stock exchange
or NASD registration and filing fees and expenses, fees and
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expenses of compliance with applicable state securities or "blue sky" laws
(including, without limitation, reasonable fees and disbursements of counsel for
the underwriters in connection with "blue sky" qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, the fees and
expenses incurred in connection with the listing of the securities to be
registered in a public offering on each securities exchange or national market
system on which such securities are to be so listed and, following such initial
public offering, the fees and expenses incurred in connection with the listing
of such securities to be registered on each securities exchange or national
market system on which such securities are listed, fees and disbursements of
counsel for the Company and all independent certified public accountants
(including the expenses of any annual audit and "cold comfort" letters required
by or incident to such performance and compliance), the fees and disbursements
of underwriters customarily paid by issuers or sellers of securities (including
the fees and expenses of any "qualified independent underwriter" required by the
NASD), the reasonable fees of counsel retained in connection with each such
Registration by the Holders of the Registrable Securities being registered, the
reasonable fees and expenses of any special experts retained by the Company in
connection with such registration, and fees and expenses of other persons
retained by the Company (but not including any underwriting discounts or
commissions or transfer taxes, if any, attributable to the sale of Registrable
Securities by Holders of such Registrable Securities).
"Registration Rights" shall have the meaning assigned to such term in
Section 9.11.
"Registration Statement" shall mean any disclosure document that the
Company is required to file under the Securities Act in connection with a public
offering of Registrable Securities.
"Related Agreements" shall mean the Articles of Incorporation, the
Articles of Amendment, the Shareholders Agreement, the Voting Agreement, the
Administrative Services Agreement, the Service Mark Agreement, the Bill of Sale,
the Management Rights Agreement, the Indemnification Agreement and the
Assignment and Assumption Agreement, including all amendments, modifications or
supplements thereto.
"Rule 144A Information" shall have the meaning assigned to such term in
Section 8.12.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time or any other federal act, rule or regulation requiring Registration
with any federal agency in connection with a public offering of Registrable
Securities.
"Series A Holder" shall mean any holder of then outstanding shares of
Series A Preferred Stock.
"Series A Preferred Stock" shall have the meaning assigned to such term
in Section 1.05.
"Series A Director" shall mean any director designated by any Holder or
affiliated group of Holders of Series A Preferred Stock.
"Service Mark Agreement" shall have the meaning assigned to such term
in Section 7.01.
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"Shareholders Agreement" shall have the meaning assigned to such term
in Section 7.01.
"Shares" shall have the meaning assigned to such term in Section 1.06.
"Stock Option Plan" shall mean any qualified or non-qualified incentive
stock option plan of the Company which is adopted by the Board of Directors,
including all amendments, supplements or modifications thereto.
"Sublease" shall have the meaning assigned to such term in Section
7.01.
"Subsidiary" shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries.
"Trade Rights" shall have the meaning assigned to such term in Section
1.01(d).
"Undersubscription Amount" shall have the meaning assigned to such term
in Section 11.01.
"Voting Agreement" shall have the meaning assigned to such term in
Section 7.01.
"Voting Common Shares" shall have the meaning assigned to such term in
Section 1.04.
"Voting Common Stock" shall have the meaning assigned to such term in
Section 1.04.
"Web Hosting Agreement" shall have the meaning assigned to such term in
Section 7.01.
12.02. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistently applied, and all
financial data submitted pursuant to this Agreement, unless otherwise specified,
shall be prepared in accordance with GAAP.
13. INDEMNIFICATION
13.01. INDEMNITIES.
(a) GENERAL INDEMNIFICATION. The Company and MDCM severally
but not jointly agrees to indemnify and save harmless the Investors and their
respective directors, officers, affiliates, successors and assigns from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Investors as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Company or
MDCM herein or in any of the Related Agreements. Each Investor and MDCM
severally but not jointly agrees to indemnify and save harmless the Company and
its directors, officers, affiliates, successors and assigns from and against any
and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by any such Person as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Investors or
MDCM herein.
45
<PAGE>
The Company and each Investor severally but not jointly agrees to indemnify and
save harmless MDCM and its directors, officers, affiliates, successors and
assigns from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorney's fees,
charges and disbursements) incurred by MDCM as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Investors
herein or by the Company herein or in any of the Related Agreements. MDCM shall
have no indemnification obligation hereunder to the extent the claim, liability,
loss or damages arises from (i) specifications provided by the Company for
modifications to the Openclose Code; (ii) derivative works created by the
Company based on the Openclose Code, PROVIDED, that the Openclose Code itself
would not give rise to such a claim, (iii) use of the Openclose Code in
combination with non-MDCM approved third party products, including hardware and
software, PROVIDED that the Openclose Code itself would not give rise to such a
claim, (iv) modifications of the Openclose Code by a party other than MDCM,
PROVIDED, that the Openclose Code itself would not give rise to such a claim,
and (v) failure of the Company to implement any improvement or updates to the
Openclose Code provided by MDCM, if the infringement claim would have been
avoided by the use of the improvement or updates.
(b) PROPRIETARY RIGHTS INDEMNIFICATION. MDCM agrees to
indemnify and save harmless the Company and the Investors and their respective
directors, officers, affiliates, successors and assigns from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and disbursements)
incurred by the Company or the Investors as a result of the patent infringement
claims described in SCHEDULE 3.07(v).
13.02. INDEMNIFICATION PROCEDURE. Any party entitled to indemnification
under this Section 13 (an "INDEMNIFIED PARTY") will give written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
promptly after the discovery by such party of any matters giving rise to a claim
for indemnification; PROVIDED THAT the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 13 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In any action, proceeding or claim which is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party exists in respect of such action, proceeding or
claim, to assume the defense thereof, with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action, proceeding or claim by the
46
<PAGE>
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the indemnified party which relates to such action,
proceeding or claim. The indemnifying party shall keep the indemnified party
fully apprized at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action, proceeding or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its written consent,
PROVIDED, HOWEVER, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. Anything in this Section 13 to the contrary
notwithstanding, the indemnifying party shall not, without the indemnified
party's prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof which imposes any future obligation on
the indemnified party or which does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party, a
release from all liability in respect of such claim. The indemnification
required by this Section 13 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred. The indemnity
agreements contained herein shall be in addition to (a) any cause of action or
similar right of the indemnified party against the indemnifying party or others,
and (b) any liabilities the indemnifying party may be subject to pursuant to the
law.
14. SECURITY INTEREST
MDCM hereby assigns and grants to the Company a security interest in,
and mortgage on, all right, title and interest of MDCM in and to the Openclose
Code and all renewals and extensions thereof, and all modifications,
improvements and derivative works based thereon, to secure the due and punctual
performance of its obligations hereunder.
15. MISCELLANEOUS
15.01. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
15.02. AMENDMENTS, WAIVERS AND CONSENTS. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement or any Related
Agreement may be made, and compliance with any covenant or provision set forth
herein may be omitted or waived, if the Company (a) shall obtain consent thereto
in writing from the Holders of at least a majority of the then outstanding
Preferred Shares and Common Shares, voting separately, and (b) shall deliver
copies of such consent in writing to any Holders who did not execute such
consent; PROVIDED, THAT no consents shall be effective to reduce the percentage
in interest of the Shares the consent of the Holders of which is required under
this Section 15.02. Any waiver or consent may be given subject to satisfaction
of conditions stated therein and any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
47
<PAGE>
15.03. ADDRESSES FOR NOTICES. Any notice, demand, request, waiver or
other communication under this Agreement or any Related Agreement shall be in
writing and shall be deemed to have been duly given on the date of service if
personally served or on the third day after mailing if mailed to the party to
whom notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
To the Company: Openclose.com, Inc.
1643 North Harrison Parkway
Building H
Sunrise, Florida 33323
Attention: David Larson
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luther F. Sadler, Esq.
To MDCM: Mortgage.com, Inc.
1643 North Harrison Parkway
Building H
Sunrise, Florida 33323
Attention: Seth Werner
With a copy to: Foley & Lardner
200 Laura Street
Jacksonville, Florida 32202
Attention: Luther F. Sadler, Esq.
To any Investor: At its address specified on Schedule
1.05 hereto
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, Connecticut 06103
Attention: Edward A. Reilly, Jr., Esq.
A party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change will
be deemed to have been given until it is actually received by the party sought
to be charged with its contents.
15.04. COSTS, EXPENSES AND TAXES. The Company shall pay the reasonable
fees and out of pocket expenses of legal counsel, independent public
accountants, consultants and other outside experts retained by the Investors in
connection with any amendment or waiver to this Agreement or any Related
Agreement or the successful enforcement of this Agreement or any Related
Agreement
48
<PAGE>
by the Investors. In addition, the Company shall pay any and all stamp, or other
similar taxes payable or determined to be payable in connection with the
execution and delivery of this Agreement, the issuance of the Shares and the
other instruments and documents to be delivered hereunder or thereunder, and
agrees to save the Investors harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes.
15.05. BINDING EFFECT; ASSIGNMENT. This Agreement and each Related
Agreement to which it is a party shall be binding upon and inure to the benefit
of each of the Company and the Investors and their respective heirs, successors
and assigns, except that the Company shall not have the right to delegate its
obligations hereunder or to assign its rights hereunder or any interest herein
without the prior written consent of the Holders of at least a majority of the
then outstanding Shares (determined on an "as if converted" basis). The parties
acknowledge and agree that after the Closing TCV IV, L.P. ("TCV") may transfer a
portion of the Preferred Shares held by it to an affiliated side fund or funds
in order to comply with its organizational requirements. Such side fund(s) shall
execute a joinder agreement to become a party to this Agreement and the Related
Agreements to which TCV is a party.
15.06. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Agreement, each Related Agreement, the Shares, or
any other instrument or document delivered in connection herewith or therewith,
shall survive the execution and delivery hereof or thereof.
15.07. PRIOR AGREEMENTS. This Agreement, each Related Agreement, the
terms of the Series A Preferred Stock, and the other agreements executed and
delivered herewith constitute the entire agreement between the parties and
supersede any prior understandings or agreements concerning the subject matter
hereof.
15.08. SEVERABILITY. The provisions of this Agreement, each Related
Agreement and the terms of the Series A Preferred Stock are severable and, in
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of a provision contained in this Agreement,
any Related Agreement or the terms of the Series A Preferred Stock shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement, any Related Agreement or the terms of
the Series A Preferred Stock; but this Agreement, each Related Agreement and the
terms of the Series A Preferred Stock shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of a provision, had never
been contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
15.09. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA, AND
WITHOUT GIVING EFFECT TO CHOICE OF LAW PROVISIONS.
15.10. HEADINGS. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
49
<PAGE>
15.11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
15.12. FURTHER ASSURANCES. From and after the date of this Agreement,
upon the request of any Investor, MDCM or the Company, each of the Company, MDCM
and the Investors shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, each
Related Agreement and the Shares.
15.13. WAIVER. At any time prior to the Closing Date, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party granting such waiver but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or future failure.
15.14. SPECIFIC ENFORCEMENT. Each of the Investors, MDCM and the
Company acknowledge and agree that irreparable damage would occur in the event
that any of the provisions of this Agreement and each Related Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement, each
Related Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which they may be entitled at law or
equity.
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
OPENCLOSE.COM, INC.
By:_________________________________________
Name:
Title:
MORTGAGE.COM, INC.
By:_________________________________________
Name:
Title:
[SIGNATURE PAGE TO CONTRIBUTION AGREEMENT]
<PAGE>
INVESTORS:
CANAAN EQUITY II L.P.
By: Canaan Equity Partners II LLC
By:_________________________________________
Member/Manager
CANAAN EQUITY II L.P. (QP)
By: Canaan Equity Partners II LLC
By:_________________________________________
Member/Manager
CANAAN EQUITY II ENTREPRENEURS
LLC
By: Canaan Equity Partners II LLC
By:_________________________________________
Member/Manager
DOMINION FUND V, a Delaware Limited
Partnership
By: Dominion Management V LLC
By:_________________________________________
Name: Michael K. Lee
Title: Member
TCV IV, L.P.
By: Technology Crossover Management
IV, L.L.C.
Its: General Partner
By:_________________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
[SIGNATURE PAGE TO CONTRIBUTION AGREEMENT]
EXHIBIT 21.1
LIST OF SUBSIDIARIES
SUBSIDIARY JURISDICTION
- ---------- ------------
First Mortgage Network of California, Inc. California
FMN Collinsville Corp. Florida
FMN Management Company, Inc. Florida
Western America Mortgage, Inc. Florida
Openclose.com, Inc. Florida
Capital Savings Company, Inc. North Carolina
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 7,537
<SECURITIES> 0
<RECEIVABLES> 94,300
<ALLOWANCES> 1,180
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 21,992
<DEPRECIATION> 5,584
<TOTAL-ASSETS> 138,075
<CURRENT-LIABILITIES> 102,000
<BONDS> 0
0
0
<COMMON> 107,443
<OTHER-SE> (74,116)
<TOTAL-LIABILITY-AND-EQUITY> 138,075
<SALES> 0
<TOTAL-REVENUES> 61,258
<CGS> 0
<TOTAL-COSTS> 96,444
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,310
<INCOME-PRETAX> (46,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (436)
<CHANGES> 0
<NET-INCOME> (46,936)
<EPS-BASIC> (2.19)
<EPS-DILUTED> (2.19)
</TABLE>
